Westlake Chemical (WLK) Albert Yuan Chao on Q4 2015 Results - Earnings Call Transcript

| About: Westlake Chemical (WLK)

Westlake Chemical Corp. (NYSE:WLK)

Q4 2015 Earnings Call

February 23, 2016 11:00 am ET

Executives

David R. Hansen - Senior VP-Administration & Head-Media Relations

Albert Yuan Chao - President, Chief Executive Officer & Director

Mark Steven Bender - Senior Vice President, Chief Financial Officer & Treasurer

Analysts

Jason A. Freuchtel - SunTrust Robinson Humphrey, Inc.

Frank J. Mitsch - Wells Fargo Securities LLC

Aleksey Yefremov - Nomura Securities International, Inc.

Don Carson - Susquehanna Financial Group LLLP

Daniel DiCicco - RBC Capital Markets LLC

David I. Begleiter - Deutsche Bank Securities, Inc.

Hassan I. Ahmed - Alembic Global Advisors LLC

Brian Maguire - Goldman Sachs & Co.

Jeffrey J. Zekauskas - JPMorgan Securities LLC

David Wang - Morningstar Research

Operator

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Westlake Chemical Corporation Fourth Quarter and Full Year 2015 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 23, 2016.

I would now like to turn the call over to today's host, Dave Hansen, Westlake's Senior Vice President. Sir, you may begin.

David R. Hansen - Senior VP-Administration & Head-Media Relations

Thank you and good morning, everyone, and welcome to the Westlake Chemical Corporation's fourth quarter and full year 2015 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 during the fourth quarter and the full year of 2015, followed by a perspective – 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 comments, concluding comments and then will open up the call for questions.

During this call, we refer to ourselves as Westlake Chemical. Any reference to Westlake Partners is to the master limited partnership, Westlake Chemical Partners LP, and references to OpCo refer to our subsidiary Westlake Chemical OpCo LP, who owns certain Olefin facilities.

Today, management is going to discuss certain topics that will contain forward-looking information that is based on management's beliefs, as well as assumptions made by and information currently available to management. These forward-looking statements suggest predictions or expectations, and thus are subject to risks or uncertainties.

Actual results could differ materially based upon many factors including the cyclical nature of the chemical industry; availability, cost, and volatility of raw 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 discussed in our SEC filings.

As I am sure everyone listening to this call is aware; on January 29, we announced that we had submitted a proposal to acquire all of the outstanding shares of Axiall for $20 per share in cash and stock. The proposal, which was summarily rejected by Axiall, represented a significant premium of 108% to Axiall's closing price of $9.60 on January 22, 2016, the last trading day before we made our proposal.

Given Axiall's response, we brought our proposal to the attention of Axiall's shareholders who have overwhelmingly expressed their desire for Axiall to engage in prompt negotiations with us on our proposal. Based on this response, we have nominated a slate of 10 independent and highly qualified individuals for consideration by Axiall shareholders for election to the Board of Directors at the 2016 Axiall annual meeting.

During our prepared remarks, we will not comment further on the Axiall proposal. Additionally, we will not be able to respond to any caller's questions regarding Axiall and will focus our question-and-answer period on Westlake's financial and operating results.

This morning, Westlake issued a press release with details of our fourth quarter and full year 2015 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 11:59 PM Eastern Time on March 1, 2016. The replay may be accessed by dialing the following numbers. domestic callers should dial 1-855-859-2056; international callers may access the replay at 404-537-3406. The access code for both numbers is 42581110.

Please note that information reported on this call speaks only as of today, February 23, 2016 and therefore you are advised that time-sensitive information may no longer be accurate as of the time of any replay. I would finally advice you that this conference call is being broadcast live through an internet webcast system and it can be accessed on our webpage at westlake.com.

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

Albert Yuan Chao - President, Chief Executive Officer & Director

Thank you, Dave. Good morning, ladies and gentlemen, and thank you for joining us on our earnings call to discuss our fourth quarter and full year 2015 results.

