Westlake Corp (WLK) 2011 Q2 法說會逐字稿

Good morning, ladies and gentleman, and thank you for standing by. Welcome to the Westlake Chemical Corporation second quarter 2011 earnings conference call.

During the presentation, all participants will be in 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, August 2nd, 2011.

I would now like to turn the call over to today's host, Dave Hansen, Westlake's Senior Vice President of Administration. Sir, you may begin.

Thank you very much. Good morning, everyone, and thank you for joining us for the Westlake Chemical Corporation's second quarter conference call. I am joined today by Albert Chao, our President and CEO, 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 second 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'll open up the call 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, energy, and utilities, governmental regulatory actions and political unrest, global economic conditions, industry operating rates, the supply/demand balance for Westlake's products, competitive products and pricing pressures, access to capital markets, technological developments, and other risk factors.

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 westlake.com.

A replay of today's call will be available beginning two hours after completion of this call until one p.m. Eastern time on August 9th, 2011. 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 26862797.

Please note that information reported on this call speaks only as of today, August 2nd, 2011, 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 web page at westlake.com.

Now I'd like to turn the call over to Albert, 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 net income for the second quarter of $81 million, or $1.21 per diluted share, up considerably from $0.86 per share in the second quarter of 2010. Westlake's operating income of $138 million was substantially higher than the $100 million recorded in the second quarter of 2010.

We had a very strong second quarter, although operating income was impacted by three events - a weather-related power disruption at Lake Charles, Louisiana that caused an outage of one of our ethylene units, the unscheduled turn -- scheduled turnaround at our Calvert City, Kentucky facility, and a closure of our Springfield, Kentucky pipe manufacturing plant.

Despite impact on earnings of these three events, our operating margin in the second quarter 2011 was 15%, up from 12% in the second quarter of 2010. The second quarter benefited from higher sales prices for polyethylene, caustics, and PVC resin. We also saw increased margins on our value-added polyethylene product mix, and higher export volume for PVC resin, compared to the second quarter of 2010.

While we were presented with several challenges in the second quarter, I'm pleased with the continued strong performance of our Olefins segment, and a return to profitability of our vinyl segment.

Now I would like to turn the call over to Steve for review of the second quarter results, and I'll make a few closing comments before we take questions.

Thank you, Albert, and good morning, everyone. I'll begin today with a brief discussion of our consolidated financial results followed by a more detailed discussion of our Olefins and vinyl segment results.

Let me begin with our consolidated results. Westlake reported second quarter net income of $81 million, or $1.21 per share, compared to a net income of $56.9 million, or $0.86 per share in the second quarter of 2010. Our second quarter results include the negative impact on earnings of the three events that Albert noted. The combined impact of these events lowered our reported results by approximately $0.29 per share.

Sales for the second quarter of 2011, of $925 million were $107 million higher than sales of $818 million reported in the second quarter 2010, driven by higher sales prices, improved PVC sales volumes. Our operating income for the second quarter of 2011, was $138 million, as compared to an operating income of $100 million in the second quarter of 2010, as a result of higher integrated Olefins margins, higher caustic and PVC resin margins, and increase in PVC volumes aided by an increase in PVC exports.

Export sales volumes of PVC resin in the second quarter of 2011, were significantly higher compared to the same period in 2010, due to lower cost US-produced ethylene, providing a boost to vinyl segment operating income.

Westlake's second quarter 2011 net income of $81 million, was slightly lower than the first quarter net income of $83.5 million. Sales in the second quarter of 2011, of $925 million exceeded first quarter sales of $867 million by $58 million, largely the result of higher average selling prices, partially offset by a decrease in PVC and caustic sales volumes resulting from the Calvert City turnaround.

Operating income of $138 million in the second quarter was slightly lower than the operating income of $141 million in the first quarter of 2011, as a result of the three events previously mentioned, which impacted operating income by $30 million.

Looking at the year-to-date comparison, sales were higher in the first six months of 2011, as compared to the first six months of 2010, due to higher prices for all of our products. While polyethylene sales volumes were essentially the same for both periods, export sales volumes for PVC resin were significantly higher in the first six months of 2011.

