Earnings Call: Q1 2019

May 7, 2019

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Westlake Chemical Corporation First Quarter 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, May 2, 2019. I would 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 First 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 the master limited partnership Westlake Chemical Partners LP and similar references to OpCo refer to our subsidiary Westlake Chemical OpCo LP who owns certain olefins facilities. Today, management is going to discuss certain topics that will contain forward looking information that is based on management's beliefs as well as assumptions made by and information currently available to management. These forward looking statements suggest predictions or expectations and thus are subject to risks or uncertainties. Actual results could differ materially based upon many factors, including the cyclical nature of the industries in which we compete availability, cost and volatility of raw materials, energy and utilities governmental regulatory actions changes in trade policy and political unrest, global economic conditions, 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 first quarter results. This document is available in the press release section of our webpage atlestlake.com. We have also posted a presentation on our website under our IR homepage to assist in the discussion of our results. A replay of today's call will be available domestic callers should dial 8558592056. International callers may access the re play at 4045373406. The access code for both numbers is 124 8758. Please note that information reported on this call speaks only as of today, May 2, 2019, and therefore you are advised that time sensitive information may no longer be accurate as of the time of any replay. I would finally advise you that this conference call is being broadcast live through an internet webcast system that can be accessed on our webpage at westlake.com. Now I'd 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 first quarter results. In this morning's press release, reported net income of $72,000,000 for the first quarter of 2019 or $0.55 per diluted share. As we'll discuss on the call, we faced a difficult pricing environment this quarter for all of our major products continued international trade concerns resulting from trade tensions between the United States and China contributed to slower global economic growth and industrial activity, especially in Asia and Europe in the fourth quarter of 2018 and these impacts carried over into the first quarter of 2019. As these concerns and slower growth impacted global prices, they affected export prices for our major chemical products. Which filtered into domestic prices as well. In our Olefins segment polyethylene prices fell in the fourth quarter of 2018 following a 40% decline in global oil prices and from the increased supply from the new olefin industry production capacity that started up in the second half of twenty eighteen. In our Vinyls segment, the slowing global growth and industrial activity led sales prices for caustic soda to decline in the early fall of 2018 and continued into the first quarter. Weakening manufacturing activity over the past 2 quarters along with high global chlor alkali operating rates has led to excess inventories which have been weighing on global prices. In spite of these pricing challenges, We saw good demand for all our major products in both the domestic and export markets in the first quarter. Delivering increased sales volumes compared to both the first quarter 4th quarter of 2018. Wounded international trade tensions that weighed global economic activity and the pricing of our products for the past few quarters are continuing. We are cautiously optimistic that higher crude oil prices and a resolution to trade tensions between the U. S. And China will lead to improved industry fundamentals in the second half of twenty nineteen. I would now like to turn our call over to Steve to provide more detail on the financial and operating results. Thank you, Robert 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 first quarter of 2019, we reported net income of $72,000,000 or $0.55 per share on sales of $2,000,000,000. Westlake's net income for the first quarter declined $215,000,000 compared to the first quarter of 2018 primarily due to lower prices and margins in late 2018 as global oil prices fell by 40%. This steep drop in oil prices occurred at the same time new capacity was coming into the market and global demand was softening in light of the escalating tensions trade tensions between the United States and China. These factors all played into the precipitous drop in polyethylene prices in the fourth quarter resetting the price level which carried through the first quarter of 2019 resulting in a lower average sales prices compared to the fourth quarter. In our vinyl segment, export prices for caustic soda began to decline in the summer of 2018 as international trade tensions escalated. This decline in export prices accelerated in the fourth quarter as global economic and industrial activity softened along with the unix expected dislocations caused by new licensing requirements cutting off all exports into India beginning in October. These events led to the sharp drop in export prices for caustic soda which impacted domestic sales prices in the fourth quarter that continued into the first