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Westlake Chemical Corporation (NYSE:WLK)

Q4 2011 Earnings Call

February 21, 2012 11:00 AM ET

Executives

David Hansen – VP, Administration

Albert Chao – President and CEO

Steve Bender – SVP and CFO

Analysts

Kevin McCarthy – Bank of America

Brian Maguire – Goldman Sachs

Jeff Zekauskas – JPMorgan

Don Carson – Susquehanna Financial

Frank Mitsch – Wells Fargo Securities

Gregg Goodnight – UBS

Bill Kavaler – Oscar Gruss

Operator

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Westlake Chemical Corporation’s Fourth Quarter 2011 Earnings Conference Call. During the presentation, all participants will be in a listen-only mode. After the speakers’ remarks you will be invited to participate in a question-and-answer session. As a reminder, ladies and gentlemen, this conference is being recorded today February 21, 2012.

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 Hansen

Thank you very much, and good morning everyone, and thank you for joining us for the Westlake Chemical Corporation’s fourth quarter 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 agenda for today will be as follows: Albert, will first make a few comments regarding Westlake’s performance and the strategic initiatives we have under way. Steve, will then provide you with a more detailed look at our financial and operating results. Albert, will have a few concluding comments and then, we’ll 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, we have submitted a proposal to Georgia Gulf Corporation to acquire all of its outstanding shares for $35 per share. During our prepared remarks, we will briefly comment on the Georgia Gulf proposal. During this conference call, we will not respond to any callers’ questions regarding Georgia Gulf. Please note that our communication today does not constitute an offer to sell or the solicitation of an offer to buy any securities. No tender offer for the shares of Georgia Gulf has been made at this time. If and when a tender offer is made, we will file relevant materials with the SEC.

Westlake issued earlier this morning a press release with details of our quarterly 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 two hours after completion of this call until 1:00 P.M. Eastern Time on February 28, 2012. 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 75680375. Please note that the information reported on this call speaks only as of today, February 21, 2012. 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 at 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. The year 2011 has proved to be another successful and strategically important year for Westlake. We celebrated our 25th anniversary in 2011 by achieving record earnings. Our record earnings of $259 million or $3.87 per share in 2011 grew by 17% year-over-year driven by improved Vinyls margins and continued strong performance from our Olefins segment.

The fourth quarter presented the industry with a challenging environment as ethane feedstock prices increased compared to the previous quarter and seasonal destocking across the supply chain caused derivative prices to fall early in the quarter. During the year, Westlake embarked on a series of capital expenditures that would expand our integration, reduce our production costs, and boost earnings into the future. These backward integration projects will expand the company’s capacity in ethane-based ethylene and in chlorine and caustics which will complete upstream integration in our Vinyls chain.

The significant investments we are making using our existing cash resources demonstrates our confidence and optimism about the future of our Olefins and Vinyl businesses. Our ethane-based ethylene plants will benefit from the expanding supply of ethane from shale gas production in North American and the development of infrastructure necessary to deliver this lower cost feedstock to our plants. In 2012, we will complete one of two expansion programs with increased ethane-based capacity of our ethylene crackers in Lake Charles, Louisiana with a second expansion plant for completion in 2014.

We’ll be fully integrated chlorine feedstock with the completion of our chlor-alkali facility in 2013, and we are continuing our engineering study, convert our propane-based ethylene cracker in Calvert City, Kentucky to ethane by 2014 to take advantage of the larger volume of ethane coming from the Marcellus and Utica shale plays. These projects will take advantage of the ethane pipeline infrastructure that will bring ethane on the Marcellus and other shale areas through Lake Charles and Calvert City.

Thus I am confident in our ability to achieve earnings growth, as we remained focused on executing our strategic plans towards integration with advantaged feedstock. Now let me turn over to Steve for a more detailed look at our financial and operating results. Steve?

Steve Bender

Thank you, Albert, and good morning, everyone. I’ll being with a discussion of the consolidated financial results followed by a more detailed discussion of our Olefins and Vinyls segment results. Let me start with our consolidated results.