Operating income in the first six months of 2011, more than doubled when compared to the operating income for the same period in 2010, to higher integrated Olefins margins and higher margins on caustic and PVC resin.

Now turning to our segment analysis. Let me start with the Olefins segment. The Olefins segment reported operating income of $133 million on sales of $645 million during the second quarter of 2011, compared to an operating income of $111 million on sales [of] $577 million in the second quarter of 2010. The increase in operating income was due to higher prices for Olefin products, partially offset by higher feedstock cost. The second quarter of 2011 saw substantially higher feedstock prices than we experienced in the second quarter of 2010.

Operating income in the second quarter of 2011, was $133 million -- of $133 million was $12 million less than the $145 million in operating income in the first quarter of 2011. Integrated Olefins margins were similar in the second quarter compared to the first quarter. However, the difference in operating income was the result of the ethylene unit outage at our Lake Charles facility which negatively impacted second quarter Olefins operating income by approximately $12 million.

Polyethylene demand remained strong in the second quarter. However, we experienced slower polyethylene sales in June as a result of some inventory adjustments in the market. While the polyethylene industry was able to implement price increase of $0.06 a pound early in the quarter due to rising feedstock cost and rising demand, inventory stock adjustments and lower industry exports led to a price decline of $0.04 a pound in June.

During the quarter ethane feedstock cost rose and ethylene prices also remained elevated as the industry experienced a number of planned and unplanned outages of ethylene units on the Gulf Coast. Despite the elevated feedstock cost, ethane-based ethylene remained more competitive than naphtha-based ethylene throughout the quarter.

As to current market conditions, we expect a further decline of polyethylene prices in July. However, the inventory adjustments and the other factors that led to the decline in prices have now run their course and the industry has announced price increases for August and September due to stronger domestic and global demand and higher domestic ethylene prices.

For the first six months of 2011, operating earnings for the Olefins segment increased 64%, from the $169 million in the first half of 2010, to $278 million in the first half 2011. The increase in earnings was the result of higher integrated Olefin margins and higher sales volumes.

Now turning to the vinyl segment. The vinyl segment reported operating income of $10 million in the second quarter, an increase of $21 million over the loss of $11 million reported in the second quarter of 2010. The increase in income was largely due to an increase in caustic prices and increase in export PVC volume and higher margins.

Sales for the vinyl segment increased $39 million in the second quarter of 2011, compared to the same period in 2010, driven by higher prices for all of our vinyls products. For the first six months of 2011, the vinyl segment has achieved an operating income of $7 million, compared to a loss of $26 million for the six months of 2010. This significant improvement is the result of an increase in caustic prices and the ability to implement price increases for PVC resin of $0.11 per pound to offset the increased cost of feedstock.

During this period, the vinyl segment experienced strong export sales of PVC, and average prices for PVC exports were above average domestic prices. Vinyl segment sales for the first six months of 2011, were $542 million, compared to $454 million in the first half of 2010.

The vinyl segment operating income improved by $3 million -- by $13 million in the second quarter of 2011, compared to the operating loss of $3 million in the first quarter of 2011. The improvement in operating income was the result of higher caustic prices and higher PVC resin export margins. We achieved these higher operating earnings in spite of the $15 million in maintenance cost and the loss of production related to the Calvert City turnaround, and the $3 million in impairment and other costs related to the closure of a pipe manufacturing facility at Springfield, Kentucky.

Our building products margin increased significantly in the second quarter, partially offset by lower sales volumes. Sales for the vinyl segment of $280 million in the second quarter of 2011, increased $18 million compared to the first quarter as a result of higher prices for PVC resin, building products, and caustic.

Toward the end of the second quarter, PVC resin export softened as a result of overseas inventory adjustments, and this trend has continued into the third quarter, hampered by high prices for US-purchased ethylene and chlorine as feedstock for our PVC exports.

