利安德巴塞爾 (LYB) 2005 Q3 法說會逐字稿

Hello and welcome to the Lyondell Chemical third quarter 2005 earnings teleconference. At the request of Lyondell Chemical, this conference is being recorded for instant replay purposes. Following today's presentation we will conduct a question-and-answer session. At that time, simply press star one on your touch-tone phone if you have a question. I'd now like to turn the conference over to Mr. Doug Pike, Vice President Investor Relations. Sir, you may begin.

Good morning and welcome to Lyondell's third quarter teleconference and webcast. This is Doug Pike and I'm joined by Dan Smith our President and Chief Executive Officer, Morris Gelb, our Chief Operating Officer and Kevin Denicola, our Chief Financial Officer. The agenda for today's call will be as follows, I will review our third quarter performance, Kevin will review financial metrics and activity. Before we open the call to your questions, Dan will summarize our views of the market. The call is scheduled to last approximately 60 minutes.

Before we begin, I'd like for you to note that statements made in this teleconference related to matters that are not historical facts are forward-looking statements and subject to risks and uncertainties. Actual results could differ materially from those forward-looking statements. For more information about the factors that could cause our results to differ materially.

Please refer to our earnings release issued this morning and please also refer to Lyondell's, Equistar's and Millennium's annual reports on form 10K for the year ended December 31, 2004 which were filed with the SEC on March 16, 2005. And Lyondell's, Equistar's and Millennium's quarterly reports on form 10Q for the quarter ended September 30, 2005 which will be filed with the SEC in November of 2005. I'd also like to point out that a replay of today's call will be available from 1:30 p.m. eastern time today until 5:00 p.m. eastern time on November 4th. Replay can be accessed by calling 866-435-1326, or 203-369-1022. The access code at both numbers is 5549. The replay can also be accessed beginning at 2:30 p.m. eastern time today at the investor relations page of our website at www.lyondell.com/earnings.

A reconciliation of non-GAAP financial measures to GAAP financial measures together with any other applicable disclosures, including the earnings release are currently available on our website at www.lyondell.com/earnings. Now, let's proceed to a discussion of our earnings. During the third quarter of 2005, Lyondell had net income of $10 million or $0.04 per share on a fully diluted basis. This compares with net income of $126 million in the second quarter of 2005. The third quarter includes several pretax charges, including $195 million related to the impairment of the carrying value of the Lake Charles [INAUDIBLE] facility where we've decided to permanently cease production, and a $30 million charge related to an industry mutual insurance consortia.

Additionally, the third quarter includes a $7 million charge related to the early retirement of debt. These charges reduce third quarter earnings by $0.58 per share. And for purposes of comparison, the second quarter included a $14 million charge related to industry mutual insurance consortia and a $9 million charge related to debt reduction. Now compared to the second quarter, the underlying the third quarter earnings mix is quite different as the propylene oxide and related products segment experienced the strongest performance improvement. The results for the ethylene pro-products and derivatives and the inorganic chemicals segment declined.

Compared with the third quarter of 2004, net income declined by $40 million. However, the various charges that I just described reduced third quarter net income by approximately $150 million. With respect to the underlying business performance, the propylene oxide segment improved significantly based on strong MTBE margins with results of the ethylene and refining segments declined partially due to the shutdowns related to Hurricane Rita. You might have noticed, our third quarter income tax provision is a $54 million credit. This is primarily attributed to a benefit resulting from the finalization of prior period income tax liabilities. Partially offset by higher foreign earnings.

As a result, we anticipate that the full year tax rate should be adjusted to approximately 30%. We continue to expect the 2005 cash taxes will be modest. Finally, our third quarter average outstanding share count was approximately 247 million shares and the corresponding share count diluted earnings calculation is 260 million shares. Now, before we discuss the quarterly performance of the individual businesses, it's appropriate to first highlight the impact of Hurricanes Katrina and Rita. Our principal chemical assets were not significantly damaged by either storm. And, in fact, Hurricane Katrina did not directly affect our facilities in anyway. Hurricane Rita on the other hand caused some damage and forced most of our Gulf Coast facilities to be shutdown for 7 to 9 days. But it did not directly cause major wind or water damage to our principle chemical assets.

Among our chemical facilities, the Lake Charles [INAUDIBLE] facility and our ethylene glycol joint venture in Beaumont sustained moderate physical damage. The Beaumont facility is starting up as we speak, but we have not made repairs at the Lake Charles TDI facility. As our evaluation of the ongoing health, the TDI business site economics do not justify the investment. Consequently, the decision has been made to permanently cease TDI production at this facility. As I mentioned, this decision was reported last week, and the asset impairment charges are included in the third quarter financials. Now, at LCR, the storm ultimately led to more severe downtime and damages. After Hurricane Rita, LCR encountered problems while restarting the fluid catalytic cracking unit. The repairs were required prior to a second restart attempt in mid October. During which the fluid unit experienced the fire. Repairs from this fire are estimated to add as much as 6 additional weeks to the down-time. We now estimate that LCR will be in position to resume full production by November 30.

While the direct plant shutdown costs related to Hurricane Rita were not major, the lost production opportunity costs by Rita was quite substantial. In our case, for a combination of several methodologies, including consultant data. We estimate that the impact of loss production on third quarter pretax earnings, would be approximately $75 to $100 million. With approximately half of this in the ethylene segment and the balance split between the propylene oxide and refining segments. This would represent approximately $0.20 to $0.25 per share after tax. However, the majority of our chemical plants quickly returned to production. You can make the case as the the majority of the value will be re-covered over the coming quarters. Let's turn our attention to the ethylene co-products and derivative segments.

The primary products of this segment are Ethylene, Ethylene co-products including Propylene, Butadiene, Benzine and [INAUDIBLE] and derivatives of Ethylene which include Polyethylene, Ethylene Oxygenates and Vinyl Acetate Monomer VAM. The third quarter segment EBITDA was a $116 million dollars, down from $294 million during the second quarter. The key contributors to the quarterly decline were increased raw material costs, coupled with loss production related to Hurricane Rita. And the value of the latter is estimated to be approximately 50 million dollars. During the quarter, the cost of the liquid and natural gas based raw materials increased significantly. Averaging approximately $7 to $8 per barrel greater than second quarter costs. Co-product pricing was somewhat mixed versus the second quarter as gasoline blending components were very strong.