Westlake reported fourth quarter net income of $26.4 million or $0.40 per share compared, to a net income of $84.1 million or $1.26 per share in the fourth quarter of 2010. Sales for the fourth quarter 2011 of $859 million were $64 million higher than sales of $795 million reported in the fourth quarter of 2010, as a result of higher sales prices for caustic, styrene and building products, and higher sales volumes for polyethylene offset by lower building product sales volumes. Westlake’s operating income for the fourth quarter of 2011 was $50 million, a decrease of $87 million compared to an operating income of $137 million in the fourth quarter of 2010. The decrease in operating income was the result of lower Olefins margins and lower domestic and export PVC resin margins as feedstock remained elevated and product prices did not keep pace with feedstock prices.

As Albert noted, the fourth quarter experienced a destocking in both polyethylene and PVC due to seasonal issues and a slower economic outlook. Seasonally weaker domestic demand prompted Westlake and the industry to increase PVC resin export volume in the fourth quarter, although, these export sales were at lower prices than we experienced earlier in the year. Sales in the fourth quarter of 2011 were $859 million. The decrease in sales revenues compared to the third quarter was the result of lower Olefin sales volumes in the fourth quarter as well as the decline in polyethylene, PVC resin, and ethylene co-products prices offset by an increase in PVC resin volumes. Operating income of $50 million in the fourth quarter 2011 was $67 million less than a $117 million reported in the third quarter of 2011. The decrease in operating income was a result of reduced Olefins margins and reduced margins in PVC resin sales, that resulted from an increase in feedstock cost and price declines for both PVC resin and polyethylene.

Full-year 2011 earnings of $259 million were 17% higher than earnings of $221 million in 2010. Sales for the full-year 2011 of $3.6 billion increased 14% or $448 million over 2010 sales, primarily as a result of higher prices for all of our major Olefins and Vinyls products. Operating income for 2011 was $447 million compared to the $378 million for 2010, an increase of $69 million or 18%. The increase in operating income was primarily the result of higher margins on PVC resin sales and higher caustic prices.

PVC resin sales volumes and margins increased during 2011 compared to 2010 as both domestic and export PVC resin saw higher sales volumes and higher margins. Industry exports of PVC resin grew in 2011 to approximately 39% of industry sales compared to 35% in 2010. Lower cost ethane-based ethylene production in U.S. continues to give the U.S. an export advantage for PVC resins. Caustic prices also continued to rise in 2011 due to the industry supply disruptions and increasing demand.

Now let’s review the performance of our two segments, starting with the Olefins segment. The Olefins segment reported an operating income of $76 million on the sales of $622 million during the fourth quarter of 2011, compared to an operating income of $155 million from the sales of the $564 million in the fourth quarter of 2010. These lower operating income results were caused by significant increases in feedstock costs in the fourth quarter as the industry experienced seasonally slower sales and customer destocking resulting in downward pressure on Olefins margins. While our Olefins segment benefited from higher sales volumes in the fourth quarter of 2011, than in the same period in 2010, margins were lower as a result of higher ethane and propane feedstock costs. As a result of higher ethane feedstock costs, elevated ethylene prices and improved demand near the end of the fourth quarter, polyethylene producers implemented a $0.05 per pound increase in December.

For the year 2011, the performance of our Olefins segment remained very solid and comparable to 2010 results with the operating earnings for the year 2011 of $459 million. Olefins 2011 sales volumes were only slightly lower than in 2010 but Olefins margins were stronger in 2011. Looking forward into 2012, ethane feedstock prices have decreased significantly due to improved availability of ethane feedstock coupled with an extended industry ethylene cracker turnaround schedule.

The busy industry turnaround season will impact approximately 11% of North American production during March, April and May. Due to sustained polyethylene demand and persistently elevated prices for ethylene, polyethylene producers announced a $0.06 per pound price increase for February and a $0.07 per pound price increase for March.

Now let’s discuss the Vinyl segment. The Vinyl segment reported an operating loss of $19.6 million in the fourth quarter 2011, compared to an operating loss of $12.4 million in the fourth quarter of 2010 largely the result of a significant increase in the ethylene feedstock costs, a drop in ethylene co-product margins at our Calvert City plant and a decrease in export PVC resin margins.

