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 mode. After the speakers' remarks, you will be invited to participate in a question-and-answer session. As a reminder, ladies and gentlemen, this conference is being recorded today, May the 2nd, 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 am joined today by Albert Chao, our President and CEO, Steve Bender, our Executive Vice President and Chief Financial Officer, and other members of our management team. The conference call agenda will begin with Albert, who will open with a few comments regarding Westlake's performance, followed by a current perspective on the industry. Steve will then provide a more detailed look at our financial and operating results. Finally, Albert will add a few concluding comments, and we will 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 at westlake.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 beginning today, two 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 404-537-3406. The access code for both numbers is 1248758. Please note that information reported on this call speaks only as of today, May 2nd, 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 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 first quarter results. In this morning's press release, reported net income of $72 million 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 2018. 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 two quarters, along with high global chlorine 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 and fourth quarter of 2018.
While the 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 2019. I would now like to turn our call over to Steve to provide more detail on the 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 first quarter of 2019, we reported net income of $72 million, or $0.55 per share on sales of $2 billion. Westlake's net income for the first quarter declined $215 million compared to the first quarter of 2018, primarily due to lower prices and margins for our major products. As Albert noted, polyethylene prices dropped 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 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 lower average sales prices compared to the fourth quarter. In our Vinyls 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 unexpected 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 of 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 of approximately $19 million, 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 the United States, combined with flooding in the Midwest, delayed shipments of caustic soda and the start of the spring construction season, which slowed our sales in vinyl building products in the first quarter. In summary, as compared to the first quarter 2018, our results for the first quarter 2019 resulted from lower margins for all of our major products due to lower sales prices and higher ethane feedstock costs. Partially offsetting the declines in margins were lower purchased ethylene costs and higher polyethylene sales volumes. The first quarter 2019 also saw higher costs attributable to the $22 million 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 million decreased $51 million from fourth quarter 2018 net income of $123 million. This decrease in first quarter 2019 income is primarily due to the lower sales prices for our major products and higher restructuring, acquisition, and integration-related cost. Partially offsetting the lower sales prices for our major products were lower feedstock and fuel costs 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 million decreased $165 million from first quarter 2018 operating income of $266 million.
The decrease in income in operations in our Vinyls segment is primarily due to the lower sales prices for caustic soda and PVC resin, higher ethane feedstock costs, and higher restructuring, acquisition, and integration-related costs, while benefiting from lower purchased ethylene cost. Vinyls first quarter operating income of $101 million decreased $24 million from fourth quarter 2018 operating income of $125 million. The decrease in operating income from the prior quarter was due to lower sales prices for caustic soda and PVC resin and higher restructuring, acquisition, and integration-related cost. Partially offsetting these effects were lower ethane feedstock and purchased ethylene cost and higher PVC sales volumes. Turning to our Olefins segment, as we discussed, we saw strong demand for our products in the first quarter.
In spite of this strong global demand, the precipitous decline in global oil prices in late 2018 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 million decreased $126 million from first quarter 2018 operating income of $163 million, as margins were squeezed by lower sales prices and higher ethane feedstock cost. First quarter 2019 operating income decreased $53 million from fourth quarter 2018 operating income of $90 million due to lower sales prices and higher costs associated with planned turnaround activity. Partially offset by lower ethane feedstock cost. Let's turn our attention to the balance sheet and statement of cash flows.
As of March 31st, 2019, we had cash and cash equivalents of $145 million and total debt of $2.7 billion. First quarter 2019 cash flows from operating activities were $147 million, while capital expenditures were $203 million. In the first quarter, we completed our acquisition of NAKAN and continued to invest in our portion of the construction cost of the 2.2-billion-pound ethylene joint venture with LOTTE Chemical , which is expected to start up in the second quarter of 2019. We have an option to increase our ownership to 50% at any time over the next three years, and we will continue to assess this option. 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 bottleneck several other VCM and PVC plants in the U.S. All of these investments continue to further integrate our Vinyls chain. We continually evaluate acquisition opportunities to invest where we believe they will provide attractive returns, grow our earnings, and leverage our existing operations. The acquisition of NAKAN, 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 pipeline 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 producers.
