Westlake Corp (WLK) 2018 Q1 法說會逐字稿

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Westlake Chemical Corporation First Quarter 2018 Earnings Conference Call. (Operator Instructions) As a reminder, ladies and gentlemen, this conference is being recorded today, May 3, 2018.

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

Thank you, Sabrina. Good morning, everyone, and welcome to the Westlake Chemical Corporation First Quarter 2018 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, followed by a current perspective on the industry. Steve will then provide a more detailed look at our financial and operating results. Finally, Albert will add a few concluding comments, and we will then open the call up to questions.

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

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 material, energy and utilities; governmental regulatory actions and political unrest; global economic conditions; industry operating rates; the supply-demand balance for Westlake 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 first quarter results. This document is available in the Press Release section of our web page at westlake.com. A replay of today's call will be available beginning today at 2 p.m. Eastern Time until 11:59 p.m. Eastern Time on May 10, 2018. 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 7684638.

Please note that information reported on this call speaks only as of today, May 3, 2018, and therefore, you're advised that time-sensitive information may no longer be accurate as of the time of any replay. I would finally advise you that this conference call is being broadcast live through an Internet webcast system that can be accessed on our 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 first quarter 2018 results.

In this morning's press release, we reported quarterly net income of $287 million for the first quarter of 2018 or $2.20 per diluted share. Excluding onetime impact of the tax reform in the fourth quarter of 2017, this quarter's net income of $287 million will be a record for Westlake. First quarter 2018 income from operations of $401 million and EBITDA of $579 million were also records for Westlake as we benefited from strong demand for our products and the operational improvements resulting from investments we made in 2017 to include the reliability of our acquired assets and cash out of our deferred maintenance. We continue to see solid demand for all our major products, including polyethylene, caustic soda and PVC, as a result of synchronized economic growth in Americas, Europe and Asia.

Our Vinyls segment benefited from the recently rationalized European chlor-alkali capacity and continued production in China, both of which were driven by environmental regulations tightening global supply. The onset of new ethylene supply, with the startup of a number of ethylene facilities in the U.S. Gulf Coast, reduced our purchased ethylene costs and increased our margins. Our Olefins segment continued to see high supply for some grades of polyethylene and good demand as the industry recovered from Hurricane Harvey.

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

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, we reported net income attributable to Westlake of $287 million or $2.20 per diluted share for the first quarter 2018 on net sales of $2.2 billion. Westlake's first quarter 2018 net income increased $149 million compared to the first quarter of 2017 net income of $138 million or $1.06 per share on sales of $1.9 billion.

First quarter 2018 record operating income of $401 million increased $167 million from the first quarter of 2017 operating income of $234 million. Compared to the prior year period, the first quarter of 2018 benefited from higher prices and margins for our major products, higher sales volumes for caustic soda and PVC resin, lower costs associated with planned turnarounds and unplanned outages and a lower effective tax rate as a result of tax reform. Fourth quarter 2017 net income included a onetime benefit of $591 million associated with federal income tax reform. Excluding this onetime benefit, our first quarter 2018 net income of $287 million or $2.20 per share increased $76 million from the fourth quarter 2017 net income of $211 million or $1.62 per share.

A record operating income for the first quarter of 2018 of $401 million increased $38 million compared to fourth quarter of 2017 operating income of $363 million. The increase of the net income and the operating income in the first quarter of 2018 were primarily a result of increased sales volumes and margins in our Vinyls segment and lower costs associated with planned turnarounds and unplanned outages, primarily offset by lower polyethylene sales volumes as we are preparing for planned turnaround in the next several months.

Now let's move on to review the performance of our 2 segments, starting with our Olefins segment. In the first quarter of 2018, the Olefins segment reported operating income of $163 million, a decrease of $17 million from first quarter 2017 operating income of $180 million. This decrease in operating income of $7 million -- $17 million was mainly attributable to lower polyethylene sales volume and higher ethane feedstock costs partially offset by higher polyethylene sales prices. First quarter 2018 operating income of $163 million decreased $3 million compared to fourth quarter 2017 operating income of $166 million. This decrease in operating income was primarily due to lower polyethylene sales volumes, partially offset by higher styrene sales volumes and prices.