In this morning's press release we reported quarterly net income of $111 million or $0.84 per diluted share; our net sales of $987 million. Our quarterly results reflect lower sales prices for our major products, which followed a decrease in crude, global crude oil prices. Crude oil prices ended the year at below $40 per barrel, approximately 65% (05:33) lower than the peak levels seen in 2014. However, we saw higher sales volumes for our major products including polyethylene, North American and European PVC resin, caustic and building products compared to the fourth quarter of 2014.

We are pleased with our annual results for 2015, which are the second highest in our history. We benefited from solid demand for our end products as global demand for polyethylene grew by more than 4% in 2015 and global demand for PVC grew over 3%. Additionally, our results reflect the benefits of the investments we've made over the past several years in which we increased our vertical product integration by expanding our ethylene and chlor-alkali capacity; and broadened our product portfolio into specialty PVC resins and pipes, through our strategic acquisitions of Vinnolit and North American Specialty Products.

I would now like to turn our call over to Steve to provide more detail on the financial and operating results for the fourth quarter and full year 2015. Steve?

Mark Steven Bender - Senior Vice President, Chief Financial Officer & Treasurer

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

Let me begin with our consolidated results. In this morning's press release, Westlake reported net income for the fourth quarter of 2015 of $111 million or $0.84 per diluted share on net sales of $987 million, compared to the fourth quarter 2014 net income of $183 million or $1.37 per diluted share on net sales of $1.1 billion. Fourth quarter 2015 net sales decreased over the same period in 2014 primarily due to the decline in sales prices for all of our major products, partially offset by the higher sales volumes that Albert just described.

Fourth quarter 2015 net income from operations was $181 million, a decrease of $121 million from the fourth quarter 2014. The decline in results was due to lower sales prices for our major products, partially offset by lower feedstock and energy costs and higher sales volumes. Income from operations for the fourth quarter of 2015 was impacted by approximately $19 million due to lower production rates, unabsorbed manufacturing costs, and other costs associated with several planned and unplanned polyethylene outages that took place in the quarter, which we gave guidance to in our prior quarter earnings call.

Sales revenue in the fourth quarter of 2015 of $987 million decreased by $201 million compared to the third quarter 2015, while income from operations of $181 million decreased by $73 million. The decrease in operating income was primarily due to lower sales prices for our major products, partially offset by lower feedstock and energy cost. Fourth quarter 2015 results were also impacted by typical seasonal demand declines.

For the full year 2015, sales revenue was $4.5 billion, an increase of $48 million over sales revenue reported for the full year 2014. This increase was driven by sales contributed by Vinnolit, our specialty PVC resin business that we acquired on July 31, 2014, and higher sales volumes from most of our major products, partially offset by lower sales prices. Income from operations was $960 million for the year ended December 31, 2015 compared to the $1.1 billion in the prior year. This decrease was largely resulted from lower sales prices and cost related to several turnarounds and was in part offset by contributions from Vinnolit for the full year 2015; increased production at our Calvert City, Kentucky facilities following the completion of the feedstock conversion and ethylene expansion project; higher production rates at our Geismar, Louisiana chlor-alkali plant and lower feedstock and energy cost.

Our utilization of the FIFO method of accounting resulted in an unfavorable impact of $16 million pre-tax, or $0.08 per share, in the fourth quarter compared to what earnings would have been if we reported on the LIFO method, primarily due to lower energy and feedstock cost. Please bear in mind that this calculation is only an estimate and has not been audited.

Let's move on to review the performance of our two segments, starting with the Olefins segment. In the fourth quarter of 2015, the Olefins segment reported income from operations of $139 million on sales of $468 million, compared to operating income of $244 million on sales of $599 million in the fourth quarter of 2014.

The lower results were mostly due to lower sales prices, partially offset by reduced feedstock and energy cost and from higher polyethylene and styrene sales volume. In addition, income from operations in the fourth quarter of 2015 was negatively impacted by approximately $19 million related to several planned and unplanned polyethylene outages that I previously mentioned.

In comparison to the third quarter of 2015, fourth quarter operating income of $139 million decreased by $58 million, while sales of $468 million decreased by $120 million. The fourth quarter results were impacted by lower olefins integrated product margins, driven by lower sales prices and lower seasonal sales volumes, which were partially offset by reduced feedstock and energy costs. Fourth quarter 2015 results were also impacted by the planned and unplanned polyethylene outages.

