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Westlake Chemical Corp. (NYSE:WLK)

Q1 2014 Results Earnings Conference Call

May 5, 2014 11:00 AM ET

Executives

Dave Hansen - Senior Vice President, Administration

Albert Chao - President and CEO

Steve Bender - Senior Vice President and CFO

Analysts

Brian Maguire - Goldman Sachs

Hassan Ahmed - Alembic Global

Don Carson - Susquehanna

Alex Yefremov - Bank of America Merrill Lynch

John Roberts - UBS

Frank Mitsch - Wells Fargo Securities

James Sheehan - SunTrust

Jeff Zekauskas - JPMorgan

PJ Juvekar - Citigroup

Operator

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Westlake Chemical Corporation First Quarter 2014 Earnings Conference Call. During the presentation, all participants will be in 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 5, 2014.

I would now like to turn the call over to your host for today, Mr. Dave Hansen, Westlake’s Senior Vice President of Administration. Sir, you may begin.

Dave Hansen

Thank you very much. Good morning, everyone. And welcome to the Westlake Chemical Corporation first quarter 2014 conference call. I am joined today by Albert Chao, our President and CEO; Steve Bender, our Senior 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 in the first quarter and the current perspective on the industry. Steve will then provide a more detailed look at our financial and operating results. And finally, Albert will add a few concluding comments and then we will open up the call for questions.

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 factors including the cyclical nature of the chemical industry, availability, cost and volatility of raw materials, energy and utilities, governmental regulatory actions 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.

As you are probably aware, Westlake issued a press release on April 29, 2014, describing our intention to pursue the creation and initial public offering of an MLP that would own a minority interest in a newly form operating subsidiary that would hold our Lake Charles, Louisiana and our Calvert City, Kentucky ethylene production facility.

Also on the 29th of April, we filed a registration statement with a Securities and Exchange Commission, which describes a structure of the proposed MLP, as well as its business and ongoing relationship with Westlake. We believe the creation of this MLP is in the long-term best interest of Westlake shareholders by highlighting the value of our ethylene assets.

As you are probably also aware, the SEC imposes significant restrictions on what we can publicly say about the proposed MLP IPO prior to disclosing. Accordingly, we encourage you to read our press release and registration statement, as we will be unable to answer any specific questions you might have about the proposed MLP on this call or otherwise.

This morning Westlake issued a press release with details of our first quarter financial and operating 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 four hours after completion of this call until 11:59 p.m. Eastern Time on May 12, 2014. The replay maybe accessed by dialing the following numbers, domestic callers should dial 1 (888) 286-8010, international callers may access the replay at (617) 801-6888. The access code for both numbers is 68118182.

Please note that information reported on this call speaks only as of today, May 5, 2014, 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?

Albert Chao

Thank you, Dave. Good morning, ladies and gentlemen. And thank you for joining us on our earnings call to discuss our first quarter results. In this morning’s press release, we reported quarterly net income of $158 billion or $1.18 per diluted share on sales of $1 billion.

Our first quarter results were listed by record income from operations reported in our Olefins segment, which benefited from the ethylene expansion work that was completed last year at our Lake Charles facility and strong integrated margins in the Olefins segment in spite of higher ethane feedstock prices.

The Vinyls segment completed an important milestone by converting our Calvert City ethylene unit from propane to ethane feedstock and expanding its capacity by approximately 180 million pounds.

As discussed in our last conference call, the planned downtime associated with the project impacted our Vinyls first quarter results. Our Vinyls segment results were also impacted by the severe winter weather that cause the rise in propane feedstock costs and delayed a start to this year’s construction season.

The completion of the expansion and feedstock conversion brought at our Calvert City facility allows us to access Marcellus-based ethane and further improve our integrated margins at a site.

While allowing Calvert City Vinyls business to capture the advantageous ethane-based ethylene cost position that our Lake Charles Olefins business has benefited from over the past several year.

In conjunction with this project we are completing a project to expand our PVC capacity by approximately $200 million pounds at Calvert City, which will allow us take advantage of the increase ethylene production at the site.

The benefit of investments that we have made in Lake Charles, Geismar, Louisiana and Calvert City to capture the ethane natural gas advantage in North America to produce ethylene and chlorine for our downstream businesses will drive our future results.

I would now like to turn over to Steve to discuss the financial and operating results for the first quarter.

Steve

Thank you, Albert, and good morning, everyone. I will begin by discussing our consolidated financial results followed by a detailed review of our Olefins and Vinyls segment results.

