Westlake Chemical's (WLK) CEO Albert Chao on Q2 2014 Results - Earnings Call Transcript

Aug. 5.14 | About: Westlake Chemical (WLK)

Westlake Chemical (NYSE:WLK)

Q2 2014 Earnings Call

August 05, 2014 11:00 am ET

Executives

David R. Hansen - Senior Vice President of Administration

Albert Y. Chao - Chief Executive Officer, President, Director, Member of Nominating & Governance Committee, Member of Compensation Committee and Member of Corporate Risk Committee

M. Steven Bender - Chief Financial Officer, Senior Vice President and Treasurer

Analysts

Edlain S. Rodriguez - UBS Investment Bank, Research Division

Frank J. Mitsch - Wells Fargo Securities, LLC, Research Division

James Sheehan - SunTrust Robinson Humphrey, Inc., Research Division

Donald Carson - Susquehanna Financial Group, LLLP, Research Division

Hassan I. Ahmed - Alembic Global Advisors

John Roberts - UBS Investment Bank, Research Division

Charles N. Neivert - Cowen and Company, LLC, Research Division

Jeffrey J. Zekauskas - JP Morgan Chase & Co, Research Division

Operator

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Westlake Chemical Corporation's Second Quarter 2014 Earnings Conference Call. [Operator Instructions] As a reminder, ladies and gentlemen, this conference is being recorded today, August 5, 2014. I would now like to turn the call over to today's host, Dave Hansen, Westlake's Senior Vice President of Administration. Sir, you may begin.

David R. Hansen

Thank you very much. Good morning, everyone, and welcome to the Westlake Chemical Corporation Second 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 second quarter and 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.

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.

This morning, Westlake issued a press release with details of our second quarter financial and operating results. This document is available in the Press Release section of our web page at westlake.com.

A replay of today's call will be available beginning 4 hours after completion of this call until 11:59 p.m. Eastern time on August 12, 2014. The replay may be 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 62091806.

Please note that information reported on this call speaks only as of today, August 5, 2014. And therefore, you're advised that time-sensitive information may no longer be accurate as of the time of any replay. I would finally advise you that this conference call is being broadcast live through an Internet webcast system that can be accessed on our web page at westlake.com.

Now, I'd like to turn the time over to -- call -- turn the call over to Albert Chao. Albert?

Albert Y. Chao

Thank you, Dave. Good morning, ladies and gentlemen, and thank you for joining us on our earnings call to discuss our second quarter results.

In this morning's press release, we reported quarterly net income of $169 million, or $1.26 per diluted share, on sales of $999 million. We also reported record income from operations of $267 million, driven by strong earnings in both our Olefins and Vinyls segments. Both those segments continued to benefit from the low-cost ethane feedstock environment as well as from an expanded ethylene capacity. Our ethylene expansion projects have increased our ethylene capacity by approximately 420 million pounds at both our Lake Charles, Louisiana and Calvert City, Kentucky facilities. Our Olefins segment benefited from higher integrated Olefins margins as higher sales prices more than offset increases in feedstock and energy costs compared to the same period last year. Our Vinyls segment returned an improved quarterly result following 2 consecutive quarters in which we completed major capital investments, including start-up of our world-scale chlor-alkali plant in Geismar, Louisiana that was completed at the end of fourth quarter last year, as well as the ethylene unit expansion and conversion from propane to ethane feedstock that we completed in the beginning of the second quarter at our Calvert City facility. The completion of these projects positions our Vinyls business to benefit from a further integrated vinyls product chain as well as a lower cost position, as it can now access advantaged ethane from the Marcellus and Utica shales. We delivered a strong second quarter, and I'm pleased with the direction and performance of both our Olefins and Vinyls segments.

I would now like to turn the call over to Steve to provide more details on the financial and operating results for the second quarter.

