Westlake Corp (WLK) 2007 Q4 法說會逐字稿

Good morning, ladies and gentlemen, thank you for standby. Welcome to the Westlake Chemical Corporation fourth-quarter 2007 earnings conference call. During the presentation all participants will be on a listen-only mode. After the speakers' remarks you will be invited to participate in a question-and-answer session. As a reminder, ladies and gentlemen, this conference is being recorded today, February 19, 2008. I would now like to turn the presentation over to your host, Dave Hansen, Westlake's Senior Vice President of Administration. Sir, you may begin.

Thank you very much. Good morning, everyone. Thank you for joining us for the Westlake Chemical Corporation's fourth-quarter conference call. I am joined today by Albert Chao, our President and CEO, and Steve Bender, 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 fourth quarter; Steve 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 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 factors including the cyclical nature of the 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 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 webpage at www.Westlake.com. A replay of today's call will be available beginning one hour after completion of this call until 1 PM Eastern Time on February 26, 2008. 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 532-43054.

Please note that information reported on this call speaks only as of today, February 19, 2008, and therefore you are 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 webpage at www.Westlake.com. Now I'd like to turn the call over to Albert Chao. Albert?

Thank you, Dave. Good morning, ladies and gentlemen, and thank you for joining us. In this morning's press release we reported fourth-quarter earnings of $0.29 per diluted share which was up from the $0.22 reported in the fourth quarter of last year, but down considerably from the $0.59 we reported in the third quarter of this year.

Sales for the quarter were $851 million driven by the strength in our polyethylene business which continued through the fourth quarter. Prices for ethane and propane feedstocks rose sharply to unprecedented levels in the fourth quarter following crude oil prices which reached $100 a barrel and remained in the $90 range.

After implementing polyethylene price increases of $0.15 per pound in the first nine months of the year we were able to implement two additional price increases during the fourth quarter, a $0.04 per pound increase in October and another $0.05 per pound increase in November totaling $0.09 per pound. Despite the implementation of these increases they were insufficient to keep pace with the rapid rise in feedstock costs of ethane and propane which led to lower margins.

Additional price increases have been announced for the first quarter -- a $0.06 per pound increase previously announced for the fourth quarter is now split so that $0.03 will be implemented on February 1st with the remaining $0.03 to be implemented on March 1st. In addition, a $0.05 per pound increase has been announced for March 1st as well.

Prices in Asia increased during the fourth quarter and have continued this upward trend in 2008 due to record high NAFTA feedstock costs and strong demand. Natural gas based feedstocks still remain advantaged over oil-based feedstocks such as NAFTA as North American producers continue to export products maintaining a strong supply/demand balance.

On the PVC side both margin and volume continue to deteriorate due to the weakness in the construction market which was further compounded by normal seasonal declines. PVC resin prices moved up during the fourth quarter with a $0.02 per pound increase in October and an additional $0.04 increase in November. In spite of these price increases however the sharp escalation in raw material costs for propane and ethylene combined with lowered demand continue to cause margins in the Vinyls segment to decline in the fourth quarter.

Now I would like to turn the call over to Steve for a review of our fourth-quarter results.

Thank you, Albert, and good morning, everyone. I'm going to begin today with a brief discussion of our consolidated financial results. I will then discuss the results of our FIFO accounting and how it relates to LIFO followed by a more detailed discussion of our segment results beginning with our consolidated results.

We reported operating income of $20 million on sales of $851 million in the fourth quarter of 2007 as compared to operating income of $60 million on sales of $840 million in the third quarter. Our net income in the fourth quarter of 2007 was $19 million or $0.29 per diluted share compared to net income of $38 million or $0.59 per diluted share in the third quarter of 2007.

Operating income for the full year 2007 was $175 million on sales of $3.2 billion as compared to operating income of $313 million on sales of $2.5 billion in 2006. The increase in sales was primarily due to the Longview acquisition in November 2006.

Net income for the full year 2007 was $115 million or $1.76 per diluted share compared to $195 million or $2.98 per diluted share for 2006. SG&A cost increased by $14 million in 2007 as compared to 2006 primarily as a result of the additional costs related to the Longview asset. The 2006 results included an after-tax charge of $16 million or $0.25 per diluted share related to the debt retirement cost. Both the 2006 and 2007 results also included tax benefits that incurred in the fourth quarters.

