Westlake Corp (WLK) 2004 Q3 法說會逐字稿

Good morning ladies and gentlemen. Thank you for standing by. Welcome to Westlake Chemical Corporation third quarter earnings conference call.

[Operator Instructions].

I would now turn the call over to today's host Graham McArthur, Westlake's Assistant Treasurer and Manager of the Investor Relations. Sir, you may begin.

Thanks, good morning everyone. Thank you for joining the Westlake Chemical conference call. This is Graham McArthur and joined today by our President and CEO, Albert Chao and our Senior Vice President and Chief Financial Officer, Ruth Dreessen. The agenda for today's call will be as follows. Albert will first make a few comments regarding Westlake’s performance during the third quarter. Ruth will then provide you with a more detailed look at our financial and operating results. After that we will open the call up to questions.

Before we begin, I need to inform the callers that there will be statements in this morning teleconference relating to matters that are not just historical facts but are forward-looking statements. These forward-looking statements are just predictions or expectations and thus are subject to risks and uncertainties. Actual results could differ materially based on factors including cyclical nature of chemical industry, availability, cost and volatility of raw materials 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.

Westlake has issued a press release with details of our quarterly financial and operating results. This document is available in the press releases section of our company's web site at www.westlakechemical.com.

I would also like to point out that a replay of today's call will be available beginning one hour after the completion of this call into 5:00 p.m. Eastern time on November 10th. The replay may be accessed by calling the following numbers. Domestic callers should dial 1-888-286-8010. International callers may access the replay at 617-801-6888. The access code of both numbers is 294-303-97, these numbers will be repeated at the end of this call. I would finally advise that this conference call is being broadcast live through an Internet web cast system. Now I would like to turn the call over to Albert Chao for a few comments.

Thank you Graham. Good morning ladies and gentlemen and thank you for joining us. As this is the first conference call since the successful completion of IPO, I would like to welcome our new shareholders who are listening today to our call. I'm pleased to report to you that we have had another strong quarter in Q3. We are continuing to see positive signs of the economic recovery and industry improvement since our last conference call in early May.

SNA (ph) industry operating rates were at an impressive 93% for the third quarter and producer inventories remained at low levels. Sustained by high global demand and a strong US economy, our industry is enjoying volume growth and margin expansions. While the prices of oil and gas are concerns, the relative cost comparison between and SA and NASA (ph) based ethylene production has made US production competitive in the export markets.

On a consolidated basis, Westlake has continued to make steady gains with sequential quarter-over-quarter improvement in operating income while we remain optimistic about the continued recovery of the industry, we are still concerned with the price level of our feed stocks. Now I would like to turn the call over to our Chief Financial Officer Ruth Dreessen for review of our results.

Thanks Albert and good morning everyone. As we reported in this morning's press release, Westlake had improved sales of 572 million in the third quarter compared to 359 million in quarter three of last year and 449 million in the second quarter of this year.

Net earnings available to common share holders improved to 28 million or $0.50 per diluted share in quarter three compared to a net loss of 9 million or a negative $0.04 per diluted share in the third quarter of 2003 and 34 million or $0.69 per diluted share in the second quarter of this year. It should be noted that during the third quarter we had debt retirement cost, net of taxes of $9 million that lowered our diluted earnings per share by $0.16. During the same period last year, we had debt retirement costs, net of taxes of 7 million or $0.14 per diluted EPS.

Due to our IPO completed in August of this year, our share count has changed. Please refer to our press release issued this morning for a comparison of our share count for the third quarter versus the third quarter of last year.

During the third quarter, l would like to mention upfront we had a benefit from utilizing LIFO inventory economy when compared to the LIFO methodology of 17 million on an EBITDA basis. Due to the increased prices of our raw materials and finished goods.

Turning to our segment analysis, our olefin segment continued to enjoy higher prices and margins for polyethylene and styrene during the quarter. The olefin segment earned 45 million of income from operations during the quarter compared to 9 million last year and 38 million in the second quarter of this year.

