Westlake Corp (WLK) 2006 Q3 法說會逐字稿

Good morning ladies and gentlemen, thank you for standing by. Welcome to the Westlake Chemical Corporation Third Quarter 2006 Earnings Conference Call.

[OPERATOR INSTRUCTIONS]

I would now like to turn the call over to your host, Steve Bender, Westlake's Vice President and Treasurer. Sir, you may begin.

Steve Bender. Good morning, everyone. Thank you for joining us for the Westlake Chemical Corporation Third Quarter Conference Call. I'm joined today by Albert Chao our President and CEO, and Danny Gibbons, our Senior Vice President and Chief Financial Officer and other members of our management team.

The agenda for today will be as follows. Albert will first make a few comments regarding Westlake's performance during the third quarter. Danny will then provide you with a more detailed look at our financial and operating results. Albert will conclude with a discussion of recent developments, and then we will open the call up to questions.

Today, management is going to discuss certain topics that 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 risk or uncertainties. Actual results could differ materially based upon factors including the cyclical nature of the chemical industry, availability.

Costs and volatility of raw materials and utilities. Governmental regulatory actions and political unrest, global economic conditions, industry operating rate, the supply demand balance for Westlake's products, competitive products and pricing pressures, access to capital markets, technological developments and other risk factors. Westlake issued, earlier this morning a press release with details of our quarterly financial and operating results. This document is available in the press release section of our web page at www.westlakechemical.com.

A replay of today's call will be available, beginning one hour after completion of this call until 1 PM eastern time on November 9th 2006. The replay may be accessed by dialing the following numbers. Domestic callers should dial 1 888-286-8010. International callers may access the replay at 617-801-6888. The access code for both numbers is 42524429. Please note that the information reported on this call, only as of today, November 2nd, 2006 and therefore you are advised that time sensitive information may be no longer accurate as of the time of any replay.

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

I would now like to turn the call over to Albert Chao.

Thank you Steve, good morning ladies and gentlemen. And thank you for joining us. I'm pleased to report that our third quarter 2006 results were a continuation of the strong performance we reported in the first two quarters of the year and achieved record sales. In this morning's press release we report a third quarter earnings of $0.95 per diluted share in spite of the unplanned outage and maintenance turn around of one of our ethylene units in Lake Charles Louisiana.

This is a significant improvement over earnings of $0.67 per diluted share reported in the third quarter of 2005. Our operating margin was 13% in the third quarter of 2006, up from 12% in the third quarter of 2005. This year's third quartered benefited from generally higher selling prices which allowed us to pass through higher fee stock costs and improved fee stock trading results.

The improvement however was partially offset by lower sales volumes for polyethylene and PVC pipe, lower production volumes and higher maintenance expense associated with a scheduled shut down at one of our ethylene units in Lake Charles. As a result of the unscheduled outage, we were able to complete a maintenance turn around of the unit, which had previously been scheduled for late this year, or early 2007. The repairs and maintenance work was successfully completed and the plant was restarted on October 25th.

Our Olefins segment enjoyed strong ethylene and polyethylene margins due to solid supply demand fundamentals, while our vinyl segment has achieved record profits thus far this year. Our Geismar vinyl facility and Bristol pipe assets continue to add the strong performance of the company and accentuate our downstream integration strategy. The addition of the Eastman polyethylene assets will further enhance that strategy. I will discuss the status of the Eastman acquisition a bit later.

Now, I'd like to turn the call over to Danny Gibbons, our Chief Financial Officer for review of our third quarter results, Danny?

Thank you, Albert, and good morning everyone. As we reported in this morning's press releases, Westlake had sales of 672 million in the third quarter. Which represents an 11% increase over the 605 million of sales reported in third quarter last year. This was due to higher selling prices for all of our major products. Partially offset by slightly lower sales volumes in improved feedstock trading results. Selling prices were higher as we were able to pass along higher feedstock costs to our customers and at the same time expand margins.

Lower sales volumes for ethylene, polyethylene, and PVC pipe were partially offset by higher sales volumes for styrene and PVC resin. Our ethylene sales volumes were lower due to the unplanned outage and maintenance turn around at one of our ethylene units at Lake Charles, as well as increased internal ethylene consumption at our Geismar vinyls facility.

