Westlake Corp (WLK) 2017 Q3 法說會逐字稿

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the Westlake Chemical Corporation Third Quarter 2017 Earnings Conference Call. (Operator Instructions) As a reminder, ladies and gentlemen, this conference is being recorded today, November 7, 2017.

And I would like to turn the call over to today's host, Jeff Holy, Westlake's Vice President and Treasurer. Sir, you may begin.

Thank you. Good morning, everyone, and welcome to the Westlake Chemical Corporation Third Quarter 2017 Conference Call.

I'm joined today by Albert Chao, our President and CEO; Steve Bender, our Executive Vice President and Chief Financial Officer; and other members of our management team. The conference call agenda will begin with Albert, who will open with a few comments regarding Westlake's performance in the third quarter of 2017, followed by current perspective on the industry. Steve will then provide a more detailed look at our financial and operating results. Finally, Albert will add a few concluding comments, and we'll open the call up to questions.

During the 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 olefins 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.

This morning, Westlake issued a press release with details of our third quarter results. This document is available in the Press Release section of our webpage at westlake.com. A replay of today's call will be available beginning 2 hours after completion of this call until 11:59 p.m. Eastern Time on November 13, 2017. The replay may be accessed by dialing the following numbers: domestic callers should dial (855) 859-2056. International callers may access the replay at (404) 537-3406. The access code for both numbers is 97318894.

Please note that information reported on this call speaks only as of today, November 7, 2017, and therefore, you are advised that time-sensitive information may no longer be accurate as of the time of this replay.

I would finally advise you that this conference call is being broadcast live through an Internet webcast system that can be accessed on our web page at westlake.com.

Now I would like to turn the call over to Albert Chao. Albert?

Thank you, Jeff. Good morning, ladies and gentlemen, and thank you for joining us to discuss our third quarter results.

In this morning's press release, we reported record quarterly net income of $211 million or $1.61 per diluted share. Our third quarter results include record net sales of $2.1 billion and record EBITDA of $521 million. These results show the earnings potential of our business and the significant contribution that our 2016 acquisition of Axiall has delivered.

The investments we have been making in our assets have enhanced their operational reliability and have positioned us to benefit from the improving economic environment.

In July, we began to see increases in demand and prices across all of our major products that continued throughout the third quarter and into the fourth, reflecting the strengthening of global demand.

In the third quarter, much of the Texas Gulf Coast was struck by Hurricane Harvey. While a number of our employees were impacted personally, we were fortunate that Westlake's operations were not impacted by the storm. We commend our employees for their efforts throughout this time, not only on behalf of Westlake but in how they came to the aid of their colleagues and neighbors during this time of need. Thanks to the ongoing dedication and efforts of our employees, who are making good progress in our Axiall integration and remain on track to capture the $120 million of cost reduction-related synergies and savings this year that we have previously communicated.

Our pursuit for additional value from our acquisition includes not only cost reductions but working to improve operation rates and identifying low-cost quick payback projects.

I would now like to turn our call over to Steve to provide more detail on the financial and operating results.

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.

This morning, Westlake reported record net income for the third quarter of 2017 of $211 million or $1.61 per diluted share on net sales of $2.1 billion as compared to the third quarter 2016 net income of $66 million or $0.51 per diluted share on sales of $1.3 billion.

Our third quarter results were higher compared to the third quarter of 2016, due to earnings contributed from our acquisition of Axiall or transaction and integrated-related cost and higher sales prices and margins. These increases were partially offset by higher interest expense in 2017 due to the increased debt balance associated with the acquisition of Axiall, a $49 million gain on the common stock of Axiall held by Westlake in the third quarter 2016 and a higher effective tax rate in the third quarter of 2017.

Third quarter of 2017 was negatively impacted by transaction and integrated-related cost of $7 million or $0.03 per share, associated with our 2016 acquisition of Axiall.

Third quarter 2017 net sales of $2.1 billion were driven by sales contributed by Axiall, higher sales prices for all of our major products and higher operating rates in our Vinyls segment. Record operating income of $366 million for the third quarter 2017, benefited from the earnings contributed by Axiall, higher sales prices, which resulted in higher integrated product margins and lower transaction in integrated-related cost compared to the third quarter of 2016.

Sales in the third quarter of 2017 of $2.1 billion increased $130 million when compared to the second quarter of 2017. Third quarter 2017 sales benefited from higher sales volumes for all of our major products and higher sales prices for our major Vinyls products when compared to the second quarter of 2017.