PVC industry exports in the fourth quarter of 2011 represented approximately 45% of sales as export sales offset the lower domestic sales volumes, resulting from seasonal reductions and the continued weakness in the construction markets.

The decrease in PVC resin margins were partially offset by an increase in PVC resin sales volume and higher sales prices for caustic. Vinyl segment sales increased $6 million primarily as a result of higher caustic and building product prices and higher PVC resin sales volumes offset by lower building product sales volumes. For the year 2011, the Vinyl segment reported an operating income of $4 million, a marked improvement compared to an operating loss of $62 million in 2010.

Vinyl sales in 2011 were $1.1 billion compared to $911 million in 2010. The increase in operating income for the year 2011 was a result of higher caustic prices, higher domestic and export PVC resin margins, higher building product margins and higher PVC resin sales volumes offset by lower building product volumes. Operating income which improved to $66 million over 2010 was negatively impacted by $18 million due to a major turnaround at our Calvert City facility and the closure of a pipe manufacturing facility.

Looking forward to the first quarter, the industry has implemented a $0.03 per pound price increase for PVC resin in January and has announced some additional $0.02 per pound price increase to be implemented in February. Caustic demand remains strong in the fourth quarter and the industry was able to implement price increases totaling $45 per ton compared to the third quarter. Currently several additional price increases have been announced by producers for the first quarter.

Now turning to the balance sheet and the statement of cash flow, we generated $362 million in cash from operating activities during 2011 and spent $177 million on capital expenditures. Our cash balance including restricted cash was $922 million and our total debt was $765 million at the end of the year. For 2011, we acquired $2.5 million of stock under our share buyback program and we will continue to pursue purchases on an opportunistic basis in the future.

Now for 2012 modeling purposes here are a few items to consider. 2012 will include significant capital expenditures for our integration projects that Albert mentioned. And our guidance for 2012 capital expenditures is between $400 million and $450 million. These expenditures to be funded from cash on hand. One of our Lake Charles, Louisiana ethylene crackers will undergo both a turnaround and an expansion in the fourth quarter 2012. There are no other planned outages.

Our capital expansion program will span the next three years in order to expand our production base and to lower our costs. We will also continue to pursue investment opportunities that bring value to our shareholder. We will maintain our financial strength and flexibility, and we have sufficient resources to better disposal to fund our capital programs and fund future growth opportunities.

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

Albert Chao

Thanks Steve. I am pleased with Westlake’s financial performance during 2011, as we achieved record earnings in a year with a difficult economic uncertainty. 2011 also saw the start of work on our chlor-alkali project that in 2013 will complete our chlorine integration. We are on track to execute our ethylene expansions one in 2012 and the other in 2014. We continue to evaluate conversion of our Calvert City ethylene unit to ethane which could be completed by 2014.

Westlake is highly levered to U.S. ethane, and our ethylene integration projects are designed to capitalized on the structural changes in the U.S. natural gas liquid markets, and deliver meaningful future earnings growth. Looking forward in 2012 and 2013, we see fractionation and pipeline infrastructure construction accelerating that will deliver increasing supplies of ethane to the petrochemical industries.

We’re already seeing a remarkable drop in the price of ethane feedstock beginning in January of this year, since the end of December 2011 through mid-February of this year ethane prices has fallen approximately $0.30 a gallon which has resulted in a decrease of approximately $0.15 a pound in a cash cost produced ethylene. The increasing supply of an ethane and addition of ethylene cracking capacity from our de-bottleneck project this year, will meaningfully improve our cost position in ethylene, polyethylene and PVC.

Including improvements in our cost positions, we’ll continue to sustain our global competitive position for PVC exports as we see domestic markets gradually recover. In summary, our earnings power has grown and will continue to grow because of the fundamental structural shift in cost curves. Therefore we will continue to focus on opportunities to deliver value while maintaining company’s financial strengths to pursue future growth opportunities.