Now let's move on to the Vinyls segment. First quarter 2018 Vinyls income from operations of $266 million increased $196 million from first quarter 2017 income from operations of $70 million. This increase in operating income was due to higher sales prices for our major products, higher sales volumes for caustic soda and PVC resin, lower feedstock costs and lower costs associated with planned turnarounds and unplanned outages compared to the prior year period. First quarter 2018 operating income of $266 million increased $52 million from the fourth quarter 2017 operating income of $214 million. This increase is a result of higher sales volumes for caustic soda and PVC resin, higher sales prices for caustic soda, lower feedstock costs and lower costs associated with planned turnarounds and unplanned outages as compared to the prior year.

Now let's turn our attention to the balance sheet and statement of cash flows. First quarter 2018 cash flows from operating activities were $225 million, and we invested $154 million in capital expenditures. As of March 31, we had cash and cash equivalents of $851 million and total debt of $3.1 billion. In February, we redeemed $688 million in long-term bonds associated with the acquisition of Axiall. We have also announced another redemption of $450 million of debt that will be retired on May 15. Funds to redeem this debt will come from our current cash on hand. Following this redemption, we will have retired over $1.2 billion in debt since our acquisition of Axiall in August 2016.

Now allow me to provide some guidance for modeling purposes. For 2018, we expect capital expenditures to range from $600 million to $650 million, which includes our normal maintenance capital expenditures; our portion of the construction of the ethylene cracker being jointly built with Lotte Chemical in Lake Charles, Louisiana; and long-lead equipment for our chlorine, VCM and PVC expansions in Burghausen and Gendorf, Germany and Geismar, Louisiana that we announced in February.

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 demonstrated the value of our investments in the operational reliability of our facilities while we continue to experience solid global demand for all our major products.

Looking forward, we believe we'll continue to benefit from globally competitive ethane natural gas in the U.S. as a result of expanded shale oil and gas drilling activity driven by higher oil prices. We expect to benefit from the favorable vinyls cycle driven by strong global demand with limited capacity additions on the horizon. We remain focused on pursuing growth initiatives, such as our ethylene joint venture with Lotte, which has a planned startup in the first half of 2019; the 200 million pounds VCM expansions in Geismar and Gendorf; and the 750 million pounds of PVC expansions in Burghausen and Geismar. We will continue to explore additional debottleneck opportunities and search for acquisitions that will deliver value to our shareholders.

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 today at 2 p.m. Eastern Time. We will provide that number again at the end of the call.

Sabrina, we will now take questions.

(Operator Instructions) And the first question will come from the line of John McNulty with BMO Capital Markets.

This is Bhavesh Lodaya on behalf of John. First of all, can you share your thoughts on your current positioning in international trade, specifically with China? And how some of the proposed tariff can impact those flows or margins?

Certainly. The ethylene -- the polyethylene industry exports around 20% of our production currently. And as the new capacity come on stream, we believe that the majority of the added capacity will be exported. On the PVC side, over -- about 30% of the PVC produced in the North America in the U.S. are exported. And in caustic side, I think over 20% of the caustic produced in the U.S. are exported. And in the PVC side, because of our extensive downstream building product business, we tend to export less than the industry average of 30%. In polyethylene and caustic, while we tend to export it less than the industry, but we are close to the industry export numbers. As far as China is concerned, we do not participate a loss in the China trade. I think as a company, we export between 1% to 2% of our revenue goes in China, and that comes potentially from our U.S. business as well as our European business.

A question on ethane. There have been a lot of discussions of massive NGL capacity coming out of the Permian. And as infrastructure builds up, that keeps ethylene prices low even with all the new demand coming up. Could you share your views on just -- of that happening and basically your long-term views on ethane prices?