Operating income of $366 million increased $99 million when compared to the second quarter of 2017 operating income of $267 million. Third quarter 2017 operating income benefited from higher sales volumes for all of our major products and higher sales prices for our major Vinyls products, while sales margins and maintenance costs for the quarter were in line with our guidance of $25 million.

For the 9 months ended September 30, 2017, we reported operating income of $868 million on net sales of $6 billion compared to operating income of $429 million on net sales of $3.3 billion for the first 9 months of 2016. The increase in net sales for the first 9 months of 2017 was due to sales contributed by Axiall and higher sales prices for our major products. The increase in operating income was mainly attributed to the earnings contributed by Axiall and higher sales prices for our major products.

Our utilization of FICO method of accounting resulted in favorable pretax impacts of approximately $14 million or $0.07 per share in the third quarter compared to what earnings would have been if we'd reported on the LIFO method. This calculation is only an estimate and has not been audited.

Now let's move on to review the performance of our 2 segments, starting with the Olefins segment.

In the third quarter of 2017, the Olefins segment reported operating income of $165 million on net sales of $502 million as compared to third quarter 2016 operating income of $118 million on sales of $497 million. Operating income increased $47 million over the same period due to our higher sales prices of our major products and higher overall operating rates, partially offset by higher feedstock and energy cost. The third quarter 2016 was negatively impacted by the turnaround and 250 million pound expansion of our Lake Charles Petro 1 facility.

Third quarter 2017 operating income of $165 million was $22 million higher than second quarter 2017 operating income of $143 million. Operating income for the third quarter 2017 increased due to higher polyethylene and styrene sales volumes and lower costs associated with planned turnarounds and unplanned outages.

For the first 9 months of 2017, Olefins operating income of $489 million increased $81 million from the first 9 months of 2016's operating income of $408 million. This increase in operating income was mainly due to higher Olefins integrated product margins, which were driven by higher prices for our major products, higher operating rates and lower costs associated with turnaround and outages when compared to the first 9 months of 2016. These increases were partially offset by higher energy costs in the first 9 months of 2017 when compared to the prior year period.

Now let's move onto the Vinyls segment. The Vinyls segment reported record operating income of $217 million in the third quarter of 2017 and record net sales of $1.6 billion.

Net sales for the Vinyls segment increased $825 million from the third quarter 2016 net sales of $782 million. This increase is due to sales contributed by Axiall and increased sales prices for all of our major products.

Operating income for the third quarter 2017 increased $195 million to $217 million, primarily due to earnings contributed by Axiall and higher sales prices, partially offset by higher energy cost.

Third quarter 2017 operating income of $217 million increased by $74 million from the second quarter 2017's operating income of $143 million.

The improved results were due to higher operating rates and increased margins for all of our major products, driven by higher North American and European sales prices, lower feedstock and energy cost and lower turnaround and maintenance-related cost.

The second quarter of 2017 was negatively impacted by unabsorbed fixed manufacturing cost and other costs associated with a number of planned turnarounds and unplanned outages at our facilities.

For the first 9 months of 2017, Vinyls operating income of $431 million increased $294 million from the first 9 months of 2016's operating income of $137 million. This increase in operating income was mainly due to the earnings contributed by Axiall and higher sales prices in volumes for all of our major products. These increases were partially offset by higher energy cost and unabsorbed fixed manufacturing cost and other cost associated with a planned turnaround and expansion at the Calvert City facility and other planned turnarounds and unplanned outages during the first 9 months of 2017.

Now let's turn our attention to our balance sheet and statement of cash flows. For the first 9 months of 2017, cash generated from operating activities was $963 million and we invested $414 million in capital expenditures.

At the end of the third quarter, we had cash and cash equivalents of $678 million, including $111 million generated through the attractive drop-down transaction with Westlake Partners, our MLP.

At the end of the third quarter, total debt was approximately $3.3 billion. While we will continue our planned investments to improve reliability and competitiveness of our plants, we'll prudently manage our balance sheet as seen in the last week's $250 million financially attractive par redemption of the 6.75 coupon debt. This redemption was funded with cash on hand.

Now let me provide updated guidance for modeling purposes. Our current maintenance plan includes several planned outages that will impact our earnings by approximately $25 million in the fourth quarter. This number reflects the higher maintenance expense that we will -- that will be incurred for these outages, along with the associated loss sales margins as we continue to focus our maintenance efforts to improve reliability and performance.