Caustic demand in the second quarter remains strong, supporting industry price increases. Though the company's caustic sales were lower in the second quarter, reflecting the impact of our -- of the turnaround at our Calvert City facility, industry caustic prices increased $90 a ton in the second quarter due to tight supply in the US market and supply disruptions due to flooding of the Mississippi River.

Now turning to the balance sheet. To summarize statement of cash flows, we generated $125 million in cash from operating activities during the first half of 2011, and spent [$69] million in capital expenditures. Our estimate for full year 2011 capital expenditures is between $190 and $215 million. Our cash balance, including restricted cash, was $837 million, and our total debt was $765 million at the end of the quarter.

The continued strong operating performance matched by Westlake's financial strength were the impetus behind Fitch Ratings' recent action to rate our long-term debt investment [grade]. We continue to focus on projects and business opportunities that will bring greater value to our shareholders, while at the same time continuing our commitment of maintaining our financial strength and flexibility for the future.

Now I'd like to turn the call back over to Albert for some closing comments. Albert.

Thanks, Steve. Our outlook remains positive as we continue to see good demand for polyethylene, benefiting from our advantaged position as a natural gas-based producer of ethylene and a manufacturer of a value-added polyethylene product mix. Our vinyls business also benefits on [access] to low-cost gas-based ethylene, continued PVC export opportunities, and a healthy chlor alkali market.

In the near term we'll see higher prices for our feedstocks as a result of strong demand for ethane and ethylene in the US. We expect ethane prices to trim down due to several planned ethylene industry maintenance outages later in the second half of the year, which will reduce the demand for ethane, while additional ethane fractionation facilities will be brought online in the fourth quarter, increasing the supply of ethane.

Polyethylene prices trended down in June and July due to customer inventory adjustments and reduced exports. But industry has announced price increases for August and September, reflecting stronger domestic and global demand and the tightening of the supply of ethylene as a result of the planned industry maintenance outages.

While we have seen exports for PVC increase in July, the higher cost ethylene we saw in the second quarter will continue to impact the volume of export of PVC resin and polyethylene in the coming months.

Now let me highlight for you some of the catalysts that we believe will provide a good structural basis for our future earnings. First, we see a growing and available abundant supply of natural gas and natural gas liquids from shale gas production for many years, making US ethylene derivatives globally competitive, especially versus Asian and European naphtha-based ethylene producers. We see this natural gas liquid supply bringing a growing supply of ethane starting later this year. Industry sources estimate 120,000 barrels of additional ethane per day will be brought online late in 2011.

Second, we have a value-added polyethylene product mix that is fully integrated into ethylene, which gives us cost competitiveness and a [customer orientation] deliver on the value of the specialty polyethylene. Our polyethylene sales mix is heavily weighted towards the higher margin, low-density polyethylene and specialty grades such as vinyl acetate and acrylate copolymers, waxes, and (inaudible) resins.

Third, we are actively working toward our commitment to expand amount of integration of our businesses. We announced plans to expand our ethylene capacity in 2012, and 2014, which will result in the company being fully integrated in our ethylene requirements. We have also begun the construction of our chlor alkali facility to meet our chlorine requirements and we are [studying] the potential conversion of our propane ethylene cracker to ethane at Calvert City, Kentucky, further reducing our ethylene cost.

The fourth catalyst is our focus on financial strength and flexibility. We have the financial strength to fund these growth opportunities and a commitment to maintain the financial flexibility in the future.

We are pleased with the company's performance this quarter, and we are confident these catalysts for growth will prepare the company well for the future.

Thank you very much. Now let me turn the call 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 two hours after we conclude the call. We will provide that number again at the end of the call.

Operator, we will now take questions.

(Operator Instructions) And our first question comes from the line of James Sheehan with Deutsche Bank. Please proceed.

Hi. Good morning.

Good morning.

Good morning.

So just wondering if you could comment on the PVC resin situation during the quarter. Were you able to take advantage of competitor outages during the quarter to boost your own volume?

Yes, we sell -- we sold our production. As we said, we had a planned turnaround during the second quarter. So our volume of PVC for sale was limited.

