Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Westlake Chemical Corporation First Quarter 2018 Earnings Conference Call. During the presentation, all participants will be in a listen only mode. After the speaker's 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 3rd, 2018. 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, Sabrina. Good morning, everyone, and welcome to the Westlake Chemical Corporation First Quarter 2018 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 provide a more detailed look at our financial and operating results. Finally, Albert will add a few concluding comments, and we will then 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 references to OpCo refer to our subsidiary, Westlake Chemical OpCo LP, who owns certain olefin assets.
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 chemical industry, availability, cost, and volatility of raw material, energy and utilities, governmental regulatory actions and political unrest, global economic conditions, industry operating rates, the supply/demand balance for Westlake products, competitive products and pricing pressures, access to capital markets, technological developments, and other risk factors discussed in our SEC filings. This morning, Westlake issued a press release with details of our first quarter results. This document is available in the press release section of our webpage at westlake.com.
A replay of today's call will be available beginning today at 2:00 P.M. Eastern Time until 11:59 P.M. Eastern Time on May 10th, 2018. 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 7684638. Please note that information reported on this call speaks only as of today, May 3rd, 2018, 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 an internet webcast system that can be accessed on our webpage at westlake.com.
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 2018 results. In this morning's press release, we reported quarterly net income of $287 million for the first quarter of 2018, or $2.20 per diluted share. Excluding the one-time impact of the tax reform in the fourth quarter of 2017, this quarter's net income of $287 million will be a record for Westlake. First quarter 2018 income from operations of $401 million and EBITDA of $579 million were also records for Westlake as we benefited from strong demand for our products and the operational improvements resulting from the investments we made in 2017 to improve the reliability of our acquired assets and catch up on deferred maintenance.
We continue to see solid demand for all our major products, including polyethylene, caustic soda, and PVC as a result of synchronized economic growth in Americas, Europe, and Asia. Our vinyl segment benefited from the recently rationalized European chlor-alkali capacity and curtailed production in China, both of which were driven by environmental regulations tightening global supply. The onset of new ethylene supply with the startup of a number of ethylene facilities in the U.S. Gulf Coast reduced our purchased ethylene costs and increased our margins. Our olefin segment continues to see tight supply for some grades of polyethylene and good demand as the industry recovered from Hurricane Harvey. I would now like to turn our call over to Steve to provide more detail on the financial and operating results. Steve?
Thank you, Albert. Good morning, everyone. I will start with discussing our consolidated financial results, followed by a detailed review of our olefins and vinyl segment results. Let me begin with our consolidated results. This morning, we reported net income attributable to Westlake of $287 million, or $2.20 per diluted share for the first quarter of 2018, on net sales of $2.2 billion. Westlake's first quarter 2018 net income increased $149 million compared to the first quarter 2017 net income of $138 million, or $1.06 per share on sales of $1.9 billion. First quarter 2018 record operating income of $401 million increased $167 million from the first quarter 2017 operating income of $234 million.
Compared to the prior year period, the first quarter 2018 benefited from higher prices and margins for our major products, higher sales volumes for caustic soda and PVC resin, lower costs associated with planned turnarounds and unplanned outages, and a lower effective tax rate as a result of tax reform. Fourth quarter 2017 net income included a one-time benefit of $591 million associated with federal income tax reform. Excluding this one-time benefit, our first quarter 2018 net income of $287 million, or $2.20 per share, increased $76 million from the fourth quarter 2017 net income of $211 million, or $1.62 per share. Our record operating income for the first quarter of 2018 of $401 million increased to $38 million compared to fourth quarter 2017 operating income of $363 million.
The increases in net income and operating income in the first quarter of 2018 were primarily a result of increased sales volumes and margins in our Vinyls segment and lower costs associated with planned turnarounds and unplanned outages, primarily offset by lower polyethylene sales volumes as we are preparing for planned turnarounds in the next several months. Let's move on to review the performance of our two segments, starting with our Olefins segment. In the first quarter of 2018, the Olefins segment reported operating income of $163 million, a decrease of $17 million from first quarter 2017 operating income of $180 million. This decrease in operating income of $17 million was mainly attributable to lower polyethylene sales volume and higher ethane feedstock costs, partially offset by higher polyethylene sales prices.