For the full year 2015, sales revenue of $2.3 billion for the Olefins segment decreased by approximately $400 million from the $2.7 billion reported for 2014, while operating income of $747 million decreased by $267 million in the same period. Operating income decreased due to lower sales prices, partially offset by higher sales volumes and lower feedstock and energy costs.

Now moving on to the Vinyls segment. Vinyls segment reported operating income of $52 million in the fourth quarter 2015 on sales revenue of $519 million, compared to operating income of $66 million on sales of $537 million in the fourth quarter of 2014. These lower results were mainly due to the declines in sales price for our major vinyl products, which were in part offset by higher sales volumes and lower feedstock and energy costs.

The Vinyls segment operating income of $52 million in the fourth quarter 2015 decreased by $16 million over the third quarter 2015, while sales of $519 million decreased by $81 million. The decrease in results was due to lower seasonal sales volumes and lower prices for all of our major products, partially offset by reduced feedstock and energy costs.

For the full year of 2015 sales revenue of $2.2 billion for the Vinyls segment increased by approximately $500 million over 2014 while operating income of $254 million increased by $111 million. The year-over-year increase was primarily driven by higher Vinyls integrated product margins for the year ended December 31, 2015, mainly due to the contribution from Vinnolit, lower feedstock costs and increased production at our Calvert City facilities following the completion of our feedstock conversion and ethylene expansion project and higher caustic soda sales volumes resulting from higher production rates at our Geismar chlor-alkali plant.

The increase in income from operations for 2015 was partially offset by lost sales, lower production rates and other costs associated with maintenance turnarounds at our various North American and European vinyl facilities, lower sales prices for major products and reduced sales volume in Europe related to an ethylene shortage. Income from operations for 2014 was negatively impacted by the lost sales, lower production rates and other costs associated with the maintenance turnaround at our Calvert City facilities.

Next, let's turn our attention to our full-year results and look at our balance sheet and cash flow. Cash generated from operating activities in 2015 was $1.1 billion and we spent $491 million on capital expenditures. In 2015 we returned almost $270 million to our stakeholders in share repurchases, dividends, and unit distributions to our unitholders of Westlake Partners. As of the end of 2015 we had cash and marketable securities of approximately $1.2 billion and long-term debt remained at approximately $764 million.

Since this is the beginning of the year, let me provide you some guidance for modeling purposes. Our guidance for 2016 capital expenditures is in the range of $475 million to $525 million, which we will fund from our cash balances. It includes spending for the expansion of our Petro 1 ethylene unit in Lake Charles, Louisiana, which is expected to begin in the second quarter of 2016. It also includes early engineering work and the purchase of long lead items related to the expansion of our Calvert City ethylene unit that we announced in January. This expansion, along with other incremental capacity increases will add approximately 100 million pounds of annual ethylene capacity at our Calvert City facility in the first half of 2017.

The Petro 1 expansion project will be completed in conjunction with the planned maintenance turnaround that will last for approximately 80 days, adding approximately 250 million pounds of annual ethylene capacity. We estimate that our second quarter 2016 income from operations will be impacted by lost production, associated costs from this project, and other turnaround activity of approximately $35 million; and the third quarter to see (16:19) an addition of approximately $20 million related to other planned derivative unit turnarounds. A portion of interest expense will be capitalized for these two large projects, which will lower our interest expense to approximately $40 million for 2016, and we expect an effective tax rate of approximately 33.5%.

With that, I will now turn the call back over to Albert to make some closing comments. Albert?

Albert Yuan Chao - President, Chief Executive Officer & Director

Thank you, Steve. As we discussed earlier, we delivered our second highest annual results in 2015, supported by higher demand for polyethylene and PVC products. Our financial results reflect the benefits from our integration investments to expand our ethylene and chlor-alkali capacity, which lowers our cost position and our strategic acquisition of Vinnolit and North American Specialty Products, which broadened our portfolio into specialty PVC resin and pipe.