Okay. And just on your outlook for ethane prices, I know you expect prices to come down a little bit in the fourth quarter because of the increased fractionation capacity. But in the interim, do you see supply and demand for ethane remaining pretty tight and for prices to be a little bit elevated?

Yes. We mentioned that there are some planned turnarounds in second half of this year. So that will reduce the demand for ethane somewhat. And, as I said earlier, there is a -- there are new fractionation capacity coming online. So that should also improve the pressure of pricing for ethane.

Okay. And, Steve, what should we expect for interest expense in Q3 and Q4?

There's no change in the debt outstanding. And so the run rate that we have in the second quarter ought to be the same run rate for the next two quarters.

Okay. Thank you very much.

You're welcome.

And our next question comes from the line of Brian Maguire with Goldman Sachs. Please proceed.

Hey. Good morning, guys.

Good morning.

Morning, Brian.

I was hoping you could expand a little bit on your comment on [kind of the inner] quarter trends in PVC resin for export. And we've kind of heard similar comments from other companies about some decline in demand. And trying to figure out how much of it is actually just the cost competitiveness of US PVC waning versus just inventory restocking or just lower baseline demand in a lot of export regions. You guys have a sense for that? And then kind of related to that, what's your outlook for PVC pricing? It's held in there pretty good despite the lower volumes. But at some point I think there's an expectation that that'll have to give a little bit as well.

Yes. I think there was some PVC inventory adjustments in the second quarter. And so you saw prices came down in Asia and demand also softened with the inventory adjustment. We believe that adjustment is over and demand has come back. Even though prices is lower than before the adjustments, I think demand is healthy.

As far as the US PVC is concerned, the -- some of industry have announced price increases for August of $0.02, effective August 1st, $0.02 a pound, and for September 1st, $0.03 a pound. This is partly due to the increase in feedstock cost, namely ethylene, and chlorine as well. So we believe that the US demand for PVC is stable, and the prices should move up.

Got it. I'm sorry, did -- I didn't mean to interrupt. Was there more?

No.

Okay. Thanks. So just following up on the vinyl segment, the profitability there. I guess if you backed out the -- about $15 million of lost EBIT opportunity from the turnarounds and then a little bit more for the cost to close the PVC facility, you know, it was one of the best quarters in years. You probably have to go back to 2006, or 2008. And I'm just trying to get a sense from you guys what your expectation is there going forward. Is this is a level that you can -- you think you can build on sequentially from here? Or, with caustic prices having gone so far so fast, is it kind of a level that you think may be plateauing for the division for a little while?

As far as caustic price is concerned, I don't believe there are other announced industry price increases out. There has been $50 or $60, but previous price announcement, which has yet to be implemented.

From the export PVC pricing situation as mentioned earlier, second quarter we saw PVC prices, especially in export market, as adjusted downwards. And now we see higher ethylene price. It'll have an impact on the volume of PVC exports from the US.

I got it. And then just one last one, if I might. Steve, could you tell us what the FIFO benefit for the quarter was?

Yes. For the quarter there was a $0.15 benefit this quarter.

Got it. Okay. Thanks a lot, guys.

No problem.

And our next question comes from the line of Kevin McCarthy with Bank of America/Merrill Lynch. Please proceed.

Good morning. This is [Alex Yefremov] for Kevin. Albert, do you see an improvement in export demand for USP polyethylene resin so far in the third quarter?

I think the demand for polyethylene overseas is similar to what I said earlier about PVC. There were some inventory adjustments early on this year, especially in Chinese-Asia market. And that has pretty much run its course. Now the demand's stable. The question is with high US ethylene prices, whether certain grades US polyethylene can become competitive overseas market.

Are they competitive at current prices, or US prices will -- may need to come down for --

Depending on the grades, if you use the market price ethylene, then some of the grades will not be competitive.

Okay. Thank you. Just going back to PVC, [on balance], do you expect your vinyl segment volumes to be up or flat or down sequentially in the third quarter?

Well, generally speaking, the second and third quarter are seasonally strong months and since we do not have turnaround, we'll expect volumes to be better than second quarter.

