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Westlake Chemical (NYSE:WLK)

Q1 2012 Earnings Call

May 01, 2012 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

Brian Maguire - Goldman Sachs Group Inc., Research Division

James Sheehan - Deutsche Bank AG, Research Division

Donald Carson - Susquehanna Financial Group, LLLP, Research Division

Aleksey V. Yefremov - BofA Merrill Lynch, Research Division

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

Hassan I. Ahmed - Alembic Global Advisors

Tarek Hamid - JP Morgan Chase & Co, Research Division

Gregg A. Goodnight - UBS Investment Bank, Research Division

Robert Reitzes

Operator

Good morning, ladies and gentlemen, thank you for standing by. Welcome to the Westlake Chemical Corp. First Quarter 2012 Earnings Conference Call. [Operator Instructions] As a reminder, ladies and gentlemen, this conference is being recorded today, May 1, 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 R. Hansen

Thank you. Good morning, everyone, and thank you for joining us for the Westlake Chemical Corp. first 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 in the first quarter and current perspective on the industry. 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 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 and 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, earlier this year, we publicly announced a proposal to acquire all of the outstanding shares of Georgia Gulf Corporation. We continue to believe that combining the 2 companies would be beneficial to Westlake. While we are still evaluating this acquisition opportunity, during our prepared remarks, we will not comment further on our proposal and we will not be able to respond to any caller's questions regarding Georgia Gulf. 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 2 hours after completion of this call, until 11:59 p.m. Eastern time on May 8, 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 12583170.

Please note that information reported on this call speaks only as of today, May 1, 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 on our webpage at westlake.com.

Now I'd like to 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. Westlake had a record first quarter and delivered the highest quarterly net income in our history. We reported net income of $87.8 million, or $1.31 per diluted share in the first quarter. We saw sales volumes increase sequentially in both our segments, and margins expanded as ethylene feedstock costs declined significantly. During the first quarter, ethane and poly [ph] feedstock costs decreased driven by the growing supply of these feedstocks and reduced demand as the industry saw a higher level of ethylene plant maintenance turnaround impacting approximately 7% of industry production capacity. The impact of these feedstock price declines resulted in another quarter of strong performance by our Olefins segment and the best Vinyls segment performance since mid-2008. The PVC industry saw its highest domestic and total revenue sales volumes during the first quarter since the second quarter of 2008. Our Vinyls domestic sales volumes improved over those in the first quarter of 2011 and those in the fourth quarter of 2011 as well.

The combination of improved sales volumes due to an earlier start to the construction season as a result of a warm winter and lower feedstock costs drove a significant improvement in earnings in our Vinyls segment this quarter. The lower feedstock costs we saw in the first quarter indicate to us that increased production of natural gas liquids has had, and will continue to have, a positive impact on our feedstock costs. The growing supply of natural gas liquids coming from new shale gas production, new NGL transmission plants and new pipelines should provide lower cost feedstocks for years to come, providing a globally competitive cost position for the ethane-based North American ethylene industry. During the first quarter of 2012, ethane-based ethylene had an average $0.30 per pound production cost advantage over naptha-based ethylene, putting producers who use naptha feedstock at a significant disadvantage. I'm encouraged by this quarter's performance, and I remain confident that feedstock cost advantage resulting from increased production of natural gas liquids will continue to have a very positive impact on our industry.

Now let me turn over to Steve for a more detailed look at our financial and operating results.

M. Steven Bender

Thank you, Albert. And good morning, everyone. I will begin with a discussion of a consolidated financial results followed by a more detailed discussion of our Olefins and Vinyls segment results. Let me start with our consolidated results. As Albert stated earlier, Westlake reported a net income for the first quarter of 2012 of $87.8 million, or $1.31 per diluted share compared to a net income of $83.5 million, or $1.25 per share in the first quarter of 2011.