These acquisitions, which were successfully integrated into our business and contributed to our 2015 results, expand our technological and product development capacity and give Westlake a global PVC presence with facilities in North America, Europe and Asia. As we plan for 2016 and beyond, we are positioned to benefit from improving demand for our end products as global demand forecasts improved over 2015 levels.

We are executing on our ethylene expansion projects and are on schedule to gain our Petro 1 expansion in the second quarter of this year to add 250 million pounds of ethylene capacity allowing us to further capitalize in the growing supply of feedstocks. The second ethylene expansion project will be at our Calvert City facility to add another 100 million pounds of annual ethylene capacity in the first half of 2017.

We believe that these investments we have made to fully integrate our product chain along with our recent strategic acquisitions to expand our Vinyls footprint will continue to grow EBITDA. Our focus remains on delivering value to our shareholders. We continue to look for investments that provide returns higher than our cost of capital that will drive earnings growth and to operate our business with a bottom line focus of keeping costs low.

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

David R. Hansen - Senior VP-Administration & Head-Media Relations

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. As a reminder, we are limited in what we can say about our current proposal and would ask that you kindly limit your questions to those pertaining to our financial and operational results.

Operator, we are now prepared to take questions.

Question-and-Answer Session

Operator

Thank you. Our first question is from Jim Sheehan of SunTrust. Your line is open.

Jason A. Freuchtel - SunTrust Robinson Humphrey, Inc.

Hi. This is Jason Freuchtel filling in for Jim today.

Albert Yuan Chao - President, Chief Executive Officer & Director

Good morning.

Mark Steven Bender - Senior Vice President, Chief Financial Officer & Treasurer

Good morning.

Jason A. Freuchtel - SunTrust Robinson Humphrey, Inc.

Yeah. Just curious, what is your expectation for the amount of capacity that could be shutdown in Europe to comply with the mercury cell regulation?

Albert Yuan Chao - President, Chief Executive Officer & Director

There's some discussions of approximately close to a million tons of capacity could be reduced. But as you know, people are still doing plants, so we don't know until near the end of the year on what – how much capacity will be shut down in Europe.

Jason A. Freuchtel - SunTrust Robinson Humphrey, Inc.

Okay. Thanks. And it sounds like you're going to have some planned maintenance outages for your Olefins segment. Are you going to have any planned maintenance outages occurring in 2016 for your Vinyls segment?

Mark Steven Bender - Senior Vice President, Chief Financial Officer & Treasurer

We have those sprinkled all throughout the year and none that I would call out specifically. But as you know, we have a number of plants in Europe and the Americas and so none that I would call out as unusual.

Jason A. Freuchtel - SunTrust Robinson Humphrey, Inc.

Okay, great. Thank you.

Albert Yuan Chao - President, Chief Executive Officer & Director

You're welcome.

Operator

Thank you. And the next question is from Frank Mitsch of Wells Fargo Securities. Your line is open.

Frank J. Mitsch - Wells Fargo Securities LLC

Good morning, gentlemen.

Albert Yuan Chao - President, Chief Executive Officer & Director

Good morning.

Mark Steven Bender - Senior Vice President, Chief Financial Officer & Treasurer

Good morning.

Frank J. Mitsch - Wells Fargo Securities LLC

The discussion of the planned turnarounds and unplanned turnarounds impacting Q4, I know that you had guided, back in Q3, for $25 million worth of impact. What did that actually come out to be?

Mark Steven Bender - Senior Vice President, Chief Financial Officer & Treasurer

$19 million impact.

Frank J. Mitsch - Wells Fargo Securities LLC

All right. Terrific. And I'm looking here at the screen, and I'm looking at Westlake stock trading back at levels where it was three years ago. How do you think about, Albert, weighing the balances of buying back your own stock at these levels versus M&A?

Albert Yuan Chao - President, Chief Executive Officer & Director

Well, certainly we look at all the options to create value for shareholders, and through further expansion, organic and inorganic, means to create value.

Frank J. Mitsch - Wells Fargo Securities LLC

And with the shares trading back down at these levels, does that start to make the buying back a more attractive proposition than M&A? Or not?