M. Steven Bender

Thank you, Robert, and good morning, everybody. I will start our discussion with the 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's press release, Westlake reported net income for the second quarter of 2014 of $169 million or $1.26 per diluted share, an increase of $23 million over second quarter of 2013 net income of $146 million or $1.09 per diluted share. Net sales for the second quarter of $999 million was $59 million higher than sales reported in the second quarter of 2013, primarily driven by higher sales prices for most of our major Olefins products and higher sales volumes for polyethylene, styrene and caustic soda, partially offset by lower sales volumes for PVC resin and ethylene co-products.

Westlake's operating income for the second quarter of 2014 was $267 million, increased by $32 million compared to the $235 million reported in the same period of 2013, primarily benefiting from improved olefins integrated product margins as higher sales prices more than offset the increase in feedstock and energy costs and higher olefins volumes. Our second quarter 2014 results included approximately $4 million in costs associated with the first quarter of 2014 maintenance turnaround and other activities at our Calvert City complex that carried over into the second quarter, and approximately, a $9 million impact from lower ethylene production due to an unplanned outage of one of our Lake Charles ethylene units.

Second quarter sales revenue of $999 million decreased by $29 million over sales in the first quarter of 2014, driven primarily by lower sales volumes for ethylene co-products. That is the result of our Calvert City ethylene unit being converted from propane to ethane feedstock.

Second quarter income from operations of $267 million was higher by $19 million than the first quarter of 2014, primarily due to first quarter results being impacted by the lost production and related costs associated with the planned turnaround and project work at our Calvert City complex.

Second quarter results would have been higher if not for a FIFO impact of $25 million, which was the result of higher cost inventory that was produced from propane and ethane feedstock that rolled through our second quarter cost of sales, as well as the previously mentioned $4 million in costs associated with the Calvert City turnaround activities, which extended into the second quarter and the $9 million impact from lower ethylene production.

Year-to-date, sales revenues was $223 million higher in the first 6 months of 2014 compared to first 6 months of 2013, primarily due to higher sales prices and volumes for most of our major Olefin products and sales contributed by our specialty PVC pipe business, which we acquired in May 2013, partially offset by lower ethylene co-product sales volumes.

Operating income in the first half of 2014 was $86 million higher when compared to the same period of 2013, mainly due to the improved Olefins-integrated product margins and higher Olefins volume. The increase in income from operations is partially offset by the lost production and related costs associated with the turnaround and project work at our Calvert City complex in the first quarter of 2014.

As I noted in my earlier comments, our utilization of a FIFO method of accounting resulted in an unfavorable impact of $25 million pretax, or $0.12 per share in the second quarter as compared to what earnings would have been if we reported in the LIFO method. This impact was primarily in our Vinyls segment, as higher cost propane-based ethylene that was produced in the first quarter of 2014 flowed through our cost of sales in the second quarter. Please bear in mind that this calculation is only an estimate and has not been audited. Now that the Calvert City cracker has been converted to ethane, it will not be exposed to propane price volatility going forward.

Let's move on to review the performance of our 2 segments, starting with the Olefins segment. The Olefins segment reported income from operations of $239 million on sales revenue of $699 million during the second quarter of 2014, compared to operating income of $188 million on sales of $623 million in the same period of 2013. Olefins sales were up by $75 million due to higher sales prices for most of our major products and higher sales volumes for polyethylene and styrene. The increase in operating income was primarily due to higher Olefins integrated product margins as the increase in sales prices outpaced increases in feedstock and energy costs.

Olefins sales revenue of $699 million in the second quarter of 2014 decreased by $24 million compared to the $723 million reported in the first quarter of 2014. And operating income of $239 million in the second quarter of 2014 decreased by $34 million over the same period. Sales in operating income were lower due to lower sales volumes for polyethylene and by approximately $9 million impact for lower ethylene production due to an unplanned outage at one of our Lake Charles ethylene units in the second quarter of 2014, partially offset by higher polyethylene sales prices.