Moving on to capital spending. Our current estimate for 2017 capital expenditure ranges from $550 million to $600 million. We estimate that our 2017 effective annual tax rate this year will be approximately 32% and our cash tax rate will be approximately 25%.

As Albert mentioned, we expect to capture approximately $120 million of cost-reduction-related synergies and savings this year, while expensing integrated-related -- integration-related cost around $25 million in 2017.

In 2018, we expect to capture the full $200 million of cost reduction synergies and savings that we previously announced.

As we continue to look ahead to 2018, we will provide guidance to aid your modeling efforts on our next earnings call once we complete our 2018 budgeting process.

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

Thank you, Steve.

This quarter's record results demonstrate the earnings potential of our business and the significant contribution by Axiall. The combination of solid demand, higher prices and integrated margins and improved operability delivered record EBITDA for the quarter.

We continue to focus on capturing synergies related to our Axiall acquisition and are investing to improve the operational reliability and competitiveness of our assets.

Looking forward, we expect to see greater ethylene availability as new ethylene plants start up and capacity expansions are completed to take advantage of the low-cost U.S. shale based oil and gas production. We also see favorable underlying demand trends continuing forward for all of our major products.

Additionally, the European regulatory authorities have mandated that mercury-based coin production must shut down or convert to another technology by the end of this year, which will lead to capacity reductions in the region. We believe that Westlake is very well positioned to benefit from these market developments.

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

Thank you, Albert.

Before we begin taking questions, I would like to remind you that a replay of this teleconference will be available starting 2 hours after we conclude the call. We'll provide that number again at the end of the call.

Amanda, we'll now take questions.

(Operator Instructions) And our first question is from the line of Arun Viswanathan of RBC Capital Markets.

Just a question on Q4. You called out the $25 million maintenance, maybe can you just help us understand how you're looking at both Olefins and Vinyls. Olefins, you got some price increases in polyethylene. Do you expect those to be sustained through the quarter? And in Vinyls, similarly with caustic up, does that impact your results in Q4 or is there a lag there?

Well, Arun, as you can see, we see in the Vinyls segment continued strength in the caustic market. And I think you've seen that as both, we and others, have recognized that increase in strength in demand and we've had price announcements out in the fourth quarter following those that we announced in the third quarter. As it relates to the strength that we saw in polyethylene, we did see strength in polyethylene pricing and demand has remained quite firm. We'll see how demand plays out as we get into the fourth quarter. But at this stage, we've been very, very pleased with the strength and demand that we've seen in the pricing behavior accordingly.

And usually, there's little bit of a seasonal dropoff in volumes in Vinyls. There's some destocking in Olefins. Would you expect those 2 factors, I guess, to repeat themselves this year or not because of the disruptions in Q3? And if not, does that kind of indicate that your earnings power in Q4 could be similar to Q3?

You are right. Generally, Vinyls has more of a seasonal effect in the fourth quarter than Olefins, so that will have some impact on volume. But at the same time, prices have moved, and even though we announced price increases, the price increase become, in fact, after terms and conditions are met. So whether it is a price protection or it's quarterly pricing, the price will move into the fourth quarter. So the combination of price increases and potential volume reduction of certain products in the Vinyls sectors.

And I'm sorry, just to clarify, so the $25 million, is that all of the extent of your maintenance expectations for the quarter?

Arun, it is. It's in line with the guidance we've given, and that is our expectation for maintenance expense as well as the lost sales margin.

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

Couple of questions. Steve, in the past, you've said that you expect to kind of catch-up maintenance to decline by about $170 million as you go into '18 from the acquired assets. Is that still the view? Or have you found more catch-up needed than then was originally the case?

Don, as you can see, we're completing the work in the third quarter and the guidance we see in the fourth quarter. If we can complete that, we'll certainly catch up on most of that work as we get further into '18. If there are opportunities to do additional work or if there's a need to do additional work, we'll then flag that as we go forward.

Okay. And then on caustic, we've seen quite a jump in export versus domestic. Have you been redirecting more of your sales to the export markets for spot caustic? And what is your percentage of export sales in caustic?

Well, the industry exports around 20% of U.S. production caustic. And Westlake being the #3 producer in the U.S. We do participate actively in the export market.

Okay. Then final question. Can you give us an update on the Lotte cracker in terms of progress they've been making? What you anticipate the completion date to be? And what plans you might have for going above and beyond your initial stake in that project?