First quarter 2018 operating income of $163 million decreased $3 million compared to fourth quarter 2017 operating income of $166 million. This decrease in operating income was primarily due to lower polyethylene sales volumes, partially offset by higher styrene sales volumes and prices. Let's move on to the Vinyls segment. First quarter 2018 Vinyls income from operations of $266 million increased $196 million from first quarter 2017 income from operations of $70 million. This increase in operating income was due to higher sales prices for our major products, higher sales volumes for caustic soda and PVC resin, lower feedstock costs, and lower costs associated with planned turnarounds and unplanned outages compared to the prior year period. First quarter 2018 operating income of $266 million increased to $52 million from the fourth quarter 2017 operating income of $214 million.
This increase is a result of higher sales volumes for caustic soda and PVC resin, higher sales prices for caustic soda, lower feedstock costs, and lower costs associated with planned turnarounds and unplanned outages as compared to the prior year. Let's turn our attention to the balance sheet and statement of cash flows. First quarter 2018 cash flows from operating activities were $225 million, and we invested $154 million in capital expenditures. As of March 31st, we had cash and cash equivalents of $851 million and total debt of $3.1 billion. In February, we redeemed $688 million in long-term bonds associated with the acquisition of Axiall. We have also announced another redemption of $450 million of debt that will be retired on May 15th. Funds to redeem this debt will come from our current cash on hand.
Following this redemption, we will have retired over $1.2 billion in debt since our acquisition of Axiall in August 2016. Now allow me to provide some guidance for modeling purposes. For 2018, we expect capital expenditures to range from $600 million-$650 million, which includes our normal maintenance capital expenditures, our portion of the construction of the ethylene cracker being jointly built with Lotte Chemical in Lake Charles, Louisiana, and long lead equipment for our chlorine, VCM, and PVC expansions in Burghausen and Ganderkesee, Germany, and Geismar, Louisiana, that we announced in February. With that, I'll turn the call back over to Albert to make some closing comments. Albert?
Thank you, Steve. This quarter's record results demonstrate the value of our investments in the operational reliability of our facilities while we continue to experience solid global demand for all our major products. Looking forward, we believe we will continue to benefit from globally competitive ethane natural gas in the U.S. as a result of expanded shale oil and gas drilling activity driven by higher oil prices. We expect to benefit from the favorable vinyl cycle driven by strong global demand with limited capacity additions on the horizon. We remain focused on pursuing growth initiatives such as our ethylene joint venture with Lotte, which has a planned startup in the first half of 2019, the 200 million pounds VCM expansions in Geismar and Gendorf, and the 750 million pounds of PVC expansions in Burghausen and Geismar.
We will continue to explore additional debottleneck opportunities and search for acquisitions that will deliver value to our shareholders. Thank you very much for listening to our earnings call this morning. Now I'll turn the call back over to Jeff.
Thank you, Albert. Before we begin taking questions, I would like to remind you that a replay of this teleconference will be available starting today at 2:00 P.M. Eastern Time. We will provide that number again at the end of the call. Sabrina, we will now take questions.
Thank you. Ladies and gentlemen, if you have a question at this time, please press star and then the one key on your touch-tone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. To prevent any background noise, we ask that you please place your line on mute once your question has been stated. Again, that is star then one to ask a question. The first question will come from the line of John McNulty with BMO Capital Markets. Your line is now open.
Good morning. This is Bhavesh Lodaya on behalf of John.
Good morning.
Good morning.
Morning. First of all, can you share your thoughts on your current position in international trade, specifically with China, and how some of the proposed tariffs can impact those flows or margins?
Certainly, the polyethylene industry exports around 20% of our production currently. As the new capacity come on stream, we believe that the majority of the added capacity will be exported. On the PVC side, over about 30% of the PVC produced in North America, in the U.S., are exported. On caustic side, I think over 20% of the caustic produced in the U.S. are exported. In the PVC side, because of our extensive downstream building product business, we tend to export less than the industry average of 30%. In polyethylene, in caustic, while we tend to export a bit less than the industry, but we are close to the industry export numbers. As far as China is concerned, we do not participate a lot in the China trade.