quarter 2019. Despite the global macroeconomic headwinds, we were able to increase volumes as we still saw strong global demand for polyethylene and styrene although integrated olefins margins were pressured by the lower sales prices and higher ethane feedstock cost as compared to the prior year period. Our utilization of the FIFO method of accounting resulted in an unfavorable pretax impact approximately $19,000,000 or $0.15 per share in the first quarter compared to what earnings would have been under the LIFO method. This calculation is only an estimate and has not been audited. In our vinyls segment volumes for our major products were comparable with the prior year period even as severe winter weather in much of spring construction season which slowed our sales in vinyl building products in the first quarter. In summary, as compared first quarter 2018 our results for the first quarter 2019 resulted from lower margins for all of our major products due to lower sale prices and higher ethane feedstock costs. Partially offsetting the declines in margins were lower purchased ethylene cost and higher polyethylene sales volume. The first quarter of 2019 also saw higher cost attributable to the $22,000,000 restructuring acquisition and integration related charges as we completed our acquisition of the NAKAN Compounding Solutions business and optimized our global vinyls operations. First quarter 2019 net income of $72,000,000 decreased $51,000,000 from 4th quarter 2018 net income of $123,000,000. This decrease in first quarter 2019 income is primarily due to the lower sales prices for a major product and higher restructuring acquisition and integration related costs. Partially offsetting the lower sales prices for our major products were lower feedstock and fuel cost and higher sales volumes for PVC resin. Now let me move on to review the performance of our two segments starting with our vinyls segment. For the first quarter 2019 vinyls operating income of 101,000,000 decreased 165,000,000 from first quarter 2018 operating income of $266,000,000. The decrease in income and operations in our Vinyls segment has primarily due to the lower integration related costs while benefiting from lower purchased ethylene cost. Vinyls first quarter operating income of $101,000,000 decreased $24,000,000 from 4th quarter 2018 operating income of 125,000,000 The decrease in operating income from the prior quarter was due to lower and higher restructuring acquisition and integration related costs. Partially offsetting these effects were lower ethane feedstock and purchased ethylene cost and higher PVC sales volumes. Turning to our olefin segment, as we discussed, we saw strong demand for our products in the first pulled global polyethylene prices down as customers destocked inventories and uncertainties in international trade weighed on the market. This reset of the global price level in the fourth quarter of 2018 carried through into the first quarter of 2019. In the first quarter of 2019, our Olefins segment operating income of $37,000,000 decrease $126,000,000 from first quarter 2018 operating income of $163,000,000 as margins were squeezed by lower sales prices and ethane feedstock cost. First quarter 2019 operating income decreased $53,000,000 from 4th quarter 2018 operating income of $90,000,000 due to lower sales prices and higher costs associated with planned turnaround activity partially offset by lower ethane feedstock cost. Next let's turn our attention to the balance sheet and statement cash flows. As of March 31, 2019, we had cash and cash equivalents of $445,000,000 in total debt of $2,700,000,000. First quarter 2019 cash flows from operating activities were $147,000,000 while capital expenditures were 203,000,000 In the first quarter, we completed our acquisition of NAKAN and continue to invest in our portion of the construction cost of the two point £2,000,000,000 ethylene joint venture with Lotte Chemical which is expected to start up in the second quarter of 2019. We have an option to increase we continue to invest to improve the reliability of our plants and in attractive opportunities to grow our business. We have previously announced VCM and PVC expansions in Geismar, Louisiana and in Germany and are continuing to opportunistically debottleneck several other VCM and PVC plants in the U. S. All of these investments continue to further integrate evaluate acquisition opportunities to invest where we believe they will provide attractive returns, grower earnings and leverage our existing operations The acquisition of DeCon, a leading global PVC Compound Solutions business is an example of that investment philosophy. As we look forward into the rest of the year ethane prices have declined through the start of 2019 as new NGL pipelines capacity along with the accompanying fractionation capacity has increased supply while global oil prices have rebounded from their December lows highlighting the beneficial cost position enjoyed by North American Olefins country which we expect to increase demand for PVC resin and our downstream vinyls products. We've also improved seen improvements in some of the areas restricting demand that affected our industry. In March, the Bureau of Indian Standards resumed issuing licenses allowing imports of caustic soda back into India. Tailed since the spring of 2018 due to environmental concerns could resume full operations in the second half of twenty