Let me start with our consolidated results. In this morning press release, Westlake reported net income for the first quarter of $158 million or $1.18 per diluted share, which is an increase of $35 million over first quarter 2013 net income of $123 million or $0.93 per diluted share.

Net sales for the first quarter of 2014 of $1 billion was $163 million higher than sales reported in the first quarter 2013, primarily driven by higher sales volume in our Olefins segment, higher sales prices for most of our major products and added sales contributed by our specialty PVC pipe business that was acquired in May 2013.

Westlake’s operating income for the first quarter of 2014 was $248 million, an increase of $54 million compared to $194 million reported in the same period of 2013. Operating income in the first quarter of 2014 primarily benefited from improved Olefins’ integrated margins as higher polyethylene sales prices more than offset the increases in feedstock and energy costs.

The increase in first quarter 2014 operating income was partially offset by the lost sales, unabsorbed fixed manufacturing costs and other costs totaling approximately $17 million associated with the planned 19-day maintenance turnaround of our Calvert City production facilities.

First quarter 2014 results were also impacted by the extended severe winter weather that drove program prices significantly higher and affected the start of the construction season. Sales revenue of a $1 billion in the first quarter of 2014 increased by $176 million over sales in the fourth quarter of 2013, driven by higher sales prices for our Olefins products, PVC resin and PVC pipe as well as higher sales volumes for polyethylene, caustic and building products.

First quarter income from operations of $248 million was lower by $10 million than the fourth quarter 2013, primarily due to higher propane and ethane feedstock cost, lower sales volumes for PVC resin and the planned downtime associated with the previously mentioned Calvert City project work, partially offset by higher PVC sales prices and higher polyethylene sales volumes.

With a successful conversion of our Calvert City ethylene unit to ethane feedstock, we have now eliminated our exposure to propane at the site. Our utilization of the FIFO method of accounting resulted in a favorable impact of $25 million pre-tax, or $0.12 per share in the first quarter as compared with earnings would have been if we’d reported on the LIFO method. Please bear in mind that this calculation is only an estimate and has not been audited.

Let’s move on to review the performance of our two segments. Starting with the Olefin segment, the Olefin segment reported income from operations of $272 million on sales revenue of $723 million during the first quarter of 2014, compared to operating income of $161 million on sales of $583 million in the same period of 2013.

Olefin sales were up largely due to higher sales prices for most of our major Olefins products and higher sales volumes for our Olefin segment as compared to the prior year period. The increase in operating income was primarily due to higher production volumes, with increases in polyethylene prices expanding integrated Olefins margins.

In addition, first quarter 2014 income from operations benefited from higher Olefin sales volumes. As a reminder, income from operations in the first quarter of 2013 was negatively impacted as a result of lost production, unabsorbed fixed manufacturing costs and other costs associated with the turnaround and expansion of the Lake Charles ethylene unit.

Olefin sales revenue of $723 million in the first quarter of 2014 was $55 million higher compared to the $668 million that was reported in the fourth quarter of 2013, mainly due to higher sales volumes and higher polyethylene sales prices.

Operating income of $272 million in the first quarter of 2014 was $25 million higher than operating income in the fourth quarter of 2013 and was primarily due to higher polyethylene sales prices and Olefins segment volumes, partially offset by higher ethane prices.

Now moving onto the Vinyl segment, the Vinyl segment reported an operating loss of $21 million in the first quarter of 2014 on sales revenue of $305 million, as compared to income from operations of $44 million on sales revenue of $282 million in the first quarter of 2013.

Vinyl sales revenues were $23 million higher than the first quarter 2013 and were attributable to the sales contributed by our specialty PVC pipe business that was acquired in May 2013 and higher caustic sales volumes, partially offset by lower ethylene co-product sales volumes due to the planned maintenance turnaround of our Calvert City ethylene plant.

The operating results were lower by approximately $23 million due to significantly higher propane cost, as average industry prices for propane increased by approximately 50% as compared to the prior year period, driven by the severe winter weather that the U.S. experienced.

Operating results in the first quarter of 2014 were also negatively impacted by the lost sales and other costs totaling approximately $17 million associated with the planned maintenance turnaround of our Calvert City production facilities, as well as by lower caustic sales prices.

We estimate that the second quarter results will be negatively impacted by approximately $5 million to$10 million due to higher costs inventory, which was produced in Calvert City from propane feedstock in the first quarter and by costs associated with the maintenance turnaround and project activities that carried over into the second quarter.