The Propylene and Benzine prices averaged slighty lower than second quarter average prices. As a result, our quarterly average cost of Ethylene production metric increased by approximately $0.07 per pound versus the second quarter. Ethylene and Ethylene derivative prices increased as the third quarter progressed. However, the pace of Ethylene derivative price increases was only sufficient to offset the second quarter decline. As a result, quarterly average Polyethylene and Ethylene Glycol prices were relatively unchanged versus the second quarter. Now on the other hand, Ethylene price increases in the third quarter were more rapid. And the quarterly average Ethylene price Increased by approximately $0.05 per pound versus the second quarter.

Therefore, on balance, product price increases did not offset raw material cost increases and quarterly average margin declined versus the second quarter. Despite effectively losing the majority of the final week of the quarter to Hurricane Rita. The combined Ethylene / Ethylene derivative sales volumes were relatively unchanged from second quarter levels. Within our Acetyl products results decline by approximately $20 million, primarily due to margin contraction caused by increased natural gas and Ethylene costs. Thus far, the fourth quarter has been characterized by tight supply demand conditions coupled with increased prices. Crude oil based raw material costs remain elevated but have declined from their highs. While in general, co-product prices have been quite strong. Sales have been constrained by production and inventory availability rather than demand.

Across our system, Ethylene operating rates are at or near full capacity and have been for the majority of October. We don't have any scheduled Ethylene plant maintenance turnaround during the fourth quarter or for that matter all of 2006. Now, let's turn our attention to the Propylene Oxide and related product segments. This segment includes Propylene Oxide, derivatives of Propylene Oxide, Toluene Dicyanide, MDT and Styrene. During the third quarter of 2005, EBITDA for this segment was $321 million which is a $135 million increase over second quarter 2005 results. MTB provided a quarter-to-quarter improvement. Margins began the quarter quite strong and continued to increase until peaking near Labor Day. Average quarterly raw material margins increased by approximately $0.75 per gallon, leading to a quarterly improvement for MTBE of approximately $160 million. Propylene Oxide and PO derivative products continued to have strong results. Although the products experience some margin compression versus the second quarter. This was largely offset by a 60 million pound or 8% increase in sales volume. Year-to-date sales volumes are relatively unchanged compared to the same period in 2004. And margin expansion has led to approximately $170 million improvement in results. Styrene results are slightly worse than the second quarter, due to a combination of lower sales volumes and margins. Sales volumes were reduced early in the quarter, due to poor margins and then late in the quarter they were reduced by Hurricane Rita. Toluene Dicyanide operating rates -- results were also slightly worse in the second quarter, primarily due to higher costs. Results for the Lake Charles TDI facility continued to be very poor prior to the late September shutdown of this facility. Thus far in the fourth quarter, the supply demand balances for the segment's chemical products are quite good. But energy and raw material costs are pressuring margins. MTBE raw material margins have remained very strong through October. Averaging approximately a dollar per gallon through last Friday. As expected, margins have declined as the quarter has progressed, however, they continue to be considerably stronger than historic fourth quarter margins. With respect to maintenance activity, we currently have one of the Bay Port PO plants undergoing a scheduled maintenance turnaround. Fourth quarter MTBE productions will be reduced as a result of the turnaround, and based on October margins, the estimated impact fourth quarter operating by approximately $15 to $20 million, this is the only scheduled maintenance activity until late in the first quarter 2006 when we'll have a maintenance turnaround at one of the European [INAUDIBLE] plants. The next segment I'd like to review is inorganic chemicals, the primary product in this segment is Titanium Dioxide. The third quarter results declined significantly versus second quarter. Although, sales volumes were generally quite good and local currency prices were relatively unchanged versus the second quarter. However, on a dollar basis, the average sales price declined by approximately $50.00 per metric ton. Resulting in approximately a $10 million decline in results. And the third quarter was also negatively impacted by approximately 20 million dollars related to reduced production and subsequent inventory reductions. Additionally, there was a $3 million charge related to the mutual insurance consortia. While there was a significant decline in quarterly performance, the majority of the decline was not directly related to current TiO2 industry condition. To fully appreciate the business dynamics that led to this impact the third quarter must be divided into two periods. July and August, average monthly sales volumes were somewhat below second quarter sales pace. During this period, we significantly reduced our operating rates and inventory. After Hurricane Katrina, and resulting damage to a competitor's facility, we shifted our focus to the maximization of operating rates, full inventory continued to decline due as they increase sales. Ultimately sales volumes finished the quarter approximately 6,000 tons or 4% stronger than the second quarter sales volume. Our quarterly inventory goals were met. Inventories were reduced by approximately 30,000 tons during the quarter. Creating significant positive near term cashflow. The dollar base price decline was primarily a function of geographic sales and the impact of foreign exchange as prices in North and South America were relatively unchanged. Thus far in the fourth quarter, Titanium Dioxide sales remain quite strong. During the quarter we anticipate further inventory reductions, however, due to high inventory carrying values, sale from inventory will not significantly contribute to strong fourth quarter earnings. Now let me turn your focus to the refining segment which consists of our 58.75% ownership in LTR. LTR's third quarter net income was $91 million, this equates to EBITDA of 130 million. A $65 million increase versus the second quarter. The results were primarily driven by increased volumes as refinery processed 245,000 barrels a day accrued during the third quarter. An increase of 52,000 barrels a day versus the second quarter. The increasing processing rates result from a reduction in planned and unplanned downtime in the third quarter. You might recall, the second quarter included scheduled maintenance downtime as well as two operating issues that reduced crude rate. Third quarter production fell short of the refinery's 268,000 barrels capacity, primarily due to downtime related to Hurricane Rita. As a result of the hurricane-related repair issues that I mentioned earlier, LTR's operating rates in the fourth quarter will be constrained between 30 and 50% of design crude rate until approximately November 30. Assuming that the fluid [INAUDIBLE] cracker restarts on this date, LCR expects that fourth quarter EBITDA results will be close to breakeven prior to insurance reimbursement. Obviously, LCR [INAUDIBLE] quantify the insurance reimbursement until after normal operations are resumed. This concludes my prepared remarks, I'd now like to turn the call over to Kevin.