Sales for the first quarter of 2012 of just over $1 billion were $168 million higher than sales of $867 million reported in the first quarter of 2011 as a result of higher sales prices and volumes for all vinyls products and sales of feedstocks. Westlake's operating income for the first quarter of 2012 was also a record at $146 million, an increase of $5 million compared to the operating income of $141 million in the first quarter of 2011. The increase in operating income compared to the first quarter of 2011 was a result of higher volumes and prices for PVC resin, building products and caustic, offset by lower integrated Olefins margins. Domestic PVC sales increased in the first quarter reflecting a gradual improvement in the construction markets and lower PVC resin exports. Sales of just over $1 billion in the first quarter of 2012 were $176 million higher than sales in the fourth quarter of 2011. The increase in sales revenue was a result of higher sales volumes for PVC resin, building products and caustic and sales of feedstocks. The first quarter operating income of $146 million was $95 million higher than the fourth quarter of 2011, due to higher integrated Olefins sales margins, higher sales margins on PVC resin, higher coproduct prices and higher sales volumes for PVC resin, building products and caustic.

Now let me review the performance of our 2 segments. Starting with the Olefins segment. The Olefins segment reported operating income of $129 million on sales of $732 million during the first quarter of 2012, compared to an operating income of $145 million on sales of $605 million in the first quarter of 2011. The lower operating income was a result of lower integrative Olefins margins compared to the first quarter of 2011 as a result of high cost feedstock in inventory at the end of the fourth quarter flowing into the first quarter.

While integrated Olefins sales margins in the first quarter of 2012 were strong, our use of FIFO inventory accounting caused the margins to be reported lower than the first quarter of 2011. Olefins operating income of $129 million in the first quarter of 2012 was $53 million higher than operating income of $76 million in the fourth quarter of 2011. The increase in operating income was a result of higher integrated olefins margins due mostly to a decrease in ethane feedstock cost and an increase in ethylene prices resulting from lower ethylene supply.

The industry was able to increase polyethylene prices a total of $0.06 a pound during the quarter to offset the elevated ethylene prices that persisted throughout the first quarter.

Looking forward to the second quarter, the industry have announced an additional price increase of $0.07 a pound and having [ph] maintenance turnaround schedule is expected to take approximately 8% of ethylene capacity offline during the quarter, which may keep ethylene prices elevated during the period.

Now let's discuss the Vinyls segment. The Vinyls segment reported its highest earnings from operations since the third quarter of 2008, with operating earnings of $21 million in the first quarter of 2012 compared to a loss of $3 million in the first quarter of 2011. The increase in earnings was a result of higher Vinyls chain sales margins and sales volumes. Sales margins in the first quarter of 2012 improved as a result of higher PVC resin, building products and caustic prices as well as lower propane costs and higher coproducts revenue.

The operating income included $1.3 million in expenses related to a fire at our Geismar, Louisiana facility that occurred at the end of March. The total cost of the fire including the lost production and repair is estimated to between $5 million and $7 million, so we will see some of the impact of this event carryover into the second quarter.

The Vinyls Olefin -- excuse me, the Vinyls operating income of $21 million in the first quarter of 2012 was a significant improvement over the operating loss of $20 million reported in the fourth quarter of 2011. The improvement on operating income was a result of improved propane-based ethylene economics, higher sales volumes for PVC resin, building products and caustic and higher PVC resin sales prices. As a result of the stronger domestic PVC resin sales volumes experienced during the quarter, export PVC sales decreased. A gradual recovery in construction and a milder winter led to an earlier construction season and gave the industry a boost as it saw the highest quarter PVC resin sales volumes since the second quarter of 2008.

The company's caustic sales remained strong in the first quarter and the industry caustic prices remain $55 a ton higher than the average for the year of 2011.

Several producers have announced price increases effective for the second quarter.