The third quarter saw dramatic increases in the cost of our major feed stocks ethane, propane and benzene but given the strong demand for our products we have been successful in passing these increased costs on to our customers. We experience margin improvements in polyethylene and styrene in the third quarter compared to the second quarter.

Our third quarter results reflect continued price momentum for polyethylene with industry increases of 5 cents for both LD and LLDPE during the quarter. For the quarter industry volumes were up 7% and Westlake enjoyed a 13% volume improvement for the quarter. Prices may increase again in the fourth quarter pending the outcome of a 6cent industry price increase announced for October and a 5 cent increase announced for December.

Turning to our vinyl segment the segment earned 26 million of income from operations during this quarter compared to break even in third quarter of last year and 28 million in the second quarter of this year.

During the quarter we saw some margin duration in PVC resin and PVC pipe that was partially offset by constant price increases. Volumes during the quarter remained basically flat when compared with the second quarter. We did see an increase in our absolute PVC pipe volume due to the acquisition of the 3 Bristol pipe plants. Going into the fourth quarter we would expect to see some seasonal slow down industry wide in the vinyls chain due to normal weather patterns.

Turning to current market conditions through September PVC resin has increased by a total of 12cents per pound this year. In addition there is a 1cent increase pending for November, in addition some producers have announced an additional 2cent increase for December. These price increases has helped offset increased cost of our raw materials.

After seeing price deterioration early this year caustic pricing has re-bounded. There was a $95 a ton increase implemented in the third quarter and there are 3 additional increases totaling $160 of ton that have been announced and are expected to be implemented in the fourth quarter. PVC pricing was essentially flat in the third quarter compared with the second quarter.

The hurricanes that hit the South-East region of the country will have a somewhat negative impact in the fourth quarter as repair work is expected to dominate construction activities in the South-East.

We are very pleased with our year-to-date performance and remain optimistic about the cyclical upturn in the industry. We continue to be however, concerned with the continued cost of our feed stock and impact that these costs will have on our financial performance. I’ll conclude with a brief update on our balance sheet and cash flow.

We had positive operating cash flow of 44 million and CapEx of 12 in the third quarter. As previously mentioned we acquired 3 PVC pipe plants from Bristol pipe during the quarter for 33 million. 13 million of that purchase price represented working capital. Due to the increased prices of our feed stocks and manufactured products the acquisition of the Bristol pipe assets, our working capital increased by 36 million during the quarter. In August we successfully completed our IPO raising net proceeds of 181 million.

We used these proceeds plus cash on hand to pay down 188 million of debt. We ended the quarter with 51 million of cash on the balance sheet as of 9/30/04 we have completed a renegotiation of our term loan B pricing which will result in an interest savings of a 150 basis point per annum. The current balance of the loan is about 90 million. Our revolver borrowing remains at 0. Taking our cash position into account, our total net debt level was 297 million and our leverage of 1.1 times LTM EBITDA. Thank you very much and now let me turn it back to Graham McArthur.

Thank you Ruth, before Albert and Ruth begin taking questions I would like to remind you that a replay of this teleconference will be available starting 1 hour after we conclude this call. We will provide that number again at the end of the call.

We will now start taking questions. Are there any questions?

(technical difficulty)

Hello, anybody there?

Yes. Hello.

Can I ask a question?

Yes.

No one even called me up.

Hello?

Hello, this is Dave Begwater (ph) can you hear me?

Yes.

Yes, Dave I hear you. We are having some problems with our conference here.

I have some questions, if you don't mind.

Go ahead.

Sure go ahead.

Just to -- hope all is well with everybody. Albert given that this is your first quarter out of the box; very strong quarter can you talk (inaudible) about your view of peak earnings power for Westlake going forward and how strong this cycle will be, any changes you may have had in the last few weeks or few months?

Well, we do not make forecasts for peak earnings power as we have stated in the past and on (inaudible) road shows, we don't believe certainly that we are near the peak. If you look at CMA’s (ph) forecast that peak for the vinyl business maybe '05 '06 and olefins business in '06 '07 so we are looking forward to the upcoming peaks.

And just the latest price increases of both PE and really PE what do you think, how will they play out over the next few weeks the latest two increases that have been announced. With demand remaining fairly strong to support these price increases despite the rolling off of the crude price?