Certainly. You're absolutely right, there's a tremendous amount of investment going on in the Permian Basin. As a result, a lot of the liquids -- natural gas liquids come from both oil and gas exploration over there. And there's still a lot of ethane we rejected in the system. But as you know, there's a fair amount of new ethylene capacity coming on stream. Some has already come on stream in the last year and this -- early this year against -- between this year, second half and the next year, we also have more ethylene plans coming on stream, along with the export facilities. And some of the ethane demand will be increasing and will be absorbing some of the supply.

And then finally, if I may, on the Lotte JV. Is there a return on capital or a EBITDA margin flow that you would want to see for you to make that decision to add to your stake? Or maybe if there's a ethylene margin flow that we should be thinking about?

Well, as we continue to assess the investment opportunity that we have there, we'll continue to look at that. We don't have a fixed number in mind, but I will tell you we'll continue to assess the opportunities that, that presents to us.

We'll be looking on the return on investment based on a long-term basis. As you know, there are other new projects being announced to build new ethylene plants in U.S. So I think several companies are considering U.S. as a favorable place for putting additional ethylene capacities.

And the next question will come from the line of Stephen Byrne with Bank of America Merrill Lynch.

I'd like to hear your view on potential return on investment for potential new greenfield capacity in chlor-alkali. Is it attractive at this point? And then to add on to that, the downstream capacity to consume those chlorine molecules in one of the derivatives.

We believe you're looking at integrated vinyls and to PVC, including ethylene. The investments -- today's return are still not at the replacement economics yet at a reasonable return on investment. But they're getting closer.

And with respect to your building products downstream business, is there a potential monetization of that business you might consider to extract the value out of that or to separate out that business? And would you consider something similar on the olefins side, a downstream building products business?

Well, Steve, as we think about the business downstream of our Vinyls business and the PVC building products, we think that provides a nice integrated margin. And certainly, it's a nice -- as Albert noted, a nice offtake of resin into our business. And so we think it's a business that is interesting and provides nice integrated economics. And so as we think about the business, it's a meaningful business. And we can think about, over time, providing further transparency to that business. But certainly, I would say it's a nice integrated business. And we think of it as a -- important element of our overall business. And we would continue to think about growing that business over time because, as I mentioned, it's a very good use of the integrated resin going downstream into building products. We think it's a very valuable element of our business.

And the next question comes from the line of Kevin McCarthy with Vertical Research Partners.

In your press release, you indicate that volume in the Olefins segment declined 8.6% in the first quarter on a year-over-year basis. I was wondering if you could speak to the extent to which unplanned outages impacted that number. And if so, what the related dollar amount impact could be.

So Kevin, this is Steve. As we mentioned earlier, we've got a number of planned turnaround in polyethylene during the course of the rest of this year. And certainly, we were building some inventory to deal with that planned turnaround in polyethylene. And so the impact, I noted, is that $17 million impact as we continue to build some inventory for the planned turnaround activity later this year.

Okay. Then the second question, I guess, for Albert on capital deployment. Your net debt's down about $943 million it looks like over the past 12 months. Some folks have already asked about organic reinvestment here on the call. What do you see in the external markets? How should we think about your balance sheet and capital availability versus what you see on the M&A front at this point?

Certainly. As Steve reported, we had a $600 million and $650 million capital program going on tied to finishing the ethylene joint venture that we have with Lotte. And as you know, we also have an option to buy up to 50% of that JV within 3 years of the planned startup. So certainly, those are capital needs going forward if we like to choose to exercise the option. We have ongoing expansions, as we mentioned, in Burghausen in Germany, Gendorf in the U.S., and we're looking for further debottleneck opportunities. Naturally, we always look for opportunities of acquisitions in the Olefins and Vinyls business, and we'll continue to explore those. And as Steve mentioned, the building products business is over $1 billion revenue out of our total revenue of over $8 billion and is an area we want to grow that business as well. So we are continuously looking for opportunities to add value to our shareholders.