I think as a company, we export between 1% and 2% of our revenue goes from China, and that comes potentially from our U.S. business as well as our European business.
Thanks. A question on ethane. There have been a lot of discussions on massive NGL capacity coming out of the Permian, and as infrastructure builds up, that keeps ethane prices low, even with all the new demand coming up. Could you share your views on just of that happening and basically your long-term views on ethane prices?
Certainly. You're absolutely right. There's a tremendous amount of investment going on in Permian Basin. As a result, a lot of natural gas liquids come from both oil and gas exploration over there. There's still a lot of ethane being rejected in the system. As you know, there's a fair amount of new ethylene capacity coming in the stream. Some has already come on stream end of last year, early this year, and then between this year, second half, and the next year, there's also more ethylene plants coming on stream along with the export facilities. Some of the ethane demand will be increasing and will be absorbing some of the supply.
Finally, if I may, on the Lotte JV, is there a return on capital or EBITDA margin flow that you would want to see for you to make that decision to add to your stake? Maybe if there's an ethylene margin flow we should be thinking about?
Well, as we continue to assess the investment opportunity that we have there, we'll continue to look at that. We don't have a fixed number in mind, I will tell you we'll continue to assess the opportunities that that presents to us.
We'll be looking on a return on investment basis on a long-term basis. As you know, there are other new projects being announced to build new ethylene plants in the U.S. I think several companies are considering the U.S. as a favorable place to put in additional ethylene capacities.
All right. Thanks for all the color.
You're welcome.
Thank you. The next question will come from the line of Steve Byrne with Bank of America Merrill Lynch. Your line is now open.
Yes, thank you. I'd like to hear your view on potential return on investment for potential new greenfield capacity in chlor-alkali. Is it attractive at this point? Then to add onto that, the downstream capacity to consume those chlorine molecules in one of the derivatives.
We believe if you look at it integrated vinyls into PVC, including ethylene, the investments, today's return are still not at the replacement economics yet at a reasonable return on investment, they're getting closer.
With respect to your building products downstream business
Is there a potential monetization of that business you might consider to extract the value out of that or to separate out that business? Would you consider something similar on the olefin side, a downstream building products business?
Well, Steve, as we think about the business downstream of our vinyls business into PVC building products, we think it provides a nice integrated margin. Certainly it's, as Albert noted, a nice offtake of resin into our business. We think it's a business that is interesting and provides nice integrated economics. As we think about the business, it's a meaningful business, and we can think about, over time, providing further transparency to that business. Certainly I would say it's a nice integrated business, and we think of it as an important element of our overall business. We would continue to think about growing that business over time because as I mentioned, it's a very good use of the integrated resin going downstream into building products. We think it's a very valuable element of our business.
Very good. Thank you.
Welcome.
Thank you. The next question comes from the line of Kevin McCarthy with Vertical Research Partners. Your line is now open.
Yes, good morning. In your press release, you indicate that volume in the olefin segment declined 8.6% in the first quarter on a year-over-year basis. Just wondering if you could speak to the extent to which unplanned outages impacted that number, and if so, what the related dollar amount impact could be.
Kevin, this is Steve. As we mentioned earlier, we've got a number of planned turnarounds in polyethylene during the course of the rest of this year, certainly we were building some inventory to deal with that planned turnaround in polyethylene. The impact I noted is that $17 million impact as we continue to build some inventory for the planned turnaround activity later this year.
The second question I guess for Albert on capital deployment. Your net debt's down about $943 million it looks like over the past 12 months. Some folks have already asked about organic reinvestment here on the call. What do you see in the external market? How should we think about your balance sheet and capital availability versus what you see on the M&A front at this point?
Certainly. As Steve reported, we have a $650 million capital program going on, trying to finish in the ethylene joint venture we have in Lotte. As you know, we also have an option to buy up to 50% of that JV within three years of the planned startup. Certainly those are capital needs going forward if we elect to choose to exercise the option. We have ongoing expansions, as we mentioned, in Burghausen in Germany, Gendorf in the U.S., we're looking for further debottleneck opportunities. Naturally, we always look for opportunities of acquisitions in the olefins and vinyls business, we'll continue to explore those. As Steve mentioned, the building products business is over a $1 billion revenue out of our total revenue of over $8 billion. It's an area we want to grow that business as well.