Thanks, Doug. Let's begin by discussing our decision to shut down the Lake Charles TDI plant. As with any plant shutdown this was a difficult decision but one that we believe had to be made. As you know, we don't disclose individual plant and product financials but, obviously we would not have made this decision unless we thought it would improve our near and long term cashflows. Unlike our other products, TDI has not responded to the chemical industry recovery, and this coupled with future capital requirements, current high raw material costs and hurricane damage made it financially impractical to continue operations. As a result of this decision, in addition to this quarter's impairment charge, we will experience some future costs related to severance pay, plant decommissioning and commercial arrangements. We expect that some of these charges will occur in the fourth quarter and cash expenses will be realized over several years, more specific information on these charges is available in our October 19, 8K filing. Since we shut down the Lake Charles facility, it's natural for you to ask if we would continue operation at the TDI facility in France. Circumstances such as natural gas costs, future capital requirements and the contractual environment which at that facility are different from those at Lake Charles. Consequently, at the current time we perceive production continuing. Additionally, the hurricanes have resulted in global supply tightness which may improve short term margins at the French facility. Let's move on and discuss the progress that we made in our efforts to reduce debt. During the quarter we repaid $411 million of debt. This consists of $200 million of Lyondell debt and $211 million of Millennium debt. Total debt reduction since last September stands at $1.2 billion. We've completed the early payment of the $1 billion 9 7/8% bonds on Lyondell. So as a result, we are now 40% of our way toward our $3 billion debt reduction target. Looking forward we continue to have relatively inexpensive opportunities to repay debt that will allow our debt reduction efforts to proceed efficiently. Specifically, during the next 4 months, 250 million of our debt will mature. We will have an early call option for $730 million of debt. During the third quarter into October we have also continued to fine tune optimizer financing structure. Efforts will be completed including the completion of the Millennium Australia financing and repatriation of earnings at taxed advantage rate. Extension of the Millennium revolver and LCR increased its revolving credit facility. After the debt reductions our cash position has remained relatively unchanged, closing the quarter at 652 million as compared with 713 million at the end of the second quarter. Cash positions at the individual operating companies were 342 million at Lyondell, 132 at Equistar, 178 million at Millennium. Total consolidated liquidity also remains strong at 1.9 billion at the end of the third quarter. This figure takes into account cash, various revolvers, accounts receivable and inventory facilities and letters of credit. Third quarter distributions from the partnerships were less than we have experienced in recent quarters as Equistar did not make any distributions while LCR's net distributions to Lyondell were 97 million. Equistar's distributions were limited by an anticipated fourth quarter increase in working capital related to product price increases. Capitol spending is pretty straightforward. During the third quarter, spending was 34 million and the Ethylene co-products and derivatives segment 11 million PO and related products, 13 million in inorganics, 38 million at LCR. Total year-to-date consolidated capitol spending is a 178 million. While LCR's capital expenditures are 121 million. We expect tha full-year spending will be somewhat less than the levels we reported in our January press release. Working capital management continues to be a key area of focus for us, and as you may expect our inventory has finished the quarter at low levels. However, the total value of our receivables, payables and inventory were relatively unchanged from the second quarter. Titanium Dioxide warrants special comment as finished product inventories were reduced by approximately 30 thousand tons, this is equivalent to approximately 60 million in sales, we'll generate significant fourth quarter cashflow. In summary, our debt reduction, cash management and financing efforts continue to be fully on track, and ahead of our expectations. Now I'll turn the call over to Dan.

Thanks. Thank you, Kevin. I'll try to be brief today, but there are three points that I wanted to emphasize before we move on to your questions first I'd like to take the opportunity to recognize the extraordinary accomplishments of our employees during and after the recent hurricanes, our ability to safely shut down and restart our Gulf Coast plants in just slightly more than one week when Hurricane Rita came ashore is a remarkable testament to their skills. I'm very proud of their commitment and performance during this challenging time, particularly considering the personal hardships that many of them endured. It was only because of them that we were able to quickly return to production. At nearly all of our facilities. Second, I'd like to underscore the temporary nature of the third quarter hurricane impact on our chemicals products. I hope that we have been clear that the $75 to $100 million estimated impact from loss production on the third quarter is our best approximation of the difference in our quarterly results with and without the hurricanes. You can't precisely quantify this value because there are too many moving parts, but we think this is a reasonable range. We also don't believe this represents a permanent loss of profit. But rather is an opportunity costs specific to the third quarter. Simply put for approximately the last 8 days of September, the Louisiana and Texas Gulf Coast industries were essentially shut down. However, end use demand for the product didn't stop. So in essence the timing issue was magnified by the fact that it occurred at the end of the quarter. Finally, it seems that with so much activity within the industry, many investors have had a difficult time framing the supply/demand situation. I'm not sure if I'll be able to simplify it for you, but I would like to give it a try. Let's see if some calculations might help. I'll use Ethylene as an example since it is normally the focus of your questions. First, let's consider expected industry downtime versus our downtime. In the four months between Hurricane Katrina and the end of the year, CMAI estimate that North American industry downtime will average about 18 1/2% of capacity. Lyondell's downtime during this period should average 6%. Looking further forward, CMAI estimate that is for the first five months of 2006, industry downtime will average approximately 8 1/2% while we have no downtime scheduled. When you consider this data and pre-hurricane industry operating rates of approximately 95%, I think you can see why the supply/demand balance is extremely tight and why I believe that we are well positioned. Now, let's consider prices and margins. CMAI's price estimates for October compared to this June, indicate that contract Ethylene price will have increased by $0.17 and Polyethylene by $0.24. In spite of Ethylene prices up $0.44 . During the same period, CMAI's estimated cost of Ethylene production for Methane has increased by $0.15. And from an output it's unchanged. Clearly the North American ethylene market is very tight. Margins have expanded considerably and the situation is particularly favorable for liquid crackers. Plus there are additional price increases being negotiated while crude prices are showing some indication of slight moderation. Of course, other products are experiencing tightness, U.S. refining capacity ran at 95% of capacity prior to the hurricanes and it's been running at 80% since. Although we currently cannot take advantage of this at LCR, our blending components such as MTBE have benefited. Titanium Dioxide is experiencing similar tightness, based on public statements, 7% of global or approximately 20% of North American capacity is expected to remain down between Labor Day and the end of the year. While PO capacity did not suffer outages of this magnitude, supply and demand was quite good before the hurricane and all North American plants experienced some downtime. Additionally, globally, there are a number of maintenance turnarounds and plant upsets. As a result, supply demand has remained quite good. I'll close my comments on that note as I'm sure that you have many questions that you'd like for us to address. So Operator, we'll it over the audience.

[Operator Instructions] Sergey Vasnetsov from Lehman Brothers, you may ask your question.

Thank you. Good afternoon. A couple questions, first on an [INAUDIBLE] front, would you care to guess whether you would be able to get the results in the fourth quarter- first quarter, above what you have had in [INAUDIBLE] first quarter this year?

I would probably care to, but as a matter of policy we don't make forward productions. Sergey.

Secondly, on you Propylene Oxide business, recently [INAUDIBLE] and definitely in an announcement that is they are ready to commercialize [INAUDIBLE] by Hydrogen Peroxide as an Oxidizing agent. But at you kept your own efforts [INAUDIBLE] Japanese companies. And I think you started to give them earlier, what's the status there?