Right, I think the demand is strong even though the industry is still relatively low and the export prices are still higher than domestic prices which is a key sign that the demand globally is still quite strong, so we believe that there is a strong chance that all the price increases at least a large part of that will be pushed through.

And just can you give me an update on the feed stocks flexibility program as well the Geismar restart?

Yes, the Geismar restart I’ll take that first is on schedule. We plan to get the plan ready by the end of the year for the first stage of restart early next year and feed stock flexibility program is still in progress and we are finishing some of the engineering work; finishing the first phase of that.

Very good congratulation on the first quarter.

Thank you very much David.

Thank you very much sir. Ladies and gentlemen your next question comes from Kevin McCarthy of Bank of America Securities. Please proceed.

Yes, good Morning and congratulations on a nice first quarter out of the box. Could you comment on the startup costs that you experienced for the Geismar unit in the quarter please?

We did have some startup costs for Geismar in the quarter but you know it was not a very big number. We are not going to at this point be breaking those out separately.

OK. On polyethylene, Ruth, if I heard you correctly, your volumes were up 13% versus 7% for the industry, do you feel as though there is any pre buying activity occurring down stream among your customers or perhaps you can elaborate on why you are growing so much faster than the market?

Well, I don't think that there is any pre buying. I think that the quarter was very strong overall in terms of demand both on the export side and on the domestic and we just took advantage of the strong demand.

OK. Then finally on caustic, do you sell any caustic on the spot market or is it all contract business there.

I think it is a combination of, we have very steady long-term customers.

Our business is mostly contract Kevin, you know we may have spots but it is mostly under contract.

Very good thanks very much.

Thank you very much sir. Ladies and gentlemen your next question come from Craig Goodman (ph) of UBS please proceed.

Good morning all.

Good morning Gregg.

EDC where you able to take advantage of any EDC spot sales in the quarter and if so can you quantify that to some extent for us.

No Gregg, the EDC that we produce was all used internally.

OK. But EDC prices have gone up is there a potential opportunity there in the future don't you have some excess capacity could be used like that.

Certainly there will be.

Can you comment on what you think EDC pricing is right now on the market place.

I think we have not sold as much recently, we don't know that today's market price but I think the Asia prices are fairly high for EDC and as you said there’s a good opportunity to capture that when the timing is right.

OK operating rates for your crackers petro one and petro 2 what were your average operating rates in the quarter?

We run our plants at fairly high rates but we will not tell you the exact plant but we are running the plants (inaudible).

Using the third quarter number that you reported is 94% which I guess is NPRA would you say you are above or below that?

We should be at least at that amount or higher.

OK. That's all I have, congratulations guys.

Thank you very much.

Thank you very much sir.

[Operator Instructions]

The next question comes from Bill Young of CSFB please precede.

Hi, Albert and Ruth.

Good morning Bill.

Where do you think your customers stand on inventory, I ask this question a lot, lived through a few cycles and when prices go up rapidly customers often build stocks and the producers say oh no, we don't see it. The customers don't have any inventory, they can't get enough material. So what's your view on that and from where do you draw your evidence.

Bill you know it’s very difficult for us to really monitor inventory at the customer level. However, certainly on the polyethylene side our business people report that the rail cars that we are shipping are coming back empty pretty rapidly. So we think that that is one sign that indicates that, they are not storing inventories. Obviously that's not very scientific, it’s antidotal but we feel pretty good about inventories generally across the system.

OK, great. Now – Albert, I think you mentioned that natural gas versus naphtha (ph) and gas oil that you felt the US was competitive at the present time. Just where do you stand, where do you think we stand on relative economics? Are you saying that it’s within a penny. With buy product credit it's within a penny or 2 a pound similarity on cost just where do you stand on that? Because gas has really zoomed up recently as oil is supposed to come down a bit.

Right I think CMAIs latest report shows that on a cash cost basis ethane is a little bit better than the naphtha based economics.

Bill you're right it’s just you know it’s within a penny or two a pound.