Polyethylene and PVC pipe sales volumes were lower due to reduced demand. The reasons for which will be discussed in the segment discussion in just a minute.Net income was 62 million, or $0.95 per share in this year's third quarter compared with net income of 44 million, or $0.67 per share in the third quarter of last year. The increase was primarily due to margin improvements in both of our Olefins, and vinyl segments and improved feedstock trading results.

These increases were partially offset by the negative impact from the maintenance turn around at our ethylene unit at Lake Charles. We estimate the negative effect on operating income with the shut down was between $25 and 30 million. 10 million of which was incurred in the third quarter with the remainder falling into the fourth quarter. As mentioned in this morning's press release, our net income benefited from income tax provision adjustments, which increased net income by 3.7 million or $0.06 per diluted share.

The following is a sequential discussion of our operating results for the third quarter versus second quarter 2006. Third quarter sales were up slightly over the second quarter due to higher average selling prices for most of our products, which were almost entirely offset by lower sales volumes. Average sales prices for Olefins increased 10%, but volumes decreased 7%.

We implemented a $0.05 per pound price increase for polyethylene during the third quarter after implementing a $0.06 per pound increase in the second quarter. Polyethylene sales volume softened in the latter stages of the third quarter as customers drew down inventories in conjunction with falling feedstock cost. For the quarter, average-selling prices for vinyls increased 2% with sales volumes declined 5%. We also implemented a $0.02 per pound price increase in the third quarter for PVC resin. PVC pipe sales volumes were lower in the third quarter, following an unusually strong second quarter.

Third quarter results were only slightly impacted by the utilization of first in, first out or FIFO inventory accounting, as compared with utilizing the last in, last out or LIFO method used by some other companies in our industry. FIFO was benefited -- FIFO was beneficial in the quarter primarily as a result of the increase in feedstock prices. We estimate that the favorable FIFO impact for Westlake in the third quarter was approximately $3 million after tax.

This year's second quarter results also favorably impacted from the use of FIFO accounting by approximately 10 million after tax. However, year to date utilization of FIFO has had a net negative impact of approximately $9 million after tax. Please bear in mind that FIFO calculation is only an estimate, is not audited and is not a GAAP calculation.

For the first nine months of 2006, our operating income margin was - has averaged over 16%. While we have experienced volatile feedstock prices, we have maintained very strong margins throughout the year and have seen the benefit from our vertical integration strategy and robust demand for our key products. Now turning to our segment analysis. Our Olefins segment generated 42 million in income from operations during the third quarter of 2006, compared to 45 million in the third quarter of last year.

Results were reduced due to the production losses and maintenance expense related to the unscheduled outage of one of our ethylene units at Lake Charles. Excluding the effects of the unscheduled outage and maintenance turn around. Olefins operating income would have been higher than the third quarter of last year, primarily due to higher selling prices, which outpaced higher feedstock cost, higher margins and improved feedstock trading results.

Generally, sales volumes are lower this year than last. Ethylene sales volumes were lower due to the previously described outage and the increase in internal ethylene consumption at our Geismar vinyls facility. Polyethylene sales volumes were also lower than last year. Third quarter 2005 polyethylene sales volumes were unusually strong due to the impact from hurricanes Katrina and Rita last year, while third quarter 2006 demand for polyethylene was especially strong in July and part of August as energy prices rose.

However, when energy prices started to fall, sales volumes also declined as our customers drew down their inventories waiting for prices to stabilize. Third quarter income from operations from Olefins was 20 million than the 62 million reported in the second quarter. This decrease was primarily due to the impact of the unscheduled outage, lower sales volumes and the impact of using FIFO accounting, as I previously mentioned. This is practically offset by higher selling prices for all of our Olefins products.

Polyethylene sales volumes declined as customers were anticipating price decreases in connection with falling feedstock costs. Polyethylene sales volumes were stronger in the second quarter as customers built inventories in advance of price increases. Now turning to the vinyl segment, income from operations for our vinyl segment was 49 million in the third quarter, compared to 29 million in the third quarter of last year. This 20 million increase was primarily due to higher sales volumes for PVC resin, and higher selling prices for PVC resin and PVC pipe, both of which outpaced higher feedstock cost.