We have already, with our Japanese partner a so-called PO only plant. actually in operation. It is not based on Hydrogen Peroxide, but it only makes Propylene Oxide. We also have in operation at our research facility in New Town Square a pilot plant that is a one step PO only process and we're making good progress in the development of that process, and I'm sure we'll have more to say about that as the months unfold.

Any current plans to commercialize large scale fuel on the technology?

As I said, we have a PO only plant actually operating in Japan. A world scale plant and our partner is working on a second plant in Saudi Arabia, and we are working on the development of an additional PO only technology. We're not prepared to make any announcements today. Thank you.

Jeffrey Zekauskas from JP Morgan, you may ask your question.

This is Dave Silver.

Hi, Dave.

A quick question on taxes and then I had a question on Ethylene feed-stocks for you guys. On the $38 million tax benefit that you recognized in the quarter, could you maybe break that down? You listed a couple of elements, I'm trying to figure out how much is really, I guess, totally related to prior periods and how much might be related to maybe a different spread of income, maybe geographically, and something that might influence your tax accrual let's say in 2006.

Well Dave, this is Doug. When you look at that piece, what you see is the foreign tax pieces largely increasing the strength in MTBE over in Europe, helping that out, but, you know the rest as we said, is a task liability. I don't think we're going to break it further. What I would do when you look forward, we typically have thought that the tax rate has been a 36% tax rate. And the advise that I gave you now, I would look forward to the full year to use a 30% tax rate for '05. The one thing I want to remind you, though, is this doesn't alter or affect our cash tax position where we think cash taxes are going to be modest for the year and that's continued throughout the year is our advice.

If I could just ask you to clarify, the $38 million benefit. It's from a couple areas. How much of it was prior periods as opposed to other sources.

Well, I think really, you can estimate that yourself when you think about the foreign taxes on MTBE and the process of MTBE overseas that that increased our tax situation there.

Okay. And then the second question on Ethylene feed-stocks, you know, you guys have noted you're much more heavily waited toward NAFTA than the rest of the industry.

Actually, the whole --

It's not specific to NAFTA, but --

Okay. Sure. And you also noted the pretty wide disparity right now between cash costs and production, using a gas-based feeds versus some liquids. So can you just maybe elaborate on how you think Lyondell's feed-stocks will evolve over the next couple quarters.

Sure.

You is get all the NAFTA you need? Are you able to tilt it more heavily?

We basically run pretty much full out on liquids all the time. The advantage varies from week to week, month to month. In an improving market our entire supply demand market. It's not unreasonable to expect basically that all products are growing in value. And so when you crack liquids to make Ethylene, you make about 4 pounds -- I mean, three pounds of other things, compared to one pound of Ethylene. Where if you crack Ethane you make one for one. So, if you have a rising market. The co-products, the other three pounds are rising in value. Therefore, the advantage of cracking from liquids tends to grow. So, in an environment like we are in right now, where you have things like Propylene and Butadiene and other things expanding margins, you're growing that liquid advantage. We have not seen and do not expect to see any difficulty in filling out the slate. Although we do vary it fairly widely. Because we bring in beef stocks from all over the world, and we compete looking for the cheapest beef stocks to fit in. It's not NAFTA, it's not one grade of NAFTA's it's a wider range of common stakes NAFTA's and of course we could go down to the gas, oils and diesels, they have not been economically advantaged in the recent years.

Thank you.

You're welcome.

Mike Judd from Greenwich Consultants.

Thank you for taking my questions. My questions are around MTBE. margins, prices, etc. I think you mentioned that recent MTBE margins around a dollar a gallon as of last Friday or so, and that obviously MTBE provided a big boost to the business in the third quarter, as we look at the fourth quarter, I'm trying to get a sense for -- for instance, that one dollar per gallon margin, what was the average margin in the third quarter and -- I mean, just -- you know, anything along those lines, thanks.

Mike, this is Doug. Let me help you out a little bit with that. Third quarter margin, raw material margin that I'm referring to is averaged in the U.S. about $1,49. The way we calculate it. And in Europe, it was about the same. When I referred to the dollar, that's a blend of the U.S. and European margin for October. Up through last Friday. As we mentioned, we've expected that it will tend to soften, it always does after Labor Day. The hurricane of course make gasoline very tight. Which has supported it for much longer. As long as we see a tight gasoline market. High value of the Octane and vapor pressure, and incremental barrels contributed by MTBE should do well through the period..

I think trend analysis you go back to gasoline, you're really talking about the gasoline market. And, of course, this year it's been a very strange year with very tight supply demand exacerbated by the hurricanes, but gasoline margins peaked very high. They've stayed higher than normal. It's anybody's guess where they're going, but clearly fourth quarter is traditionally a weaker gasoline quarter than other quarters, I think as we get late in the fourth quarter, people are going to start worrying about where is the gasoline supply going to come from next year. Nobody knows exactly where it's going, but we continue to think it's pretty good. And remind you that the amount of MTBE going into the U.S. market is roughly equivalent to the gasoline from 4 to 5 normal size refineries. So, it's a very key part of the gasoline pool and we expect it to perform [INAUDIBLE] with the gasoline markets.

Secondly, with TDI, with the U.S. capacity out, is there anyway to sort of quantify the non-negatives so to speak for the fourth quarter, in other words, you look at the results in that segment for the third quarter and obviously for the fourth quarter you don't have that negative variance, what's the amplitude or degree of that.?

If you're asking about the business side, we wish we knew. The thing you can say is this was about 7% of world supply that we took off the market. But that's not a very sloppy market running in the very low to mid-80s in kind of utilization rates. Currently a lot of impact from the hurricanes. A lot of problems around the world. So currently this material is in very short supply. So there have been price increase announcements out there of magnitude, but I wish I knew where it was going to [INAUDIBLE] going forward. We simply looked at the situation on supply demand, looked at our competitive position with this facility that we had had enough of this fund, that this was not likely to improve short term or long term in the right decision for us was to withdrawal this capacity from the market. Now, as it goes forward, we hope this market improves and the other facility we enjoy will prosper, but we certainly don't know.

I guess my question is really a little bit more numerical in the sense that , you know, in terms of a profit- sequential profit contribution, or I guess the lack of a negative profit contribution in the fourth quarter is there a way of quantifying that?

We don't try to break down the individual plants. Obviously, directionally it's going to be better.

Meaningful then or not?

Well Mike, let me help you maybe with this. Think about that, it's a 300 million pound plant. Industry's running about 80 some percent at capacity and the product is selling for something less than than $0.90. If you think about it, it was a couple hundred million dollars in revenue, in our company now which revenue was about 4.8 billion dollars in the quarter. Overall for the company, it's not a big thing. But the right thing to do because of the conditions we're looking at and future capital needs etc.