nineteen. This refinery is a large consumer of caustic soda and therefore we believe this resumption of full operations will benefit U. S. Cost soda producers. As always, we also continue to aggressively execute on cost management while running a productive organization and we have increased our cost reduction actions given these short term macroeconomic challenges. Before turning the call back over to Albert, I would like to provide some guidance for your modeling purposes. For the full year of 2019 we expect CapEx to be between $600,000,000 $650,000,000. As I mentioned earlier, the next turnaround of one of our ethylene facilities scheduled for the first half of twenty twenty and we'll provide more information on the duration and impact on earnings later in the year as we complete our turnaround planning. We continue to expect our effective tax rate this year to remain around 24% and our cash tax rate to be around 18%. With that I'll turn the call back over to Albert to make some closing comments. Albert? Thank you, Steve. While we faced a difficult pricing environment in the first quarter, We've recently seen some improvements in the global business environment. We are cautiously optimistic that there will be a solution to the trade dispute between the US and China which will reduce trade uncertainties and spur global economic activity. Cortex saw the consumption closely tied to global industrial activity and the lack of industry investment sufficient to keep pace with demand in chlor alkali expected to tighten the global caustic soda supply demand balance as we look forward. As Steve discussed earlier, rebounding oil prices combined with competitively priced North American ethane highlights the low cost position we enjoy in the US. We're also well positioned in our olefins segment with the concentration of our sales in higher margin, specialty and differentiated polyethylene products. In both our vinyls and olefins businesses, we're well positioned on the lower end of the global cost curve as our industry continue to enjoy cost advantages. 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 has ended. We will provide questions. Our first question comes from the line of Steven Byrne of Bank of America. Your line is open. Yes, thank you. When you compare your olefin and vinyls results in the quarter, say against your your pure play peers, your income from operations seems disproportionately lower. Is there anything that you can call out differentiated about your results, any one offs, anything that would highlight a differential result? Steve, this, I think when you look at the direct peers that we have, certainly not all of them are integrated all the way to building products. So as we said, we had a late start to the construction season. So certainly the impact to our downstream building products was year over year a portion of that and of course we had the restructuring charges that I mentioned of $22,000,000 that are part of those results well. And our polyethylene business are really U. S. North American based where some of our competitors were results are more global and they have a different dynamics in the local polyethylene pricing. Okay. And just one more on for me please, how would you rank the 2019 pricing outlook for 3 key commodities you produce polyethylene caustic and PVC? Well, in polyethylene in April, we announced and we have a $0.03 a pound price increase coming into effect. Now the impact of that will be usually large customers have some price protection over a month. So we'll see that coming in from that in the coming months. On the PVC side, there's a $0.02 price decrease we are seeing in April and then the forecast by industry consultants are looking at prices to improve in the third quarter of this year. And in cost of soda, I think IHS, one of the industry consultants, announced there's a $0.05 a short term decrease in April and then expect in the first quarter for caustic soda prices to increase. And we've seen a large part of the impact of first quarter is from a sharp decline in the global export prices which we'd participate in both polyethylene PVC and caustic. And the global tensions and trade issues have a cost international price of deploying sharply in the U. S. Chemical producers are large players in the export market. And that's also differentiates our U. S local producers from other regional producers. So as trade tensions ease and we're seeing prices in many of these areas improving especially in Asia and costing. So we believe that that's prices should improve on the export price which have an impact on the U. S. Prices as well. And higher crude oil prices also make the U. S. Ethane based producers in polyethylene much more competitive Thank you. Our next question comes from Robert Koort of Goldman Sachs. Your question, please. Thank you. Good morning. I was wondering if you could talk a little bit. It didn't seem like the weather issues affected your sales in the vinyl segment. Is that because you exported more? Is it filling the inventory channels? Did it not actually any of the weather issues cause you challenge is? Can you give us some clarity there? Yes. Bob, the impact of the colder weather and wetter weather that we saw in the Midwest back to the earlier question really impacting some of our building products businesses. And so certainly as we see the onset now of spring and the construction season, we we continue to pick up have an