We are constantly looking for opportunities to add value to our shareholders.
Lastly, if I may, you referenced the benefit from ethylene monomer. In light of your current short position there, how should we think about your procurement there in terms of spot versus contract mix and benefits going forward?
Certainly, we buy a mixture. As you expected, we inherited some of those contracts from Axiall, we buy a mixture between spot and contract, we are benefiting from the lower ethylene prices both in spot and contract, hence, we are the second largest ethylene buyer in the U.S., we're enjoying the lower ethylene prices.
Okay. Thank you very much.
You're welcome.
Thank you. The next question will come from the line of Neel Kumar with Morgan Stanley. Your line is now open.
Hi. Thanks for taking my question.
You're welcome.
Given the widening price spread between membrane and diaphragm caustics, do you see the possibility of customers switching to diaphragm caustics?
Well, certainly every customer wish to minimize their cost, and those customers that can use diaphragm would enjoy using diaphragm.
Okay. I guess just a follow-up on ethylene. What is your outlook on ethylene prices in the second half of the year? Do you see the recent weakness in ethylene prices leading to lower PVC prices?
Yeah. Personally, I think the current ethylene price is unreasonably low. I think due to various reasons. I think more the reason is the derivative plants which were built along with the new capacities are not operating at a full rate, so cannot absorb the ethylene. We do not anticipate ethylene to be that low for a long time. I think IHS is forecasting ethylene spot price to go back again second half.
Great. Thanks.
You're welcome.
Thank you. The next question will come from the line of P.J. Juvekar with Citi. Your line is now open.
Yes. Hi, good morning.
Good morning, PJ.
You are $1.8 billion short on ethylene has been dropping quite rapidly since Q1, more in Q2. How much benefit did you get in the first quarter? Your ethylene prices went up, but there should have been an offset from falling ethylene. Can you quantify that ethylene benefit?
PJ, as I think about the benefit here, as you know, when I think about our olefins situation in ethylene, it is looking at ethane all the way out to polyethylene. In that segment of the business, we are really integrated. The benefit that we see is really in our vinyls business. As Albert noted, we are the second largest buyer of ethylene in the North American market, buying over 1.8 billion-1.9 billion pounds currently a year. Given that that business remains strong, we continue to see the benefits accruing really to our vinyls business. We are looking forward to the ability to really capture that value in ethylene in our vinyls chain.
Any benefit from that with lower to cost could sell, which in inventory and comes out upwards.
Okay, thank you. What is happening to polyethylene? Where are inventories with converters? Do you think converters are holding back today in anticipation of new capacity starting up?
Certainly. Everybody likes to buy low prices, actually, people are surprised that we had a $0.10 a pound price increase after the hurricanes last year. People thought that all the $0.10 would go away and did not. Actually, we had price increases in February of $0.04 a pound. I think partly it is a good demand in the U.S., but also partly due to good demand globally and partly due to higher crude oil prices. As you know, most of the ethylene plants in Asia and Europe and Latin America are based on naphtha crackers. As crude oil prices have jumped from $30, $40 a barrel, today, Brent is what? $72 a barrel. The cost of naphtha cracking has gone up, hence polyethylene prices have stayed high globally.
Hence U.S. polyethylene price also has not come down as people thought it would be.
Thank you. Just quickly on the alumina market, with the tariffs that are being proposed on aluminum, how does that impact your caustic market? Any thoughts there? Thank you.
Certainly. I think that we will see the impact globally of the tariff on aluminum. People still need aluminum, and people will pay the lowest prices people can. I think negotiation is still going on between the various countries and the U.S. government. As we said, caustic demand is still quite strong, and the caustic prices in Europe, I think they had EUR 100 a ton increase at first quarter, and they still have, I don't know, what, EUR 5 a ton increase in April. Demand is strong globally, and our industry is enjoying benefit.
Thank you.
You're welcome.