OK. Now I think I have one more question. You mentioned that caustic proposals were $95 in the third quarter and 160 in the fourth, could you give us an idea historically in the third quarter do you think you got half of that or most of the 95 -- just give us an order of magnitude because there are sweet heart deals out there with some of the biggest customers and the $95 was proposed in two stages and that's likely (ph) - could you give us some kind of handle on it(inaudible) not anything proprietary but just some kind of qualitative measure.

Yes, I think some of the large buyers of caustic price are based on the quarterly pricing, so and some of them have price protections whether it is 30 days, 60 days, 90 days, so you will see that the net margin is coming in over a period of time.

OK, so maybe by the end of the fourth quarter you will have realized may be all that 95 and some of the 160 is that a fair conclusion to draw.

Yes, some partially as I said depending on the contract that they are going over way from 30 to 90 days price protection.

OK. Well thanks very much.

You are welcome Bill.

thank you very much sir ladies and gentlemen your next question comes from Masset Harvey (ph) of MBS, please proceed.

Hi, I just wanted to just see if you could give CapEx guidance for the fourth quarter and if you have an outlook for '05.

Yes, sure actually we have a ambitious CapEx program for the fourth quarter due largely to the activities at Geismar, we are expecting about 30 million to bring the year’s CapEx to around 60 and we had actually planned to spend a little more than that so we will have carry over into next year. We are right in the middle now of our budget cycle so we really haven't determined next year budget that you know it’s safe to say that next year will be definitely higher than this year. We had previously indicated about 80 million and we had at least 10 million carry over. So that we will definitely be, you know have a higher budget next year probably a minimum around 90 million.

Thanks that helps. Could you repeat what you said the term loan balance was at the end of the quarter?

It’s 90.

90. Great thanks a lot.

Thanks very much sir. Ladies and gentlemen your next question comes from Nancy Crow (ph) of Credit Suisse First Boston, please proceeds.

Good morning. I wondered if you had any turn arounds scheduled over the next few quarters, maybe if you can tell us about them?

We do have a turn around in polyethylene and it would be in April of next year I was just hesitating for a moment, I wasn't sure what quarter it was going to land in but April of next year is one of our polyethylene lines is going to be turned around.

OK and the other thing is you mentioned these strong export markets, I wondered how much of your sales go to export and how has that changed?

We are primarily a domestic producer and we sell primarily to domestic customers, I think that the export opportunities obviously have improved this year and we do take advantage of those at times. We think that it’s probably about 5% on a revenue basis and generally it’s lower than that.

Thank you very much.

Thank you very much, ladies and gentlemen your next question comes from Fritz Voncorp (ph) of Sage Asset Management please proceed.

Yes my questions have been answered thank you very much.

Thank you sir.

[Operator Instructions]

Your next question comes from David Silver, JP Morgan please proceed.

Yes Hi good morning. I had a question I guess on feed stock costs and hedging. You mentioned that, you know you are concerned about feed stocks for the fourth quarter, can you indicate whether you think you have -- what percentage of your basic feed stock cost, you mentioned natural gas I think propane that you might have hedged and may be as a broader kind of answer, could you talk about your philosophy about hedging in those markets? Thanks.

Dave, we are a very large buyer of both ethane and propane and there really is in the opportunity to hedge perfectly our position, you know, given liquidity in those markets. So we are uncomfortable with taking basis risk versus say natural gas on one hand or oil on the other and so from a philosophical perspective and both from a practical prospective we really do not hedge a significant amount of our feed stock cost. And we think that in the long run that's actually a less risky strategy than taking a fixed position against an alternative commodity.

OK and I am going to ask you to repeat an answer from earlier because unfortunately I’ve been cutting in and out but I was going to ask about FIFO benefit and if I recall I think you said 17 million on an EBITDA basis, is that correct?

That's right.

OK and was that, you know on the benzene side or just up and down the product line.

That's everything.

Everything, OK. A couple of quick questions. I was wondering if Albert might be able to comment on the PVC situation in Asia and in particular I guess if you know look at the CMAI data, a large percentage of the world’s net new ads on PVC capacity are scheduled or targeted in China. And I wonder if from your assets and activities there you have a sense of the timing and the pace at which this new capacity is likely to come on if there are any bottle necks in terms of either resin or chlorine capability? Thanks.