expectation of picking up the volume, but volume was actually year over year, a good result, but it did impact of our downstream building products and vinyl products businesses. And could you talk a little bit about your business in Asia and China specifically if you've seen the intensified environmental inspections. And then on the competitive base, do you expect there might be some facility closures there in the wake of these plant problems that have happened over there? And what do you sort of see for the outlook on the incremental supply in the industry over there? Yes, we have a PVC and downstream compounding and film production facility in China. And we are seeing a much more heightened awareness by local governments and central governments not only on the environment, but also on safety as in recent past few weeks months, there has been various explosions in the chemical industry and one recent last week, a major explosion in the Mongolia and PVC and we are seeing reactions from local governments or potential shutting down unsafe and old chemical plants. So that would take capacity away, but time still takes time to understand whether those initiatives that will be effective quickly or just a warning to the industry. So I think China is becoming more environmentally conscious and safety conscious, which is good for the industry and for the local communities. Thank you, Howard. You're welcome. Our next question comes from the line of David Begleiter of Deutsche Bank. Your line is open. You. I'll go back to the olefins decline in the quarter. I know you have styrene in that segment and that's probably down about 50 And the other items that could cause the divergence versus maybe a lined l who had the EBITDA decline roughly half of yours? Fully staggered would be one of them perhaps? Well, certainly, I think the polypropylene business whether dropping propylene price probably and also less capacity in polypropylene as right now it has less impact than polyethylene which is you saw the 40% capacity increase in the last few years. And also if companies have positions in Europe and Asia, they are much less European polyethylene producers are not participating in the export market much as unlike the U. S. So not affected by the lower export international prices. So I think as I said earlier, the impact is more on cracker, how do you expect that cracker to ramp up over the next few months or a couple of quarters? Well, I think that's all any new plant start, people are probably more cautious until the plans, the management team, operating team feel comfortable in ramping up So I'm sure they will do it on a on a gradual basis. Thank you. Our next question comes from Mike Leithead of Barclays. Your question please. First, I know you don't give earnings guidance, but can maybe you just talk broadly about your expectations for margin trends in your 3 main products integrated polyethylene caustic and PVC and any other incremental earnings contributions we should get as we go through the year? I guess I'm just trying to understand what we should layer in on top of this quarter's run rate as we move through the back half of this year? So as Albert noted earlier, we certainly have seen a price increase in polyethylene. We achieved a $0.03 price increase in April, but the large volume buyers of course will have some price protection for typically a month. And that'll be constructive if we see that carry through into May and into June. As Alfred also noted, we saw a price decrease in PVC as well as in caustic. And so while we remain up as we remain very optimistic for the second half of the year, I think we'll continue to see some of the some of these trade issues continue to weigh on the on overall global demand. Got it. And also if I may add that we are coming to the building season. So our building products, our volumes should be improving for the second and third quarter. That's usually the the 2 busy seasons and the first and the 4th are usually the weaker seasons. You know, we've certainly seen ethane remain relatively contained in ethylene trended down and we're a buyer in both feedstocks. So we're hopeful that that remains also constructive to the bottom line. One more thing, crude oil prices has a large impact on polyethylene prices. So if crude oil prices stays high where we are or higher some industry analysts are projecting even higher prices towards the end of the year that will help the U. S. Polyethylene business. Okay, that's helpful. And then a follow-up for Steve on the cash flow statement. Can you first break out how much of the CapEx spent in the quarter was related to the Loews project. And second, can you just parse apart the 160,000,000 use of cash in operating cash on other balance sheet items? I assume most of it's working capital, but most product prices declined sequentially. So any color there would be helpful. Yeah, so on the cash flow statement, you can see that the PP and E was 200 $3,000,000, the $40,000,000 the $42,000,000 that you see is really attributable to the Lotte investment in the quarter. And the $160,000,000 use of cash on other balance sheet items? Well, remember, we had the acquisition of Necan in the first quarter and then the bigger piece of that was working capital as we continue to build working capital for the quarter. Thank you. You're welcome. Thank you. Our next question comes from the line of P. J. Juvekar of Citi. Your line is open. Hi, good