For the first 6 months of 2014, sales revenue of $1.4 billion for the Olefins segment increased by $216 million from the $1.2 billion in the first half of 2013, while operating income of $511 million increased by $163 million in the same period. The increase in sales was primarily due to higher prices and volumes for most of our major Olefins products, while the increase in operating results were driven by improved Olefins integrated margins resulting from the increased ethylene production at our Lake Charles complex after the first quarter 2013 completion of the Petro 2 ethylene unit expansion and its conversion to 100% ethane feedstock capability.

Now moving on to the Vinyls segment. The Vinyls segment reported operating income of $38 million in the second quarter of 2014 on sales revenue of $300 million, as compared to operating income of $53 million on sales of $316 million in the second quarter of 2013. Vinyls sales revenue decreased by $16 million driven by lower ethylene co-product production as a result of the change from propane to ethane feedstock at our Calvert City ethylene plant, following the conversion of the feedstock conversion project.

In addition, PVC resin sales volumes were lower in the second quarter of 2014 as compared to the prior year period. The operating results were lower due to higher cost-based propane -- based ethylene that flowed through the cost of sales in the second quarter 2014 and by turnaround and other nonrecurring costs associated with the first quarter maintenance turnaround and other activities at our Calvert City complex that carried over into the second quarter. Additionally, the second quarter 2014 Vinyls results were negatively impacted by lost PVC sales due to the extended downtime in the second quarter to complete the ethylene and PVC expansion projects. As we have completed the conversion of our Calvert City cracker to ethane, the full benefit of lower-cost ethane feedstock should now be more evident in the third quarter.

The Vinyls segment had operating income of $38 million from the second quarter of 2014 on sales of $300 million compared to an operating loss of $21 million on sales of $305 million in the first quarter of 2014. Second quarter Vinyls sales revenue was $5 million lower than the first quarter, driven by lower sales volumes for ethylene co-products, PVC pipe and resin, partially offset by higher selling prices for PVC pipe and resin. The increase in operating income in the second quarter was primarily the result of the negative impact in the first quarter of 2014 of the lost sales and production and related costs associated with the maintenance turnaround at our Calvert City complex. In addition, the second quarter of 2014 benefited from higher PVC prices and the ramp-up of production of our Geismar chlor-alkali plant, which was partially offset by lower sales volumes for PVC resin and higher cost propane-based inventory that flowed through our cost of sales.

For the first 6 months of 2014, sales revenue of $604 million for the Vinyls segment increased by $6 million from the $598 million in the first half of 2013, while operating income of $17 million decreased by $80 million in the same period. The increase in sales was primarily attributed to sales by our specialty PVC pipe business, mostly offset by lower ethylene co-products and PVC resin sales volumes and lower caustic sales prices. The change in operating results between the first half of 2014 and the first half 2013 were driven by the lost sales, lower production rates and the expensing of $20 million related to unabsorbed fixed manufacturing costs and other costs associated with a maintenance turnaround and ethylene feedstock conversion and expansion project in Calvert City. In addition, income from operations from the first 6 months ended June 30, 2014, was negatively impacted by lower PVC resin sales volumes, lower caustic sales prices and severe winter weather experienced in early 2014 and prior to the completion of the Calvert City ethylene feedstock conversion project or Vinyls integrated product margins attributable to significantly higher propane costs.

Now let's turn our attention to the balance sheet and the statement of cash flow. Cash generated from operating activities in the first half of the year was $432 million. And we spent $217 million on capital expenditures. As of June 30, 2014, we had cash balances of $876 million, and total debt was unchanged at $764 million. Our guidance for 2014 capital expenditures remains in the range of $475 million to $525 million.

Looking forward, into the second half of the year, I would like to highlight 2 items: On July 31, we completed the acquisition of the German-based specialty PVC manufacture, Vinnolit Holdings GmBH. Vinnolit had EBITDA of approximately EUR 40 million for the first half of 2014. We anticipate that third quarter benefits from this transaction will be offset by the required inventory writeup and associated transaction costs. Also we expect that if ethane prices continue to decline in the third quarter, our FIFO impact will be negative.