Thank you. The next question comes from the line of Jim Sheehan with SunTrust. Your line is now open.
Thank you. On caustic soda pricing, the index went up $35 this month. Do you expect to have more pricing traction in the second quarter for caustic soda?
Yeah. I think the industry announced close to $100 a ton of price increase this year, and we are getting a large share of that. I think most of the price increases will go through. IHS is forecasting up to the $105 a ton short-term price increase. The rest of the year will be flat. We will see if that is the case or not.
Thank you. Did you guys have any FIFO accounting impacts, positive or negative, during the quarter?
Jim, it was really small this quarter. Not material.
Thank you.
You're welcome.
Thank you. The next question comes from the line of Hassan Ahmed with Alembic Global. Your line is now open.
Morning, Albert and Steve.
Morning.
Quick question around just moving away from the near term, the whole sort of notion of the second wave of capacity build-outs here in the U.S. Since the time that the initial announcement started coming out, obviously it seems at least rhetorically speaking, the world's changed quite a bit. A lot of noise around trade wars. On the more sort of concrete side of things, we've obviously seen energy pricing going up, steel pricing going up, potential, as I said earlier, uncertainty about trade flows and the like. What are your guys' views about the sort of 2018 through 2022, 2023 time period now with all this noise around us? On the margin, are you seeing that this uncertainty is making people rethink investing in capacity build-outs in the U.S.?
That's a very good question, Hassan. I think your thoughts will be better than mine since you are so such a global study of our industry. I think that the economy globally is doing very well. I think that, as you said, a synchronized growth around the world. Even though interest rate is moving somewhat higher from zero, employment in the U.S. and globally is growing. We see shortage of qualified labors both in the U.S. and Europe, even some part of Asia. If we see strong demand, people are still lifting from poverty levels to the middle class, both in China and in India, the demand for material goods are increasing, people moving from rural area to urban area.
We don't see. U.S. by far has the lowest feedstock costs, both from the feedstock for oil and gas as well as power. Our chlor-alkali business is really power-driven, we have own salt. U.S. has a very competitive position from a cost point of view. If global demand continue to grow and with some inflation, capital investments are getting more expensive. People who have assets and can generate high operating rates will benefit from a lower cost and good prices.
Understood. As a follow-up, Albert, again, kind of sticking to this theme of these trade-related issues as well as the feedstock side that you mentioned in your comments. Recently, there seems to be some decoupling between the price of crude oil and propane. Taking that to the next step or level, included in the Chinese tariff list were tariffs on the import of propane. As we all know, obviously a lot of propane exports coming out of the U.S. to Asia, China in particular. Just like to hear your views on what you think has caused this recent decoupling between crude and propane. Do you think these trade-related issues are playing a role in that? Alongside that, how should we think about the interplay between ethane and propane in this sort of an environment?
That's a very good question. I think along with the increase in production, oil, gas out of Permian Basin especially, we said a lot of ethane being produced, also a lot of propane being produced. Propane compared to oil is still a cleaner product, easier to ship, and global demand for propane, both for fuel and for PDH are increasing. If China wants to have a tariff on that, they can buy it from Middle East and U.S. supply to other parts of the world. I don't see the Chinese tariff have much impact on global demand for propane.
Perfect. Thank you so much, Albert.
You're welcome.
Thank you. The next question will come from the line of Arun Viswanathan from RBC Capital Markets. Your line is now open.
Hey, guys. Good morning.
Morning, Arun.
Couple questions on the, I guess, dynamics you're seeing in the market. We've noticed some softness creep into Asian polyethylene prices. The industry, I guess, here in North America does have an increase on the table for May. After a flat March and maybe even April, what do you think the likelihood that May increases are successful in polyethylene? Then in PVC, similarly, we're going into a spring building season, which could increase capacity and supply. How do you feel about the dynamics for PVC price increases as well? Thanks.
Certainly, on the PVC side, I know some of the analysts are saying that with the lower ethylene cost in the U.S., the PVC price should come down, so on and so forth. PVC, as I said earlier, 30% of PVC produced in U.S. are exported. It's really a global product. We've seen the after the Chinese New Year, PVC price has come down a bit in Asia. The recent week or so, the price has returned, and the demand of PVC is strong globally. We'll see whether people think that PVC price will come down a bit in, I think May. I'm just looking at a $0.01 a pound drop in May, it will happen or not.