PVC resin sales increased as a result of the additional production capacity brought online at our Geismar vinyls facility in late 2005. These increases were partially offset by lower PVC pipe sales volumes. PVC pipe sales were especially strong last year as customers were buying large volumes of pipe both before and after hurricanes Katrina and Rita struck the US Gulf coast. This phenomena obviously did not reoccur in the third quarter of 2006.

Third quarter income from operations for the vinyl segment was 5 million higher than the 44 million reported in the second quarter last -- second quarter this year, primarily due to the adverse impact of a maintenance turn around at our vinyls complex in Calvert City in the second quarter. Parts of the plant were down for 16 days, resulting in lower production volumes and higher maintenance costs.

Income from operations in the third quarter was negatively impacted by an overall decline in sales volumes of 5%. PVC pipe sales volumes declined in the third quarter as customers closely managed their inventories. As with polyethylene sales, when prices and feedstock costs are declining, our PVC pipe customers will reduce purchases and draw their own -- draw down their own inventories until prices stabilize.

PVC pipe sales volumes were unusually high in the second quarter after a slow first quarter while prices were at all time highs. PVC resin sales, however, were strong during the third quarter as customers built inventory to stay ahead of price increases. Turning to the balance sheet and summarized statement of cash flow. Cash flow from operating activities was 214 million for the first nine months of 2006, compared to 175 million earned during the same period during 2005.

During the first nine months of this year, we spent 101 million for capital expenditures, approximately 5 million to increase our interest in [Huasu], our joint venture in China. Approximately 28 million to settle derivative transactions that we entered into in 2005. Our cash and short-term investments were 303 million at the end of the third quarter of this year, 27 million greater than the 276 million that we reported at the end of the second quarter. Our total long-term debt at September 30th was 260 million. And our debt to total capitalization ratio stood at 18%.

Now, I'd like to turn the call back over to Albert to discuss some recent developments.

Thanks Danny. First, let me update you on the status of our recently announced acquisition of Eastman Chemical Company's polyethylene's business in Longview Texas. On October 10th we announced that we had entered into a definitive agreement with Eastman Chemical to purchase its polyethylene business. The sale will include Eastman's polyethylene and epolene polymers businesses, related assets and the company's ethylene pipeline. The purchase price is 255 million in cash and closing expects to be in fourth quarter. The business and assets to be acquired generate approximately 680 million in revenue during 2005.

The acquisition includes the polyethylene business and associate operating facilities have quartered in Longview Texas. With the capacity of 1.1 billion pounds per year of polyethylene. This is comprised of 700 million pounds per year of low-density polyethylene and 425 million pounds per year of linear low-density polyethylene and a 200 mile 10 inch ethylene pipeline along Belleview to Longview Texas.

When the transaction is closed, Westlake's total polyethylene capacity will be in excess of 2.5 billion pounds per year. This is an excellent strategic fit for Westlake. When completed this transaction will further strengthen our position in a growing North American polyethylene market and will increase our ability to serve our customers through an improved poly mix and new product technology where we can enhance our ethylene integration strategy.

All necessary regulatory filings have been made, and we currently expect to receive all regulatory approval and to close sometime during the fourth quarter. In summary, we had another very strong quarter as a result of solid business conditions, and good supply/demand balance in the chemical industry. However price volatility [increased] stocks and energy costs makes it difficult to forecast customer buying patterns and margins.

Beginning September, customer sentiment has changed to more of an inventory reduction mode, caused by recent large declines in crude oil and natural gas prices, the diminishing threat of hurricanes, and pre-buying by customers in the patch chemical industry. At the same time, we are entering a seasonally weak demand period. However looking forward to 2007, we believe the US and global economies will continue to enjoy reasonable growth and this demand for pitch chemicals will continue to be healthy. Therefore, we are cautiously optimistic for a good 2007 as well.

Thank you very much. Now let me turn it over, back to Steve Bender.

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

[OPERATOR INSTRUCTIONS]

And our first question comes from the line of Edlain Rodriguez with Goldman Sachs. Please proceed.

Thank you. Good morning. I have two questions. One, is housekeeping. Just clarification on taxes, besides the ETI benefit you have, is there another benefit. Because I was looking at 36.5% taxes for this quarter, which was the same as in 1Q and in 2Q but with ETI at the end of the day it comes out to 33%, that is -- where's that 3% difference coming from?