The Vinyl segment incurred an operating loss of about $21 million in the first quarter of 2014 on sales of $305 million, compared to the $19 million operating income reported on sales of $283 million in the fourth quarter of 2013. First quarter Vinyl sales revenue was $22 million higher than the fourth quarter of 2013, driven by higher PVC pipe and caustic sales volumes.

The operating results for the first quarter 2014 were negatively impacted by the severe winter weather, elevated propane feedstock costs and the previously mentioned downtime in our Calvert City facility due to the planned maintenance turnaround and expansion activities.

The operation of our new Geismar chlor-alkali plant improved throughout the quarter as we increased production, but had a small contribution to earnings in the first quarter. At the end of the first quarter, the plant was running at planned operating rates and we expect it to be a meaningful contributor to earnings going forward.

Next, let’s turn our attention to the balance sheet and the statement of cash flow. As of March 31, 2014, we had cash and marketable securities of $776 million and total debt was unchanged at $764 million. We generated $213 million in cash from operating activities in the first quarter 2014 and spent $111 million on capital expenditures. Our guidance for 2014 capital expenditures remained in the range of $475 million to $525 million.

Now I would like to turn the call back over to Albert to make some closing comments. Albert?

Albert Chao

Thank you, Steve. We are pleased to report a strong start to 2014, with these first quarter results. Driven by growth in Olefins sales volumes and margins, our Olefins segment delivered record income from operations, while Vinyls segment successfully completed an expansion and ethane conversion project at our Calvert City ethylene plant that will improve the cost position of our Vinyls business and drive future results.

The important milestone, combined with our achievements in 2013, where we expanded our ethylene capacity and completed our product integration with the start up of our new Geismar chlor-alkali facility, led the foundation for improved operating results. We have further growth opportunities, including the completion in the second quarter of our PVC expansion project at Calvert City, which will expand our PVC capacity by approximately 200 million pounds.

Additionally, we are currently planning another ethylene expansion at our Lake Charles facility, which will further expand our vertical integration by adding approximately 250 million pounds of ethylene capacity in late 2015 or early 2016. All these investments reflect our strategy to integrate our product chain to allow us to further benefit from low cost ethane feedstock as well as improve our cost position, which will drive our near-term and future results.

Thank you very much for listening to earnings call this morning. Now I will turn the call back over to Dave Hansen.

Dave Hansen

Thank you, Albert. Ladies and gentlemen, before we begin taking questions, I'd like to remind you that a replay of this teleconference will be available starting 4 hours after we conclude the call. We will provide that number again at the end of the call. Operator, we'll now take questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from the line of Brian Maguire with Goldman Sachs. Please proceed.

Brian Maguire - Goldman Sachs

Hey, good morning, guys.

Albert Chao

Good morning, Brian.

Steve Bender

Good morning, Brian.

Brian Maguire - Goldman Sachs

First, just congratulations to Steve and Albert on the recent MLP IPO filing, I know you guys have been looking at that for a long time. And it sounds like it came to a good decision, it sounds like it will be a very value accretive to the shareholders. So, just my thoughts on that, congratulations. But on that note, I was hoping you might provide some guidance on what kind of tax considerations there might be as it pertains to Westlake, what kind of a tax impact this might have for you if the transaction goes through, and would there be a kind of one-time check you write to the IRS for transferring the assets? Any kind of guidance you could give there would be great?

Steve Bender

Brian, as we mentioned, there is not much I can say as it relates to the MLP at this stage, but I would say, as you know, we spent a lot of time studying this transaction post-transaction. And certainly, we want to move forward to make sure that it’s beneficial to not only the Westlake shareholders but any potential future Chemical Partners unitholders. So I would say it’s just been an area of detailed study, but I can’t really say a whole lot more.

Brian Maguire - Goldman Sachs

Okay, great. And then the results in the quarter from Olefins are very strong, I thought sequentially moving up quite a bit, $25 million or so, despite the higher feedstock cost. So wondering was there any benefit or material benefit from the differential between Texas and Louisiana spot prices in the quarter and were you able to take advantage of that, selling a little bit more volume into the Louisianan spot market?

Albert Chao

The impact were quite small but were net buyer of ethylene.

Brian Maguire - Goldman Sachs

Okay, great. And then Steve thanks for quantifying the impact to the second quarter from Calvert City turnaround and some of the inventory issues. I think Petro 1 also had a little bit of a hiccup this month as well. Just anything we should be thinking about for the impact of the Olefins segment from that?