There is a lot of announcements of capacities on PVCs in China; however there is less announcements in the VCN and the clolocalized (ph) side of that which is the key part because without VCN we can't make PVC.

Right.

And still people will make announcements in China and they don't follow through it or delayed as in many projects in the Finland area. So China is still a net importer; a large net importer of PVC resins and proceed in future they will continue to import a fair amount of PVC and VCN as well as EDC, so it's you have to see the whole individual chain to understand how the vinyls industry would grow in China.

OK and maybe one last question regarding the Bristol pipe acquisition, so the acquisition’s has been completed and it’s going to be full part of your operations in the fourth quarter, I have to confess I am not 100% conversant in kind of the seasonality on the pipe end but would you anticipate that the Bristol pipe assets will be accretive to your operations or will add to your earnings in the fourth quarter for either seasonal or cyclical reasons?

We look at acquisitions of long term prospective and you are absolutely right the pipe industry particularly in the winter season they are slow, however we are seeing a pretty healthy demand for the pipe business currently and we don't know yet what else in the fourth quarter will be.

OK thanks very much.

You are welcome.

[Operator Instructions]

Your next question is from Craig Goodman of UBS please proceed.

Hi, the 17 million of FIFO impact, how did that break out between the two segments?

Well Gregg I do not have a break out of that.

What qualitatively would you think it will be more in Vinyls?

My guess is it would be more in Olefins just because that is where the volumes in terms of the feed stocks play out in terms of our ethylene and our ethane, But, I don't have an exclusive break out.

Yes I think 60 odd percent of the business is in Olefins side and inventories will be decline to that approximately that kind of a ratio.

What did you say Albert did you say 60.

Yes 60 the Olefins industry goes quarter-to-quarter. But it’s a larger share of the pie for our business than the vinyls business.

OK that's all I have thanks guys.

Welcome.

Your next question comes from Bob Bilmord (ph) of (inaudible) Asset management please proceed.

Good morning. Ruth could you review again the price increases you got in polyethylene during the third quarter and what is being implemented in the fourth quarter and you comment at all about the timing of the increases and whether they are going in faster or slower then they have historically given the types by demand conditions we’re seeing.

OK let's see there was a just going back in the year in July there was a $0.04 increase that was implemented. And in September there was an announcement of $0.05 that is still you know still being implemented and October there was a $0.06 increase that was announced and in December there was another $0.05 increase that was announced. Generally speaking, I think that the price protection time periods are shrinking but obviously it does depend on certain customers and there is a delay in terms of the implementation and you know the exact impact of the price increases on our P&L.

Let me try this way, do you have enough price increases out there that could be implemented in the fourth quarter to offset the raw material increase you are going to see 3Q to 4Q.

Yes I think so. If you take a look at just simply what say CMAI is projecting. They are showing a margin increase in the olefins and polyolefins sectors. So I am pretty optimistic about the fourth quarter in terms of margin.

OK on the vinyl side could you give us some help on pricing and the PVC pipe market. I know if you’ve had some margin squeeze in the third quarter, is there any ability in the seasonally slow quarter to raise prices to help mitigate the increase in raw materials?

There is some ability in fact there has been some what I would call anecdotal evidence of price strengthening which is a little bit unusual for the quarter. But I don't have any exact numbers to give you yet.

And this is not a market where you announce increases formally it’s just done on a customer-by-customer basis

That's correct.

OK, is there an inventory shortage at all in the pipe market and I had a weak July but it seems like demand has come back fairly strongly since then?

There was an increase in demand after July. But we are a seeing some seasonal slow down. Generally speaking you know the fourth quarter because of weather does tend to be definitely you know pretty sharp decrease, versus the previous quarter. We may see some delay in some reversal of that usual trend because of what happened in Florida, because of the hurricanes and what's going on there in terms of the renovation work. Basically, all the contractors are doing renovation work at this point and there is very little new construction. As that starts to reverse itself in the fourth quarter, you know we could see some strength in pipe that is a little bit better than what you would expect. And our orders are looking pretty good for the rest of the year. But it still has to be played out and weather could change that drastically.