Now, I'll turn the call back over to Albert for some closing comments. Albert?

Albert Y. Chao

Thank you, Steve. In the second quarter, we continue to demonstrate strong results as well as announced 2 strategic initiatives. On July 31, we closed on our acquisition of Vinnolit, the global leader in specialty PVC. This acquisition along with our strong suspension grade PVC position in North America and our presence in Asia makes Westlake one of the leading global PVC manufacturers and suppliers and opens up new opportunities for growth.

Additionally, yesterday, we completed the initial public offerings of Westlake Chemical Partners LP, a new master limited partnership, which we believe creates value for our shareholders and provides a platform for future growth. We will continue to seek opportunities to further integrate our product chains as we plan our next ethylene expansion project for the end of 2015 or early 2016. We believe the investments Westlake has made lowered our costs and expand our product offerings into the specialty PVC markets. We remain confident in our long-term outlook, and we continue to focus on achieving our strategy to create value for our shareholders.

Thank you very much for listening to our earnings call this morning. Now, I'll return the call back over to Dave Hansen.

David R. Hansen

Thank you, Albert. Ladies and gentlemen, before we begin taking questions, I would 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're now prepared to take questions.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from the line of Edlain Rodriguez with UBS.

Edlain S. Rodriguez - UBS Investment Bank, Research Division

A quick question for you, Albert. I mean given what's going on in the industry right now, I mean we have the outages and everything else. And while your numbers came below expectations, when you look at industry fundamentals, I mean has anything changed for the worse, or is it still as strong as it was earlier in the year?

Albert Y. Chao

I think the industry fundamentals is quite strong. Our business is really impacted by the difference between gas prices and the international oil prices. And the gap between natural gas prices is still quite much below the international brand oil prices, which supports the polyethylene prices globally, as well as PVC prices. And as we see that ethane price recently has dropped to -- in the low 20s, which helped the ethylene cash costs. And there are prices going -- increases going on both domestically and overseas in polyethylene PVC. So I think the industry fundamentals are still quite strong.

Edlain S. Rodriguez - UBS Investment Bank, Research Division

Okay, just another question. We follow the ethylene production issues, and the market is extremely tight. What are you seeing in ethylene and polyethylene prices, let's say, for July, August and September? What do you expect prices to do going forward?

Albert Y. Chao

Basically there are -- 4 producers announced price increases in September in the 3 to 4 pound -- cents a pound range. And as you know, the spot ethylene prices have been in the $0.60 to $0.70 a pound in Houston and in the Riverside. And as the plants come back from their turnaround or their stoppages, we think that the ethylene price will moderate somewhat. But the future prices for ethylene are still quite strong going even into 2015.

Operator

Your next question comes from the line of Frank Mitsch with Wells Fargo Securities.

Frank J. Mitsch - Wells Fargo Securities, LLC, Research Division

You've been very busy. You closed Vinnolit late last week. You closed the MLP yesterday. You're announcing earnings today. I'm just wondering, what are you guys doing tomorrow?

Albert Y. Chao

Work.

Frank J. Mitsch - Wells Fargo Securities, LLC, Research Division

Work. Would possibly announcing something in terms of the pipeline dispute? And could you give us an update as to where you stand with the Texas Railway (sic) Commission on that, and when might we expect a resolution to that issue?

M. Steven Bender

Frank, it's Steve. As you think about that, that the Texas Railroad Commission has had hearings both in May, and we expect them in August and have not had a resolution of the issue that they heard in May, and of course, no conclusion on the issues that will be heard in August. So as you can imagine, these issues have and could continue in the -- continue to be pushed into the next stage. And if one party or the other wants to, they can appeal it or even take it into the court issue. So as you can see, it could continue for a while.