Now I’d like to say a few words about our proposal to acquire Georgia Gulf. In our view a combination of Georgia Gulf with Westlake on the terms we have proposed would provide significant benefits to both company’s shareholders. Georgia Gulf shareholders would receive an immediate and substantial premium. The combined company would have additional scale and improved cost structure and additional growth opportunities. Together I believe, we’ll be well positioned to meet the industry and the economic challenges that will face us over the coming years.

We continue to be interested in good faith negotiations with the Georgia Gulf Board and its management. And we are willing to explore where opportunities exists that would justify increasing our proposed price. That said, I want to emphasize that we are a disciplined acquirer with extensive industry knowledge, and we know what Georgia Gulf is worth. We continue to believe our proposal is a good one and represents superior value compared to where Georgia Gulf will be trading absent a transaction and on a standalone basis.

We have not withdrawn a proposal so far. However at some point if we do not see a real change in approach from Georgia Gulf’s Board and management, we likely will. Thank you very much. Now let me turn the call over to Dave Hansen.

David Hansen

Thank you Albert. Before we begin taking questions, I would like to remind you that a replay of this teleconference will be available starting two 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 calls regarding our earnings release.

Question-and-Answer Session

Operator

(Operator Instructions) And your first question will come from the line of Kevin McCarthy with Bank of America. Please proceed.

Kevin McCarthy – Bank of America

Yes, good morning. Albert, you referenced the significant volatility in ethane feedstock cost with the feed down nearly 40% on a year-to-date basis notwithstanding a small bounce in recent sessions. What is your outlook for ethane for the remainder of 2012, perhaps you can talk a little bit about why it’s declined so rapidly, and where you think it might go in coming quarters? And also is there anything that Westlake can do to lock-in low levels for any period of time? Thank you.

Albert Chao

Certainly, yes, ethane prices were quite elevated in the last quarter of 2011. And various reasons, partly because of supply logistics updating y-grade [ph] fractionators, as well as some of the operations on the fractionators. We believe that things then a lot more logistic problems were solved, and also second half of last year, a number of expansions in the fractionation capacities along the Gulf Coast came on stream.

As we speak, this year and next year there will be additional 700 or 1,000 barrels of new fractionation capacity coming on stream. So we believe there will be a lot more supply of ethane and the ethane base, the U.S. ethylene industry will benefit from the decrease in ethylene price. Certainly there is various views on the future ethylene price. CMI [ph] gave some guidance for ethane for 2012 to be in the $0.60 odd range and dropping down to $0.50 odd range later on this year.

Then there is some futures as you mentioned, indices and of future price, which is more like $0.50 odd – around $0.50ish for this year. Time will tell what those price would be but we believe that it will be substantially lower this year than last year.

Kevin McCarthy – Bank of America

OK, very good. And then couple of financial questions for Steve, if I may, first, could you comment on the impact of FIFO inventory accounting may have had on profit in the quarter. And then second Steve, it looks like your CapEx is set to more than double, perhaps you could provide some color on how much is your mark for ethylene expansion versus chlorine integration and some of your other key projects?

Steve Bender

Kevin, our FIFO versus LIFO impact in the quarter was just a $1 million on an after-tax basis this quarter. Now in terms of the capital expenditure, well we don’t break it out by segments, you would imagine that a meaningful portion of the number I guided the $400 million to $450 million is really destined for the two projects, the chlor-alkali project which won’t be completed until 2013 but we will complete the de-bottlenecking expansion this year in Lake Charles. So those are the two big drivers.

Kevin McCarthy – Bank of America

Okay, thank you.

Albert Chao

Welcome.

Operator

Your next question comes from the line of Brain Maguire with Goldman Sachs. Please proceed.

Brian Maguire – Goldman Sachs

Hi good morning.

Albert Chao

Good morning, Brian.

Steve Bender

Good morning Brian.

Brian Maguire – Goldman Sachs

I was hoping you could give some update on the Calvert City feedstock flexibility study and maybe when we might get the timing on an announcement there, and whether or not the enterprise announcement that they are going ahead with their Marcellus pipeline will have a big impact on that project going forward now?

Albert Chao

Well, certainly yes, the pipeline that will bring ethane from Marcellus down to the Gulf Coast would pass by our ethylene plant. And we are studying the conversions on the propane cracker to ethane cracker. And we expect sometime in this year to announce what the conversion will be.