Okay. Great. Thank you. And finally, if I may, there is some concern that the price premium for [LDPE] resin versus other grades may decline. What is your outlook for that? Do you think you can sustain the current premium over the next couple of quarters?

Yes, we believe the premiums of LD over, say linear low, it moves up and down a bit. But definitely LDPE has a -- has physical properties that's different from linear low, it's preferred. So LDPE sells at a premium. As to [once a month] the premium may go up and down, but linear low, but it definitely, premium will be there.

Okay. Great. Thanks a lot.

You're welcome.

And our next question comes from the line of Andy Cash with UBS. Please proceed.

Yes. Albert, just a couple things. One, you said, I think did you say June PVC exports had increased? And if you did, was that year-over-year or was that from earlier?

I think we're comparing June or July versus the previous months.

Okay. So sequentially you saw an improvement. Now, when I look at US GDP ISM numbers, they're looking weak here. I'm assuming that you're basing your positive comments on continued strength outside the United States, particularly the Far East. And if you are, what is it that you're seeing that give you optimism, assuming that this is just an inventory correction and not some slowdown [in end]-use demand, especially in Asia?

Yes. We believe our global demand is still reasonably strong. And if US has competitive feedstocks, it'll be quite competitive on a global basis going forward.

What is it with the inventory correction you think it was just inventory correction and not something that's more related to demand? Because the export numbers were higher in the first quarter, and I thought that given seasonal demand that if anything you'd see export actually pick up a bit later in the year, but they've actually gone the other way.

Yes. I think early on [in] second quarter with the sharp drop in oil prices which led to people [de]-stocking inventory more so in Asia than say the US. And we believe those sentiments has finished and the Chinese government credit tightening has run its course. So there's now a more steady level of demand. But you don't have the rush to buy [speculative] products. We don't have those rush, but it's more the steady demand for its needs.

And you're seeing that in your fabrication business in China?

Yes.

So you -- the way you're seeing -- the way you see it from your interest in China, you're seeing increase in year-over-year demand now even after the tightening is over with?

Yes, we believe the demand is still there, not as high as before, the demand is still there.

Demand is still there, but it's a little bit less than it used to be as far as on a year-over-year basis?

In China?

Yes.

I think there's still growth in China, just albeit at a slower rate than the past.

Okay. Got it. All right. Thanks.

You're welcome.

And our next question comes from the line of Jeff Zekauskas with JP Morgan. Please proceed.

Hi. Good morning.

Morning, Jeff.

Morning, Jeff.

One of the themes of your conference call has been your expectations that there would be enhanced ethane supply. And through the first five months of the year, you know, in rough terms, ethane supply in the United States is only up about 6.5%. Are you surprised by that rate of growth? Would you have expected it to be larger or was that inline with your forecasts?

No, we were not surprised. I think the growth in ethane was impacted by the fractionation capacity as well as offering rates of existing fractionation plants. There were some unplanned outages in some existing fractionation plants on the Gulf Coast. And as we said earlier, there are more 120,000 barrels a day of additional ethane fractionated capacity coming online later this year. And for the next 24 months, there are approximately 900,000 barrels of fractionation capacity coming online both -- primarily in the Gulf Coast, some in the Marcellus area. And that will mean upwards of 360,000 barrels a day of additional ethane available.

So we believe that over the next two years there'll be a lot more ethane coming onto the market, and the increased demand for ethane we believe will be not as much as that.

I understand your point. The -- in December I think we were at gas plant production of around 880,000 barrels. And right now, in May, we were at 930. So the -- even if you factor out some of the outages earlier in the year, it's still only about 5% or 6% increase. I guess I'm surprised. But we'll see what happens later in the year.

Can you talk about pricing for PVC in the offshore markets and how that's changed over the past month? Have the shifts been small or large? Or how would you frame that for price, price of PVC in the various offshore markets?

Well, for -- let's look at Asia. I think the PVC price probably hit a high in May and dropped since May. And we believe that it's [flattened] out in June or July and [picking] up.

Do you think it's dropped $100 a ton or $200 or $300, or is it too hard to quantify?

