Westlake Corp (WLK) 2011 Q3 法說會逐字稿

Good morning, ladies and gentleman. Thank you for standing by. Welcome to the Westlake Chemical Corporation third 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, November 1, 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. Good morning, everyone, and thank you for joining us for the Westlake Chemical Corporation third 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 third 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.

00 p.m. Eastern Time on November 8, 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 60922534.

Please note that information reported on this call speaks only as of today, November 1, 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 webpage at 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 net income for the third quarter of $67.9 million or $1.01 per diluted share, an increase from the $0.95 per share in the third quarter of 2010. Westlake's operating income of $117 million increased 8% compared to the $107 million recorded in the third quarter of 2010.

The year-over-year improvement in operating income was largely driven by an increase in selling prices across all of our business segments. The improvement in performance, especially in light of today's economic backdrop, reflects our pricing discipline in response to rising feedstock costs.

Ethane and propane feedstocks were elevated throughout the third quarter when compared to the second quarter, but ethane-based ethylene still had a significant cost advantage over naptha-based ethylene.

The third quarter benefited from higher sales prices in our Vinyls business, including PVC resin, PVC pipe, and caustic. While we were presented with some headwinds, I'm pleased with our Olefins segment performance and improved probability in our Vinyls business.

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

Thank you, Albert, and good morning, everyone. I'll start out today with a discussion of a 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 third quarter net income of $67.9 million or $1.01 per share compared to a net income of $62.7 million or $0.95 per share in the third quarter of 2010. Sales for the third quarter of 2011 of $968 million were $189 million higher than sales of $780 million reported in the third quarter of 2010 driven by higher sales prices for polyethylene and all Vinyls products.

Our operating income for the third quarter of 2011 was $117 million, an increase of $10 million compared to an operating income of $107 million in the third quarter of 2010. The year-over-year improvement in operating income was the result of higher PVC and caustic margins offset by a decrease in polyethylene volumes.

Export sales volumes of PVC resin in the third quarter of 2011 were also higher than the third quarter 2010 as ethane-based ethylene provided domestic PVC producers a strong expert cost advantage. Sales in the third quarter of 2011 were higher than in the second quarter of 2011 due to increased sales volume of caustic, ethylene co-products in feedstocks offset by a decline in building products volumes.

Operating income of $117 million in the third quarter was lower than the operating income of $138 million in the second quarter of 2011, primarily as a result of a decrease in integrated Olefins margins as polyethylene prices decreased and feedstock cost rose. The decrease in Olefins margins was partially offset by an increase in caustic volumes and margins.

Earnings of $233 million in the first nine months of 2011 exceeded the $137 million earned in the first nine months of 2010 by $96 million. Sales in the first nine months of 2011 of $2.8 billion or $384 million or 16% higher than sales in the first nine months of 2010 due to our sales prices on all of the company's major products and higher sales volumes for PVC.

Operating income for the first three quarters of 2011 was $396 million, an increase of $155 million over the $241 million for the same period in 2010. The higher earnings were the result of higher integrated Olefins margins, higher caustic margins and improvements in PVC margins. Polyethylene volumes decreased in the first nine months of 2011 compared to the same period in 2010, but the decrease was offset by stronger product margins.

During the first nine months of 2011 PVC sales volumes increased as a result of a substantial increase in PVC exports that offset lower domestic PVC resin and building products sales volumes. Ethane-based ethylene supported growing exports of PVC resin throughout the first nine months of 2011 as the domestic markets continued to see weak construction demand.

Now let's review the performance of our two segments, staring with the Olefins segment. The Olefins segment reported operating income of $105 million on sales of $696 million during the third quarter of 2011 compared to an operating income of $136 million on sales of $555 million in the third quarter of 2010. Feedstock cost increased substantially over this period but margins remain strong due to higher polyethylene prices. The decrease in operating income was primarily due to lower polyethylene sales volumes resulting from a slowdown in global demand and lower polyethylene production. Polyethylene production was down approximately 10% due to planned maintenance outages on several of our reactors.