And lastly, if I may. You referenced the benefit from ethylene monomer. In light of your current short position there, how should we think about your procurement there in terms of spot versus contract mix and benefits going forward?

Certainly. We buy a mixture -- as you expected, we inherited some of those contracts from Axiall, and we buy a mixture between spot and contract, but we are benefiting from the lower ethylene prices, both in spot and contract. And hence, we are enjoying -- we are the second largest ethylene buyer in the U.S., and we're enjoying the lower ethylene prices.

The next question will come from the line of Neel Kumar with Morgan Stanley.

Given the widening price spread between membrane and diaphragm caustic, do you see the possibility of customers switching to diaphragm caustic?

Well, certainly, every customer wish to minimize their costs. And those customers that can use diaphragm would enjoy using diaphragm.

Okay. And then I guess just a follow-up on ethylene. What is your outlook on ethylene prices in the second half of the year? And do you see the recent weakness in ethylene prices leading to lower PVC prices?

Yes. I -- personally, I think the current ethylene price is unreasonably low, I think, due to various reasons. I think one of the reasons is the derivative plants, which were built along with the new capacities are not operating at a full rate, so cannot absorb the ethylene. We do not anticipate ethylene to be that low for a long time. And I think IHS is forecasting ethylene price -- spot price go back again as in half.

And the next question will come from the line of P.J. Juvekar with Citi.

You are 1.8 billion short on ethylene and that's something that's been dropping quite rapidly. Since first quarter, more in second quarter, how much benefit did you get in the first quarter? And your ethylene prices went up, but there should have been an offset from falling ethylene. So can you quantify that ethylene benefit?

So P.J., as I think about the benefit here, as you know, when I think about our Olefins benefit -- or excuse me, our Olefins situation in ethylene, it's looking at ethane all the way up to polyethylene. And so in that segment of the business, we're really integrated. So the benefit that we see is really in our Vinyls business. And as Albert noted, we're the second largest buyer of ethylene in the North American market, buying over 1.8 billion to 1.9 billion pounds currently a year. And given that, that business remains strong, we continue to see the benefits accruing really to our Vinyls business, and we're looking forward to the ability to really capture that value in ethylene in our Vinyls chain.

And any benefit from that will flow through cost of goods sold, in inventory and then it comes out afterwards.

Okay. And what's happening to polyethylene? Do you -- where are inventories with converters? And do you think converters are holding back today in anticipation of new capacity starting up?

Certainly. Everybody like to buy low prices. And then, I see people are surprised that we had a $0.10 a pound price increase after the hurricanes last year and people thought that all the $0.10 would go away and did not. And actually, we had price increases in February of $0.04 a pound. And I think partly is a good demand in the U.S., but also partly due to good demand globally and partly due to higher crude oil prices. As you know, most of the ethylene plants in Asia and Europe and Latin America based on naphtha crackers. And as crude oil prices jump from $30, $40 a barrel today, WTI – sorry, branded is what, $72 a barrel, the cost of naphtha cracking has gone up and hence, polyethylene prices stay high globally. And hence, U.S. polyethylene price also has not come down as people thought it would be.

And just quickly just on the aluminum market. With the tariffs that are being proposed on aluminum, how does that impact your caustic market? Any thoughts there?

Certainly. I think that the -- we will see the impact globally of the tariff on aluminum, but people still need aluminum and people who paid the lowest prices we can -- people can. And I think negotiations are still going on between the various countries and the U.S. government. So as we said, caustic demand is still quite strong. And caustic prices in Europe, I think they had $100 -- EUR 100 a ton increase at first quarter and they still have about EUR 5 a ton increase in April. So demand is strong globally, and we're enjoying -- our industry is enjoying the benefit.

And the next question comes from the line of Jim Sheehan with SunTrust.