It's about $100 a ton, yes.

Okay. Thank you very much.

You're welcome.

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

Good morning, Albert.

Hello.

Question. Just [wanted to] -- this year was a bit of a funny quarter in terms of, you know, we obviously started very strong and then there was all this chatter about an inventory correction and the like. And here we are today with Asian spot pricing sort of over the last couple of weeks going up again. And yourselves, you pointed to obviously the inventory correction kind of thing behind us now and a couple of other companies said similar things as well.

I just wanted sort of your view about what gives you that sort of heightened confidence about that correction kind of being behind us. I mean, are inventory levels literally at bare bone minimum levels now? Or said differently, let's say if naphtha prices fell a bit more and oil came down, could there be further de-stocking?

Yes, we believe that the global demand for petrochemical commodity plastics are quite reasonably strong inline with the global economic growth. When oil prices start to come down, traders and speculators start to buy less or start to selling their stock, which cause the inventory adjustment corrections. But the traders have speculated they do not have a lot of inventory [on their hand].

So over the course of several months, we believe that though de-stocking is over, especially when oil price and Brent has gone back to $118. So the de-stocking's over, people needs to purchase, meet its normal demand, and prices gradually move back to a more reasonable level, especially when the rest of the world are using oil derived naphtha to produce ethylene. So their cash cost is much higher to support a higher price of petrochemical products on a global basis.

Fair enough. Now, a sort of medium to longer term question. Obviously the Chinese sort of five-year plan was recently put in place, the new one. And there was a lot of chatter around a push towards coal (inaudible - highly accented language) and methanol (inaudible) sort of facilities, which obviously will translate, you know, if all these facilities do happen, that obviously would substantially raise coal demand. And I would imagine that coal prices have rallied a fair bit in China already. I'd like to think that they go up a bit more.

So how should we be thinking about, on the vinyl side of things your sort of medium to longer term export opportunity with sort of [shale, obviously, economic sticking] in as it sort of relates to the Chinese market in particular?

That's a very good question. I think China is a major importer of coal in the world, and import coal is quite expensive. The coal to methanol or Olefins or PVC, the process, especially coal to methanol, it's a new process, it's very capital intensive, requires a lot of water, which China, certain areas of China are very short of. So we don't believe it will have a major impact on the vinyl business.

The coal to vinyl through acetylene, it is a high-energy intensive, high polluting (inaudible) catalyst (inaudible). So especially those coastal PVC plants, which require purchases of carbide, those plants today are non-competitive. The only competitive plants [are the] integrated coal to vinyl [fitness], which are mostly in the [inter lands] of China where there's Mongolia (inaudible), and they have a high cost to bring the products to the coastline. So we don't believe that China will be a major exporter of vinyls in the future.

Very good. Thanks so much, Albert.

You're welcome.

(Operator Instructions) And our next question comes from the line of Charles Neivert with Dahlman Rose. Please proceed.

Morning, guys.

Morning.

Just a couple of real quick questions. In terms of the low density linear low price differential, did we see a little bit of compression during the course of the second quarter? And if we did, is it starting to re-expand again yet as we've seen a little bit of a pickup? Or is it still where it was? I know we talked recently that it had gotten pretty extended. But my understanding was some people had begun to switch away where they could because that price differential got so great.

As I said earlier, the premium difference between LDPE and linear low, they do fluctuate. And the report said, whether it's the June or July months, there's probably $0.02 a pound narrowing of that gap. It could happen and it could expand back again. I think really it's peoples', customers' view of the physical property differences between LDPE and linear low and the supply-demand of each of those products determining the price premium.

Right.

As you know, there are no new autoclave LDPE plant being built around the world for many years now. So autoclave LDPE, which is 80% of Westlake's LDPE capacity, it's a specialty polyethylene.

Right. Okay. And can you go over the capacity expansions you've talked about on your ethylene side? I mean, [as a] company, you've talked about by '14 you're going to be basically ethylene balanced. And based on some of the numbers I've got, it looks like you would need round numbers in the 900 to billion pound range in total. Is that the right number? And is that what we should be expecting in total by the end of '14, from the crackers you have? I mean, and I guess that would come across all three of them, right? The -- is the expectation that the Calvert City cracker will get bigger as you make the switch to ethane? Will there be some capacity added there as well?