Albert Yuan Chao - President, Chief Executive Officer & Director

We're looking at both. As you know, we have – the board has authorized us dollars to buy back our shares, as well as looking at expanding our business footprint.

Frank J. Mitsch - Wells Fargo Securities LLC

Okay, great. And then lastly, where do we stand with respect to the pipeline dispute with Eastman? When would you expect a resolution for that to occur?

Mark Steven Bender - Senior Vice President, Chief Financial Officer & Treasurer

Frank, we have issues that are still in the court system, and it's impossible to know when we'll get a resolution. So there's really no way for me to give you specific guidance on that.

Frank J. Mitsch - Wells Fargo Securities LLC

I wasn't looking for the day of the week, Steve, I was looking for the quarter or the half-year. But you're saying that it's a...

Mark Steven Bender - Senior Vice President, Chief Financial Officer & Treasurer

It's hard for me to give you specific – even quarter guidance, Frank. And so I would just say, it could possibly be later this year, but with that degree of certainty, I couldn't even say, it's really in the hands of the courts.

Frank J. Mitsch - Wells Fargo Securities LLC

All right. Thank you so much.

Albert Yuan Chao - President, Chief Executive Officer & Director

You're welcome.

Operator

Thank you. The next question is from Aleksey Yefremov of Nomura Securities. Your line is open.

Aleksey Yefremov - Nomura Securities International, Inc.

Good morning. Thank you.

Albert Yuan Chao - President, Chief Executive Officer & Director

Morning.

Mark Steven Bender - Senior Vice President, Chief Financial Officer & Treasurer

Morning.

Aleksey Yefremov - Nomura Securities International, Inc.

I had a question on U.S. polyethylene market. If we look at the premium versus Asian polyethylene market, this premium seems to have been erased in the recent months. Do you think there are – what do you think are the reasons for that? And how do you see this premium or discount evolving over the rest of 2016?

Albert Yuan Chao - President, Chief Executive Officer & Director

Well, certainly with the volatility in crude oil prices, it has affected global polyethylene, including the U.S. polyethylene prices. And, depending on what oil price will do in the coming months, it could change as well.

Aleksey Yefremov - Nomura Securities International, Inc.

I guess, as a follow-up, do you think there was anything specific to the U.S. market that caused prices to fall more than in Asia in the last few months? Or this is a temporary phenomenon?

Albert Yuan Chao - President, Chief Executive Officer & Director

Well, as you know, that people do purchase less products when they see oil price coming down, feedstock coming down, and they will buy more products when oil prices are moving up. The demand, as we said earlier, is still quite good in the U.S., and the U.S. economy is still growing, probably one of the best economy in the world. And we continue to see demand growing in 2016. So, it's made of buying (24:39) changes as well as the oil dynamics.

Aleksey Yefremov - Nomura Securities International, Inc.

Thank you, Albert. And final question, if I may. Could you tell us your view of the short-term outlook for polyethylene pricing, February, March and maybe next few months?

Albert Yuan Chao - President, Chief Executive Officer & Director

Well, if you read the industry consensus, they see some weakness in the first month or two (24:58), but also there's an industry announcement of $0.05 price increase, which is now for March, March 1. And again, depending on the price of oil volatility at that time, it will have an impact on the price increases.

Aleksey Yefremov - Nomura Securities International, Inc.

Thank you very much.

Albert Yuan Chao - President, Chief Executive Officer & Director

You're welcome.

Operator

Thank you. The next question is from Don Carson of Susquehanna Financial. Your line is open.

Don Carson - Susquehanna Financial Group LLLP

Thank you. Albert, a question on the chlor-alkali outlook. We've seen some sloppiness in caustic, but a couple of producers, I don't know if you joined it, have announced price increases. How do you see the chlor-alkali market playing out? And, not to ask you about consolidation, but do you think that – I mean, are you looking at taking any capacity out of the marketplace going forward?

Albert Yuan Chao - President, Chief Executive Officer & Director

Well, we have two of the newest membrane chlor-alkali plants in the U.S. industry. So we're very efficient. As you know, we are moving into the building season, so there's more demand for chlorine or PVC that result in more production of chlor-alkali and – which means there's more supply coming on to the market. And depending on the global economy, the demand for chlor-alkali may or may not be meeting the supply. So time will tell and...