Now let's talk about LIFO versus FIFO accounting. As a result of the decrease in ethane and propane feedstock prices this quarter, our utilization of the FIFO method of accounting reduced our earnings from operations by approximately $22 million and our after-tax earnings by $14 million or $0.21 per share compared to what earnings would have been had we used the LIFO method. The benefit of the lower cost feedstock should be more, fully effect -- evident in the second quarter. Please bear in mind that this calculation is only an estimate and has not been audited. Now turning to the balance sheet and the statement of cash flow, we generated $110 million in cash from operating activities in the first quarter of 2012, and spent $65 million on capital expenditures. Our cash balance including restricted cash was $961 million and our total debt was $765 million at the end of the first quarter.

Our guidance for this year's capital expenditures remain between $400 million and $450 million including expenditures on the Geismar Chlor-Alkali project and the ethane cracker expansion at Lake Charles, Louisiana. These expenditures, we funded from our cash reserves. The ethane cracker turnaround and expansion will take place in the fourth quarter of this year and result in the unit being down for approximately 45 days.

Our strong balance sheet and healthy cash reserves give us the ability to expand our production base, increase our efficiency and reduce our cost while pursuing other business opportunities. We will maintain our conservative approach to investments, and will pursue those investments that will help build us -- build further on our financial flexibility and strength. We will continue to pursue internal expansion projects and external business opportunities that bring increased value to our shareholders. Now I'll turn the call back over to Albert to make some closing comments. Albert?

Albert Y. Chao

Thanks, Steve. I'm pleased with Westlake's record first quarter performance and as we look forward into the future, we'll see the continuing cost benefits brought about by the growing natural gas liquid production from shale gas drilling. The abundant availability of natural gas liquids coming to the market coupled with pipelines and other infrastructure improvements, which will deliver the feedstock to the Gulf Coast, supply the cost advantaged feedstock necessary for our industry to remain globally competitive. Our ethylene expansions will capitalize on these cost-competitive feedstocks with some of the benefits to occur later this year. The expansion of one of our ethylene crackers, Lake Charles, will be completed in the fourth quarter of this year with expansion of the other cracker targeted for completion in the fall of 2014. These 2 ethane cracker expansions could add approximately 400 million to 500 million pounds of additional annual ethylene capacity and balance the company's ethylene needs. We are also evaluating the conversion of our ethylene plant at Culver City, Kentucky from propane to ethane feedstock, which will allow the company to utilize low-cost ethane on the Marcellus and Utica shale gas fields, thus lowering our cost of production. The Chlor-Alkali project Gaismar is continuing to make progress and is expected to be completed in the second half of 2013. These projects will complete the feedstock integration of our business segments and evidently lower our cost of production. These projects, along with other initiatives we are undertaking, underscore our optimism about the future and I believe that natural gas liquids from shale gas has become a game changer for the North American chemical industry and for Westlake's Olefins and Vinyls businesses.

Thank you very much, now, let me turn the call over to Dave Hansen.

David R. 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 2 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] And our first question will come from the line of Brian Maguire with Goldman Sachs.

Brian Maguire - Goldman Sachs Group Inc., Research Division

Given the big spread between spot ethylene prices and contract ethylene prices in the quarter. Just wondering if you could address a couple of items. First, do you buy much of your ethylene on the spot market, did you in the quarter? Or is it primarily all on contract? And then second, did you forgo any, given the relatively thin margins in polyethylene, did you forgo any polyethylene or PVC sales so that you could sell some of your ethylene production into the spot market?

Albert Y. Chao

Certainly. We are net buyer of ethylene, and we do buy on the market for this contract on spot basis. And we also trade on ethylene as well. So we do sell ethylene on time basis to the ethylene market depending on how our business margins are performing.

Brian Maguire - Goldman Sachs Group Inc., Research Division

Would you characterize the spread between spotting contract as a net positive, negative or really not significant to the way the quarter shapes up?

Albert Y. Chao

The spot price today is higher than the contract price for ethylene.