Operating income in the third quarter of 2011 was $105 million was $28 million less than the operating income in the second quarter of 2011. Ethylene prices, which have been very strong due to tight supplies, begun falling in September and continued their decline into October.

Polyethylene volumes slowed and prices fell early in the third quarter by an average of $0.06 a pound due to slower demand. In addition, ethane and propane feedstock cost increased further reducing overall Olefins margins for the quarter. Looking forward, feedstock prices, particularly ethane, continue to increase which could prevent a potential decline in the price of ethylene.

Looking at the Olefins segment year-to-date performance, our operating earnings for the Olefins segment increased $77 million or 25% from $306 million in the first three quarters of 2010 to $383 million in the first three quarters of 2011. The increase in earnings was a result of higher integrated Olefins margins.

Now let's discuss the Vinyls segment. The Vinyls segment reported operating income of $160 million in the third quarter, an increase of $40 million compared to the loss of $24 million reported in the third quarter of 2010. Globally competitive feedstocks in the US permitted our continued PVC exports throughout the third quarter. The improvement in operating income is largely due to an increase in PVC resin export volume and margins, building products margins and an increase in caustic prices.

Sales for the Vinyls segment increased $48 million in the third quarter of 2011 compared to the same period in 2010, driven by higher prices for all of our Vinyls products offset by lower building products sales volumes. Vinyls segment operating income was $16 million in the third quarter of 2011, an improvement of $6 million compared to the $10 million earned in the second quarter of 2011.

Third quarter sales revenue for the Vinyls segment of 2011 of $273 million decreased slightly from the $280 million reported in the second quarter of 2011. The increase in operating income was due to higher caustic prices and volumes and the impact on second quarter earnings of the turnaround at our Calvert City, Kentucky facility.

Domestic PVC resin sales volumes and building products sales volumes softened as a result of inventory destocking and weak construction markets. In spite of an increase in export PVC volumes in the third quarter, PVC resin margins were lower compared to the second quarter due to an increase in propane feedstock cost and a decrease in export PVC resin prices.

For the first nine months of 2011 the Vinyls segment achieved an operating income of $24 million compared to a loss of $50 million for the first nine months of 2010. Vinyls segment sales for the first nine months of 2011 were $815 million compared to $679 million for the first nine months of 2010 as a result of higher prices for all of our Vinyls products offset by a decrease in building products volumes.

The significant improvement in Vinyls operating income is a result of increases in caustic prices and volumes, as well as increases in PVC resin and building products prices that offset increases in feedstock cost. In addition, ethane-based ethylene and competitively priced chlorine have supported margins and encouraged a strong PVC export market.

Caustic demand in the third quarter allowed the industry to increase average prices by approximately $35 per ton compared to the second quarter average. Westlake's caustic volumes increased during the quarter as a result of stronger demand and the impact of the turnaround at our Calvert City facility in the second quarter volume.

Now turning to the balance sheet and summarized statement of cash flow, we generated $244 million in cash from operating activities during the first nine months of 2011 and spent $112 million on capital expenditures. Our cash balance, including restricted cash, was $876 million and our total debt was $765 million at the end of the quarter.

Our cash will be used to fund our capital expenditure projects in the two segments and we will continue to evaluate both organic and external investment opportunities while maintaining our financial strength and flexibility. Finally, we will continue to pursue our stock buyback strategy as opportunities present themselves.

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

Thanks, Steve. Macroeconomic issues cloud the horizon today but we see an even paced self-demand growth and further near-term feedstock volatility. However, our integrated Olefins product position is strong and we are further strengthening our Vinyls business as we execute our capital program that will complete our Vinyls chain integration. We remain confident in our long-term outlook. We will continue to operate our business with a bottom line focus while keeping costs in line.

The catalysts that we believe form the basis of our future earnings growth are moving into place. First, we see a growing and abundant supply of ethane from shale gas production. This ethane supply will provide a platform to make US ethylene producers more globally competitive. Industry consultants project 300,000 barrels per day of additional ethane production capacity or over 30% of current capacity being added through 2013. Beyond 2013 more ethane supplies are anticipated as further shale gas fields and infrastructures are developed.