Thank you.

Kevin McCarthy from Banc of America Securities, you may ask your question.

Good morning, guys. Titanium Dioxide posted a larger loss than I would have anticipated. It looks like from table seven in your press release volumes, actually increase sequentially, can you talk a little bit about where you are in terms of correcting the inventory situation at this juncture and what your profitability outlook in that business is for the fourth quarter in 2006.

This is Kevin. I think again, we told -- we said actually at the end of the second quarter of the conference call, we started taking some actions to do things, and I think we were trying to be clear that while the sales were off a little bit -- we still -- deinventoried effectively, and then got a little bit of benefit because of the hurricane would allow us to deinventory a little bit sooner. So directionally, we have done what we wanted to do. We have got more to go, obviously you have to be careful how you do that and the marketplace is positive from this standpoint. Being able to accept that because of the changes in the -- because of the hurricane. So we've got more to go there, we're freeing up the cash. We are doing exactly what we wanted to do. Clearly we knew that we take a hit in terms of the operating income there, because of the slack of the plants down. We're taking the actions we said we would do. We have got a little bit more to go. Fortunately, we don't have too take the rates down as much as we did before. To sort of allow the inventories to come down. So, we'll see some impact in the fourth quarter. As well as I think it's going to show up as generating cash for us.

Actually Kevin, I think we'll probably be pretty well down to the levels we targeted by the end of this month. Indeed we probably have an opportunity if we sell more, we can make more. All things are not perfect. But while you do see some impact in the fourth, I don't think it will be nearly as pronounced as what you saw in the third.

Okay, and then Dan, to follow up on the C stock mix issue. I know you have a vast majority of your Gulf Coast crackers, geared toward heavier feeds some of the Midwestern crackers maybe lighter, if I look at your Ethylene production over the last year, with 100% of the total. Can you give us some rough percentages of where you are backing NAFTA versus other heavy feeds versus Ethane and Propane.

We're 60 to 65% liquid based in capability and we run that way. The remaining is NGL based. Now, the Midwest crackers are more limited than the Laport cracker, it can take a wider range of NGL's and indeed into some very light liquid. But there's the 63% I think is the technical calculation, 60 to 65 covers it, for I think all times.

Okay, and then finally on MTBE, where do you stand with regard to converting some capacity over to DIB or other blending stocks?

Well, we've announced previously as you know, that we're in the construction phase of building a facility that will allow us to convert to DIB. We anticipate that being done by the middle of next year, and we would be able at that point in time to switch production if we so chose. Again, reiterate -- the reason we did that, at an uncertain future market. We need to be able to make sure you can move the materials. Since this is a co-product in our propylene oxide process. Having made that equipment conversion we don't have to operate it in that mode. And indeed, it's our intent to continue to do the economic thing and make the most money we can. As long as there are good returns in the MTBE business, we intend to continue to do that. But in the occurrence of that market not being a good place to be, we'll be able to switch. And indeed you could switch and switch back, but you're not going to be campaigning this, because it takes probably 3 to 4 weeks to make the conversion of catalyst et cetera in order to change from one mode to another. It's a safety valve investment that we're making, it's turned out to be a very modest investment which is good. But it is one that we're doing for security of our PO business not because we want to enter the DIP market.

So it sounds like it's more flexibility and optionality.

Absolutely.

So you would only switch if there's an economic incentive to do so?

You got it.

Thanks very much.

Thank you.

P.J. Juvekar from Citigroup you may ask your question.

Now that you shut down the TDI plant any thoughts on restarting the Lake Charles cracker with so many other plants down it seems like an opportunity to start the plant back up.

Well, we think about the Lake Charles cracker about twice a day. But I'll remind you again that our estimate for start-up would be approximately 9 months because it needs to be re-staffed. We need to reacquire the feed-stock contracts et cetera to do that. And so we continue to evaluate that situation, not just on the several week or several months, but on the longer term outlook and in the context of our 10.3 billion pounds of capacity running, and on that basis, we have still not come to the conclusion this week the start-up of that facility. If that changes you'll be among the first to know. Because we will make a public announcement if we come to the conclusion that we should restart that facility

Okay. And then another question on sort of a broader industry with U.S. prices up so much and U.S. prices the highest in the world, when you compare them to European or Asian prices for Polyethylene, do you expect a flood of imports to finish goods from China like we saw back in 2002?

That's a great question, PJ and one we spend a lot of time thinking about. As you describe the world, you left out Europe. Let's talk, certainly the U.S. is seeing the strongest moves, the economy continues to be in good shape here, relatively speaking and impacted by supply shortages caused by outages. It's been interesting because Europe has been showing a lot of response positively. Asia is lagging and that's been true for -- not days but weeks here, setting up [INAUDIBLE] opportunities and what you call a flood of exports, imports which ever way you're counting it. One would anticipate you would be seeing that. Anecdotally we went through some business analysis this morning, some cases where people took actions expecting that and were surprised they couldn't get the materials, so it's a conundrum. The Asian situation looks weak enough you ought to be seeing equilibration, yet it does not seem to be happening and I don't think we have the answer to that. We think overtime the gaps have got to close. But I'm beginning to think those gaps are more likely to close by Asia coming up rather than the U.S. going down. So only time will tell. But I don't think we're terribly worried about it at this moment.

Is it a shipping constraint?

No, I don't think it's shipping. I think you're looking at local use and local production versus needs.

All right. I'll come back later. Thank you.

Okay.

[Nancy Trabb] from Credit Suisse First Boston you may ask your question.

The tax rate of 30% for this year, should we go back to the 36% rate for '06 and beyond?

Yeah, generally I think that would be the appropriate thing to do.

Okay.

We view this as a one-time entity.

And MTBE volumes I know they typically decline some in the fourth quarter, but with the shortage of the refineries, you know, using MTBE in the gasoline pool would help. Would you expect a normal drop off in volumes or would it be --

Let me correct Nancy, we don't really see a change in volumes because again we make this -- the coproduct we sell it in the market. What you see is a drop off in margins, it's not so much the volume metric use that drops off, it's the margins that drop off. So we don't expect the volumes to be strongly affected, other than we have a turnaround, as we said, going on in this quarter which we'll subtract volumes for us.

That was what, 20 million or so?

20 do 25 is I think what Doug estimated.

A little bit below that probably.

15 to 20?

Yeah. I think in that range. And that was on October prices, Nancy.

Okay.

We'd like that to be on November and December prices too. But --

All right. Now for --

Probably not our friend there.