The fourth-quarter of 2007 net income was favorably impacted by a tax benefit of $8 million or $0.12 per diluted share related to a reduction in deferred taxes due to a change in [apportionment] ratios upon the reorganization of several subsidiaries. The fourth quarter of 2006 was favorably impacted by a tax benefit of $7 million or $0.10 per diluted share related to the reversal of various tax accruals due to the resolution of certain tax matters.

Now turning to our balance sheet, I'll highlight a few key issues. Capital expenditures for the year totaled $136 million; our cash balance was $25 million at December 31, 2007; and our long-term debt was $511 million which reflects our $250 million tax-exempt bond issued in December of 2007 with an interest rate of 6.75 due November 2032.

The balance sheet also reflects restricted cash balance of $199 million representing monies in escrow for the unused portion of these bonds that are intended to be used for various capital projects in Louisiana over the next several years. These bonds provide the liquidity to fund our growth in Louisiana and increase our financial flexibility going forward at attractive interest rates.

Our net debt to total capitalization ratio still remains low as 16%. I would like to mention that we estimate our capital spending for 2008 will be the $175 million to $200 million range. Now let's talk about FIFO accounting.

The fourth-quarter results were favorably impacted by the utilization of First In, First Out or FIFO method of accounting as compared to the utilization of Last In, First Out LIFO method used by some companies in the industry. Positive impact results from the sharp increase in feedstock prices during the quarter. We estimate that the positive FIFO impact in the fourth quarter of 2007 was approximately $18 million after-tax or $0.28 per diluted share. This compares to an $8 million after-tax benefit or $0.12 per diluted share in the third quarter of 2007. Please bear in mind that the FIFO calculation is only an estimate, is not audited and is not a GAAP calculation.

Now our Olefins segment -- our Olefins segment reported operating income of $26 million on sales of $606 million during the fourth quarter as compared to operating income of $57 million on sales of $570 million reported in the third quarter of 2007. This significant reduction in operating income was directly related to sharp increases in ethane and propane feedstock costs during the fourth quarter.

Ethane prices averaged approximately $1.04 per gallon in the fourth quarter, up from $0.82 in the third quarter while propane averaged approximately $1.51 per gallon in the fourth quarter, up from $1.22 in the third quarter. The industry was able to implement price increases for polyethylene totaling $0.09 per pound in October and November.

However the effect of these increases was not enough to offset the rise in feedstock cost and resulted in reduced margins. Additional price increases totaling $0.11 per pound have been announced for the first quarter of 2008. Polyethylene sales volumes remained strong during the quarter as customers maintained their buying patterns anticipating higher prices. In addition to the lower polyethylene margins our Olefins segment recorded trading losses of $7 million in the fourth quarter as compared to a trading gain of $2 million in the third quarter.

For the full year our Olefins segment reported operating income of $153 million on sales of $2.2 billion for 2007 as compared to operating income of $161 million on sales of $1.4 billion in 2006. The increase in sales is primarily the result of the November 2006 acquisition of Eastman Chemical's polyethylene business in Longview, Texas. The decrease in operating income was primarily due to lower polyethylene prices and margins in 2007 as compared to 2006.

Sharp decreases in product prices and margins began in the fourth quarter of 2006 as feedstock costs fell and industry ethylene capacity restarted after several planned and unplanned outages, thereby placing downward pressure on ethylene and ethylene derivatives. In addition, customers' destocking inventories built in anticipation of hurricanes that never materialized added to the downward pressures.

These lower prices and margins continued into the first part of 2007. Feedstock costs reached unprecedented levels in 2007 while the industry implemented polyethylene price increases totaling $0.24 per pound during the year. In spite of these increases 2007 margins remained significantly lower than margins in 2006.

In addition to lower polyethylene margins trading activity in our Olefins segment resulted in the loss of $1 million in 2007 as compared to a gain of $19 million in 2006. These reductions were partially offset by the added income from operations contributed by the Longview facility and the net effects of the ethylene outages in both 2006 and 2007.

As previously stated, we estimate that the unabsorbed fixed cost and lost opportunities of these outages was approximately $40 million in 2006 and $20 million in 2007. Additionally, we incurred approximately $6 million in transition cost in 2007 related to the Longview acquisition.

Now let me turn to the Vinyls segment. Our Vinyls segment reported an operating loss of $4 million on sales of $245 million during the fourth quarter as compared to operating income of $5 million on sales of $270 million reported in the third quarter of 2007. This reduction in operating income was primarily related to sharp increases in propane and ethylene feedstock costs and was compounded by softer demand and lower sales volumes due to the weakness in the construction market and the normal seasonal slowdowns.