On the polyethylene side, as we said earlier, with the new capacity coming on stream, people thought the price will come down, and instead, we had a price increase in February. Now, the $0.03 a pound that we announced for March implementation didn't happen. The industry, some of the industry players pushed it to April or May. Again, some of the industry analysts are saying that they expect prices for polyethylene to drop in May or June. As we see that some selective polyethylene inventory in the U.S. is still quite low. We're seeing a different dynamics depending on the grades of polyethylene you have. Time will tell what happen to the price movements of each of these grades.
Thanks. On the ECU margin side, looks like caustic has gone up $35 again in April and another $15 realized on chlorine. How should we think about how that impacts your ECU margin through the rest of the year? Understanding that you don't really sell any merchant chlorine, but maybe you can just give us a comment on caustic as well.
Yeah, I think caustic and chlorine, as you said, both prices moved up. I don't think we have received the full price increase yet in caustic. Over the years, we believe that all the price increase announced will be realized, and so is chlorine. This is the high season for chlorine products, including water treatment, for the next few quarters. As an industry, we should be able to benefit from the increase in demand as well as prices.
Thanks.
Thank you. The next question will come from the line of Bob Koort with Goldman Sachs. Your line is now open.
Good morning. This is Dylan Campbell on for Bob.
Good morning.
Good morning. Previously, you mentioned that we are not quite at reinvestment economics, but getting closer for chloralkali and vinyls. I'm just curious what capital costs you're assuming to build, rebuild across that chain. Generally, what the timeframe it would take to build that capacity.
Yeah. I think typically it takes from initial planning for it, and plan coming out, will be at least 3-4 years for a large integrated site. There's so many plans. We're not going to comment on all the reinvestment capital costs, but they're substantial.
Got it. Last quarter, you raised guidance for Axiall synergies to $250 million. What run rate were you guys at in the first quarter of 2018?
Now.
Go ahead.
When I think of the savings, the numbers that we've been talking about of actually dollars achieved, what I call in pocket, not so much a run rate. Given the 250 guidance that we've given for the year, we'll continue to work on that incremental $80 million. As you can imagine, we continue to focus on that every day as we want to achieve that. Our objective is to achieve as much of that as quick as we have, but we haven't given a specific run rate.
Got it. Thank you.
You're welcome.
Thank you. The next question will come from the line of David Begleiter with Deutsche Bank. Your line is now open.
Thank you. Good morning.
Good morning.
Albert, looking a little bit longer term, there's been some discussion about the IMO 2020 sulfur regulations, that they might lead to actually increased naphtha production and hence lower naphtha prices beyond 2020. How do you think about that, and do you concur with that view?
Yes. I think that is the position people are taking, there'll be more naphtha available. I don't know exactly how much more naphtha available. In the U.S., ethane is still the preferred feedstock. I don't think naphtha will make much inroad into the feedstock in the U.S. and overseas, depending on what crack is available. If there's no new naphtha cracker built, even though you have cheaper feedstock, we're not going to consume more naphtha.
Very good. Just on styrene, were you surprised by the recent announcement of a study to look at new styrene capacity by another producer in the U.S.?
Certainly. Interestingly, our styrene model plant was started in 1992, and that's the newest styrene plant in the U.S. Because of the lack of new investment, today styrene business is doing quite well, and the operating rate's running very high. If you look at return on investment economics, the numbers we should justify, the question is, how long would the styrene markets be that good? I know there are plants that have been built in Asia.
Thank you.
You're welcome.
Thank you. The next question will come from the line of Aleksey Yefremov with Nomura Instinet . Your line is now open.
Thank you. Good morning, everyone. Albert, you were discussing debottlenecking opportunities that you haven't announced yet. Are those debottlenecking opportunities potentially larger than the recent ones that you announced? What's potentially the timeline for those?