Albert Chao

It will be a small impact.

Brian Maguire - Goldman Sachs

Okay, great. Thanks a lot.

Albert Chao

You are welcome.

Operator

Your next question comes from the line of Hassan Ahmed with Alembic Global. Please proceed.

Hassan Ahmed - Alembic Global

Good morning.

Albert Chao

Good morning.

Hassan Ahmed - Alembic Global

In the past, Albert, you’ve been fairly vocal about ethane being quite long in the near to medium term in the U.S. With this recent announcement from enterprise, does that change your views at least as far as the medium term goes?

Albert Chao

No, we believe that ethane will be long for the foreseeable future. And the fact that enterprise is building this terminal, it will further reinforce the fact that excess ethane that U.S. needs to find a home for it.

Hassan Ahmed - Alembic Global

Fair enough. And now you have your sort of Geismar chlor-alkali facility up and running, you said there were some for lack of a better we are putting it hiccups in Q1. But in the Q4 call, you talked about how you felt that chlor-alkali pricing may have potentially bottomed out, is that what you continue to see as we sit here today?

Albert Chao

We have industry announced price increase and I think for the first quarter and price increase was partially implemented. Going forward, depending really on the global demand and U.S. demand for chlor-alkali and chlorine, so time will tell how demand will offset by increased capacity in the industry.

Hassan Ahmed - Alembic Global

Very good. Thank you, Albert.

Albert Chao

You are welcome.

Operator

Your next question comes from the line of Don Carson with Susquehanna. Please proceed.

Don Carson - Susquehanna

Yes. Steve, I was wondering if you could quantify how much you spent on your crackers over the last three years if you total up the money spent at Calvert and then first expansion in Lake Charles. And maybe just remind us, how much you’d be spending next year on the expansion of Petro 2?

Steve Bender

The expansion of Petro 1 next year in 2015, late 2015 or 2016 will be adding about 250 million pounds of capacity. And we estimate that it will be the capital cost to be in the neighborhood of $250 million to $350 million of capital. In terms of the capital that we spent in Kentucky and in Lake Charles on Petro 2, we press released that and that’s been, I think a very transparent number.

Don Carson - Susquehanna

On those expenditures, how much would that have collectively raised your tax basis in those assets?

Steve Bender

Well, certainly, we had benefit of accelerating tax depreciation over the last couple of years. And so while we’ve had those capital dollars spend, we’ve also been able to reap the benefit of bonus depreciation over the last couple of years. Last year was the last year of the 50% bonus depreciation. So we’ve been able to benefit in 2012 and ‘13 from those dollar spent.

Don Carson - Susquehanna

And then secondly on Geismar expansion, you mentioned I made a very modest contribution in Q1 but you are looking at meaningful contribution going forward. What -- can you size the delta between small and meaningful?

Steve Bender

Well, what I would say is during the first quarter of 2014, we’re in a process of ramping in the operating rates up for that unit. And so today, with that unit at, what I would call commercial operating rates, it will make its normal contribution based on the margins that you see in the market place and all -- that’s all I was trying to guide was that we didn’t have it at full operating rates from the first quarter as we ramped it from a start-up to its rates today.

Don Carson - Susquehanna

Okay. And then finally, just a follow-up on caustic pricing, Albert, you know the industry’s got this $50 initiative out there. It doesn’t seem like much came through in Q1. What’s the good rule of thumb for how much you might realize this quarter say half of that price increase if it is successful?

Albert Chao

Don, we believe that approximately half of that announced price inclusive -- implemented.

Don Carson - Susquehanna

Thank you.

Albert Chao

You’re welcome.

Operator

Your next question comes from the line of Alex Yefremov with Bank of America Merrill Lynch. Please proceed.

Alex Yefremov - Bank of America Merrill Lynch

Good morning everyone. Just wanted to -- could you provide early indicators of demand for our PVC resin and also fabricated products in the domestic market. Do you see meaningful pickup? Was warmer weather arriving in the U.S.?

Albert Chao

Yes, we see that demand is recovering from the cold winter we had. As you know, PVC prices increased in the first quarter substantially and/or some inventory building by the fabricators. So it will adjust out through the second quarter that we believe with upcoming warm weather and improving economy of demand for PVC will increase in the second quarter.

Alex Yefremov - Bank of America Merrill Lynch

Related to that, what is your outlook for PVC prices, do you think that current domestic PVC prices are sustainable given the gap between domestic and export prices?