One other thing, inorganic chemicals, I mean, the change in EBITDA was pretty dramatic second quarter to third. From 49 down to 3. Which is a $46 million difference. You mentioned 10 million was in price and volume. 20 million was in lower production. And then we had a $3 million write-off. But that leaves, you know what, 13 million or so outstand something.

Nancy, I'd focus you to the operating income and if you look at that, that was a change of -- from positive 16 to a negative 16. About a $32 million difference and That's the place to go look at to really see where the underlying business conditions are and things. So, that's where I'd focus you and Look at that factor.

Well, I know this place happens with your modeling. Going into inventory accounting, you're not going to get there. Just remember, this is a high fixed cost business, so the carrying costs of inventory has a big impact. When you start selling from inventory rather than selling from production it washes through the income statement. So once we're passed this inventory correction, then you'll get more normalized, but it's going to be confusing until we finish that. As I said, the impact will be much less pronounced in the fourth quarter than it was in the third. And then going-forward we don't think you'll have that problem.

And as a follow-up to PJ's question about Lake Charles, what would it take for you to permanently close that facility?

Despair.

I mean, because things are pretty good right now.

Seriously Nancy, the way we look at that is, when you get into peakish conditions, it doesn't take very long in the way of an operation justified bringing up. So the optionality of bringing it up is valuable to us, if we conclude that we are going to go through the good part of the cycle and never really need that facility, and then we're facing down turns for several years, and it's not worth keeping that optionality that's when we would make the election to no longer keep it. But right now the pure optionality of that capacity and the ability to generate cash from it over some finite period of time makes it make sense for us to keep it in the suspended Animation because it's not costing us hardly anything to do that.

Okay. Thank you.

You're welcome.

Don Carson from Merrill Lynch, you may ask your question.

Hi, Don.

Dan, I know you don't forecast earnings, but if you look at the industry data on supply, it would seem that the current strengths should be somewhat more sustainable than it was what we many briefly through December and March of last year. If you look at cash margins being especially cracking liquids. Returning to some pretty high levels, it would seem that the near terms earnings outlook for the next 6 months is pretty strong. Is that where you were headed with your discussion of industry supply conditions.

I would agree with your analysis, Don.

Switching over to MTBE, two issues, I know it's uncertain, but what is your thought as to what happens to MTBE come May of next year when the auction 8 requirement goes away. And what, if you switched over to DIB, what would have been the margin impact over the last quarter versus producing MTBE.

The second question, I don't think I can come close to answering it, because the complexity of the gasoline blending models, et cetera and all the moving parts. Always remember that if you make DIB, you're not selling Methanol as gasoline. I mean one of the main things your going to with MTBE is, You're bringing Methanol into the gasoline pool, you're increasing the volume, but you're also getting a value up tick there. You make DIB, you're making a straight Hydrocarbon brand going into the gasoline pool and you have volume metric shrinkage. When the Oxygen mandate is eliminated, at one time we would have thought that would be horrible but I think you come back now to MTBE is not really selling on the Oxygen ability. It's selling on the gasoline blending value. And on that basis, when you look at tape supply demand refining, I don't see a reason why we should not expect continued profitable operations with MTBE, you need to relieve the constraint on gasoline, and I don't think we're going to do that with anything that's coming forward. There's a limitation on how much Ethanol you can pump into gasoline as Ethanol and you start then taking other materials out. It's lower Octane barrel capability, but it's especially impacting on the volatility. So you start eliminating a lot of your components and you can't blend in as many of the poor Octane components. So, I think as long as we have short refining supplies, then you're going to see a need for more gasoline blending. MTBE is doing that, it's not there to provide the Oxygen benefit although it still does that if it's in the gasoline. I think we're going to have a bit of a mess in gasoline for a while. And that probably bodes better for us than otherwise. Now, we still face the difficulties of major refiners, whether or not they want to convert terminals and not operate with the MTBE coming through the terminal. We don't know how any of that works out. It's hard for me to see people subtracting the equivalent of five refineries gasoline supply from the pool over the next year. It would be like having Hurricane Katrina and Rita throughout the next whole year and the year after, et cetera, it doesn't seem to make sense.

And this legal argument that have [Valero] and others use, you don't place much stock in that?

Let me say simply, the legal exposure that these companies have, comes from leaking storage tanks. Now, is that a perspective or a retrospective? I would argue in order for you to have a claim, you had to leak from a storage tank get in the water. That was yesterday. If you stop using today. How did that stop you from getting it there yesterday? It seems to me that -- to be frankly a ludicrous argument. But I'm not trying to make it.

Okay. Thank you.

You're welcome.

Jeffrey Cianci from UBS, you may ask your question.

Hey guys two quick things, frist on LCR, looking at your comment to go down to break even, you're running below 50%, is that the whole swing quarter-to-quarter or is there an implied comment about a de-margin of crack spread in your 3Q to 4Q outlook?

No, it's the fluid unit impact is what we're commenting toward.

So that comment assumes spreads similar to the third?

Well, remember for us, it's not a spread question. The CSA contract basically, you're basically fixed. While it's been good for many years over the past year and a half. It's really been a negative for us. So we really haven't implied anything in those spreads because it's only on the marginal piece of volume that it impacts us.

You focus on the marginal piece of volume, you could run this thing full out, right?

I'm sorry?

If you ran this null out, you would get that marginal?

Yeah, you would. It's the difference between 2.30 and 2.65 that we can possibly run. The incremental 35 we didn't spend any time trying to guesstimate what the margins would be on that piece.

Okay. And --

I'm trying to give some simple guide answer here, and it's not a very sophisticated but just to make sure that you understand that when you're running at these low volumes for a couple months of the quarter, it does have a great impact because the fix costs don't go away.

Thank you. My other clarification is on your co-product comments. fourth quarter versus third. C3 and everything above it is up dramatically. Was your comment implying that your co-products would get as much swing as Ethylene, quarter to quarter, looking for the magnitude?

I don't know if you'd say as much. But definitely, virtually all these things are moving up with the exception of Benzene which has gone sideways and down. Most of the co-products are moving up. Some as much percentagewise, some may be more percentagewise. Roughly in the same kind of frame as the ethylene because the short supply is pretty universal. Again, propylene gets impacted not only because of the cracker outages but because of the refinery outages, there was a double whammy on Propylene supply which pushed it stronger in the short term.

Great. Thanks.

You're welcome.

Arlene Rodriguez from Goldman Sachs. You may ask your question.

When you look at all the price increases you have in Ethylene and Polyethylene what's been the reaction of your customers, have you seen any attempt to pre-buy ahead of those price increases?