Brian Maguire - Goldman Sachs Group Inc., Research Division

Would -- did that change the way you run your business at all or have any impact on the earnings if the spotted contract have been closer even would that have made any difference to you?

Albert Y. Chao

Could be. I think that the U.S. exports in the PVC and polyethylene area has been affected by the high spot prices in ethylene.

Brian Maguire - Goldman Sachs Group Inc., Research Division

Do you think -- so then does that mean that lower spot ethylene prices could have actually led to some more PVC export sales for you?

Albert Y. Chao

Yes, we believe so.

Brian Maguire - Goldman Sachs Group Inc., Research Division

And then a question of where ethylene is going to go this summer is a hot topic. And one of the governing factors there is propane and propane prices. So kind of in your mind, how much higher could ethane prices go before you would consider switching your Lake Charles plant from ethane to propane to the extent that you can there?

Albert Y. Chao

Well, if you look at IHS' recent publication, the cash cost using spot price as indication between ethane and propane feedstock is only about $0.025 difference.

Brian Maguire - Goldman Sachs Group Inc., Research Division

$0.025 per pound on the ethylene margin?

Albert Y. Chao

Pardon?

Brian Maguire - Goldman Sachs Group Inc., Research Division

Was that $0.025 on the ethylene margin you mean?

Albert Y. Chao

Yes. Cash cost when using ethylene, so the ethylene margin, $0.025 difference. So propane will definitely provide a cap and how much -- how high the ethane could go up to.

Brian Maguire - Goldman Sachs Group Inc., Research Division

Got it. And then just one last one if I may. Just the impact of the Lake Charles turnaround in the fourth quarter, how many weeks do you expect it to be down and are you building inventory now to meet your production requirements and your sales commitments in the fourth quarter?

M. Steven Bender

Brian, we expect it to be down about 45 days, and we'll be prepared as we get near that period by doing things such as that.

Operator

Our next question will come from the line of David Begleiter with Deutsche Bank.

James Sheehan - Deutsche Bank AG, Research Division

This is Jimmy Sheehan sitting in for David. Albert, my first question is on the prospects for the polyethylene price increase in the second quarter when we see a lot of these turnarounds and possibly seeing ethylene prices move lower. Do you think any of that polyethylene price increase will stick?

Albert Y. Chao

Well, we have increased the prices by $0.03 a pound for both February and March and both as being placed. There is a $0.07 pound price increase announced for the second quarter, and time will tell whether the $0.07 will be in place or not.

James Sheehan - Deutsche Bank AG, Research Division

Okay. Just on the PVC demand trends that you saw into construction and, sort of, broader construction demand, you mentioned weather was an impact. Do you think that there was any pulling forward of demand into Q1 or are you seeing April trends continuing having the same momentum as in Q1?

Albert Y. Chao

We have passed through price increases each month in the first quarter: January, February and March, and there -- and then $0.02 being announced for May. So there was some, we believe there's some prebuying with the price increase but we believe there are also some new improvement in new construction, which helped with the demand. Again, we have to see in the second quarter how much of the demand increased in the first quarter was due to warm weather, how much was related to the fundamental improvement in housing.

James Sheehan - Deutsche Bank AG, Research Division

Okay. And then finally, on ethane prices, I mean when we see these turnarounds, and Albert, how much are you expecting ethylene prices to increase in June, July timeframe. And what is your longer-term outlook as the year progresses for ethane prices?

Albert Y. Chao

Well if you look at -- there is a difference in terms of what IHS is forecasting for ethane prices and the forward market of all ethane prices. And today, I think ethane is about $0.49, $0.50 a gallon, and the forecast for the rest of the year is about at this range and then declines further in 2013, '14. I presume there will be movements in 12 months and then maybe 1 or 2 months. We believe with the increased production of natural gas liquids as well as the -- there will be closeness in terms of the ethylene cash costs with propane as a feedstock, that would put a lid on how much ethane price can go up.