Yes. Actually, if you look at capacity of our ethylene and downstream derivative plants, we are short about 500 million pounds of ethylene. And the first turnaround we have, which is second half of next year, 2012, we plan to expand one of our ethylene plant in Lake Charles about by 230, 240 million pounds. And we plan to expand the second ethylene plant in Lake Charles in the second half of 2014, which we hope to be completely integrated and to get another 250 million pounds or so of ethylene from that expansion. So by the end of 2014, we should be fully integrated with all our ethylene needs.

As far as Calvert City concerned, currently it use propane to produce ethylene. And we're waiting for Marcellus ethylene pipeline to bring ethane -- sorry -- Marcellus ethane pipeline to bring ethane from Marcellus down to the Gulf Coast, and we hope [it will] tap into those pipelines to bring ethane to Calvert City. And once we convert from propane to ethane, the potential for incremental de-bottleneck some capacity at Calvert City.

Okay. That's helpful. Thanks very much.

You're welcome.

And our next question comes from the line of Don Carson with Susquehanna. Please proceed.

Hi. This is Bobby Yarnas for Don Carson. Do you know with regard to the caustic soda price increases that you saw during the quarter, I guess it was a total of about $100 per short ton that went through, at least it should have, in the benchmark pricing, about how much of that would you say you got in the second quarter? And do you think that it will be, I guess somewhat of a tailwind in the third quarter, assuming that none of the, I guess additional price increases go through?

Yes. We believe we got most of the price increases in the second quarter, maybe just a little bit up in the third quarter, [that I] think most of it has gone into -- by the end of second quarter.

Right. And what's your take on the, I guess the proposed $50 and $25 per short ton caustic increases that are on the table? Any insight into how those negotiations are going?

Yes. There were some -- there was announcement made for about $60 a ton caustic price increase, and those are not being implemented yet. They're still on the table.

Okay. All right. Thank you.

You're welcome.

And we have a follow-up question from the line of James Sheehan with Deutsche Bank. Please proceed.

Hi, Steve. I was just wondering if you could give us a little color on the FIFO impact for the quarter. Was that all in Olefins? Or maybe you could explain how that breaks down a little bit.

We don't break down the benefit. But the $0.15 that you saw in the quarter, benefit is there, but we don't typically break that down by segment.

And it just relates to the movement in ethane prices? Is that the main driver for it? How did it work out this quarter?

Yes. The main drivers, of course, are feedstock. So you're going to see a driver based on feedstocks, but also on finished products. Our -- the driver here is, for FIFO, is our finished products and not really the feedstock. So when you think about the drivers behind that, you're going to see ethane and propane drive up the finished goods, and the finished goods, of course, be resin, both PVC resin and PE resin.

So again, that's going to be spread over both segments, but we don't break it out. But obviously, in an upward move. And if you use ethane as an indicator of that upward move in feedstocks or ethylene, since we're a buyer of ethylene, you're going to get a benefit quarter-to-quarter, and we did this quarter.

Okay. Thanks a lot.

Ladies and gentlemen, with no further questions in the queue, this concludes today's question-and-answer session. I would now like to turn the call over to Mr. Dave Hansen for closing remarks.

We'd like to thank you very much for participating in today's call. We hope you will be able to join us for our next conference call to discuss our third quarter 2011 results. Thank you very much and have a great day.

Thank you for participating in today's Westlake Chemical Corporation second quarter earnings conference call. As a reminder, this call will be available fore replay beginning two hours after the call has ended, and may be accessed until one p.m. Eastern time on Tuesday, August 9, 2011. The replay can be accessed by calling the following numbers. Domestic callers should dial 1-888-286-8010, and international callers may access the replay at 617-801-6888. And the access code at both numbers is 26862797.

This concludes today's presentation, and you may now disconnect. Have a good day.