morning. This is Aaron Petrie on for P. J. Good morning. Caustic producers have announced pricing increases of the $80 per ton. Do you see that more achievable in third quarter ahead of what IHS projects as a 4 quarter implementation and what variables would affect that? Well, it's possible if the trade tension eases the industrial activities globally improves and with the Indian licensing issues behind us and then it's possible that with Alunorte refinery coming back to full operation and consuming more caustic that could could hasten the plants increase. Okay. And how many months of raw material inventory do you keep ethane prices have trended lower in 2nd quarter. Do you expect to see any benefit from that? You know because we're a FIFO reporter, there's typically a 4 to 6 week lag between a FIFO reporter and those in the industry that are reporting on a LIFO basis. And so those costs that you see that have flown through as I reported in my prepared remarks, we had a $19,000,000 headwind and certainly as prices trend further down in ethylene as we have seen in April. And ethane has been relatively contained. We'll continue to benefit from those lower costs, but I'll be carrying some of those higher costs into the second quarter that we incurred in you. Our next question comes from Hassan Ahmed of Alembic Global. Quick question on turnarounds. You guys in the press release talked about opportunistically turning around several DCM and PVC facilities. And you also sort of talked about higher turnarounds within the olefin segment. So could you just sort of parse out what sort of the EBITDA impact that had in the quarter? I'm just trying to sort of get, get, get a sense of what the earnings power looks like before Yeah. So Hassan, the turnaround was just really a polyethylene turnaround that was normally taken and the impact of that between $5,000,000 $10,000,000 in the quarter. And what about the VCM and PVC side of things? Very small. Very small. Okay, so less than that. Now as a follow-up, slightly longer term, you know, it's seems there's a lot of newbuild activity at least announced out in Asia. How does that fact into your thought process about the cycle call it medium term? Well, the new build they are based on the Naphtha cracker, they have much oil based. Southern newbuild are based on imports at U. S. Ethane which has potentially $0.3040 gallon extra cost of shipping cost and all that. And then I think there's very few, but a few are core base which are a much more competitive with the cheap price of coal in China are that the capital costs are very high. You're very welcome. Thank you. Our next question comes from Kevin McCarthy of Vertical Research. Your line is open. Good morning Albert and Steve. Good morning Kevin. With regard to your Building Products business, a number of other companies across the chemicals industry have pointed to some weakness in housing and construction. As you think about the business and how to manage it for 2019, do you think that the weakness evidenced in the first quarter was was more in the category of weather related and timing related pressure? Or do you think we're going to see a more durable macro impact on that business? And I guess the second part of it would be if you could comment on any differentials in terms of what you're seeing in the U. S. Versus the Canadian market? Yes. So Kevin, we've you know, I think what we've seen with the longer winter weather this year and the wetter weather that we've seen. I do believe a great majority of that is driven by just the delays in the start of the construction season. The Canadian market certainly is also a little bit more sluggish than the U. S. Market and of course it also experienced the delays in the construction market because of the strong winter weather there, but it is no doubt a little bit weaker than the U. S. Construction markets. But I think the big portion of that is really weather driven and in April, we are seeing the pickup in demand for all our building products already. Okay, that's helpful. And then Secondly, I think you indicated a capital budget of $600,000,000 to $650,000,000. Last quarter, my impression was that you were looking for that number to trend flat versus last year, which I think was around 700. And so wondering, what changed there and whether or not you're finding savings or deferring any projects at this point? Well Kevin naturally, we're looking at making sure all these projects have got the kind of return potentials that we believe they should have and looking to also make sure that as we have seen some choppy markets over the past quarter or 2 that we're making sure that we're doing putting capital to work in a constructive productive manner and that's really what's driving that. Okay. Thank you very much. You're welcome. Thank you. Our next question comes from Arun Viswanathan of RBC Capital Partners. Good morning, everyone. Just curious on your reaction to polyethylene prices increases. Do you expect, it looks like that the industry was able to get $0.03 in April. I mean, do you expect another $0.03 in May? And if so, what's the mechanism for that? Is it low inventories, strong demand or combination of everything restocking or how do you see kind of polyethylene markets right now? Yeah, I think that the inventories for polyethylene in the U. S. Between average to average to the high side for producer and about the average or average low side