You want to talk about the adjustment that we made, or you just want to talk about reconciliation of the record -- the statutory rate?

The reconciliation.

We made an adjustment in the third quarter to change to book adjustments for the filing of the tax return. Couple things came up, we've implemented a new system for calculation of deferred taxes at all of our locations that have improved our ability to estimate taxes at both every local, regional, state and all the jurisdictions that we have taxes in. we went from a blended system to a very detailed system that fits where we were able to make adjustments to refine how we book deferreds.

And as you know, when you record deferred taxes for a year, you estimate what its going to be for the year and you make adjustments in the quarter in which those adjustments occur. So you end up with some funny things. But anyway, we made the adjustments in the third quarter.

So the third quarter's taxes was much lower than anticipated excluding that ETI benefit of $0.06.

That's correct.

Okay. Just wanted to clarify that. And the other question that I had was on PVC. Can you please remind us what's the split between residential and non-residential for your vinyls business? And also, given what we've seen so far in sense of declining in housing [inaudible]. What do you expect -- do you expect to see a normal seasonal decline in the fourth quarter or do you expect it to be more severe than that?

Yes, this is Albert. Answer your first question, the -- in our PVC pipe approximately 20% of our PVC pipe business associated with residential demand. So our main markets are underground water and sewer, and [last time] in the pipe. And which dealt with primarily non-residential construction and highways and infrastructures.

And answer your second question. The winter months in fourth quarter into early part of first quarter, generally are the softer months. And as Danny mentioned, with the declining energy prices and declining forecast in raw material prices, as far as for PVC pipe, people have been [enjoying] our inventories, as well as buying less than they had to. So there will be a combination of both seasonal factor, as well as the raw material and price factors.

Okay. Thank you, very much.

You're welcome.

Representing Deutsche Bank, the next question comes from David Begleiter.

Thank you and good morning. Albert, can you expand on your comments concerning improved feedstock trading results?

Want me to do [this]?

Yes.

David, this is Danny.

Hi Danny.

It's not that it was a great improvement, it's just that we did better than last year. Its only $5 million, but last year we had a pretty big loss. So when you look at the delta its relatively - its $14 million. And we're going to file our 10Q tomorrow and we go into excruciating detail about all of the components of the derivatives, but anyway, it's 5 million this year.

What was Q1 and Q2 for the same metric?

Got that.

Of off line, that's ok.

What did you say?

I can follow up offline if that's -

That's fine, we'll catch you offline.

And just more Albert, on polyethylene, any improvement at all in some of the volume takes? What's your sense of inventories of customers?

Yes, I think that inventories at customers at quite comfortable because we believe that customers have been built inventory during the summer months in anticipation of potential hurricane threats that never came. And so -- if customers are drawing the inventory coupled with the anticipated decline in energy prices. But we are heading into winter months, and gas price has firmed up a bit. So we don't know where energy price will go.

Thank you, very much.

Welcome.

Representing JPMorgan, our next question comes from the line of David Silver. Please proceed.

Yes, hi. Good morning. I had a couple of questions. First, maybe just a follow up on the tax question. Danny, I was wondering if you could maybe give us some guidance on where you think we should have our tax accrual rate for, lets say 2007. Again, based on the work you've done here and the adjustments you've made.

We - David, that's 36.5%.

So go with 36.5?

We're still -- yes, I mean I don't think we'll see adjustments like we've had this year, but we should see a 35% statutory rate and then 1 to 2% from the state standpoint. So I think 36.5% would be good.

Okay. And then I know it's very, very early. But you've indicated that with your feedstock flexibility project you have completed portions of it. And I'm wondering if you could talk about whether you've found it useful here. In other words, since you came back on line, have you had an opportunity to switch over and utilize the feedstock flex capacity and maybe how -- if you have a philosophy on that maybe you could share that with us, when you might deem it worthwhile to utilize it versus your standard operating strategy?