Don Carson - Susquehanna Financial Group LLLP

And then you've got a good view into the Asian market. What's your view on how much operating rates have come down there? I know that's opened up some caustic export opportunities for U.S. producers. Traditionally, you haven't participated that much in caustic exports. Is that something you're starting to do now?

Albert Yuan Chao - President, Chief Executive Officer & Director

We do not export much caustic at all. But I think the Asian economy is still weak, in China especially, so there's potential for lower production of PVC and chlorine and could be lower production of caustic.

Don Carson - Susquehanna Financial Group LLLP

Okay. Thank you.

Albert Yuan Chao - President, Chief Executive Officer & Director

You're welcome.

Operator

Thank you. The next question is from Arun Viswanathan of RBC Capital Markets. Your line is open.

Daniel DiCicco - RBC Capital Markets LLC

Hi. This is Dan DiCicco on for Arun. Thank you for taking my question. Could you guys just give us your thoughts on ethylene and polyethylene prices for the second half of the year following the heavy turnaround season here in the U.S.? Basically, will there be enough demand to sustain any sort of price increase once the season comes to a close?

Mark Steven Bender - Senior Vice President, Chief Financial Officer & Treasurer

Well, as you know there is a big turnaround coming up March, April, May time period, and the people's view of ethylene price will go up. And however, on the polyethylene side it's more of a function of oil prices, and the volatility of oil will determine which direction the polyethylene price would go.

Daniel DiCicco - RBC Capital Markets LLC

Okay. Thank you. That was helpful.

Mark Steven Bender - Senior Vice President, Chief Financial Officer & Treasurer

You're welcome.

Operator

Thank you. The next question is from David Begleiter of Deutsche Bank. Your line is open.

David I. Begleiter - Deutsche Bank Securities, Inc.

Thank you. Good morning. Albert...

Albert Yuan Chao - President, Chief Executive Officer & Director

Good morning, David.

David I. Begleiter - Deutsche Bank Securities, Inc.

Good morning. Albert, ethane price keep on drifting lower. When do you think the reduced drilling activity, increased exports back half of this year and the new ethylene crackers in 2017, 2018 materially impact ethane prices going forward?

Albert Yuan Chao - President, Chief Executive Officer & Director

That's a good question. I think there's about 500,000 barrels of rejection in ethane today. So at least for the immediate future, even with the increase in ethane export with the terminals as well as the bottlenecks coming up, there should be ample supply of ethane. But going forward, 2017, 2018, 2019, it depends on the oil price and gas drilling as well as on the new – demand from the new ethylene plants.

David I. Begleiter - Deutsche Bank Securities, Inc.

Very good. And just lastly, post the current expansions in Calvert City and Petro 1, what's the next two-year, three-year, four-year plan for your ethylene capacity going forward?

Albert Yuan Chao - President, Chief Executive Officer & Director

Well, our engineers are very smart. They always find a little creep here and there, but I think the major expansions should be finished by then.

David I. Begleiter - Deutsche Bank Securities, Inc.

Thank you very much.

Albert Yuan Chao - President, Chief Executive Officer & Director

You're welcome.

Operator

Thank you. The next question is from Hassan Ahmed of Alembic Global. Your line is open.

Hassan I. Ahmed - Alembic Global Advisors LLC

Good morning, Albert and Steve.

Albert Yuan Chao - President, Chief Executive Officer & Director

Good morning.

Hassan I. Ahmed - Alembic Global Advisors LLC

Obviously, there are these lingering stares in the marketplace about China, particularly on the currency side of things. So if we were to paint a picture where indeed the PBOC went out and devalue the currency, keeping in mind that obviously naphtha is dollar-denominated as would natural gas be out there, but obviously Chinese coal is local currency-denominated. What are your thoughts regarding – if such a devaluation were to happen, I would imagine that would have a pretty dire impact on PVC prices in particular, keeping in mind how much exposure they have to sort of the whole carbide process? I would love to hear your thoughts about that.