I guess the best way to answer that is, we can't tell, because the outage put us in a situation that producing as much as we can produce, we're at best able to meet the contractual commitments. Sure, people would like to buy more if they could. We don't have it, so we don't have the temptation to sell more than contract. Many others are on much deeper allocations than we are. So the discussions with customers certainly people are concerned as we've been concerned with the price increases on all the feed-stocks over the past two-years, the dialogue has been more about supply and the need to get the pounds where they need them over the recent weeks than it has been about the price. Which is typical in an acute shortage situation, first security supply, and then you worry about where the price is. Now I would also tell you that I think you're seeing a lot stronger move by the downstream customers to push their prices up so they're able to pass these cost increases through. Just as we've been trying to do with the run up in feed-stock. So I think this is a typical pattern. We're talking about the trends we're seeing prior to the storms hitting. The storms certainly exacerbated the trends, but the trends were already in place as we were tightening supply and demand balances, really across the board in these materials, they just got sped up here and I think we're seeing what you would typically see in short supply situations. Now, does it stay acutely short? Certainly not as acutely. You're going to have these capacities come back on the market. We also think demand has not gone away, even at slower economic growth you're still going to be consuming more materials, so we think we're moving into a regime with tighter supply demand that we should enjoy for some period of time.

Ok, it makes sence. One last question on Propylene Oxide. With the surge in Propylene prices that we have seen now, are you able to raise prices fast enough to offset the increasing costs?

We are raising prices in Propylene Oxide and it's derivative products and typically, you can't move them up as quickly as the oil trend prices move up. Propylene moved up $0.10 last month, but the supply demand situation in the PO business is very tight. And we have every expectation of recovering the price increases.

Okay. Thank you.

Thank you.

[INAUDIBLE] with Morgan Stanley, you may ask your question.

Hi, guys. Just three questions. First on the Polyethylene increases, there seem to have been split movements here with some folks supporting the mid month increases while others aren't. Can you give us some sense for whether the mid month is actually sticking or is it actually getting pushed back to month beginning kind of time frame.

I think you're probably looking at something that is supplier specific there. We're moving toward it, as we said, the market is very tight. Prices are moving up consistent with that.

There's obviously only one right way to raise prices, that's the way we do it. We can't comment on other's behavior here.

And so how are you doing it on a month beginning basis?

Yeah.

Okay. And then just revisiting this Propylene balance, I know you've talked about it in the past. If you could just remind us, with the FCC down, does that actually force you to go out and buy some Propylene at $0.50 or since your PO plant being down you don't require it? Can you just talk a little bit about it.

Our system overall in Propylene is long a couple billion pounds of Propylene. Domestically.

This is 400 million pounds of refinery grade?

No, overall Propylene.

No, I'm saying the FCC is 400 million pounds?

No, it's --

I don't recall exactly how much it is.

I think it's about 300 per year.

300 million pounds.

I think. If I remember the number correctly.

Okay. So it's not --

In the context of a couple billion, it's not a big deal.

And then on [INAUDIBLE] the break even performance, I was wondering whether the U.S. Methanol position [INAUDIBLE] in terms of profitability if you were looking just at the assets in Van --

Let's go back and say this whole segment- very simply speaking, if you have $14 gas.

Right.

Long term, and elsewhere in the world gas is low, $0.75 or dollar or normalized at 2 or 3, this is not a business that's going to make money. But I would take you back to the first half of the year when we were at kind of a $6 gas number. And we made some pretty decent profits there, so the business itself is not flawed but certainly these wild swings in the natural gas are deadly in businesses that are key to this. And I think that's what you're seeing in these numbers, I don't expect gas is going to stay at 14. I don't think it's going to go to 2. But I think ultimately as we said before, it's going to equilibrate around the $4 range or slightly under that, with L&G comming in. It's going to be a bumpy ride until that balance gets re-established probably in 3 to 7 years. In the meantime, these businesses are going to be up and down and fortunately for us, it's not a critical business to us, although it is an important business and we continue to watch it carefully.

So you'd keep the Methanol running because you've got some constraints around what you can do around it?

We have some contractual constraints and arrangements that make it less and easy for us to do what we'd like to do.

And lastly, what would it take to bring Lake Charles back up. What would it cost rather?

The TDI facility?

No, Lake Charles Ethylene facility.

I was going to say, I thought we were clear. The ethylene facility, I don't have a fresh number. Morris, do you remember? Not much.

What's the ballpark.

10 to 20 maybe.

Okay.

Principally a staffing thing.

Okay.

Of getting the staff back it's really mostly that.

Thanks. Thanks a lot.

You're welcome.

Robert Solice from Gabelli and Company, you may ask your question.

I had a quick question for you on the Ethylene side. We look at the second quarter sequentially the third quarter, EBIT really came down quite a bit. You went from the 201 million down to 22 million. You know, the -- I would think that the cost of feed-stocks was running up prior to the hurricanes but the main bump in the road came then so I guess my question is, it's a big drop off. You know, what do we expect going-forward if feed-stocks continue at this price, you know, what does that bode for the fourth quarter. And if the majority of the decline came as a result of increased feed-stocks, in the month of September and they continue this way, do we have a rough fourth quarter?

I think Robert probably the best place to direct you is to some of the research analyst's work. And one of them previously was outlining where he was looking at things right now. We don't make productions, but I think we tried to be very clear here, we have a tightening supply/demand situation we have prices rising rapidly. feed-stock costs have moderated. The implication as margins have expanded which they have. And how much and how long I think you need to come to your own conclusions by looking at some of these others, but clearly the way you're describing it, I think you're on a different planet than where we are.

Well, thank you, gentlemen.

Thank you.

Once again, to ask a question, press star one. Phillip Morara from Banc of America Securities you may ask your question.

Good afternoon.

Hi, Phillip.

Just a follow-up on the Acetic acid, can you give us your perspective on the fourth quarter and the outlook for margins there?

I would say again when you're looking, I think I saw on the screen gas was north of $14 this morning. I don't think you can expect anything very positive in that business in the fourth quarter with gas prices at that level.

Is that driven by Methanol pricing or gas --

If you think about Methanol it comes from gas, and you use a lot of it in these processes, then yes.

Phil the best thing to do is take it right back to the gas, gas prices here relative to a global price, that's the best way to think of that.

Okay. And then back to the inorganic segment. You explain the $30 million difference on the operating income, and then I think the difference, the 50 million difference on the EBITDA line, is that extra 20 million related to an incrementally related to the inventory management.