Certainly. As we said earlier, we were planning to do the [technical difficulty capability [tyings], doing our planned turn around, which will occur the end of this year or early 2007. Because of the unscheduled down, because of compressor problems, we did our turn around earlier and we did as much as the feedstock flexibility project we could. Which included energy reductions and in case more incremental increase in ethylene capacity. However, the components which allow us to light naphtha, heavier feedstock was not able to put it in a time. So we are not able right now to switch into light naphtha.

Okay, thank you for clarifying that.

You're welcome.

And then one last question about the offshore PVC market. Albert, I know you have interests, you have active businesses in China and also here. So could you maybe discuss the trends there in terms of -- we see kind of offshore PVC pricing softening in recently since -- there is at least, on paper, a large price gap between the price in Asia and the price here and I was wondering if you've detected any kind of change in trade patterns or are we seeing additional product coming this way from Asia.

Okay. I can only comment on what we know, and as you know we do have a PVC manufacturing business in China. China, as you know, they have announced and they have a large part of the PVC manufacturing out of the carbide profits instead of ethylene. And they've announced several expansions, large expansions. But we don't know the expansions will all be implemented, number one.

Number two, even those existing carbide PVC plants, as far as we know are not operating at a high operating rate. They were impacted by [inaudible] of power, coal prices and various it's problems they had. We seeing that PVC prices in China has been lower but not materially lower than ethylene based PVC in China.

We don't see much PVC -- Chinese PVC coming to the states. One reason also is that the man is being pretty strong in China, as you know. China is still a net importer of vinyl products. Whether its PVC or EDC of BCM. So they are trying to expand the PVC capacities to display some imports so we don't see those PVC come to the US.

Number two, majority of the PVC made in China now for the carbide process and the quality is inferior so we don't this its suitable for the US market.

Okay. Thank you.

Welcome.

Our next question comes from the line of [Vitale Elion] with Banc of America Securities. Please proceed.

Good morning. I have a couple of quick question. One on the flexibility project. If it were in place today, what would you be cracking?

Right now, as reported by many of the consultants naphtha is preferred for the time being. But as you know, throughout the year [ethane] is preferred. So they are forecasting next year, some time of year, that ethane is preferred again. So these things goes back and forth all the time. But as right now, we believe the naphtha is preferred.

Thank you. My second question relates to FIFO. I would have expected that in this particular quarter FIFO would have been unfavorable given benchmarking number of [key feedstock]. That has not been the case. How come, first of all? And perhaps, how could we think about that in the fourth quarter?

Vitale, if you look at ethane, ethane prices were actually higher second quarter to this quarter. I know it -- we sale -- saw a lot of prices falling, but ethane prices were actually higher. That's -- that's primarily our feedstock. So it just -- that's what FIFO did to us anyway.

So we're not seeing a trading effect or something unusual in terms of inventory. It is basically the straight behavior of your key feedstock.

It's the straight behavior of our key feedstock.

All right. Thank you. Okay.

Our next question comes from Greg Goodnight, representing UBS. Please proceed.

Good morning all. Your Trinidadian project. If I recalled you had targeted the heavier feasibility study finished by the end of this year. So two questions. Number one, is that still your target? And number two, is there any possibility of upsizing that project?

Yes, we're still targeting the [feasibility] study to be completed by the end of this year. We're looking at all areas, including the size of the project. You're right.

Okay. And so you don't have any preliminary data for us, but you will tell us, I guess, the next conference call.

We will tell you as soon as we have information available.

Very good. Okay, CapEx in '07 and possibly '08, do you have numbers for us?

Greg we don't have that. We're not finished yet with our capital budget.

Qualitatively versus '06, are you expecting up a little, down a little?

I would expect it to be lower than ' 06.

Okay. So '07 lower, '08 possibly --

I hate to commit to that. We're still going through that process.

Okay.

'06 is supposed to be between 150 and 175. We'll probably be closer to the 150 than the 175, but again, that's not done yet and we're still -- it will probably be December before we finish up with what we think capital for 2007 is going to be.

Okay. In '08 are your going to start seeing some of the new ethylene project capital?

[Are you] talking about Trinidad?

Yes.

If its, as we announced before, that this project we planned. It goes through that we will start construction in the end of '07. So you'll be seeing some capital '08.

Okay. That's fine. Next question, if I could. PVC pipe demand, how would you relate that to overall PVC demand? Has it been stronger, weaker, about the same? I'm talking about the September/October time frame.