Albert Yuan Chao - President, Chief Executive Officer & Director

Well, I think you're right. I think the higher U.S. dollar currency compared with other currencies, especially China, would put a headwind against the U.S. export of petrochemical products. And we have to have a more competitive position in order to compete in China.

Hassan I. Ahmed - Alembic Global Advisors LLC

Sure. But I would imagine it'd be a disproportionate impact on PVC versus, call it, ethylene, polyethylene.

Albert Yuan Chao - President, Chief Executive Officer & Director

You're absolutely right. While 80% of Chinese production of PVC still come from coal, and coal price has been dropping a lot in China and it's denominated in RMB. So from that sense they're more competitive.

Hassan I. Ahmed - Alembic Global Advisors LLC

Very helpful.

Albert Yuan Chao - President, Chief Executive Officer & Director

Dollars stay high with the crude oil prices.

Hassan I. Ahmed - Alembic Global Advisors LLC

Thanks so much.

Albert Yuan Chao - President, Chief Executive Officer & Director

You're welcome.

Operator

Thank you. The next question is from Brian Maguire of Goldman Sachs. Your line is open.

Brian Maguire - Goldman Sachs & Co.

Hi. Good morning. Thanks for taking my questions.

Albert Yuan Chao - President, Chief Executive Officer & Director

Good morning.

Brian Maguire - Goldman Sachs & Co.

Albert, I was wondering if you could tell us how much of the caustic soda price increase that was announced earlier in the quarter, was realized in 4Q; and how much you expect to get realized in 1Q?

Albert Yuan Chao - President, Chief Executive Officer & Director

So various industry players announced a caustic price (31:26) increase between (31:26) $35 and $70 per dry short tons and as the conditions warrants. So we believe there'll be some additions coming up probably February or March period. But as I said earlier, there's also more demand for PVC during the building season. There's more chlorine production and more caustic production. And depending on the global economy, that may or may not help caustic price to stay high.

Brian Maguire - Goldman Sachs & Co.

Okay. And we've heard some chatter in the industry about some increased discounting going on in the PVC and polyethylene markets at the start the year in the order of $0.02 to $0.03 a pound. Can you kind of confirm if you had participated in some of those discounts that have made their way into the market for 2016? And do you see increased discounting out there being a material driver of pricing downward in 2016?

Albert Yuan Chao - President, Chief Executive Officer & Director

During the year end, as you know there are a lot of contracts renewals and negotiations going on, and there were pressures of prices with the way that the oil price has come down during the end of the year. So there has been a non-market adjusted discount for the industry.

Brian Maguire - Goldman Sachs & Co.

Okay, great. And then could you just lastly just talk about your own inventory levels? I know you talked about some of the production outages and then the upcoming turnarounds. Where does that kind of leave you on the inventory front? And do you expect to be running a little bit higher inventory for the next couple of months, until you get through the turnaround?

Albert Yuan Chao - President, Chief Executive Officer & Director

You're talking about polyethylene or PVC?

Brian Maguire - Goldman Sachs & Co.

More polyethylene.

Albert Yuan Chao - President, Chief Executive Officer & Director

Polyethylene, I think inventories overall (33:15) producer side is somewhat on the low side of converters. And you are right that people are building inventory for the upcoming turnaround on ethylene side. So I think supply/demand were pretty good, at least in the first quarter-ish.

Brian Maguire - Goldman Sachs & Co.

Okay. Thanks very much.

Albert Yuan Chao - President, Chief Executive Officer & Director

You're welcome.

Operator

Thank you. The next question is from Jeff Zekauskas of JPMorgan. Your line is open.

Jeffrey J. Zekauskas - JPMorgan Securities LLC

Thanks very much. Are you putting your share repurchases on hold, now that you're contemplating the Axiall transaction?

Mark Steven Bender - Senior Vice President, Chief Financial Officer & Treasurer

Jeff, of course as we think about this, we always have to assess what information we have in the marketplace. And so we always have to balance what knowledge we have of any transaction or any market knowledge that the broader market doesn't, so we have to assess that on an ongoing basis.