The industry was able to implement PVC resin price increases in October and November; however these increases could not keep pace with rising feedstock costs. In spite of rising PVC resin prices, PVC pipe prices did not increase during the quarter and margins remained under pressure. Caustic prices did however move up during the fourth quarter. The industry was able to implement a $30 per ton increase for caustic during the quarter and we were able to increase our sales volumes.

For the full year our Vinyls segment reported operating income of $30 million on sales of $1 billion for 2007 compared to operating income of $158 million on sales of $1.1 billion in 2006. This decrease is primarily due to lower selling prices for PVC resin and pipe and higher feedstock costs. PVC resin sales volumes increased year-on-year as we were able to increase PVC production at our Geismar, Louisiana facilities.

Selling prices and margins fell dramatically starting in the fourth quarter 2006 and margins remained under pressure throughout 2007 due to the continued weakness in the construction market. The industry was able to raise PVC resin prices with increases totaling more than $0.15 per pound during the year; however these increases could not keep pace with rising feedstock costs. We did see increases in caustic selling prices and sales volumes. Caustic demand remained strong during 2007 and we increased production at our Calvert City plant with a small debottleneck early in the year.

Now I'd like to turn the call back over to Albert. Albert?

Thanks, Steve. First, let me update you on the status of our projects and then we will discuss the outlook for the industry. As mentioned in our last call, we have begun work on several projects in our Vinyls segment which include expansions of chlor-alkali unit and PVC resin plant in Calvert City, Kentucky and (inaudible) PVC pipe facility which will be located in close proximity to our PVC resin plant in Calvert City. These projects are all underway and we'll continue to update you in the coming months. In addition to these projects we're also planning a new PVC pipe facility in the Western region of the United States in 2009.

Now I want to talk about turnarounds. A maintenance turnaround is being performed at our [starring] plant in Lake Charles beginning this month. The outage will last approximately 35 to 40 days where we'll include revamping of the [Steine] plant which will enhance its energy efficiency. In addition, we'll also perform a maintenance turnaround at one of our ethylene units in Lake Charles which is scheduled in the second half of this year. The plant will be shut down for approximately 30 days which will reduce ethylene production by approximately 100 million pounds.

Now let us discuss Trinidad. We are continuing our work with the government or the Republic of Trinidad in Tobago to complete a feasibility study for a feedstock advantaged ethylene based ethylene and polyethylene project. One of the major constraints of the project is the rising capital cost of the construction of such plants around the world. We're discussing with the Trinidad government on how to overcome that challenge and will continue to update you in coming months.

Finally, let's talk about the outlook for the industry. As I mentioned earlier, we have seen continued strength in the polyethylene market both domestically and with exports. (inaudible) crude oil prices and a weak U.S. dollar continue to give U.S.-based ethylene producers a cost advantage which allows us to export our products and maintain a strong supply/demand balance in the U.S. Feedstock costs rose sharply during the fourth quarter which reduced overall margins as the polyethylene industry implemented additional increases in the fourth quarter totaling $0.09 per pound.

In addition, the industry currently has price increase announcements totaling $0.11 per pound for the first quarter of 2008. Any price increase in the first quarter combined with recent declines in feedstock costs in January and February could lead to margin growth. The polyethylene supply/demand balance should remain strong until new Middle-East capacity comes along.

The continued weakness in the construction market has resulted in the Vinyl industry's inability to raise prices to sufficiently cover rising feedstock costs causing further margin erosion. Normal seasonal slowdowns during the fourth quarter and the unprecedented high feedstock costs have only compounded the problem. The PVC industry was able to implement a $0.02 per pound increase in October and had an additional $0.06 increase for November that was partially implemented with the remainder pushed into 2008.

In addition, the industry has announced a $0.02 per pound increase for January and $0.02 for February. We remain cautious about the outlook for the Vinyls in the coming year with a weakened demand and the capacity increased expected to come online in the first half of 2008.

Now as we look forward into 2008, should crude oil prices remain at elevated levels so will NAFTA and thus the outlook for gas-based ethylene producers looks good with strong domestic polyethylene demand and strong export opportunities. Thank you very much. Now let me turn it back over to Dave Hansen.

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 to you at the end of the call. Operator, we're now prepared to take questions.

Kevin McCarthy, Banc of America Securities.