Well, certainly. As you know, we have a 10% stake right now. We are funding that project as we go and we have option to exercise to increase a percentage up to 50% of the project within 3 years after startup. And the project is progressing well, and we expect to start at some time in 2019.

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

So a quick question on obviously in Q3 '17, you guys marked the first year anniversary of closing of the Axiall deal. So -- and you've talked about synergies, capturing them in '17, remainder in '18. Just wanted to get a sense of sort of the legacy Axiall operating rates? So I guess the question is, as you consummated the deal, where were the legacy Axiall operating rates? Where were they in Q3 '17? And where do you see them going?

Well, Hassan, I think what you've seen is a consistent investment that we've made throughout this year. And so while I think you can attribute the strength in our business to those investments. I think the contribution that we've been making to earnings, really, I think, a testament to several things; an improvement in those operating rates sequentially over '16 and prior; and certainly, the strength in the demand side, where we've seen also an ability to elevate prices as demand has remained quite strong. So I think when we think about the operating rate improvement, operating rate improvements have been made as we've improved the reliability and the performance of these assets. And as you know, we don't typically get into quoting specific operating rates per say, but I think you can see the strength of the performance here is reflective of the improvement and the reliabilities investments that we've been making all throughout the year.

Understood. Understood. So now slightly different topic. Obviously, we've seen propane prices being extremely strong. So it's a 2-part question. One is what was your feedstock mix in Q3 '17 within Olefins? And secondly, what are your views about propane prices going forward? I mean, will you continue seeing sort of these relatively high levels of pricing? Or do you start seeing some sort of supply-demand relief over there?

Sorry, Hassan, are you talking about propylene?

Propane, propane.

Propane, sorry. Yes, propane prices has been elevated much of this year because of the larger export volumes going overseas. And as crude oil prices moved up in the last few months, propane price has even moved higher. So today, propane is now least favorite feedstock for ethylene cracking. So our industry is reducing its consumption of propane where they can do it.

Understood. And what about your feedstock mix? I mean, what percentage within the Olefins segment -- I mean, what was the sort of ethane mix in the quarter?

Yes. We have -- I think all our ethylene -- 3 ethylene plants are running on ethane. And I think maybe if there are some smaller amounts of other LNG -- LPGs will be very small portion. But predominantly, it's all ethane.

And our next question is from the line of P.J. Juvekar of Citi.

None of your plants are down due to Harvey, while competitors were down. So is it fair to say that you had some benefit from Harvey in the quarter? I know it will be difficult to quantify that, but at least can you qualitatively talk about what kind of benefit you got? And then secondly, when do you expect sort of the U.S. production normalizing post Harvey?

Yes. I think they said up to 70%, 80% of the ethylene plants in Texas were impacted by Harvey, and that probably more than 50% of the U.S. ethylene plants at one time were impacted by that. And luckily, we were not impacted by the terrible disaster. So -- but I think all the ethylene plants, say, may be 1 or 2, are all back running. And we also heard some few months delays on the new plant starting up, so it has a delayed impact on the industry. But as we speak, I think most of the ethylene plants are back, and we're having a good supply. As you know, we are major bio-ethylene in U.S., and we have a good supply of ethylene available to us.

Would you say that there were some kind of benefit from Harvey for you in the quarter?

It's difficult to quantify. I think the prices, all our major products affected by Harvey's impact, positive impact. And price -- but also, global demand has increased a fair amount over the last quarter, 2 quarters. So that also helped to strengthen the prices globally of our major products.

Okay. My second question is on caustic soda, which is really tight, given all the shutdowns in China. Albert, I think you mentioned in your comments about low-cost hydrogen projects that you would look at? Do you have any plans to debottleneck any of your plants in the near future?

Yes. Our engineers are constantly looking at ways to improve our production. As Steve mentioned, we're investing -- we're continuing to invest in improving the operability of our assets and reducing our costs of our production, and also looking at ways to have a low-hanging fruit expansions where we can of our plants.

And our next question is from the line of Bob Koort of Goldman Sachs.

This is Dylan Campbell on for Bob. Previously, as you've spoke about rolling over caustic soda contracts to higher prices, I'm just curious if the hurricane and some other factor could have allowed you to rollover these contracts a little bit earlier than anticipated? Or is this kind of the third and fourth quarter price increases kind of in line with what you guys have anticipated?

Yes. I think prices move as demand allows it. So as we heard that we announced prices increase in September and also for the fourth quarter. And as terms and contract allows that make those price increases. And as far as renewing contract on a year-end basis, certainly, those process is ongoing. And if demand is good for our product continues, then the terms will become more favorable.