Jeffrey J. Zekauskas - JPMorgan Securities LLC

So you don't feel financially constrained then? That is, there's no cash flow dynamic that you feel restricts your purchase of your own shares?

Mark Steven Bender - Senior Vice President, Chief Financial Officer & Treasurer

No. I think you can see, with the cash balances that we have as we ended the year, and the liquidity we have with our other facilities, there's no liquidity issue here. It's just making sure that we are very transparent of the marketplace, as always the case, in any transaction we undertake with securities.

Jeffrey J. Zekauskas - JPMorgan Securities LLC

Can you talk about price changes in the domestic PVC market, or what you might expect in the coming months?

Albert Yuan Chao - President, Chief Executive Officer & Director

Yes. There's potential weakness in January of PVC, probably potentially down $0.01 a pound. But after, that they are price increase announced of Feb, March. And as I said earlier, with the building season starting, there's a good chance that the price, some of the pricing increase will go through.

Jeffrey J. Zekauskas - JPMorgan Securities LLC

If I can try one question, which is not exactly on the mechanics of the Axiall transaction, can you talk, at least in general terms, about how putting together Westlake and Axiall would change or improve your sort of PVC chlorine cost there (35:33) building products envelope? In a sort of – can you talk in a little bit more detail about the strategic motivation of the transaction?

Mark Steven Bender - Senior Vice President, Chief Financial Officer & Treasurer

Jeff, for this call, we'd like to keep the questions and the answers in this call really focused to the earnings. And certainly, if you'd like to have that discussion at another time, we can do that. But for this call, we really want to focus on just the earnings for the quarter and for the year.

Jeffrey J. Zekauskas - JPMorgan Securities LLC

Okay, great. Thank you so much.

Albert Yuan Chao - President, Chief Executive Officer & Director

You're welcome.

Operator

Thank you. And the next question is from David Wang of Morningstar. Your line is open.

David Wang - Morningstar Research

Hi. Good morning. Thank you for taking my question. I was wondering if you can discuss the project economics of how a greenfield ethylene cracker will look at this point. I think you guys are probably doing the right thing with just going with the brownfield expansions. But a lot of your competitors seem to still have a lot of greenfield projects set to come online over the next couple of years, and I'm wondering if you have this view of returns or – the likelihood that these will come to fruition?

Albert Yuan Chao - President, Chief Executive Officer & Director

Certainly. The fact that we're doing debottlenecks for brownfields, we can get returns back much faster than the greenfield. Typical greenfield, from initial idea to fruition, takes approximately four years to five years. So a lot of things could happen in four years to five years and the investment, not only the ISBL, but the OSBL working capital, is quite substantial. So we elected to have a lower risk debottlenecks and get returns much faster.

David Wang - Morningstar Research

All right. And with the new capacity adds that you guys had come online, what would be your sustaining capital going forward, after these projects get wrapped up?

Mark Steven Bender - Senior Vice President, Chief Financial Officer & Treasurer

So we'll get back to – once these debottlenecks occur in 2016 and 2017, we'll get back to more normal maintenance capital levels. And so, as I say, that's a couple hundred million dollars typical run rate. And so, once we get back to that level, absent any energy savings-related projects or such, we'll get back to that kind of range.

David Wang - Morningstar Research

All right, great. Thank you.

Albert Yuan Chao - President, Chief Executive Officer & Director

You're welcome.

Operator

Thank you.

David R. Hansen - Senior VP-Administration & Head-Media Relations

Okay. Operator, it sounds like we have concluded the call. We are very appreciative of you joining us today for our call. We hope that you'll be able to join us again for our next conference call to discuss our first quarter 2016 results. We bid you all a good day. Thank you.

Operator

Thank you for participating in today's Westlake Chemical Corporation Fourth Quarter and Full Year 2015 Earnings Conference Call. As a reminder, this call will be available for replay beginning two hours after the call has ended and may be accessed until 11:59 Eastern Time on Tuesday, March 1, 2016. The replay can be accessed by calling the following numbers: domestic callers should dial 1-855-859-2056; international callers may access the replay at 404-537-3406. The access code at both numbers is 42581110. Thank you.

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