In our vinyl segment, we're entering the start of the construction season in most of the country, which we expect to increase demand for PVC resin and our downstream vinyls products. We've also 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. We also believe the largest alumina refinery in the world, which has had their production curtailed since the spring of 2018 due to environmental concerns, could resume full operations in the second half of 2019. This refinery is a large consumer of caustic soda, and therefore, we believe this resumption of full operations will benefit U.S. caustic 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 million and $650 million. As I mentioned earlier, the next turnaround of one of our ethylene facilities is scheduled for the first half of 2020, 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 U.S. and China, which will reduce trade uncertainties and spur global economic activity. Caustic soda consumption closely tied to global industrial activity and a lack of industry investment sufficient to keep pace with demand in chlor-alkali is 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 U.S. We're also well positioned in the olefin 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 continues to enjoy cost advantages. Thank you very much for listening to our earnings call this morning. 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 two hours after the call has ended. We will provide that number again at the end of the call. Latif, we will now take questions.
Thank you, sir. Ladies and gentlemen, if you have a question at this time, please press star then one on your touchtone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. Again, that's star one on your touchtone telephone to ask a question. To prevent any background noise, we ask that you please place your line on mute once your question has been stated. Our first question comes from the line of Steve 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 pure-play peers, your income from operations seems disproportionately lower. Is there anything that you can call out that's differentiated about your results? Any one-offs? Anything that would highlight a differential result?
Steve, I think when you look at the direct peers that we have, certainly not all of them are integrated all the way into building products. As we said, we had a late start to the construction season. Certainly the impact to our downstream building products was year-over-year a portion of that. Of course, we had the restructuring charges that I mentioned of $22 million that are part of those results as well.
Our polyethylene business are really U.S. North American based, where some of our competitors who publish results are more global, and they have different dynamics in the local polyethylene pricing.
Okay. Just one more for me, please. How would you rank the 2019 pricing outlook for three key commodities you produce, polyethylene, caustic, and PVC?
Well, in polyethylene, in April, we announced, 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 months. 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. The forecast by industry consultants are looking at prices to improve in the third quarter of this year. In caustic soda, I think IHS, one of the industry consultants, announced there's a $5 per short ton decrease in April, and they're expecting the first quarter for caustic soda prices to increase. We've seen a large part of the impact on first quarter is from a sharp decline in the global export prices, which we participate in both polyethylene, PVC, and caustic.
The global tensions and trade issues have caused international prices to decline sharply. U.S. chemical producers are large players in the export market, and that also differentiates our U.S. local producers from other regional producers. As trade tensions ease, and we are seeing prices in many of these areas improving, especially in Asia, in PVC and caustic. We believe that prices should improve on the export price, which have an impact on the U.S. prices as well. Higher crude oil prices also make the U.S. ethane-based producers in polyethylene much more competitive.
Okay. Thank you.
You're welcome.
Thank you. Our next question comes from Robert Koort of Goldman Sachs. Your question please.
Thank you. Good morning.
Good morning, Robert.
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 challenges? Can you give us some clarity there?
Yeah. Bob, the impact of the colder weather and wetter weather that we saw in the Midwest, back to the earlier question, was really impacting some of our building products businesses. Certainly as we see the onset now of spring and the construction season, we continue to have an expectation of picking up volume. Volume was actually year-over-year a good result, but it did impact some of our downstream building products and vinyl products businesses.
Can you talk a little bit about your business in Asia and China specifically, if you've seen any intensified environmental inspections? 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? What do you sort of see for the outlook on the incremental supply in the industry over there?