Albert Chao

Time will tell, I think the demand increase will see whether it will be balanced by the increased capacity coming on stream.

Alex Yefremov - Bank of America Merrill Lynch

Probably more of a short-term question, do you see an impact on PVC and chlor-alkali industries in the near term from dollars outage in Louisiana?

Albert Chao

Well, it depends, it’s all about the ethylene situation. Depending on how long the outage would be. And this -- ethylene production capacity come on stream from the turnarounds.

Alex Yefremov - Bank of America Merrill Lynch

Okay. Thank you.

Albert Chao

You’re welcome.

Operator

The next question comes from the line of John Roberts, UBS. Please proceed.

John Roberts - UBS

Morning.

Albert Chao

Good morning, John.

John Roberts - UBS

Could you give us an update on your interest in acquisitions and current M&A environment?

Steve Bender

We continue to look at ways of deploying capital and lots of different fashions. As you know we looked at and we talked about this morning, expanding our ethylene footprint in Lake Charles by expanding that cracker in late ‘15, early ‘16. We’ll also continue to look for opportunities to deploy capital and opportunities that present themselves that have good returns above our risk-adjusted cost of capital. So we’ll look at ways to deploy capital both internally and externally.

John Roberts - UBS

Then as a follow-up, neither your cost of capacity is placed in the market. Is your mix of customers similar to the overall market mix or are there any significant differences between the average competitive mix in customers?

Steve Bender

Well, certainly we have a different footprint because we have a business up there in Western Kentucky. And so I can speak to the customer mix of all my competitors. I would say that we have good coverage of the customers both in Midwest as well as in the Gulf Coast.

John Roberts - UBS

Thank you.

Steve Bender

And frankly across both coast as well.

Operator

The next question comes from the line of Frank Mitsch with Wells Fargo Securities. Please proceed.

Frank Mitsch - Wells Fargo Securities

Good morning, gentlemen. You mentioned that the Geismar plant was -- the new Geismar plant was operating at the planned operating risk. Can you indicate is that at the industry average or were you -- or are you planning to operate that plant towards its nameplate capacity?

Albert Chao

Well, it’s operating closer to the industry average and we plan to increase production as demand increases.

Frank Mitsch - Wells Fargo Securities

Okay. Great. And then you mentioned that the Calvert City plant is complete. How is that running today?

Albert Chao

Running smoothly. As I mentioned, we’d completed the debottleneck in the feedstock switch from propane to ethane and were pleased with that activity.

Frank Mitsch - Wells Fargo Securities

Great. And then lastly, on building products, how did that trend pricing volumes in Q1 and how did that fare in April relative to Q1, that is, I mean, are we seeing a material bounce back in that sector?

Albert Chao

Yes, we see demand recovery and as you know, the PVC price increased during the first quarter. So the building products also reflected price increases, reflecting the cost -- volatile increases.

Frank Mitsch - Wells Fargo Securities

Thank you so much.

Albert Chao

You’re welcome.

You welcome.

Operator

Your next question comes from the line of James Sheehan with SunTrust. Please proceed.

James Sheehan - SunTrust

Good morning. Looking at the polyethylene markets, you see inventories creeping up a little bit now. Polyethylene prices have been very strong recently. Do you think that the prices can hold where they are?

Albert Chao

Well, time will tell. We have -- it’s a season, the second quarter and third quarter usually are the strong demand season for polyethylene. So time will tell how strong the demand will be.

James Sheehan - SunTrust

Okay. And just a strategic question if I may on the MLP. I notice in the S-1 documents that Westlake plans to lend money for the cracker expansion. Why did you choose to do it that way amongst all the alternatives?

Steve Bender

Jim, well, I know that you would love to have lots of questions on this. I can’t really speak a lot of the detailed elements of this. But once we get past the SEC comments and registration statement’s effective, I’ll be able to be a lot more responsive to those questions and many more that I know that you have. But unfortunately, I just can’t get into the details until the registration statement’s effective.

James Sheehan - SunTrust

Okay. And then on -- last question on Dow’s plans to have -- to divest its chlor-alkali business, what impact do you think that process may have on your business?

Albert Chao

We don’t think it will have much impact on our business.

James Sheehan - SunTrust

All right. Thanks a lot Albert.

Albert Chao

You’re welcome.

Operator

(Operator Instructions) Your next question comes from the line of Jeff Zekauskas with JPMorgan. Please proceed.

Jeff Zekauskas - JPMorgan

Hi, good morning.