Well, we're continuing, Alex, to really assess the returns on these. As Albert noted, if we continue to debottleneck, recognize those have to be justified on export economics. So we want to make sure that we have a very good handle on not only the capital costs, but also the return. As you know, we're very focused on a return for any investment that we make. We're continuing to study this, and we want to make very comfortably sure that we can get the kind of returns if we choose to move forward with any expansions and debottlenecks.
I guess, is it fair to characterize those as incremental debottlenecks?
Yes.
Yes. They would be. As you can see, we've already announced some, and we're continuing to study others. It's really, as I noted earlier in my comment, it's a return focus. We want to make sure we have the right returns for any capital we deploy.
Thanks, Steve. If I can follow up again about reinvestment economics question. If I got it right, Albert, you were talking about the chain that includes ethylene, PVC or vinyls, and chlor-alkali. If we were to look at just vinyls plus chlor-alkali with ethylene being purchased, do you think the returns are there for a project like that currently at current prices?
The VCM, PVC, if you're looking at power plants associated with chlor-alkali, we don't believe that even without ethylene, the economics is there yet.
Got it. Thank you.
Welcome.
Thank you. As a reminder, if you have a question at this time, please press star and then the one key on your touch-tone telephone. Our next question will come from the line of Matthew Blair with Tudor, Pickering Holt. Your line is now open.
Hey, good morning, Albert and Steve.
Good morning, Matthew.
I was hoping to talk about some of the dynamics in building products. It seems like demand should be pretty good here, just given some of the housing start numbers that we've seen. I think there could be the potential for elevated costs, just given that I think a large percentage of that product is trucked out, and we've seen a lot of reports on elevated trucking costs. Could you just talk about the interplay there, and maybe just directionally, are you seeing higher building products margins now than a year ago?
Certainly, the building products demand has increased over a year ago. By the way, building products, not only associated with new builds, but also with replacement, refurbishment. That's for both sides. Because of the cold winter, I think the season for new homes has been delayed somewhat, and I think we're getting back to the high season now. I think that as you said, absolutely right, the trucking costs, most of the building products are shipped by trucks. The lack of truck availability and higher trucking costs will increase the cost of the products. Also, with the new build, the lack of availability of labor to build new homes also is an issue. There are headwinds from that side.
On the other hand, the demand, the 50-year average demand for residential units is 1.5 million units. 2006 were 2.3 million units. Now it's just going between 1.2 to 1.3 million. We're below the 50-year average. Meanwhile, in 50 years, the U.S. population has increased on the average. We think the demand is there, and it just takes time to get U.S. home buildings to get back to the normal run rate.
Great. Thank you. The $15 price increase in chlorine, Albert, in your opinion, what are the main drivers there? Is that really coming from PVC demand, or are you seeing elevated demand in other chlorine derivatives?
Yes, both. I think demand, both in the U.S. and overseas, demand for chlorine products has increased. The chlorine price hasn't really changed for a long time. I think the $15 should be a straightforward increase.
Understood. Thank you.
You're welcome.
Thank you. Our next question will come from the line of John Roberts with UBS. Your line is now open.
Thanks. Hi Albert and Steve. Nice quarter.
Thank you. Good morning.
There's been a lot of discussion about vinyl and caustic capacity curtailments in China with all the new environmental rules. At the IHS conference recently, they talked about a number of new carbide-based plants that will start up over the next few years because they were permitted in before the new rules and grandfathered in. Do you think production of vinyl and caustic in China goes up over the next few years, which I think is what IHS was looking for? Do you think it's going to be more flat or even down, which I think is kind of what people had been talking about?
That's a good question, and you're right. Some of those plants, which are permitted and under construction before the moratorium will go through. They will replace some of the older, smaller plants, which are still running, higher cost plants. Time will tell whether the net production in China will be flat or grow a little bit. We expect to grow a little bit. The Chinese demand is still growing very fast, and global demand. India is a huge market, and Middle East, and many parts of the world. Really there's no new capacity added. Even with the Chinese capacity added, it will not be sufficient to meet the demand increase on a global basis.
Thank you.
You're welcome.
Thank you. At this time, the question and answer 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 second quarter 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. It may be accessed until 11:59 P.M. Eastern Time on Thursday, May 10th, 2018. 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 7684638.