And our next question is from the line of Alex Yefremov of Nomura Instinet.

European caustic soda price index increased meaningfully in the fourth quarter. When do you typically realize the benefit of such European index increases? And maybe you can share -- in this particular case, do you already benefit in Q4? Or is this more of a first quarter event?

Yes, I think European caustic price typically is on a quarterly basis, and it (inaudible) into the quarter. So some portion depend again on contracts. Some portion can be affected beginning of the quarter, some in the middle of the quarter. But as prices are usually down on a quarterly basis, so we should see some benefit in the fourth quarter.

Great. And then staying with Europe, some press reports suggested that your Vinnolit business is looking at expansion in Europe for chlor-alkali and some downstream vinyls capacity. Could you talk about this, in terms of size, CapEx requirements and potential earnings contribution?

Alex, it's Steve. You're right, we did put out a note. And I guess what I would do is, I'd characterize those as relatively small in terms of our efforts to debottleneck some of those assets. They're a small contributor of those efforts.

The next question is on the line of Frank Mitsch of Wells Fargo Securities.

Is it fair to say that September was the most profitable month for you during Q3? And how would you characterize the preliminary October results relative to your third quarter average?

Frank, I think, as you could see, we're seeing strength really -- and I'll speak first to the Vinyls and come back to Olefins. But I think you saw strength consistently across the Vinyls space, whether it was in PVC or in caustic. And as Albert earlier noted in one of the questions that we are being able to see prices move up as well, not only here but in Europe as well. Related to polyethylene, inventories were certainly tight. I think many of our customers expected new capacity in the fourth quarter, and so therefore, had lower levels of inventories. And with these price increases that came through because so much production was offline, we certainly had an opportunity to see some improvement to the bottom line accordingly.

Okay. And Steve, just with the higher levels of profitability that you saw, your net debt at the end of the quarter came down to, I think, 1.6x over a pretty material drop. Just curious as to -- if you have any target net debt leverage? And what might be the preferred uses of cash as you've paid down -- as you pay down some debt and gotten your leverage that much lower.

Frank, as we think about the use of cash, we certainly -- and you see that we've been doing this throughout this year, is focus on making investments that provide reliable consistent performance in the plants. And so we'll continue to make investments that way. We always look for opportunities to improve our cost position. So if there are opportunities to do that, we'll certainly take investments down that path. We certainly want to have a balance sheet that's strong and the financial metrics that we've told the rating agencies and the investors that we would be -- continue to be focused to making sure that we have a strong investment-grade balance sheet and that will be a continuance of our focus with the balance sheet. And of course, we also look for making investments in opportunities that provide quick return opportunities. If there are debottleneck opportunities, we'll do that. And of course, we know that investors want and seek returns, and so not only do we have a program where dividends are paid by the company but also we have share buyback program that's been authorized as well. So as I think about the use of capital, it's maintenance and reliability, maintaining a strong balance sheet, making sure that we're pursuing quick returning opportunities and expansion opportunities, if there are some. And then making sure there's a use of that capital to return that to investors.

And our next question is from the line of Joshua Spector of UBS.

One of your competitors recently field for additional expansion for chlor-alkali capacity, some Vinyls capacity. Given the improving profitability, do you guys expect to see any more announcements in the Gulf Coast area? Or do you think pricing needs to improve further from here?

Well, I think in terms of the integrated chain in terms of how we think about making investments. And so while we're certainly aware of filings that occur from time to time with regulatory agencies about those opportunities, we think about investment opportunities across the integrated chain over the cycle. So as Albert noted earlier, we always assess the opportunities to expand our businesses, but we do that with an eye toward integration and integration over a long -- over the cycle and not any one point in time. At this stage, we're continuing to assess that.

Okay, great. And just one follow-up on the maintenance outages. So for this year, I think totally you're around $180 million in terms of maintenance impact and lost earnings impact. I think you said before, you expect 2018 to come to a more normal level. Are you able to give a rough range of what you would say a normal level would be for the pro forma company?

As we finish our 2018 budgeting process, we'll give some better guidance as we get into next year.

(Operator Instructions) And our next question is from the line of Kevin McCarthy of Vertical Research.

This is Matt on for Kevin. So if we were to look at sequential performance in Vinyls, adjusted EBIT was up about $72 million on $117 million in sales. And I think the increase in caustic soda and chlorine would maybe account for $20 million to $25 million of this and maybe lower maintenance with something like -- another additional $25 million. Can you kind of just quantify and bucket the remaining factors?