Good morning. Albert, how would you characterize demand for PVC fabricated products and municipal or commercial construction as opposed to residential? Obviously residential has been weak for over a year now, it remains difficult, but what are you seeing in the other segments of the market as it relates to vinyls?

As you know, approximately 20% of our PVC pipe business goes into the residential sector, the remaining goes into more of the water, sewer and infrastructures road construction. And that segment is doing better than the residential side. However the cost of the total reduction in the construction market is still a very highly competitive position among all the producers of pipe in both segments.

Okay. And with regard to that competitive intensity, what is the latest that you're hearing regarding the new capacity set to come online from Shintech in Louisiana?

As we understand, the Shintech plant, the first phase will come online some time in the first half, but most likely in the second quarter of this year.

Okay. And then finally, on the subject of capital spending, did I hear you corrected that the number for '08 is $175 million to $200 million? And if that's correct maybe you could elaborate on some of the larger capital projects that are embedded in that number and also whether or not that includes any contemplated spending on Trinidad?

Yes, this number includes a carryover from 2007's project which was not completed. So I think these capital projects include a carryover plus, as we mentioned, our ongoing expansion in Calvert City which includes a debottleneck in our (inaudible) assets in Calvert City PVC resin plant as well as PVC pipe plant and ongoing maintenance -- capital spending across our businesses. There are no costs involved in any of the Trinidad activities on the capital side.

Okay, thank you very much.

Mark Connelly, Credit Suisse.

Thank you. Albert, just a couple of things. Wondering if you can tell us how this FIFO impact, which was obviously pretty big -- is that mostly in the olefins business? Do you have a split between the two? Second, you talked about the export market a bit. I wondered as I was listening which one are you actually more optimistic about -- the PVC export opportunities or polyethylene and do you see one of those markets rolling over before the other?

We don't split the FIFO impact between olefins and vinyl, but I would think it would be both because both use a fair amount of ethylene which is the main feedstock for both products. What's your second question, please?

About the export markets for PVC versus polyethylene. I couldn't tell from your comments which one you were more optimistic about?

I think definitely the polyethylene, since polyethylene is composed of 100% ethylene and the U.S. gas-based ethylene producers have a cost advantage over most of the international NAFTA-based ethylene producers with high oil prices, thus we believe the polyethylene sector would have favorable competition in the international export market. On the PVC side, about 50% of that is ethylene, the other side is chlorine and caustic and chlorine prices in the U.S. is still pretty high. They do have some competitive advantage but it's not as much as polyethylene.

Okay. Just one last question. It looks like the run-up in propane was a big part of your issues. Is there any way you can mitigate that? And related to that, will Calvert City include feedstock flexibility in its ethylene?

Yes, both propane and ethylene prices have dropped in February. And January and February I think reached a high of $1.15 per gallon for propane and ethylene was -- sorry, it was $1.15 for ethylene and $1.60-something a gallon for propane and today, recently ethane is the 90s and propane is $1.30-something, so it has helped coming down. Calvert City is served by pipeline, so it's limited as to what feedstock [flexibility] it can have.

Okay, that's helpful. Thank you.

Edlian Rodriguez, Goldman Sachs.

Good morning. A question for you, Albert, and this is -- we got ethylene/polyethylene price increases. You've mentioned that strength in the domestic and the export market now is fairly strong, but given that costs have been going up significantly why do you think the industry is having so much trouble in holding into prices like they have to split prices or delay implementation of prices? Why do you think this is going on?

I think that definitely the cost push in our industry has made the price increases possible and the same time mentioned about supply/demand balance in the U.S. and worldwide where the exports are going overseas makes the balance pretty strong. I think we have close to unprecedented record high prices for polyethylene and the consumers of polyethylene are resisting price increases. That's why you have the back and forth of delays.

And with recent reductions in feedstock costs, again, as we speak, oil prices for March are coming back to $98 per barrel now. So we don't know if it's energy prices and feedstock prices are so volatile, it's difficult to forecast what the price will be. By the recent decline in feedstock costs on the gas side has many consumers taking a look again as to where the direction could go.

So if costs do come down do you expect the industry to give up some of the price again so that they have in place right now some of the price increases implementation?

I think depending on supply/demand, if the U.S. economy is good demand is reasonable and export demand is very high, then certainly the supply/demand balance which would support further price increases. And not knowing what the energy price will be because for us to implement price increase it takes quite a while where feedstock costs can change in one day.