So on caustic soda pricing, the index went up $35 this month. Do you expect to have more pricing traction in the second quarter for caustic soda?

Yes. We -- I think the industry announced close to $100 a ton of price increase this year, and we are getting a large share of that. I think most of the price increases will go through. IHS is forecasting after the $105 a ton short-term price increase. The rest of the year will be flat. We will see if that is the case or not.

And did you guys have any FIFO accounting impacts, positive or negative, during the quarter?

Jim, it was really small this quarter, not material.

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

A quick question around -- just moving away from the naphtha, the whole sort of notion of the second wave of capacity buildout here in the U.S. I mean, since the time that the initial announcement started coming out, obviously, it seems at least rhetorically speaking, the world's changed quite a bit. A lot of noise around trade wars. On the more sort of concrete side of things, we've obviously seen energy pricing going up, steel pricing going up, potential, as I said earlier, uncertainty about trade flows and the like. What are your guys' views about the sort of 2018 through 2022, '23 time period now with all this noise around us? I mean, on the margin, are you seeing that this uncertainty is making people rethink investing in capacity buildouts in the U.S.?

That's a very good question, Hassan. I think your source is better than mine (inaudible), so such a global study of our industry. But I think the economy globally is doing very well. I think, as you said, a synchronized growth around the world. Even though interest rate is moving somewhat higher from 0, I think -- and employment in the U.S. and globally is growing. We see a shortage of qualified labors, both in the U.S. and Europe and even in some part of Asia. So if we see strong demand and people are still lifting from poverty levels to the middle class, both in China and in India, and the demand for material goods are increasing, people moving from rural -- urban area and we don't see -- and U.S., by far, has the lowest feedstock costs, both from the feedstock, oil and gas as well as power. Our chlor-alkali business is really power driven and we have our results. So U.S. has a very competitive position from a cost point of view. And if global demand continue to grow and with some inflation, capital investments are getting more expensive. So people have assets and can generate a high operating rates will benefit from the lower costs and good prices.

Understood, understood. Now as a follow-up, Albert, again kind of sticking to this theme of these trade-related issues as well as the feedstock side that you mentioned in your comments. Recently, there seems to be some decoupling between the price of crude oil and propane, and then taking that to the next step or level, included in the Chinese tariff list were tariffs on the import of propane and, as we all know, obviously, a lot of propane exports coming out of the U.S. due to Asia, China in particular. So just like to hear your views on what do you think has caused this decoupling between -- recent decoupling between crude and propane? Do you think these trade-related issues are playing a role in that? And alongside that, how should we think about the interplay between sort of ethane and propane in this sort of environment?

That's a very good question. I think, along with the increase in production of oil, gas out of Permian Basin, especially and we said while a lot ethane being produced, also a lot of propane being produced. And propane, compared to oil, is still much easy to -- it's a cleaner product, easier to shift and global demand for propane, both for fuel and for PDH are increasing. So if China wants to have a tariff on that, they can buy from the Middle East and U.S. to supply to other parts of the world. So I don't see the Chinese tariff will have much impact on global demand for propane.

And the next question will come from the line of Arun Viswanathan from RBC Capital Markets.

A couple of questions on the, I guess, dynamics you're seeing in the market. We've noticed some softness creep into Asian polyethylene prices. But the industry, I guess, here in North America does have an increase on the table for May. After a flat March and maybe even April, what do you think the likelihood that May increases are successful in polyethylene? And then in PVC, similarly, we're going into a kind of a spring building season, which could increase capacity and supply. So how do you feel about the dynamics for PVC price increases as well?