Well, generally speaking PVC pipe is the largest component of the demand for PVC resin. So I would think that pipe and resin's demand should be very close. Closely linked.

Okay. Yes, one of your competitors made a distinction. So that's why I was asking the question.

Thank you.

So, that's all I had, thank you very much guys.

Welcome.

Representing Credit Suisse, our next question comes from [Neil Whalen].

Good morning. Nice quarter guys.

Thank you.

I had one question. Is there -- do you have any sort of business interruption for the Lake Charles unit? I mean is -- will you have any sort of insurance for that?

Neil, we do not.

Okay.

Just because, we just don't.

Okay. And this is more of a longer-term question. The -- some of the polyethylene assets that you bought from Eastman are -- one could say, maybe a little bit long in the tooth. Is there any expectation that down five or six years down the line that you'll have to make a substantial investment to upgrade those units?

The polyethylene asset, Eastman, its quite good. They have -- I think we've mentioned before, they have one of the largest, if the largest [Autoclave] line in the US and maybe in the world. It's very efficient and one of the lowest cost units for Autoclaves. Autoclaves, as you know LDP, makes a different kind of, more specialty polyethylene, LDPE than the tubular, which is more popular one in new plants being built. And two - the have a very competitive specialty related video low polyethylene line. It's world scale also. So it's very cost competitive.

Plus they have the [enerjex] technologies, it's quite a superior products. And on the -- they do have a smaller LDPE lines, and they used most -- many of those are used to make specialty copolymers. Such as accolades and [butilades] as well as the accolade specialty polyethylene polymers, and those products are not made by many companies in the world. So they are smaller lines, but they're specialty products.

So we don't think that -- [eventually I think you are seeing about the Middle East capacity coming up four or five years down the line. So don't think they'll be having much impact in terms of able to displace those products.

Okay. And then the last question. I -- as you said, the customers are -- inventories are fairly comfortable at the moment. We're heading into a seasonally slow period. At what stage do you think customers will be forced to restock?

Well, generally when you have inventory adjustments, it takes several months. And I think so long as the economy is good, and the -- we don't know, as I said, what energy prices will do this winter. Customers have to re-supply.

All right. Thank you, very much.

You're welcome.

Our next question comes form the line of Michael Segall representing Deutsche Bank Securities. Please proceed.

Thank you. Good morning. Just a question about the additional ethylene capacity that you stated following the turn around. Is there a quantity you can reveal?

Yes, approximately 800 million pounds.

Okay. The rest of the project to enable you to crack light naphtha what's the scheduled timing on that?

We expect to be able to do that some time next year, and we'll do it when we feel that the market conditions are right.

Okay. Longer term, once the Eastman assets are in the house. What do you anticipate the balance between your monomer and polymer capabilities will be?

Right. We - the Eastman requirements is about 1.1 billion pounds of ethylene. Currently we've [merchant] sales about 500 million pounds of ethylene. So if you talk about net/net we'd probably be short about 600 million pounds of ethylene.

Right. Now with the existing capacity, are there any other debottlenecking opportunities, or would you remain a net buyer.

Well we have various alternatives, certainly our two ethylene plants in Lake Charles among the newest in US, [inaudible] we can look at the debottleneck them. Or we can fulfill the purchase on the merchant market or we can look at other alternatives.

Okay, last question, you might have mentioned this, I might have missed it. In terms of the costs during the outage, was that all booked in the third quarter or is part of that going to flow into the fourth quarter.

We said it was between 25 and 30 million. 10 million of which we booked in the third quarter, the rest will be in the fourth quarter.

Okay great thank you. Go ahead thanks.

Our next question comes from the line of Alex Mitchell, representing Scopus Asset Management. Please proceed.

Hi good morning. Very good quarter.

Thank you.

I just wanted to circle around on a couple of things. One is I missed what you said about the trading profits. What were the trading profits in this quarter?

A little over $5 million.

And, Albert you said that the market is going into a weak period, or seasonally weak. I just wonder how much -- how that compares to the normal seasonal pattern. Is it weaker, are volumes seem weaker than normal seasonal?