Yes. We have a PVC and a downstream compounding and film production facility in China. 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 and months, there have been various explosions in the chemical industry. One recent last week, a major explosion in Inner Mongolia on PVC. We are seeing reactions from local governments of potentially shutting down unsafe and old chemical plants. That would take capacity away, but it still takes time to understand whether those initiatives would be effective quickly or just a warning to the industry. I think China is becoming more environmentally conscious and safety conscious, which is good for the industry and for the local communities.
Thank you, Albert.
You're welcome.
Thank you. Our next question comes from the line of David Begleiter of Deutsche Bank. Your line is open.
Thank you. Albert, back to the olefins decline in the quarter. I know you have styrene in that segment, and that was probably down about 50%. Any other items that could cause the divergence versus maybe a LyondellBasell who had the EBITDA decline roughly half of yours?
Polystyrene would be one of them, perhaps?
Well, certainly, I think the polypropylene business, with a dropping propylene price probably, also less capacity in polypropylene right now. It has less impact than the polyethylene, which you saw all the 40% capacity increase in the last few years. Also, if companies have positions in Europe and Asia, they are much less European polyethylene producers are not participating in the export market much, unlike the U.S., so not affected by the lower export international prices. I think, as I said earlier, the impact is more on North American companies which exports international markets.
Very helpful. Just on the LOTTE cracker, how would you expect that cracker to ramp up over the next few months or couple of quarters?
Well, I think as any new plant start, people are probably more cautious until the management team, operating team feel comfortable in ramping up. I'm sure they will do it on a gradual basis.
Thank you very much.
You're very welcome.
Thank you. Our next question comes from Michael Leithead of Barclays. Your question, please.
Good morning, guys.
Good morning.
Good morning.
First, I know you don't give earnings guidance, but can maybe you just talk broadly about your expectations for margin trends in your three 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.
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. That will be constructive if we see that carry through into May and into June. As Albert also noted, we saw a price decrease in PVC as well as in caustic. As we remain very optimistic for the second half of the year, I think we will continue to see some of these trade issues continue to weigh on overall global demand.
Got it.
Also, if I may add that we are coming to the building season, so our building products volumes should be improving for the second and third quarter. That is usually the two busy seasons, and the first and the fourth are usually the weaker seasons.
We have certainly seen ethane remain relatively contained, and ethylene has trended down, and we are a buyer in both feedstocks. So we are hopeful that that remains also constructive to the bottom line.
One more thing, the crude oil prices have a large impact on polyethylene prices. 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. 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 Lotte project? Second, can you just parse apart the $160 million 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. Any color there would be helpful.
On the cash flow statement, you can see that the PP&E was $203 million. The $42 million that you see is really attributable to the Lotte investment in the quarter.
The $160 use of cash on other balance sheet items?
Remember, we had the acquisition of NAKAN in the first quarter, and then the bigger piece of that was working capital as we continue to build working capital for the quarter.
Great. 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 Petreon from P.J.
Good morning.
Caustic producers have announced pricing increases of $50-$80 per ton. Do you see that more achievable in third quarter ahead of what IHS projects as a fourth quarter implementation? 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. It's possible that with Alunorte refinery coming back to full operation and consuming more caustic, that could hasten the price increase.
Okay. How many months of raw material inventory do you keep? Ethane prices have trended lower in second quarter. Do you expect to see any benefit from that?
Because we're a FIFO reporter, there's typically a four to six week lag between a FIFO reporter and those in the industry that are reporting on a LIFO basis. Those costs that you see that have flown through, as I reported in my prepared remarks, we had a $19 million headwind. Certainly as prices trend further down in ethylene as we have seen in April, and Ethane's 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 the first quarter.
Great. Thank you.
You're welcome.
Thank you. Our next question comes from Hassan Ahmed of Alembic Global. Your question, please.
Morning, Albert and Steve.
Good morning, Hassan.
Morning. Quick question on turnarounds. You guys, in the press release, talked about opportunistically turning around several VCM and PVC facilities, you also sort of talked about higher turnarounds within the olefins segment. Could you just sort of parse out what sort of EBITDA impact that had in the quarter? I'm just trying to sort of get a sense of what the earnings power looked like in the quarter.