OK I was a little confused on this. You are saying that hurricanes actually hurt the third quarter.

Yes.

But you think that may come back in the fourth quarter.

Yes.

OK that might help us at some of the seasonal decline that you would ordinarily see.

Correct.

OK thanks very much.

Thank you very much sir, ladies and gentlemen the next question is another follow up David Silver JP Morgan, please proceed.

Yes hi I think I’m going to try and follow up on some of the other questions by the others, but has to do with the feed stock costs and availability during the fourth quarter. First I guess I was wondering if you thought that Westlake was going to have any problems procuring feed stocks. So apart from the prices you may pay, do you anticipate any potential you know supply, shortages or disruptions or that you will have to alter your operating rates due to the availability of feed stock.

Dave no we don't see any disruptions in the market that would lead us to have any kind of a problem in terms of our operating rates.

OK. And then if I could just take that a little further I mean if I think the prices of things like natural gas and propane and what not are quite volatile now and its really going to be hard to predict how the rest of the quarter shakes out but, if you were faced with may be really tough spike on the feed stock cost side such that maybe on an instantaneous basis you might have to produce some product at a negative margin. I guess I was wondering if you have the flexibility to kind of alter your operating rates or is your philosophy you know to not produce if there is a negative cash margin. Or on the other hand is your order book so full you know for some of the reasons you mentioned earlier that you are probably going to just produce run hard to produce and meet your current orders

Well I think Dave, you always have to take your customers into consideration and you can't just cancel orders that were scheduled for delivery. So I think it really depends on the situation. We obviously always have the ability to react something very, very drastic but we do have to keep our customers happy and it was a tough question to really answer.

Yes I probably I didn't do a good job of asking it but I guess its related to how much you know spot or uncommitted business might you have in the fourth quarter relative to your contractual commitments.

I think that's actually fairly small.

Small spot around committed portion, OK thanks very much.

Thank you very much sir, and ladies and gentlemen you next question is a follow-up from Fitz Montgomer (ph) with Stage Asset Management please proceed.

Yes, you mentioned that the margin advantage to the light cracking (ph) in olefins. How much of the strength you are seeing -- I know that I am sure you can't quantify this but qualitatively how much of the strength you are seeing in the olefins markets now, due you think is attributable to you know this advantage conferred upon US producers due to you know the advantage now to ethane cracking and how much is just you know broad economic strength and so forth.

Yes I think, good question. I think mainly is due to the broad economic structure as you know the prices for oil and gas fluctuate everyday but the world, the US and global demand are strong for our products and its mentioned that in Asia some of the prices are higher than domestic US prices. And those people have products have exported some but I will think that it's not because of the US ethane base cracker cost is better or worse than the (inaudible) cracker. It’s just supply demand and the global demand for it.

Great thank you, I appreciate it.

Thank you very much sir. Ladies and gentlemen your next question is another follow-up from Bob Goldberg (ph) for (inaudible) Assets Management, please proceed.

Yes I understand your bringing on capacity in the Vinyl business which will help you in some of your growing markets next year but in the Olefins business, if there is another year of good growth next year, are you nearing a point where you really can become capacity constrained in the polyethylene business – and are you anywhere near a level now where you may you have to think about putting your customers on some sort of allocation process?

Talking about the industry or for Westlake?

For Westlake.

Well Westlake has been operating at a very high level of production in sales. We generally have had couple of integrations, we have had higher operating rates than the industry average and we will continue to do that and in our industry in the olefins side your question was that there is very little capacity actually if you look through the last few years, the net capacity reductions in the US in the Olefins and polyethylene business. So there is no capacity push and is now new announced plans in the US in the foreseeable future. So we don’t see it for next I mean grass root plan for next three or four years for be no (inaudible)new capacity coming out and demand is still quite healthy.

And I am just wondering if the demand does grow even moderately next year, do you run out of capacity at some point and polyethylene and don’t you think about adding or putting your customers on some sort of allocation process?