Frank J. Mitsch - Wells Fargo Securities, LLC, Research Division

I'm still betting on tomorrow. And then in -- you talked about the Geismar plant start-up and that you're ramping up operating rates, can you give us an idea as to where you are now in terms of that? And then as I look at the ECU metrics that you provide in the release, some of the industry data, it looks as if on a benchmark basis, your ECU would have been up $10-plus sequentially from Q1. What sort of realizations did you have there, and how do things look here in July in that area?

Albert Y. Chao

Yes. Our Geismar plant, as you know, we started the end of last year and tried to ramp it up through the first quarter and second quarter. We have had some new plant start-up problems. But pretty much, those issues are behind us. And the plants are running at or above industry operating rates. In terms of ECU, it bounces up and down. There were some announcements for caustic price increases by the industry, which by and large, did not go through. And so I would think it's pretty much flat ECU values.

Operator

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

James Sheehan - SunTrust Robinson Humphrey, Inc., Research Division

Could you provide us some comment on your building products prices and volume trends during the quarter?

Albert Y. Chao

Yes, the building products has been going, I would say, okay even though the season has come back and has had some improvement over the first quarter. It has not jumped up as people in the industry have expected. The prices reflect the improvements in PVC price. There's some PVC price announcements out there for August. So I think the pipe price reflects the increasing costs. But by and large, it has been okay, but it's not been doing great.

James Sheehan - SunTrust Robinson Humphrey, Inc., Research Division

And did those trends continue in July?

Albert Y. Chao

Yes.

James Sheehan - SunTrust Robinson Humphrey, Inc., Research Division

And could you also give us your thoughts on inorganic growth opportunities? Do you have any interest in getting bigger in chlor-alkali if the price were right?

Albert Y. Chao

Well, we look at opportunities both organically and inorganically in our business segments, mainly Olefins and Vinyls; go up and down the chain. So we will look at opportunities as they come.

James Sheehan - SunTrust Robinson Humphrey, Inc., Research Division

And finally, just on caustic demand, it seems to have been a little bit weaker than expected. What's your outlook for that going forward, and what's been the cause of the weakness?

Albert Y. Chao

Well, I think caustic demand has gone with the economy. As you know, the first quarter economy was pretty bad. It has improved second quarter. And I think it is just -- it follows the economy generally speaking. I don't think there's anything unusual going on there.

Operator

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

Donald Carson - Susquehanna Financial Group, LLLP, Research Division

Steve, just a clarification. The $4 million costs associated with Calvert City and the $9 million with the Lake Charles outage, was that just a direct cost of the outage, or did that include lost volumes? And going into Q3, do you have less inventory than you normally did? And then also one question on the MLP impact. Just wondering what's the net tax impact on putting those assets into the MLP from a Westlake standpoint?

M. Steven Bender

Don, as it relates to the impacts, the $4 million was really costs associated with the turnaround and just carried into the second quarter. The $9 million is related to lost volumes. As it relates to, I guess, your other question related to the tax impact related to the MLP, there has been -- and we've been very clear, we don't see adverse tax impacts to the parent nor to partners related to dropping these assets into and monetizing part of Westlake Chemical OpCo.

Donald Carson - Susquehanna Financial Group, LLLP, Research Division

And then your inventory position going into the third quarter because of the downtime, do you have lower-than-expected inventory? So is there going to be a -- some lost sales potential in Q3 as well?

Albert Y. Chao

I think our inventory was pretty low at the end of the first quarter. And we built some inventory back in the second quarter. So we're pretty much back into reasonable -- I won't say high range, but reasonable, comfortable range for inventories, in both our polyethylene and PVC segments.

Donald Carson - Susquehanna Financial Group, LLLP, Research Division

And then one final question. On the Vinnolit acquisition, I mean know you've long talked in North America about 70%, 80% of the PVC chain profitability comes from having a position in the monomer. And even though Vinnolit has a lot of specialty product, I'm just wondering why you would be interested in an operation with somewhat limited monomer supply?