I think we have two factors playing here. One is typically the fourth quarter into the winter is a seasonally weak period. Two is that we had inventory built during the summer that, [partially] because of the potential hurricane threat, as well as the energy prices uncertainty, that we could build inventory and we had to get down to more lower levels. So I think those two factors are in play. However, we don't know what energy price will do this winter. So a lot of things still up in the air.

How -- how much over inventoried are they -- is the channel do you think?

We don't think [a] lot over inventory. I think there's probably a little bit more comfortable in Olefins business industry than the vinyls. The vinyl industry we believe there's not a lot inventory, either the producers level or in the converter's level.

I'm sorry, in the vinyl is --?

The inventory is more snug both in the producers and consumers level in vinyl business, than the Olefins.

Okay. And you said that the -- you implemented a price increase in vinyls for the third quarter. Did you say that?

That's a $0.02 PVC price increase.

Okay, because -- I guess -- what a -- I guess a customer and pipe producer, yesterday --publicly traded one said that they were expecting that the price would be down and the price of pipe would be down more than resin, but both would be down, does that --?

You're talking about the fourth quarter right?

You're talking about fourth quarter, yes.

Yes.

You know the -- the $0.02 we talked about was the third quarter.

Okay.

We didn't actually talk about the fourth quarter.

Would you -- is that, would you agree with that outlook that both pipe and resin would be down and pipe maybe more than resin?

Certainly there's some discussion in the trade press about potential price of this in the fourth quarter.

Okay. In pipe or resin or both?

I think it was resin.

And, I just want to ask about FIFO, would you -- looking now, I mean, you had a FIFO benefit in the third quarter. Looking now would you expect to have a benefit in the fourth quarter or would some of that revert?

I don't know what ethane is going to do in the fourth quarter. So I just - I don't know what it's going to be. You know you kind of want to run the calculation at the end of the year and see what happens.

Okay. Those are my questions. Thank you.

[OPERATOR INSTRUCTIONS]

Our next question comes from the line of Frank Denua from Adage Capital. Please proceed.

I just want to go back to follow up on the last couple of questions. I think early in the call you said that PVC resin and PVC pipe demand, sort of -- the demand for both sort of track with each other. But it sounded like pipe was getting -- pipe was slow in the third quarter and PVC resin was pretty good in the third quarter. And I think you also were talking about customers building inventory of PVC resin at a price increases -- I mean, I guess if they track usually pretty closely are they a little out of whack now or did we -- or what was going on in the third quarter correct. Something was happening earlier in the year?

Well the comments were PVC resin sales in the third quarter were up.

Yes.

PVC pipe volumes were lower.

Okay.

Okay? Doesn't have anything to do with price, both prices for those products were up. So now we go -- that's the third quarter. So now we're talking about fourth quarter. Your question on the fourth quarter is -- try me again.

Okay, first of all. Okay, so we're PVC resin volumes, what were they in the third quarter, were they up, down?

They were up.

Okay. So the question is. If PVC resin volumes were up and PVC pipe volumes were down, in the third quarter, if I got that right?

Yes.

Do they -- and you said earlier they tend to track with each other. Is there a -- in the fourth quarter are we going to try to adjust that, or is -- I mean I guess the opposite would happen where PVC resin volumes would be down and PVC pipe would be up, or at least 1 relative to the other?

Danny Gibbons. I think the comment was on prices of resin and pipe --

Okay.

as opposed to volumes.

Okay. Okay. All right. So - okay, so you want to answer volume anyway?

You want to answer --?

I mean do volumes usually track too if prices track or are they --

I mean the resin, it turns into something.

Okay.

I mean fabricated products or pipe. So from a volume stand point you would think that as resin demand declines.

Yes.

Pipe demand would decline as a result.

Okay. Thanks.

At this time the Q&A session has now ended. Are there any closing remarks?

Yes, operator. Thank you. 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 you for your participation in today's Westlake Chemical Corporations Third Quarter Earning Conference Call. As a reminder, this call will be available one hour after the call has ended and may be accessed until 1 PM eastern time on Thursday November 9th. The replay can be accessed by calling the following number, domestic callers should dial 1 888 286 8010. International callers may access the replay at 617 801 6888. The access code at both numbers is 42524429.

Thank you for your participation again and have a wonderful day.