Operator

And our next question will come from the line of Don Carson with Susquehanna Financial.

Donald Carson - Susquehanna Financial Group, LLLP, Research Division

Yes. Albert, I was just wondering to what extent you're building inventory now both in polyethylene and PVC to take advantage of low ethane and propane costs before they might, say, spike in the June, July timeframe. And then secondly, what volume benefit do you think you got in the first quarter, and I guess even second quarter to date from all of your competitors being out and you're up and running on the polyethylene side. And just kind of give that back in the fourth quarter when Lake Charles is down?

Albert Y. Chao

Certainly. We are a net buyer of ethylene. So as we said earlier, that depending on the prices for ethylene that we buy in the market prices, as well as depending on the sales price for our finished products for the domestic export that impacts how we run our polyethylene units. With the turnaround coming up in fourth quarter, certainly we will be building inventory as needed to supply our customers.

Donald Carson - Susquehanna Financial Group, LLLP, Research Division

Do you think you benefited on the volume side with your competitors being down because clearly they were constrained on their polymer production?

Albert Y. Chao

Well, we believe that since we are a net buyer of ethylene. We can get access to ethylene as long as you pay for the price for ethylene. And we optimize, as I said earlier, our profits based on the purchase price for ethylene as well as the sales price of finished products whether it's polyethylene and PVC.

Donald Carson - Susquehanna Financial Group, LLLP, Research Division

And then on your Culver City potential conversion to propane, given how attractive propane pricing is, and I realize it's more seasonal than ethane, but also the growing propane surplus. Does it justify investment to give yourself ethane flexibility given the relatively narrow spread between the 2 NGLs?

Albert Y. Chao

Well, propane as we said earlier, it's very seasonal. Winter time propane price can go quite high. And 2, it's with conversion to ethane, potentially we could increase our capacity without spending a great deal of money so we're studying both sides of it.

Operator

And our next question will come from the line of Kevin McCarthy with Bank of America Merrill Lynch.

Aleksey V. Yefremov - BofA Merrill Lynch, Research Division

This is Alex Yefremov for Kevin. Albert, what is your view of industry-wide ethane inventory is currently in the U.S.? Do you think the inventories are above normal or about normal?

Albert Y. Chao

Well we believe with the less [indiscernible] of demand with the turnarounds and with the increased production of natural liquids, we believe the ethane inventory in the U.S. is building.

Aleksey V. Yefremov - BofA Merrill Lynch, Research Division

Okay. Thank you. And as it concerns Westlake, how many days of ethane or ethylene inventory do you typically hold and how does that compare to your current inventory?

Albert Y. Chao

We typically do not hold a lot of ethane inventory even though ethane is being stored in underground wells, becomes stored real cost. So the limited capacity how much you can store.

Aleksey V. Yefremov - BofA Merrill Lynch, Research Division

And how about ethylene?

Albert Y. Chao

Same. Ethylene you're going to store in underground well and the industry is a ethylene inventory usually is very low especially today with a high price ethylene, people are now storing ethylene.

Aleksey V. Yefremov - BofA Merrill Lynch, Research Division

And finally, if I may, for U.S -- for your U.S. golf ethylene crackers, what is the maximum share of propane that you can take as feedstock for those assets?

Albert Y. Chao

For Westlake or for the industry?

Aleksey V. Yefremov - BofA Merrill Lynch, Research Division

For Westlake.

Albert Y. Chao

We have 2 ethane crackers in Lake Charles. The first one is a purity ethane cracker. The second one which we're doing expansion can go up to 50% propane.

Operator

And our next question will come from the line of Jeff Zekauskas with JPMorgan.

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

So today, the spot price of ethylene is about, oh I don't know, $0.68 a pound and contract is $0.53. Why do you think that there is such a large difference between spot and contract? And how do you see that spread changing through the course of the year. If you do think it would change?