Phil, what I would do on that, you're looking at things in kind of small numbers. It can be somewhat changed. Let's look at the year to date values there and take a look at that. That's kind of the running difference you should expect looking forward for the operating income. That's where I would direct your thinking there, and as I said, let's go back -- these are things that we saw and tried to characterize, is production significantly in inventory with it. About $20 million. We saw some margin decline not really local prices, but we saw that really on a dollar base prices, somewhat on that mix that we had. And then we had some charges like the insurance charge that had a few million dollar impact on the quarter. But if you think through, and you go through this, you've got a situation TiO2 where the basic business volumes were up quarter-to-quarter and prices on a local basis were pretty flat. Unlike some of our area businesses that have to contend with $8 changes in crude from quarter to quarter, you have a little more stability on raw materials and things here, what you're seeing is our actions in the business so that we can run the business the way we want to run it down the road in the future down the road are having an impact in the near term. And that's what's in the quarter-to-quarter economics.

You have to keep respective that these stocks here are basically are [INAUDIBLE] doors, they're not subject to the same fluctuations as Doug was saying. It's also a much slower growth business, it's not as volatile a business from that standpoint. But it's one where the products are largely individual specs. there are a whole lot of skews which people have accommodated by large inventory and any business that operates with large inventories is a sitting duck for prices not moving as they should with the economy. We've come to the conclusion that a better way to run this business is without the luxury of huge inventories, but in order to get where we want to go, we needed to make that correction. So we've taken that hard step this year, but to put it in perspective for you, if you have 7% of world supply offline for four months or so in a business that was already tighter then the conditions are better than they were and you are seeing price increases, not nearly as dramatic as you are in other segments, but volumes are good, prices are moving up and we're getting our house in order where we expect to prosper from that. This is not the same kind of cycle that you see in Ethylene. You're not going to see that impact. But we do think we'll see continued good profitability going-forward and frankly improving.

You also mentioned that you didn't make distributions from Equistar because of an anticipated working capital bill in the fourth quarter.

Right.

Do you think that- Could you maybe give us some guidance on that and what the impact might be on distributions for the fourth quarter?

Well, let me just remind you that the way this business works, you sell the products in the chemical market. Where the normal terms are 30 day received, which you buy feed-stocks in the oil and gas market where the terms of payment are anywhere from 24 hours to two weeks, your payables and receivables never match. So, if you have a rising price environment that is equal on both ends, you're going to consume working capital dollars. If you have margins expanding, then it's going to consume that much more. Just think back to what's been going on through this period of time. We had volatile upward movement and feed-stocks and then we had prices expanding beyond that margins expanding. So we could see the pig and the python coming that we were going to have to fund with the cash. Now, quite frankly, you can come to your own conclusions, but look at where the price movements are in October and then the announcement's out for November. It appears that margins continue to expand, so I would expect that with the constant days of inventory, days of sales out there, you're still going to see rising cash use and working capitol. So it's the net of that that will determine how much cash comes out of there, it will eventually come out. It comes out as those prices stabilize and they flow through. The worst way to get it back is if prices fall, then it comes back very quickly. But it's just the cost of doing business and that's the reason that we focus so much on keeping ample amounts of liquidity around, because with these swings, you know, it's not a few tens but it can be a few hundred million that move back and forth here.

Okay. Thank you.

You're welcome.

Dominick [Massatelli] from TriMarion Advisors, you may ask your question.

Thank you, good afternoon. One quick follow-up on LCR, during the presentation you said that any fourth quarter contribution would be before insurance reimbursements, I was wondering if you could give us a quick walk-through in terms of what coverage you have and how the reimbursement process works.

Well we have both business interruption and property damage, but obviously your event needs to be totally finished in order to calculate the amount of loss, and then to try to get the recovery. So I think other than that, it -- we don't ever go into more detail than that. But clearly until this facility is started up, we know how much impact there's been from interruption of business we don't know what the claim is and it's difficult to make it, we --

Could you .

we do it then to follow-up

How about in terms of coverage of limitations, et cetera?

That would.

We have -- let's just say we have coverage that has certain deductibles in it that are appropriate for the size company we are, across the various businesses and everything like that. We're not going to recoverer it all, if that's your question, there's no question about that. But we're going to talk about deductibles.

Thank you.

You're welcome.

Our last question comes from Kevin McCarthy from Banc of America Securities, sir you may ask your question.

Yes, Dan, we don't often ask you about your Styrene position, but we're hearing more and more about production of Polystyrene being curtailed do to lack of Polymere.. Can you talk about the short term situation there are you on [INAUDIBLE] and what's the profitability outlook short term and then longer term, I think you have some contracts in place with NOVA and perhaps others and are there step functions we should be thinking about over the next couple years?

I'll let Morris answer the real meat of the question, but I think when you say real shortage, I would remind you that when you get into tight supply/demand situations what you really see is price rationing to businesses. So Styrene prices have been remaining very high, when you look at compared to history, but Styrene profitability has not been, is not very high. And I think largely that's because Benzene has been very expensive and very expensive compared to historical patterns, and now Ethylene is very expensive. And this is one material that when you get down to the Polystyrene has to compete not only with other materials but with other plastics if you will. In that material competition, at what point to cup manufacturers switch out and switch to a Polypropylene or some other material. I think puts some lid on how high they can bid the feed-stock prices to go into that. And I think you're seeing some of that competition out there. But let me let Morris --

The only thing I would add is that if there is a shortage of Monomer, it relates back to the shortage of Ethylene. It's very difficult to get enough Ethylene into the various [INAUDIBLE] facilities to make the Styrene.

Yeah. That's my act thought, Morris, to see-- if it gets constrained by Ethylene and meanwhile have you Benzene costs coming down through a window of opportunity. I realize it's been a very difficult business for years, but you're looking at the next 6 to 12 months, is there a window here where you see margins getting better or is that wishful thinking?

It would be hard for them to get worse.

I'd like to think so, Kevin, but I certainly don't want to make any firm predictions on it but, Styrene has been a little bit of a mystery. I mean Dan has mentioned a couple of the factors, but we would certainly like to see Styrene come back.

Okay. And what about the longer term contracts?

Well, you're not going to see any changes in those in the next year.

I think the interesting thing, Kevin is that people continue to build on purpose Styrene and despite of the fact that the margins have not been and do not appear to be showing a whole lot of real movement here, and as long as that supply/demand is such that somebody's willing to sell at those prices, I don't think you're going to see a huge movement.

Okay.

Supply demand is not tightening as much here as it is in many of the other components.

That's your assessment.

That could change, and I think it's how these things equilibrate over time that make these markets. So I think you can tell that we're not terribly bullish, given what we see, but we would like to be positively surprised.

That's very helpful. Thank you.

You're welcome.

There are no further questions.

All right. Well, we appreciate everybody's interest and attention today. And look forward to visiting with you again at the close of the year numbers.