Certainly. On the PVC side, I know some of the analysts are saying that with the lower ethylene cost in the U.S., our PVC price should come down, so on and so forth. But PVC is a -- as I said earlier, 30% of PVC produced in the U.S. are exported. It is really a global product. And we've seen the -- after the Chinese New Year, PVC price has come down a bit in Asia. But the recent week or so, the price has returned, and the demand of PVC is strong globally. So we'll see whether people who think that PVC price will come down a bit, I think, in May. [Probably] looking at $0.01 a pound drop in May will happen or not. On the polyethylene side, as we said earlier, with the new capacity coming on stream, people thought the price will come down. And instead, we had a price increase in February. Now the $0.03 a pound that we announced for March implementation didn't happen. And the industry -- some of the industry players pushed it to April or May. Again, some of the industry analysts are saying that they expect prices for polyethylene to drop in May or June. And as we see that some selective polyethylene inventory in the U.S. is still quite low. So we're seeing a different dynamics in depending on the grades of polyethylene you have. So time will tell what happen to the price movements of each of these grades.

And on the ECU margin side, looks like caustic has gone up $35 again in April and another $15 realized on chlorine. What's -- how should we think about how that impacts your ECU margins through the rest of the year, understanding that you're not really selling merchant chlorine, but maybe you can just give us a comment on caustic as well.

Yes. I think caustic and chlorine, as we said, that both prices, they moved up. And I don't think we have received the full price increase yet in caustic. So we're -- over the years, will -- we believe that all the price increase announced will be realized. And so it's chlorine -- and this is the deal, it is a high season for chlorine products, including water treatment for the next few quarters. And as the industry, we should be able to benefit from the increasing demand as well as prices.

And the next question will come from the line of Bob Koort with Goldman Sachs.

This is Dylan Campbell on for Bob. Previously, you mentioned that we are not quite at reinvestment economics, but getting closer for chlor-alkali in Vinyls. Just curious kind of what capital costs you're assuming to build greenfield across that chain. And then generally, what the time frame it would take to build that capacity.

Yes. I think typically, it will -- takes a -- from the initial planning for -- and can -- the plan coming up would be at least 3 to 4 years for a large integrated site. And there are so many plans, we're not going to comment on all the reinvestment capital costs, but they are substantial.

Got it. And last quarter, you raised guidance for Axiall synergies of $250 million. What run rate were you guys at in the first quarter of 2018?

When I think of the savings, the numbers that we've been talking about, of the actual dollars achieved, what I call in pocket, not so much a run rate. And so given the $250 million guidance that we've given for the year, we'll continue to work on that incremental $80 million. And as you can imagine, we continue to focus on that every day as we want to achieve that. Our objective is to achieve as much of that as quick as they have, but we haven't given a specific run rate.

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

Albert, looking a little bit longer term, is there some discussion about the IMO 2020 self-regulations, that they might lead to actually increased naphtha production and hence, lower naphtha prices beyond 2020? How do you think about that? And do you concur with that view?

Yes, I think that is the position people are taking and there'll be more naphtha available. And I don't know exactly how much more naphtha is available. But in the U.S., they're saying it's still a preferred feedstock. I don't think that naphtha will make much a -- in growth into the feedstock in the U.S. and overseas depending on what crackers available. If there are no new naphtha crackers built, even though you have cheaper feedstock, they're going to consume more naphtha.

Very good. And just on styrene, were you surprised by the recent announcement of a study to look at new styrene capacity by another producer in the United States?

Certainly. Interestingly, our starting model plan was a startup in 1992. And that's the U.S. starting plant in the U.S. And because of the lack of new investment, today, styrene business is doing quite well and offering base is running very high. So if you look at return -- replacement economics, the numbers we should justify. The question is how long would the styrene markets be that good? And I know there are plants being built in Asia, so.

And the next question will come from the line of Alex Yefremov with Nomura Instinet.

Albert, you were discussing debottlenecking opportunities that you haven't announced yet. Are those debottlenecking opportunities potentially larger than the recent ones that you announced? And what's potentially the time line for those?

Well, it -- we're continuing -- how much to really assess the returns on these. As Albert noted, if we continue to be debottleneck recognized, we just have to justified in export economics. And so we want to make sure that we have a very good handle on not only the capital costs, but also the return. And as you know, we're very focused on a return for any investment that we make. So we're continuing to study this. We want to make very comfortably sure that we can get the kind of returns if we choose to move forward with any expansions in debottlenecks.