Brian Maguire – Goldman Sachs

Okay, great. And then on the outage at Geismar, can you kind of size the impact there on the fourth quarter operating rate and on EBITDA?

Steve Bender

It was very small. It was just part of our normal annual maintenance there was very small.

Brian Maguire – Goldman Sachs

Okay, got it. And then in the first quarter, I know one of your competitors in LDPE had a pretty significant outage, are you expecting a big impact to volumes and margins to kind of makeup for some of the lost production of that competitor?

Albert Chao

Well as Steve mentioned that we have a $0.06 a pound increase for February and further $0.7 per pound a price increase for March.

Brian Maguire – Goldman Sachs

Got it. One last one if I could I sneak it in. The drop in natural gas prices here in the first quarter has been pretty significant. I know you kind of benefited a little bit more indirectly from that, but are you anticipating a big benefit on your chlor-alkali electricity costs as a result of that?

Albert Chao

Yes, we believe most of our costs on Gulf Coast are based on natural gas power costs. So we’ll get a benefit from that.

Brian Maguire – Goldman Sachs

Okay, I’ll get back in the queue. Thank you.

Albert Chao

Thank you.

Steve Bender

Thank you.

Operator

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

Jeff Zekauskas – JPMorgan

Hi, good morning.

Albert Chao

Good morning Jeff.

Steve Bender

Good morning, Jeff.

Jeff Zekauskas – JPMorgan

Hi, I was wondering, Albert, if you could reflect a little bit more on the high price of ethane in the fourth quarter of 2011? In that gas plant production I think it was something like 975,000 barrels per day, and it looks as though industry operated at such a level that supply and demand were more evenly matched. And then there have obviously been turnarounds and there has been a surplus of ethane. But do you think that the high price of ethane, I am sorry, do you think the high price of ethane in the fourth quarter was due to various logistical bottlenecks or different operating problems, or do you think it was the period of time when just supply and demand were well matched?

Albert Chao

I think all the above. And I think also that this year especially in the first half as Steve mentioned, there are substantial number of turnarounds in the ethylene industry that also reduce ethane’s requirements for the first half of this year.

Jeff Zekauskas – JPMorgan

So I understood the drift of your comments before it be that you thought that ethane would be relatively low this year. Why is that in the second half, why shouldn’t ethane rise as capacity comes back on?

Albert Chao

Yes, I think you’re right, the ethane demand will increase but also the additional fractionation capacity come on stream as well. And also some of the logistics of supplying whether the gas plants or fractionators will also be improved and the additional pipelines which is bringing ethane in the past, the stranded ethane to bring down to non-building areas. So there is more supply and also you’re right, when all the ethylene plants come on stream in the second half of this year, but it’s still turnaround second half of this year including our plants. But the supply and demand will be somewhat different.

Jeff Zekauskas – JPMorgan

So you think that ethane supply by mid-year of 2012 will be very different from what ethane supply was like in the fourth quarter of ‘011?

Albert Chao

We believe so, yes.

Jeff Zekauskas – JPMorgan

Okay, thank you very much.

Albert Chao

You’re welcome.

Operator

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

Don Carson – Susquehanna Financial

Yes, thank you. You talked about de-stocking in the fourth quarter in both Olefins and Vinyls. Can you talk a bit about what trends you’ve seen thus far in Q1 in both segments as well as in export versus the offshore markets? And then on the Vinyls, what was your fourth quarter operating rate and have you moved up with the industry and just worrying about your outlook for caustic pricing given that supply seem to be increasing here and prices stagnating somewhat?

Albert Chao

Certainly, let’s start on the questions about Vinyls. I think we operate close to industry operating rates. And as Steve mentioned, the export market was very strong fourth quarter, because of the lack of domestic demand.

And in terms of export wise, we feel that both exports in polyethylene and PVC can be strong. Prices in Asia for both polyethylene and PVC are going up. Ethylene price is going up in Asia as well, with still stronger demand for oil products in Asia. As far as caustic is concerned, as more production for chlorine for the Vinyl business, there is more production of caustic.