for consumers. And I think that it's really a crude oil driven and international price driven and prices. The margin for oil based naphtha producers overseas producing polyethylene. The prices are almost there's no margin So as crude oil prices stays higher, goes higher, there's all pressure for international price go up and I think the U. S. Is reflecting the increased price overseas. Okay, thanks. And then, I guess on the vinyl side, PBC looks like it was flat in a month. Do you expect increases in PBC stick over the next couple of months given some seasonal strength? And how would you kind of characterize the supply demand Thanks. Yes, I think the demand as Steve said was largely going to building products as building products demand increases the PVC demand will increase as well. But U. S. Industry exports around percent of the PVC production overseas. So it really is the overseas impact on pricings and we are seeing in Asia PVC price already start moving gradually up from the bottom. So as the economies and trade tension eases in Asia and Europe then the demand for PVC will increase and that will have a price impact international price and they will come back to the U. S. Price. I think partly of PVC price decline was due to the drop in spot ethylene price US as you know, half of PVC's cost is on ethylene. So if ethylene price goes down, consumers are saying that your costs going down, you should pass on the savings to us. Right. And then lastly on caustic as well. What would you consider to be the main kind of metrics you guys watching for an improvement in the market? I mean, is it a resumption of production, full production at Alunorte? And if so, I guess when would you expect, markets to improve in caustic? Thanks. Yeah, again caustic is very much industrial activity driven on a global basis. And as I said, we said earlier that if we believe that the global economy improves the 2nd half with less trade tensions and with other stimulus policies that the Chinese government has implemented recently will take some time to see the effect that we believe that global demand will cost improve especially with the Indian licensing issue behind us. And if Alunorte returns food option sometime in second half of this year, then the demand for caustic globally would increase and that will benefit the pricing. As we said earlier, on a global basis, not much capacity added unlike polyethylene with little capacity added. And as we look forward next few years, we believe that and vinyls and caustic market supply demand would improve and that will help prices going forward. Okay. Thanks. You're welcome. Thank you. Our next question comes from Aleksey Yefremov of Nomura and Your question please. Hey, this is Matt Skowronski on for Aleksey. You mentioned the M and A possibilities, are there any areas in particular that you're kind of looking at for bolt ons? You know, we look across the spectrum of our businesses on a regular basis as well as things that could be adjacent to the segments that we're in. So there's no particular focus in one particular segment or the other but to the extent that we see opportunities where we think we can add incremental meaningful value that think that have a good return associated with them on a risk adjusted basis will deploy capital. And so it's a pretty regular process undertaken and has been for many years. Understood. And have you noticed any uptick in export price for caustic in April so far? Yes, export prices. I think, residential price in Asia has gradually moved up slowly, but it's moving up. So we believe that if the train continues, it will help bridge the gap. Thank you. You're welcome. Thank you. Our next question comes from Josh Spector of UBS Your line is open. Hi guys. This is Lucas Beaumont on for Josh. So just on vinyl, so you noted that your pricing was down about 2.5% sequentially. But that was versus the benchmark, which was up 2% in the quarter. What was the difference there? You were talking about prices sequentially year over year or quarter over quarter. Sequentially quarter over quarter? Yeah. So, you know, as I mentioned earlier, the biggest change that we saw quarter over quarter in the vinyl segment was really all driven by both PVC and caustic pricing drivers. The other driver of course was the restructuring charge that we took in the first quarter, but those were the only headwinds that we had in the period quarter over quarter in the Vinyl segment. As we noted in our prepared remarks, we had improvements both in feedstocks and volume was very good. Okay, great. Thanks. And on, so you mentioned that you'd seen the demand improve a little sequentially into April. So how would you categorize those levels now versus say last year or a normal year? Is it in line higher or lower? It's moving higher because we certainly are getting into the what I would call the catch up season because we didn't have the start of the normal construction season due to the cooler weather and wetter weather. So we're beginning to see good order intake and shipments in the month of April to catch up that later start that would have otherwise occurred in March late February. Great. Thank you. You're welcome. Thank you. Our next question comes from Jonas Oxgaard of Bernstein. Your line is open. Hi guys. Good morning, John. Good morning. 