Albert Y. Chao

Certainly. The contract price is a combination, of the feedstock costs to produce ethylene as well as a movement in the spot price. So when feedstock cost dropped significantly in the first quarter, the contract price was kept low, even though the spot prices went up. Going forward, at least IHS is forecasting, for the rest of the year, the ethylene spot price would come down but will still be higher than the contract price for this year.

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

What do you think is determining the higher spot price than the contract price?

Albert Y. Chao

Well, people, when they buy ethylene, they have a wider combination of proportion, what's in the contract price and what's in the spot price. And people need to run there -- to go to the plants. And when we had the turnaround in the first quarter and as mentioned earlier, that we'll have also a turnaround in the second quarter and second half as well. So and people needs to run their diluted plants so it's a combination of those prices that would determine how much -- how high they run their diluted plants at.

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

In your Chlor-Alkali expansion how much have you spent so far and how much more do you have to go?

Albert Y. Chao

We spent a significant portion of our budgeted amount and we've mentioned in previous discussions it's about $372 million to $420 million project -- estimated project capital cost and we have spent a large amount of that.

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

Have you spent a third?

Albert Y. Chao

Well we have spent plus committed a fair amount.

M. Steven Bender

Jeff, we're at, if you can imagine, we're at the stage, we're coming up the steeper end of the spending curve. And as we've said the unit will come on in the second half of '13.

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

Your volumes in your vinyls operation grew I think 5% in the quarter? Were you surprised that didn't grow faster given the weather?

Albert Y. Chao

Well as we've said earlier, the higher spot ethylene price is determined for increasing the production and sales as well. And also we had, suddenly, a small impact, we had a incident in our Geismar plant in -- near the end of March, which also reduced our production for Geismar.

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

And then lastly you were kind enough to talk about the sources of your profit improvement in vinyls and you said on the one hand, probably lower propane prices and better prices in PVC and volume growth. When you analyze the difference in profits year-over-year, did more of that come from PVC volumes and raw material spreads than from propane or was it the other way around?

Albert Y. Chao

I think some propane certainly is a large part but I think the improvements in PVC both from a PVC resin price, as mentioned earlier, we had 3 price increases this first quarter, and we'll be getting the full benefit in the second quarter of those price increases. Plus, the fabricating of business has also improved in margins. So combine of those 2 -- 3, really the propane, the improving PVC and improving fabricated products -- our building parts has helped the Vinyl business to improve.

Operator

And our next question will come from the line of Hassan Ahmed of Alembic Global.

Hassan I. Ahmed - Alembic Global Advisors

Question around pricing, I guess, everyone seems to be talking about it nowadays. The delta between U.S. pricing, on the polyethylene side of things, and Asian pricing seems to be fairly above normal. How do you explain that? I mean is it a case of pricing just being so depressed in Asia, desperate to, I guess, direct upwards or vice versa already?

Albert Y. Chao

Yes the Asian demand, which primarily is from China, has been weak because of the weak economic conditions in China. This explains I think most of the weakness being polymer prices in Asia.

Tarek Hamid - JP Morgan Chase & Co, Research Division

SO it's predominantly China?

Albert Y. Chao

That's what we believe.

M. Steven Bender

Yes.

Hassan I. Ahmed - Alembic Global Advisors

Okay. Fair enough. Now a slightly, sort of, longer-term question. Obviously there's been, at least, a slew of new capacity addition announcements from a variety of players in the industry. Now as one things about just the timing of these capacity adds within the U.S., what are you hearing, what are you seeing in terms of just how long it's taking, in terms of getting the sort of environmental commissioning side of things sorted out, and then, generally, I guess, all of us used the rule of thumb of around 4 years for that EP&C guys to come and sort of build a new plant. But what are you seeing in terms of just the timing from I guess, concept to production, so to say, as well as sort of any capital cost inflation out there?