Albert Chao

Good morning, Jeff.

Jeff Zekauskas - JPMorgan

It seems that in the first quarter there was more pressure on ethylene prices than there was on polyethylene prices. Why do you think that is? And do you think that the weakness in ethylene prices has any bearing on polyethylene prices in the second quarter?

Albert Chao

Well, as you know, there were some unplanned outages in the ethylene industry and especially also with the Evangeline pipeline not in operation. So ethylene was very short on the river area. And Evangeline, when the Evangeline pipeline comes in operation sometime in this month and after turnaround there will be more ethylene available to the industry. But having said that, polyethylene global prices follow really global oil price and I think oil price has been very strong globally. So we anticipate that polyethylene prices globally would stay pretty stable at this level.

Jeff Zekauskas - JPMorgan

Well, as you say, we shall see. Can you give us an idea of what you might to with your -- how do you see your free cash flow after you complete your next polyethylene expansion? In that -- is it possible for you to enlarge your footprint, or is that the last step? And if it is the last step, then how do you see use of cash flows after that time?

Steve Bender

Jeff, as we continue to look for internal or organic opportunities, we’ll continue to look at and assess whether it’d be invested in the ethylene or other areas of our business. And certainly, we’ll continue to look as well outside of our business. So as we look at growth opportunity first organically because they’re completely within our control.

The best and most quickest payback projects are the ones that we’re working on right now and then we’ll look at opportunities outside of that and those could be inorganic. But we’ll continue to look at those opportunities and assess which one have the best and quickest returns to this.

Jeff Zekauskas - JP Morgan

Okay. Great. Thank you so much.

Albert Chao

You welcome.

Operator

We have a follow-up question from Alex Yefremov with Bank of America Merrill Lynch. Please proceed.

Alex Yefremov - Bank of America Merrill Lynch

Steve, could you break out the FIFO, the $25 million FIFO benefit between the segments? And also do you have an idea of how FIFO could turnout in the second quarter?

Steve Bender

Alex, we don’t typically breakout the FIFO between Olefins and Vinyls, but I would say, given the concentration of our business of Olefins and Vinyls you would expect that the preponderance of that would be on the Olefin side of the business.

Alex Yefremov - Bank of America Merrill Lynch

And how about 10-Q outlook, if you have one.

Steve Bender

Well, we’ll see where prices go over the next month and a half or two, but prices for feedstock have trended down and so they continue on that trajectory. We’ll certainly benefit from having a lower or certainly have a detriment in FIFO as a consequence.

Alex Yefremov - Bank of America Merrill Lynch

Thanks a lot.

Steve Bender

You’re welcome.

Operator

Your next question comes from the line of PJ Juvekar with Citigroup. Please proceed.

PJ Juvekar - Citigroup

Yes. Hi. Good morning.

Albert Chao

Good morning, PJ.

PJ Juvekar - Citigroup

Yeah. Albert, so your decision…

Albert Chao

Good morning.

PJ Juvekar - Citigroup

… to do MLP now, how should we read into that about your view of the ethylene cycle?

Albert Chao

Well, as we’ve said in the past few minutes that we believe the ethylene business will be quite strong going forward and we have favorable ethane feedstock position going forward as well.

PJ Juvekar - Citigroup

Okay. And Steve, you said you would look at inorganic opportunities, which chains are you more interested in doing these deals? Is it ethylene side or chlorine side?

Steve Bender

PJ, we look at both. There isn’t a preference per say at looking at one or the other. If we look at, it’s a businesses -- both businesses are businesses that we well understand. And as you know, they all -- are all tied from feedstock all the way through in the polyethylene or in the PVC. So we’ll pursue opportunities in both.

PJ Juvekar - Citigroup

Thank you.

Albert Chao

You welcome.

Operator

At this time, the Q&A session has now ended. Are there any closing remarks?

Albert Chao

Well, we’d like to thank you again for participating in today’s call. We hope that you will join us again for our next conference call to discuss our second quarter 2014 results. Have a great day.

Operator

Thank you for your -- for participating in today's Westlake Chemical Corporation First Quarter Earnings Conference Call. As a reminder, this call will be available for replay beginning four hour after the call has ended and maybe accessed until 11:59 p.m. Eastern on, Monday, May 12, 2014. The replay can be accessed by calling the following numbers, domestic callers should dial 1 (888) 286-8010, international callers may access the replay at (617) 801-6888, the access code at both numbers is 68118182.

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