Yeah. Hassan, the turnaround was just really a polyethylene turnaround that was normally taken, the impact of that was between $5 million and $10 million in a quarter.
What about the VCM and PVC side of things?
Very small.
Very small. Okay, less than that. As a follow-up, slightly longer term, it seems there's a lot of new build activity, at least announced out in Asia. How does that factor into your thought process about the cycle, call it medium term?
Well, the new build, if they are based on the naphtha cracker, they're much oil based. Some of the new build are based on imported U.S. ethane, which has potentially $0.34-$0.40 a gallon extra cost of shipping cost and all that. I think there's very few, but a few are coal based, which are much more competitive with the cheap price of coal in China. However, the capital costs are very high.
Very helpful. Thanks much.
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 evident in the first quarter 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? 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.
Kevin, 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, of course, it also experienced the delays in the construction market because of the strong winter weather there. It is, no doubt, a little bit weaker than the U.S. construction markets. I think the big portion of that is really weather driven. In April, we are seeing the pickup in demand for all our building products already.
Okay, that's helpful. Secondly, I think you indicated a capital budget of $600 million-$650 million. Last quarter, my impression was that you were looking for that number to trend flat versus last year, which I think was around $700. 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, looking to also make sure that as we have seen some choppy markets over the past quarter or two, that we're making sure that we're putting capital to work in a constructive, productive manner. 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 Markets. Your line is open.
Great. Thanks. Good morning.
Good morning, Arun.
Just curious on your reaction to polyethylene price increases. It looks like the industry was able to get $0.03 in April. Do you expect another $0.03 in May? If so, what's the mechanism for that? Is it low inventories, strong demand, or a combination of everything, restocking, or how do you see kind of the polyethylene markets right now?
Yeah. I think that the inventories for polyethylene in the U.S. are between average to a little on the high side for producer and about average or average on low side for consumers. I think that it's really crude oil driven and international price driven. The margin for oil based naphtha producers overseas producing polyethylene, the prices are almost there's no margin. As crude oil prices stays higher or goes higher, there's a lot of pressure for international price go up, and I think the U.S. is reflecting the increased prices overseas.
Okay, thanks. Then, I guess on the vinyl side, PVC looks like it was flat month on month. Do you expect increases in PVC to stick over the next couple of months, given some seasonal strength? How would you characterize the supply, demand, and the current position now? Thanks.
Yeah. 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. U.S. industry exports around the 30-odd% of PVC production overseas. It really is the overseas impact on pricings. We are seeing in Asia, PVC price already start moving gradually up from the bottom. 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 that will come back to the U.S. price. I think partly our PVC price decline was due to the drop in spot ethylene price in the U.S. As you know, half of PVC's cost is on ethylene.
If ethylene price goes down, consumers are saying that your cost going down, you should pass on the savings to us.
Right. Lastly on caustic as well. What would you consider to be the main kind of metrics you guys are watching for an improvement in the market? Is it resumption of full production at Alunorte? 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. As we said earlier, that if we believe that the global economy improves the second half with less trade tensions and with all the stimulus policies that the Chinese government has implemented recently, will take some time to see the effect, that we believe that global demand for caustic improves, especially with the Indian licensing issue behind us. If Alunorte returns to production sometime in second half of this year, the demand for caustic globally would increase, that will benefit the pricing. As we said earlier, on a global basis, not much capacity added. Unlike polyethylene, there's little capacity added. We look forward next two years, we believe that the vinyls and caustic market supply-demand will improve, and that will help prices going forward.
Okay, thanks.
You're welcome.
Thank you. Our next question comes from Aleksey Yefremov of Nomura Instinet. Your question, please.
Hey, this is Nat Skowrouski on for Aleksey. You mentioned M&A possibilities. Are there any areas in particular that you're kind of looking at for bolt-ons?
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. There's no particular focus in one particular segment or the other. To the extent that we see opportunities where we think we can add incremental meaningful value, that have a good return associated with them on a risk-adjusted basis, we'll deploy capital. It's a pretty regular process that we undertake, and has been for many years.