One last question on the trading gains and losses. Where are they coming from and what should we be looking at going forward in the next quarter or so, so we could forecast things properly?

The trading gains and losses come mainly from a feedstock and sometimes gas purchases. So we don't expect to be large swings, but we have had good gains in the past year and in 2007 we had a net loss of $1 million.

Thank you. Steve, congratulations on your promotion.

Thank you very much.

David Silver, JPMorgan.

Morning. I had a question I guess about -- for Steve. I just wanted to ask a question about the capital spending and the restricted cash. So Steve, you mentioned a CapEx budget for 2008 of $175 million to $200 million and then you talked a little bit about the restricted cash portion of your financing or your balance sheet. Can you give us an estimate of how much of the 2008 capital spending is going to be from that restricted cash balance versus the unrestricted? Just a rough balance?

When you look at our capital spending, as Albert commented, the major projects in that program are those related to operations largely in Kentucky. But having said that, we have a continuing spend in maintenance capital which these [Gozon] bonds and the escrow balance could be used for, that maintenance capital is $60 million and that's across the entire organization. But some meaningful portion of that is in Louisiana both in Lake Charles and in Geismar. I can't give you a specific number, but I can certainly say that a reasonable number of that maintenance capital would be spent out of the escrow balance.

Okay. Feedstock costs have come up several times in your discussion of the last quarter and the upcoming quarters. Ethane in particular, in the Gulf the pricing has become disconnected or decoupled from the underlying natural gas values that it used to hew pretty closely to for many years. As you guys look at the feedstock situation in the Gulf there for ethane, is it your belief that the linkage will -- will we recouple or will we remain decoupled and maybe if you had any thoughts about what the key drivers there are? Thank you.

If you can study various industry analyst comments, we believe there will be more feedstock coming to the market this year and next year and going forward. And so we believe that the ethane pricing will get closer to natural gas prices rather than following closer to the crude oil price.

Okay, that's helpful. And then last question about -- I guess I was hoping Albert could comment a little bit on the China outlook. Currently I guess with the Chinese new year this is considered -- or we consider it a slower demand period. But markets are quite volatile; we know there are some weather events in China.

I was wondering if, Albert, you could just give us your sense of what's going on there in terms of their ability to run the processing facilities and whether you think that export demand for PVC or polyethylene is going to be negatively impacted by the weather and other issues there or should we see markets kind of just reacting more maybe to the pricings from the crude market and there might be an increase in interest? Thank you.

Yes. Suddenly, we all hear about the bad weather China had during the Chinese New Year. We believe that is over and if I can speak for the Asia market, as we understand the polyethylene prices has hit record highs in Asia; not just in China, in Asia as a whole. And this is mainly due to demand and high cost of NAFTA, and also PVC prices have not hit record high or close to record high. So we believe demand in Asia is quite strong, and as you know this year is Olympics year, so economy in China should be pretty robust.

Thank you very much.

(OPERATOR INSTRUCTIONS). David Begleiter, Deutsche Bank.

Hi, it's [Jason Winters] sitting in for David this morning. Just a quick question on caustic. With caustic looking pretty good, could you share with us your outlook for caustic for 2008?

Yes, I think there have been price announcements made in the first quarter for caustic, and I think the [ECO] value also probably close to record high as well in the U.S. And demand is strong with a slowdown in the vinyls business, certainly chlorine demand has come down a bit -- that cost certainly -- strengthening caustic pricing. Shintech chlor-alkali plants will be coming on-stream sometime this year. That will add more supply into the market.

Okay, that's helpful. Thank you.

Mike Judd, Greenwich Consultants.

Good morning. A question about logistics for export sales -- your company and others are also looking to increase exports, not only into Asia, but also into Latin America and even potentially into Europe. I'm just wondering given the availability of ships and tankers and this, that and the other, are there any other logistical issues that we should be aware of or be thinking about?

Well, certainly with the increasing exports that puts more pressure on the whole system of logistics. But I think the system will work itself out because the U.S. certainly is still a large net importer of products from all over the world. So the logistics just takes time to work out. We believe that should not be a big problem going forward.

So basically if you look in the current quarter and maybe next quarter, if there are logistical issues is it warehouse space on the Gulf Coast, is it the availability of ships? What types of things are you working on? Do you have everything that you need to export as much as you want or what do we need to be thinking about?