Well, I think you've heard me speak this morning about the improvement and reliability, and so with that comes improving operating rates. So when you think about improvement in operating rates, we're also then spreading that fixed cost over more pounds of production, so it brings the cost per unit down. And you highlighted the other areas where I think you've seen the contribution to the bottom line in Vinyls.

Okay. That would imply, like, $25 million. I guess there's synergies in there as well. But...

There are some synergies that do apply, of course.

Okay. And correct me if -- I know this is kind of an asset in a few different ways. But correct me if I'm wrong, but I think Axiall shuttered around 78,000 metric tons of caustic capacity prior to the acquisition -- your acquisition of the company. Is there any way to bring that back online? Or is that down for good?

Yes. We are not familiar with capacity being shut down. I think some other plant operating rates may not be as high as the declared operating capacity. So they may have reduced the nominal capacities but not really shutting down plants.

And our next question is from the line of Matthew Blair of Tudor, Pickering Holt.

I was hoping you could provide an update on building products? I think this segment has historically run well below overall capacity utilization, but we're seeing some pretty good housing numbers this year. Any update here on just how much this area contributed to your Vinyls results in the quarter?

Well, it has been a consistent performer. And I think as you think about our building products business, you're right, we have seen strength in the building construction businesses. And then we get the appropriate pull-through in our exterior businesses as well as our pipes and fittings businesses. And it is an important contributor in the overall Vinyls business, though relative to the contribution from caustic and PVC, a smaller contributor, but nevertheless an important contributor.

Great. And then I was hoping you could quantify how much of an impact did the Vinnolit force majeure in the quarter have.

It's a very, very small impact.

And our next question is from the line of Jim Sheehan of SunTrust.

Albert, I was wondering if you could share your thoughts with us this morning on ethane prices? And where do you see them going in 2018?

Yes. Ethane prices probably in the high 20s. And I think the future price as well as IHS are looking at -- in 2018, probably in the low 30 range when new plants come up, which demand for ethane will increase. But fair amount of ethane is being rejected now, so we believe that the ample supply of ethane for the new crackers.

And can you talk about the integration benefits you have in your Vinyls segment? How do you see that integration benefit playing out in 2018 with ethylene prices maybe more favorable and operating rates in the industry moving higher for PVC and other products?

Yes. I think the U.S. Vinyls producers are one of the most competitive producers, cost-wise, in the world. We have among the cheapest ethylene price in the world compared to Asian and ethylene -- European ethylene prices. And the fact that we have low energy cost from abundance of natural gas-based power plants, the cost to produce chlor-alkali also is very competitive compared with European, Asian chlor-alkali plants. So if you're integrated fully, they get a benefit, and PVC is one of the largest consumer of chlorine. So demand -- global demand for PVC continue to grow. They are not lot of capacity added around the world. And the caustic, which is the other side of producing chlorine, demand is high globally, especially with some of the plants being shut down in Europe. So we are very optimistic on the chlor-alkali in the Vinyl business for 2018.

Great. And last question on polyethylene. How much of the prices are going to come down after the -- post-hurricane? Do you expect the polyethylene prices to decline in December or remain firm until January or into the first quarter of '18?

Yes. As you know, we have -- the industry have announced price increases and $0.05 a pound price increase out there. And various consultants are saying there could be price reductions end of the year in the first part of next year because of the new capacities that are being added and coming up. But it depends a lot on global economy and demand for polyethylene as well as oil prices. As you know that oil prices are now, in the brent, in the mid-60s a barrel, which is a big jump from even 3 months ago. And if oil prices continue to stay high, it will make the U.S. ethane-based integrated polyethylene producer be quite competitive in cost-wise to compete.

Thank you. And at this time, the Q&A session has now ended. Are there any closing remarks?

Thank you, again, for participating in today's call. We hope you'll join us again for our next conference call to discuss our fourth quarter and full year 2017 results.

Thank you for participating in today's Westlake Commercial Corporation Third Quarter Earnings Conference Call. As a reminder, this call will be available for replay beginning 2 hours after the call has ended and may be accessed until 11:59 p.m. Eastern Time on Thursday, November 13, 2017. The replay can be accessed by calling the following numbers: domestic callers should dial (855) 859-2056 and international callers may access the replay at (404) 537-3406. The access code for both numbers is 97318894.