Albert Y. Chao

Yes. Vinnolit produces its own chlorine, but it purchased ethylene in the marketplace. They have a leading global position in specialty PVC. They're adding the value from -- on chlorine-purchased ethylene. And we purchased at approximately 6x EBITDA at -- we think, at a low part of the business cycle for the European PVC business. And we believe there's synergy in terms of potential business in Asia and the U.S., which are not very active. And we are not very active in the European business either. So with those synergies at the price that we are paying, we think it's a reasonable return for us.

Operator

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

Hassan I. Ahmed - Alembic Global Advisors

Question around volumes. You guys obviously broke out the negative impact from Calvert City and Lake Charles. But as I look at the sequential volume trends that you've -- the numbers that you've given by segment, volume is down around 4% in Olefins, down around 7% in Vinyls. If these outages have not taken place, what would those numbers have looked like? The only reason I ask is as I looked at some of your competitors, and those sequential figures are somewhere close to 3%. Would you have been in line with those numbers?

M. Steven Bender

Hassan, it's Steve. As it relates to the Vinyls volumes, those are really related to the co-products. And as we've switched feedstocks from propane to ethane, obviously, that's going to have an impact in volumes. But in terms of margin, you can see, as I mentioned in my prepared remarks, we'll continue to see the significant bottom line impact of switching from propane to ethane. As it relates to the Olefins side, as Albert earlier commented, we built inventories back in both polyethylene and in Vinyls. And going forward, we're back at what I would consider more normal levels as we've gone through these operational and turnaround events. So we're back to, what I would consider, normal operating inventory levels.

Hassan I. Ahmed - Alembic Global Advisors

Fair enough. And switching gears to the ethane side of things, obviously, nat gas prices have come down as have ethane. But alongside that, we've heard a few newer announcements, Reliance in particular, may be considering ethane imports. Does that change in any way your near to medium-term view about, call it supply demand for ethane in the U.S.?

Albert Y. Chao

Not really; near term, definitely not. I think the Enterprise terminal, supposedly startup in third quarter of 2016. So near term, that's -- who knows, that today with the construction environment, whether the project's delayed or not. But at the same time with the announcement of this terminal, Enterprise also said they estimate by 2020, there will be 700,000 barrels a day of excess ethane. And the terminal can export only 240,000 barrels a day of excess ethane. So there's technically 460,000 barrels of excess ethane still in existence by year 2020.

Operator

Your next question comes from the line of John Roberts with UBS.

John Roberts - UBS Investment Bank, Research Division

Now that you've got the ethylene MLP complete, did you learn anything from the process that might make you think about chlorine as an MLP-able [ph] asset?

M. Steven Bender

John, as we continue to look at this MLP, we find that it was, I think, a very value-added exercise. And as we said very consistently, we'll continue to assess opportunities. But we see no other assets dropped into MLP at this stage.

John Roberts - UBS Investment Bank, Research Division

And then secondly, would there be an opportunity to close chlorine at Vinnolit and export monomer from the U.S.?

Albert Y. Chao

In terms of what?

John Roberts - UBS Investment Bank, Research Division

Export EDC or VCM over to Vinnolit?

Albert Y. Chao

Certainly, there's possibilities. And things we just closed this week, we are looking at ways to have synergies between the 2 businesses.

Operator

[Operator Instructions] Your next question comes from the line of Charles Neivert of Cowen and Company.

Charles N. Neivert - Cowen and Company, LLC, Research Division

A couple of quick questions. I know you guys don't export a lot of products. But I mean what are you seeing in the export markets for both the Vinyls side and the polyethylene side? Do they seem to be improving, or what do you see out there in terms of both volumes and pricing?

Albert Y. Chao

We see that the demands are pretty strong globally. It is the time, some time where a demand for polyethylene and PVC are both strong. And as I said, there's some price increases going on with the higher oil price.