I think that there were problems with the warehousing and bagging places. I think that has worked itself out. It won't take a lot of time to add capacity in those areas. I think that container shipping, rail and those systems will take time to adjust, but once people realize this is not a short phenomenon supplies will be made available we believe.

Okay. And then just lastly in terms of industry inventories, I'm not talking producer inventories, but what is your sense in terms of where inventory levels are at the converter level for both polyethylene and PVC?

We believe converters levels of inventory in polyethylene is pretty much balanced. We believe that the inventory on the vinyl side could be a little bit on the higher side because, as you know, it's seasonal. This is the time when people have more PVC pipe (inaudible) made for the springtime coupled with the price increases people had in October and November. Whereas in polyethylene you don't have that much seasonality.

Okay, and then just finally, one of the strengths of your company is that on the PVC side you do have a pretty good balance in regards to the commercial side of the business. But I guess I've been noticing recently in the financial press that there have been discussions about while it's not nearly the magnitude of problems with the residential mortgages, but there evidently have been some issues on the commercial side and are you seeing any impacts or is that something -- in other words, that impact, you wouldn't necessarily have seen it yet, it might be down the road?

I think generally speaking with the current conditions I think there's impact on both residential and some construction side. Along also with seasonality, as you know, much of the installations of pipe are done in the spring, summer and fall, not wintertime. So we expect it to have this slowdown wintertime. But we believe the construction side and commercial side will fare much better than the residential side.

Thanks for the help.

[Roger Spitz].

Can you tell us what your current operating rates are at your PVC resin plants in Q4 '07 average and currently?

We don't report plant-by-plant, but we are operating at or above industry average for our PVC plant.

Okay. And were you able to raise prices in your window, patio and fence components businesses in Q4 '07?

We have increased prices in our window side with an increase in resin. I don't know exactly in Q4 because the window and fence prices are not done on a monthly basis, they're more done on a -- all times during the year. So I can't say exactly what's done in the fourth quarter, but we had increased prices during the year last year.

You're saying the pricing is set more contractually at specific times during the year?

That's right.

(multiple speakers) changeovers? Okay. And lastly, you mentioned ECU prices being very high. I understand caustic pricing, but in your view why is chlorine pricing staying relatively high given all that's going on?

I think that chlorine is -- well, PVC is being exported and there's demand for chlorine in the TDI, MDI and other segment of the industry. So there are certain benchmark prices for chlorine and then people negotiate from that benchmark price.

Right, but presumably Chlorine demand itself you might characterize as relatively weak because of the PVC side?

For the vinyls business, but it may not be so for the other side of the -- other industries for chlorine consumption.

Okay. And do you have any sense -- I know it's not quite your business -- but where chlorine prices might be going over the next -- over this year, 2008?

As a buyer of chlorine I wish it was coming down more.

Thank you very much.

James Potesky, Credit Suisse.

I have two questions. One, just on your debt balance, I think it rose significantly $170 million, $180 million from the end of September. I was wondering if you could give us a little more insight into that. And the other question is on your outlook for 2009. A lot of new capacity coming on-stream from the Middle-East and globally and what impact you think that will have on your business?

Sure, let me first talk about the increase in debt. There was an increase in debt in the fourth quarter if that's what you're comparing and that was through the issuance of these Gulf opportunity or Gozon bonds. We issued $250 million of those bonds and, as you can see, we escrowed the proceeds and they're shown as restricted cash. Now we obviously therefore carry at the end of the year $199 million of the unused portion of those. So when we talk about net debt we're obviously looking at the debt less the cash balances carried. That's the net change, if you will, from period to period.

Thank you. I had overlooked that.

Let me answer on the outlook for '09. Suddenly if you read all the analyst reports that building capacity will start to -- the new capacity will start to come online in '09 and onwards? At Westlake our polyethylene business is highly concentrated in the LDPE or low-density polyethylene side which has the least capacity increase from the Middle East. And so we will expect to fare better than the industry average in the polyethylene side.

Secondly, much of the capacity for the Middle East is aimed for the Asian and European market because net backs selling to those markets are better than coming to the states.

Okay.

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

Thank you very much for joining us in today's call. We hope you will join us again for our next conference call to discuss our first quarter of 2008 results. Thank you very much and have a wonderful day.

Thank you for your participation in today's Westlake Chemical Corporation fourth-quarter earnings call. As a reminder, this call will be available for replay beginning an hour after the call has ended and may be accessed until 1 PM Eastern Time on Tuesday, February 26th. The replay can 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 at both numbers is 532-43054.