Understood. Have you noticed any uptick in export prices for caustic in April so far?
Yeah, export prices. I think international price in Asia has gradually moved up slowly, but is moving up. We believe that if the trend continues, it will help bridge the gap.
Thank you.
You're welcome.
Thank you. Our next question comes from Joshua Spector of UBS. Your line is open.
Hi, guys. This is Lucas Beaumont on for Josh.
Hi.
Just on vinyl. You noted that your pricing was down about 2.5% sequentially. 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. 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. 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. You mentioned that you'd seen the demand improve a little sequentially into April. 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 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. We're beginning to see good order intake and shipments in the month of April to catch up for that later start that would have otherwise occurred in March and 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, Jonas.
Hello.
Morning. Two-part question. Since the LOTTE cracker is in startup mode, does that mean you're contributing to the startup cost as well?
We're a 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, 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. Now, if I'm looking three years from now when your option expires, and it still looks like you're not getting a 10% return, how would you think about that option then?
I think the benefit of the option is that we can assess the market during the time period of that option. 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 three-year period. It'll be an assessment that we're doing on an ongoing basis, looking at both current and future expectations.
Okay. That makes sense. Thank you.
You're welcome.
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 products EBITDA? Would you expect to make that up in the balance of the year? You talked about the $22 million in restructuring charges. You mentioned optimization of the global vinyls business. What exactly does that mean? Finally, I see the EPAs once again looking at asbestos use in diaphragms. Are you feeling any pressure, or you have any plans to accelerate conversion to membrane capacity?
Don, as we think about the building products, it was between $20 million and $30 million impact on the building products business year-over-year because of the cooler and wetter weather that we had. Certainly, in terms of the restructuring charge, as we always do, we look at how we're optimizing our businesses across the vinyls chain. The charge 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 VCM and PVC, these expansions that I made reference to. As it relates to the environmental issues, the answer really is that we'll just continue to assess.
Okay. Thank you.
There is no specific timeline that this new focus brings to the table.
Yeah, the diaphragm plants are pretty competitive if you have low power cost as we have.
Thank you.
You're welcome.
Thank you. Our next question comes from James Sheehan of SunTrust. Your line is open.
Thank you. For NAKAN, could you elaborate on any cost synergy targets you have for that acquisition?
Yeah, Jim, we haven't given any public guidance to synergies. 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're obviously a compounder here in the North American market. 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. We've not given any specific numbers on synergies.
Okay. Albert, could you give us your outlook on ethane prices for the rest of the year?
Yeah, I think if you look at the future prices, ethane prices will be staying more or less in this range, maybe move up a little bit as new plants start up. We believe that with the pipelines and the fractionate capacity being built, there'll be a lot more ethane coming from the Permian Basin.
Thank you.
You're welcome.
Thank you. Our next question comes from Matthew Blair of Tudor, Pickering, Holt & Co. Your line is open.
Hey, good morning, Albert and Steve.
Morning.
Good morning.
Steve, do you have an estimate of potential FIFO impact for Q2 2019 if pricing stays at current levels? If it's material, do you have a split between vinyls and the olefin 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. 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 and June.
Okay. Are there any turnarounds in Q2 that we should be aware of?
Matthew, we undertake turnarounds in all of our plants on kind of a regular basis, none that are significant in individual nature except those on the ethylene side. As you know, we do expect to do a turnaround in 2020 of one of our ethylene units. As we finish our planning, we'll give some better guidance in terms of exact timing and length of outage. 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.
Okay, thank you.
You're welcome.
At this time, the Q&A session has 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 for participating in today's Westlake Chemical Corporation first quarter earnings conference call. As a reminder, this call will be available for replay beginning two hours after the call has ended and may be accessed until 11:59 P.M. Eastern Time on Thursday, May the 9th, 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 404-537-3406. The access code for both numbers is 1248758. You may disconnect your line.