Albert Y. Chao

I think 4 or 5 years is a good indication of the time. I think, certainly, Chevron, CPKM [ph] and Dow Chemical have announced their new complexes. And it takes a long time to get permitted and to get built in today's environment.

Operator

And our next question will come from the line of Gregg Goodnight with UBS.

Gregg A. Goodnight - UBS Investment Bank, Research Division

Did I understand that the Geismar VCM plant will be restarted in the second quarter and there will be no residual impact in the third quarter. Or what is the timing of the restart?

Albert Y. Chao

Our estimate is by mid-May, the vinyl plant will be operational. It will have some impact during the second quarter in terms of how much PVC can we sell.

Gregg A. Goodnight - UBS Investment Bank, Research Division

Okay. Great. Second thing, could you typify your volume trends in the fabricated PVC products? I know you commented a little bit earlier but could you just sort of flesh out the any year-over-year growth in large diameter pipe or the Windows and Door segment in terms of volume increase year-over-year?

Albert Y. Chao

Yes. We definitely saw an increase in the first quarter of 2012 versus 2011 first quarter and fourth quarter of 2011. So it is a, I think, market improvement.

Gregg A. Goodnight - UBS Investment Bank, Research Division

Would say it was 10% or 20% or somewhere in those ranges?

Albert Y. Chao

Yes. I will think less than 20%.

Gregg A. Goodnight - UBS Investment Bank, Research Division

Okay. Excellent. Finally, is there any update you might be able to give us on a potential large transaction that have been previously discussed in these calls?

Albert Y. Chao

As Dave Hansen has said earlier, we have no other comments other than what he has said already.

Operator

And our next question will come from the line of Robert Reitzes with BroadArch Capital.

Robert Reitzes

I just have 2 quick questions. One is are you guys finished with your inventory, the FIFO adjustments, is that over? And the second thing is, have you seen, you answered a good question about PVC, the same question about polyethylene. Do you still see strong demand both here and if you have any insights to overseas, I'd be curious to hear what your thoughts are there on polyethylene.

Albert Y. Chao

As it relates to the FIFO effect, I gave a good indication, we saw about $0.21 impact and obviously with the lower cost of feedstocks, we'll see the benefit of that flow in to the second quarter. Unless we see other significant moves in the feedstocks, that will be the bulk of the change. But obviously, we'll always see how the second quarter will lay out.

Albert Y. Chao

As to the Polyethylene and PVC, we believe that since we had several price increases during the first quarter for both segments, the industry will have to settle down and see how demand supply address itself plus the U.S. economy and plus the global economy for export market. And plus the ethylene price movements as we said earlier, the lower the ethylene spot price and the contract price will give more chance for the U.S. industry to export. So all these dynamics will impact how the supply-demand pricing for both PVC and Polyethylene would happen in the U.S.

Robert Reitzes

Of course. Let me just follow up. I understand those dynamics well. My question to you is, based on, you see those dynamics going on now, have you guys been encouraged by what you've been seeing or discouraged?

Albert Y. Chao

Well as I said earlier, this is a $0.07 a pound price increase announced for the second quarter in Polyethylene and there's also a $0.02 a pound price increase announced for PVC for the month of May. So the industry still believes there is room for price movements. And as I said earlier the supply demand had to adjust itself to see how much of those price increases can be implemented in the second quarter.

Operator

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

Albert Y. Chao

We'd like to thank you for participating in today's call. We hope that you will join us again for our next conference call to discuss our second quarter 2012 result. Thank you very much, and have a wonderful day.

Operator

Thank you for participating in today's Westlake Chemical Corp. first quarter earnings conference call. As a reminder, this call will be available for replay beginning 2 hours after the call has ended, and may be accessed until 11:59 p.m. Eastern time on Tuesday, May 8, 2012. 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 12583170. Thank you for your participation in today's conference, and have a great day, everyone.

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Source: Westlake Chemical's CEO Discusses Q1 2012 Results - Earnings Call Transcript
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