2 part question. Since the Lotte cracker is in startup mode. Does that mean you're contributing to the startup costs as well? So we're owner proportionally of the cracker and so those items that are our proportional share, we do contribute that are capital related items. Okay. Thinking about this cracker longer term, like if I'm looking at current ethylene margins, it doesn't look like buying out the remaining 40% at this moment in time would get you a 10% return. No, if I'm looking 3 years from now, when your option expires and it still looks like you're not getting a 10% return, how well, how would you think about that option then? Well, I think the the benefit of the option is that we can assess the market during the time period of that option. And so as I mentioned earlier, we're continuing to assess the benefits of making incremental investments. We're still in the process of making those assessments. And because of the nature and the structure of the option we have the opportunity to do that analysis over if we choose to over the entire 3 year period. But it will be an assessment that we're doing on an ongoing basis looking at both current and future expectations. Okay. That makes sense. Thank you. Thank you. Our next question comes from Don Carson of Susquehanna. Your line is open. Thank you. Steve, could you quantify the year over year negative impact from lower building product EBITDA and would you expect to make that up in the balance of the year? And then you talked about $22,000,000 in restructuring charges. You mentioned optimization of the Global Vinyls business. What exactly does that mean? And then finally, I see the EPA's, once again, looking at asbestos use in diaphragms. Are you feeling any pressure or you have any plans to accelerate to membrane capacity? So, Don, as we think about the building products, it was between $20,000,000 $30,000,000 impact on the Building Products business year over year because of the cooler and wetter weather that we had and certainly in terms of the restructuring charge as we always do, we look at how we're optimizing our businesses across the vinyls chain. So the charges that we took in the first quarter is really a combination of charges related to the acquisition of NAKAN as well as some optimization related to the entire vinyls chain that we look at now that we're really continuing to expand our footprint in and PVC these expansions that I made reference to. As it relates to the environmental issues, the really is is that we'll just continue to assess. There is no specific timeline that this new focus brings to the table. Yes, the diaphragm plans are pretty competitive if you have low power cost as we have. Thank you. Our next question comes from Jim Shen of SunTrust. Your line is open. Thank you. For NAKAN, could you elaborate on any cost synergy targets you have for that acquisition? Jim, we haven't given any public guidance to synergies, but certainly as you would expect, we're going to look to strive to backward integrate into resins and certainly kind of also pull through the intellectual property capabilities because we were obviously a compounder here in the North American market and to the extent that NAKAN's capabilities and know how allow us to expand that IP if you will into other markets that we are already serving. That's something that we'll be very much focused on. But we've not given any specific numbers on synergies. Okay. And Albert, could you give us your outlook on ethane prices for the rest of the year? Yes, I think if you look at the future of prices, ethane prices will be staying more or less in this range, maybe move up a little bit as new plants start up. But we believe that with the pipelines and the fractional capacity being built, there'll be a lot more I think coming from the Permian Basin. Thank you. Our next question comes from Matthew Blair of Tudor, Pickering, Holt. Your line is open. Good morning. Steve, do you have an estimate of potential FIFO impact for Q2 twenty nineteen if pricing stays at current levels? And if it's material, do you have a split between vinyls in the Olefins segment? Yeah, it isn't going to be overly material, but I would say in the range of less than half of what we experienced in the first quarter and you know so it's not really a material driver assuming that ethane and ethylene stay in this kind of range going forward in the month of May June. Okay. And then are there any turnarounds in Q2 that we should be aware of? Matthew, we undertake turnarounds and all of our plants on kind of a regular basis, but none that are significant in individual nature except those on the ethylene side. And as you know, we do expect to do a turnaround in 2020 of one of our ethylene units. And as we finish our planning, we'll give some better guidance in terms of exact timing and length of outage. But the other derivative units we undertake aren't individually material enough So we've not gotten into specific guidance because there are frankly a number of plants. You're welcome. At this time, the Q and A session is now ended. I'd like to turn the call back over to Jeff Holy for 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 second quarter 2019 results. Thank you. Chemical Corporation First Quarter 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 Thursday, May 9, 2019. The replay can be accessed by calling following numbers. Domestic callers should dial 8558592056. International callers may access the replay at 4045373406. The access code for both numbers is 1,248,758. You may disconnect your