Charles N. Neivert - Cowen and Company, LLC, Research Division

Okay. And then on the other side on the coin, on the new chlor-alkali unit, as a company if I understand it, you guys are generally -- if all the PVC is running, basically balanced in chlorine. But if you're not running all your PVC, you have some excess chlorine. Do you -- would you typically or until operating rates get higher, would you typically sell any chlorine? Or you're just going to basically run the balance?

Albert Y. Chao

Yes. We have -- we are -- even if we run our existing PVC plants, we will have a long excess in chlorine. We are expanding our PVC capacity, which will take some of that away. And if we have long, then we look at whether we can sell the chlorine in terms of EDC or ship it to our sister companies to make into PVC -- VCM, whether it's in Europe or Asia.

Operator

Your next question comes from the line of Jeff Zekauskas with JPMorgan.

Jeffrey J. Zekauskas - JP Morgan Chase & Co, Research Division

My impression is that caustic -- domestic caustic soda prices are hedging lower. Is that your impression?

Albert Y. Chao

I think it's pretty much flat. It has been hedging lower during the year. Definitely, it's lower than last year at the same period. But we have had 800,000 -- 880,000 short-term capacity additions by now. We added 350,000 tons capacity and Oxy added about 200,000 ton capacity. So those capacity are being absorbed by the industry, and it takes them a while to, for industry to balance itself.

Jeffrey J. Zekauskas - JP Morgan Chase & Co, Research Division

I don't think there was a PVC price increase in July, and ethylene prices are up. Why do you think that is, or can you speak to the overall PVC supply-demand balance? Where do you think industry operating rates are now?

Albert Y. Chao

Yes. I think for PVC, people were expecting the ethylene plants to come back. And as a result, the ethylene prices dropped. So people are waiting for PVC price to also drop. It turns out the ethylene price stayed high or went higher. And so there is a $0.02 a pound price increase for PVC in August. And we believe that, that will definitely go through. And well, time will tell in terms of the strength of PVC. But if you look at CDI's estimates, PVC operating rates for the second quarter is about 83%, and we expect the fourth -- third quarter of this year to go to 89.6%.

Jeffrey J. Zekauskas - JP Morgan Chase & Co, Research Division

What do you think is a normal operating rate for your Geismar chlor-alkali plant?

Albert Y. Chao

Well, it's all depending on our plants operations, both downstream and upstream. But I think we'll be at or above the industry operating rates.

Jeffrey J. Zekauskas - JP Morgan Chase & Co, Research Division

At or above. You don't think you can do much better than the industry operating rates? And then do you think you'll be at those rates?

Albert Y. Chao

At or above industry operating rates.

Jeffrey J. Zekauskas - JP Morgan Chase & Co, Research Division

Do you mean negligibly above or materially above? What do you mean?

Albert Y. Chao

It's depending on the supply and demand and also depending on EDC. I mentioned EDC exports.

Operator

Yes, sir, we have a follow-up from John Roberts with UBS.

John Roberts - UBS Investment Bank, Research Division

Do you, in the future, plan on releasing WLKP results simultaneous with WLK? And will WLK results change in any way as a result of the MLP?

M. Steven Bender

We will release partners results the same day that we release WLK's results. And because Westlake Chemical will consolidate partners, we will not see a material change. Obviously, there'll be a minority interest. But you'll consolidate, you'll see Westlake Chemical consolidated partners from a financial statement perspective.

John Roberts - UBS Investment Bank, Research Division

So the WLK release will essentially look very similar to what we've been getting in the past.

M. Steven Bender

That's correct.

Operator

At this time, that ends the Q&A. Are there any further remarks, closing remarks?

David R. Hansen

We would like to thank all of you for participating in today's call. We hope you will join us again for our next conference call to discuss our third quarter 2014 results. Have a great day.

Operator

Thank you for participating in Westlake Corporation second quarter earnings conference call. As a reminder, this call will be available for replay beginning 4 hours after the call has ended and may be accessed until 11:59 p.m. Eastern time on Tuesday, August 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 62091806.

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