As Steve mentioned also, there are a number of caustic price increase announced for the first quarter, and time will tell whether those increases will be able to be implemented.

Don Carson – Susquehanna Financial

Just one follow-up in your Asian comments, are you seeing increased evidence that there is restocking of both polyethylene and PVC by Asian distributors or is it too early to tell yet?

Albert Chao

I think it’s too early to tell. I think that we had early Chinese New Year in January this year rather than in February. And we do not see the Chinese New Year being a material impact on handful commodity polymers.

Don Carson – Susquehanna Financial

Okay, thank you.

Albert Chao

You’re welcome.

Operator

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

Frank Mitsch – Wells Fargo Securities

All right, terrific. If I could follow-on in terms of the trends here in the first quarter, so we’ve seen some pickup sequentially on the volume side of things. How would you compare if you look year-over-year the margins that you’re booking right now, let’s say January ‘012 to January ‘011?

Albert Chao

Yes, certainly we have price increases as we announced for both polyethylene and PVC. And with the drop in ethane price, our margin in both in the Olefins and Vinyl side would improve. Last year if you remember there was – in March or April there was a tsunami in Japan which cost disruption in the Vinyl business. We hope there won’t be anything like this year. But as we speak now the margins should improve.

Frank Mitsch – Wells Fargo Securities

All right, terrific. And then in the fourth quarter, obviously your Vinyl business was a disappointing loss and you talked about some of the PVC resin margins as being a part of that. Could you expand upon the building product business, how is the building products business fairing, and what is your expectation for that unit in 2012?

Albert Chao

As Steve mentioned in his section fraction that building products in 2011 improved in margins compared with 2010. And we will see that as the construction market improves, albeit very gradually that it should also improve. As far as last quarter in Vinyls, big suddenly the demand for both PVC and building products domestically were quite weak, but also we were impacted in our Vinyls business by the high propane price which feeds into our Calvert City ethylene plant and low by-product credits again what Steve mentioned which is propane. And propylene and Mixed C4 those price were down in the fourth quarter.

So it will impact us by that high cost propane ethylene cracking cost, which is reversing now propane has come down a lot as we speak in the first quarter. And those propylene price and Mixed C4 has increased.

Frank Mitsch – Wells Fargo Securities

Okay, great. And then lastly, you did talk a little bit about share buyback that you’ve done, I mean it’s been at this point it hasn’t been a very large part of what (inaudible) what would have to happen for Westlake to be a more active participant in the share buyback market?

Steve Bender

Frank, as I said earlier in my comments that we’ll continue to be looking at the markets on an opportunistic basis. And obviously we’ll report those on a trailing basis but we certainly will continue to be opportunistically in this market.

Frank Mitsch – Wells Fargo Securities

Okay, great. Thank you.

Operator

Your next question comes from the line of Gregg Goodnight with UBS. Please proceed.

Gregg Goodnight – UBS

Good morning gentlemen.

Steve Bender

Good morning, Gregg.

Albert Chao

Good morning, Gregg.

Gregg Goodnight – UBS

It sounds like your Calvert City study is moving along with a good cliff. At this point are there any details you can fill us in on for instance capital cost or maybe in a range turnaround timing what length of time your cracker would be out and then finally, would this be a capacity of expansion or sort of a breakeven on the capacity?

Steve Bender

Yes, Gregg, as we do our analysis now, I don’t want to give any capital cost yet from a guidance point of view because we obviously haven’t finished that analysis. But as part of that analysis we will be assessing what size that cracker could be expanded to in a cost effective basis. So those are questions that we hope to able to respond to and disclose once we complete our study later this year.

Gregg Goodnight – UBS

Okay. In terms of the ethane, you mentioned it would be Marcellus ethane, how should we think about the cost for that ethane, a Mont Belvieu [ph] equivalent plus or minus, or conceptually you probably haven’t finished all your negotiations in the area but conceptually how we should think about it?

Steve Bender

Well certainly as we set the feedstock there, we’re not going to get in and talk about particular pricing that we see in the marketplace but this will certainly be a market based oriented price for feed.

Gregg Goodnight – UBS

So it will be a competitive, I guess?