The LDPE industry is pretty much at full capacity and CMAI reported third quarter 2004 running at 95% of capacity. In the linear (ph) low high density industry operating rates of 90% was reported by CMAI on the third quarter of 2004 so there’s a little bit of room over there.

OK so you don't have any plans to add capacity?

Not to build new plants no.

Is there any de-bottlenecking capability?

Our engineers everyday are trying to improve operations.

OK thank you.

Welcome.

Thank you very much sir. Ladies and gentlemen the next question is another follow up, Nancy Crow of Credit Suisse First Boston please proceed.

You mentioned how things may trail off a bit in the fourth quarter typically they do in PVC but we also have these price hikes in caustic, do you think the pricing there will offset the decline in the PVC and derivatives market?

Nancy we are not going to give any guidance or you know any sense of what we think of fourth quarter is going to do vis-à-vis the third quarter but we do think that there is, you know the possibility of a normal seasonal slow down both in PVC resin and PVC pipes and I think we really need to leave it at that.

I do realize a lot of people have like price caps, etc on the caustic side, so it is a little unclear as to you know what is actually going to happen there how successful those price hikes will be.

I think that the caps are not a concern. I think it’s just a question of the normal timing of how the prices will flow through and it just very difficult to weigh the impact of one segment you know 1 business line verses another.

OK thanks.

Thank you very much mam, ladies and gentleman next question comes from Adrian Rodriguez (ph) of Goldman Sachs please proceed.

Hi guys quick question do you also expect to see the seasonal slow down in polyethylene and also another question I think I missed that. Did you say what the FIFO impact is on the per share basis?

I did not say what the FIFO impact on a per share basis we can try to get back to you on that. As far as the seasonal slow down in polyethylene, I think that that is less of an established pattern. We do sometimes see that but it’s not quite as normal and customary as the slow down in vinyls and you know is not something that is something we would want to predict.

OK thank you.

Thank you very sir, ladies and gentleman your next question comes from Robert Ridges (ph) of (inaudible) please proceed.

Hi I may have missed this because I have been several conference calls, just wanted to ask the famous China question. Maybe you don't even export to China but if you do export to China or if you are involved either tangentially with the China trade. I am curious have you seen demand coming back after the so called holiday season, has it slowed have you seen an impact of the so called curbs put on the Chinese government, so I guess in a nut shell how is your far eastern business look and I recognized on the vinyl side it is probably be lackluster in the fourth quarter?

Yes, we don't export much to China that’s not our traditional market for export however, we do have an affiliate in China; a joint venture in the PVC resin and fabrication business called Fasu (ph)(inaudible) in Shanghai so we get information feedback. I think the Chinese market is still quite strong even though they do have some kind of a credit control tightening of the credit situation in China. As I mentioned earlier in this conference call that prices in Asia and not only China all of Asia are quite strong and many products of the local markets in Asia are higher than the US domestic prices. So that's a good sign of strong demand in China and the rest of Asia.

OK and just one follow up on that in terms of your joint in venture in China have you guys forecasting a stronger year next year or weaker year just kind of can you give just a little flavor of how you see the market unfolding in '05 in China?

Yes we don't comment on our affiliates operations however I think that the growth GDP growth in China is still fairly strong next year and for Asia as a whole. I think China's growth first half verses second half; I think second half has slowed down the bit but is still growing quite strong.

Thank you very much.

You are welcome.

[Operator Instructions]

And that this time we have no further questions I would like to turn the call over to Mr. Graham McArthur for any closing remarks.

Great thanks Bill(inaudible). Thank you again for participating in today's call. We hope you will join us again for our next conference call to discuss our fourth quarter results.

Thank for being our participation in today's Westlake Chemical Corporation third quarter earnings conference call as a reminder this call will be available for replay beginning an hour after the call is ended may be access until 5 pm eastern time on November 10th. The replay can be accessed by calling the following numbers - domestic callers should call 1 888 286 8010, international callers may access replay at 617 801 6888. The access code at both numbers is 29430397.

Again thank you for your participation of today's conference call this concludes the presentation and you may now disconnect have a good day.