Okay. Is it fair to characterize those as incremental debottlenecks?

Yes.

Yes. Yes. They would be. As you can see, we've already announced some. And we're continuing to study the others. But it's really -- as I noted earlier in my comment, it's a return focus. We want to make sure we have the right returns for any capital we deploy.

If I can follow up again about reinvestment economics question. If I got it right, Albert, you were talking about the chain that includes ethylene, PVC or vinyls and chlor-alkali. If we were to look at just vinyls plus chlor-alkali with ethylene being purchased, do you think the returns are there to -- for a project like that currently -- at current prices?

Well, it's a -- the VCM, PVC, if you're looking at power plant associated with chlor-alkali, we don't believe that even with all the ethylene, the economics is there yet.

(Operator Instructions) Our next question will come from the line of Matthew Blair with Tudor, Pickering, Holt.

I was hoping to talk about some of the dynamics in building products. It seems like demand should be pretty good here just given some of the housing start numbers that we've seen. But then, I think there could be the potential for elevated costs just given that I think a large percentage of that product is trucked out, and we've seen a lot of reports on elevated trucking costs. So could you just talk about the interplay there? And maybe just directionally, are you seeing higher building products margins now than a year ago?

Certainly. The building products demand has increased over a year ago. By the way, building products, not only for -- associated with newbuild, but also with replacement, refurbishment, so that's for both sides. And because of the cold winter, I think this season for build -- for new homes has been delayed somewhat. And I think they're getting back to the high season now. I think that, as I said -- you're absolutely right, the trucking costs, most of the building part is shipped by trucks. The lack of truck availability and the higher trucking costs will increase the cost of the products. And also with the newbuild, the lack of availability of labor to build new homes also is an issue. So there are headwinds from that side. On the other hand, the demand, the 50-year average demand for residential units is 1.5 million units and 2006, we were at 2.3 million units, and now we're still going between 1.2 million and 1.3 million. So we're below the 50-year average. And meanwhile, 50 years of U.S. population has increased on the average. So we think the demand is there, and it just takes time to get the U.S. home buildings to get back to the normal run rate.

Great. And then the $15 price increase in chlorine, Albert, in your opinion, what are the main drivers there? Is that really coming from PVC demand? Or are you seeing elevated demand in other chlorine derivatives?

Yes, both. I think demand both in the U.S. and overseas, demand for chlorine products has increased, and the petroleum price haven't really changed for a long time. And I think the $15 should be a straightforward increase.

And our next question will come from the line of John Roberts with UBS.

There's been a lot of discussion about vinyl and caustic capacity curtailments in China with all the new environmental rules. But at the IHS Conference recently, they talked about a number of new carbide-based plants that will start up over the next few years because they were permitted in before the new rules and grandfathered in. So do you think production of vinyl and caustic in China goes up over the next few years, which I think is what IHS was looking for? Do you think it's going to be more flat or even down, which, I think is kind of what people have been talking about?

That's a good question. And you're right, some of those plants, which are permitted in the construction before the moratorium will go through. But they will replace some of the older smaller plants, which still are running higher-cost plants. So we'll -- time will tell whether the net-net production in China will be flat or grow a little bit. We expect to grow a little bit because Chinese demand is still going very fast. And global demand, India is a huge market and Middle East and many parts of the world. And really, there's no new capacity added. So even with the Chinese capacity added, it will not be a solution to meet the demand increase on a global basis.

At this time, the question-and-answer 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 second quarter results.

Thank you for participating in today's Westlake Chemical Corporation First Quarter Earnings Conference Call. As a reminder, this call will be available for replay beginning 2 hours after the call has ended and may be accessed until 11:59 p.m. Eastern Time on Thursday, May 10, 2018. The replay can be accessed by calling 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 7684638.