Steve Bender

It will be competitive.

Gregg Goodnight – UBS

Okay. Finally, you mentioned the exports in the fourth quarter, would you characterize that level of exports continuing here in the first quarter or has domestic demand picked up sufficiently where the exports have gone down as a percentage of total?

Albert Chao

Yes, I think that demand is still strong, but we have to look at our feedstock cost, as you know the ethylene prices moved up a lot during the first quarter. And that would impact people buying ethylene in the market. And we are a buyer of ethylene in the market shortfall right now.

Gregg Goodnight – UBS

Okay. So you’re exporting on the margin obviously? So Okay, I appreciate the comments, Chao.

Albert Chao

You’re welcome.

Operator

Your next question comes from the line of Bill Kavaler with Oscar Gruss. You may proceed.

Bill Kavaler – Oscar Gruss

Hi, you’ve basically threatened to withdraw your offer for Georgia Gulf. Unfortunately, there really isn’t an offer, there is a couple of letters back and forth to the Board. There is – you decided not to run outside directors [ph], you’ve got no hostile exchange offer. So, there is really no way for shareholders to really express their dissatisfaction with the Georgia Gulf Board, if they have any. Can you tell us whether you plan to launch its hostile exchange offer or why you will not?

Albert Chao

As we said earlier, we would not make any more comments other than what we had said so far on the conference call.

Bill Kavaler – Oscar Gruss

Okey-dokey. Thank you.

Albert Chao

Thank you.

Operator

Your next question is a follow-up from Mr. Brian Maguire with Goldman Sachs. Please proceed.

Brian Maguire – Goldman Sachs

Hi, it’s a follow-up question or two, about my math once you’re done with all of your expansion projects and your vertical integration project, so I should be a little bit long chlorine and ethylene. Do you guys have an opportunity to de-bottleneck some of your downstream facilities to be able to consume that or do you think that the merchant market is big enough that it could absorb it?

Albert Chao

Well, all the above.

Brian Maguire – Goldman Sachs

Okay, then just one last one. Most of your competitors in the commodity chemical space are paying a pretty hefty dividend these days, pretty high dividend yield and you guys are still down closer to a half a percent on your yield, any thoughts on capital allocation as it pertains to the dividend and maybe raising that closer to where the peer group is?

Steve Bender

Brian, our Board assesses that on a very regular basis and certainly as you would imagine this would be a topic that they will continue to assess on a regular basis. I can’t make any further comment of what the Board’s action might be.

Brian Maguire – Goldman Sachs

Okay. Thanks very much.

Operator

And we have time for one more question. Your last question will come from the line Jeff Zekauskas with JPMorgan. Please proceed.

Jeff Zekauskas – JPMorgan

Thanks for taking my questions.

Albert Chao

You’re welcome.

Jeff Zekauskas – JPMorgan

In Calvert City, you want to convert your propane cracker into an ethane cracker. Why is it over a longer period of time that you have a preference for ethane versus propane, and is it a strong preference?

Albert Chao

Yes, from what we’ve experienced in the last several years is that propane price tends to fluctuate more with oil. As you know there are propane terminals that export propane to overseas. So with the abundance of ethane supply coming on from the various shale, across the U.S. we believe that ethane price would be more attractive from an ethylene feedstock quantity than propane.

Jeff Zekauskas – JPMorgan

And this is a strong preference you have?

Albert Chao

Yes, we believe.

Jeff Zekauskas – JPMorgan

Okay, thank you very much.

Albert Chao

You’re welcome.

Operator

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

Albert Chao

Well we would like to thank you for participating in today’s call. We hope you will join us again for our next conference call to discuss our first quarter 2012 results. Have a wonderful day.

Operator

Thank you for your participation in today’s Westlake Chemical Corporation fourth earnings conference call. As a reminder, this call will be available for replay beginning two hours after the call has ended, and you may access until 1:00 PM Eastern Time on Tuesday February 28, 2012. The replay could 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 the numbers is 75680375. Ladies and gentlemen this concludes today’s conference. Thank you for your participation. You may now disconnect. Have a wonderful day.

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