Second, we have a strong market position in our value added polyethylene product mix. Third, we are committed to further our integration into chlor-alkali and ethylene. We have begun construction of our chlor-alkali facility and works in the way for the first of our two ethylene extensions in Lake Charles. We are also evaluating the conversion of our propane-based ethylene cracker to ethane in Calvert City, Kentucky which will improve our cost competitiveness.

Lastly, we'll keep our focus on maintaining financial strength and flexibility. We have the financial strengths to fund these growth opportunities and the commitment to maintain that financial flexibility in 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 stating two hours after we conclude the call. We'll provide that number again at the end of the call.

Operator, we're now prepared to take questions.

(Operator Instructions). Your first question comes from the line of Brian Maguire with Goldman Sachs. Please proceed.

Good morning, guys.

Good morning, Brian.

Good morning.

I just want to spend a few minutes on the Vinyls segment, really impressive margin expansion there year-over-year and good EBIT results. I was a little surprised given the deterioration in PVC stock prices that we see. It looks like they're off about -- currently about 30% below where they were at the peak this summer. And I know caustic is probably driving a lot of the year-over-year increase, but you also did mention that the PVC margin was up year-over-year and that seems a little contrary to some of the numbers that we see from the consultants. So I was just wondering if you're getting better price realization on it or you're selling it to different markets and taking less of a discount on it or is there something going on that we might not know.

No, I think in PVC area we are selling in domestic at price stats market price. We have increased our exports in PVC and that has been a healthy market. And that's part -- certain our Vinyls business profit improvement was helped by a settling in caustic prices and volume.

Okay, thanks. Could you give an update on what you're seeing in some of those PVC export markets? Obviously, we see the price falling quite a bit here and the input raw material cost declines have something to do with that, but demand by all accounts seems very weak in most of those markets. Are you seeing any change in trend there or anything to indicate that that trend would change in the fourth quarter?

Yes, certainly export prices and PVC prices have dropped but also in the US we are seeing decline ethylene prices, which helped, as well as a very competitive ethylene -- chlorine price position. In the global market US is the most competitive country to produce PVC with our ethylene and chlorine position and there's no Middle East capacity, unlike in the polyethylene side, to compete with us. So we believe that PVC demand from export from the US continue to grow in the future.

Okay, just one housekeeping one, if I may. What was the FIFO impact in the quarter?

The number was very small, less than $500,000.

Okay, thanks very much.

You're welcome.

Your next question comes from the line of David Begleiter with Deutsche Bank. Please proceed.

Hi, this is James Sheehan in for Dave Begleiter.

Good morning, James.

Good morning.

Just looking at the ethane prices in the low $0.90 per gallon is quite a bit higher than we would have expected and the ethane market is quite tight right now. What is your outlook for lower ethane prices going forward as you see a higher fractionation capacity and when would you expect to see a reversion of those prices back toward more normal levels?

Certainly. We believe that the logistics -- some of the logistic problems that we've seen in the past will improve as we speak. Certainly we mentioned that additional of 300,000 barrels a day of ethane capacity coming online all the way to 2013. And we believe also that some of the turnaround definitely in the first quarter of next year will also reduce some of the ethane demand.

Okay. And you mentioned you were seeing some inventory destocking in some of your markets. Would you say that that's higher than the usual amount of inventory management heading into year end?

No, we don't believe so. Certainly we had inventory destocking on the global basis during the springtime heading to summer this year, then the oil price improved that and now we have the European economic shock that has, again, dampened the global economic demand. So I think both on producers and customers level people have been cautious our inventory level, but as we see prices coming down I'm sure that people has become even more cautious in their inventory positions.

Okay. And just over on Vinyls we mentioned in the last question you were asked about lower export levels and falling prices, but then on the other side of that you've got the caustic soda supply demand seems to be tightening. Do you need both PVC resin exports to be strong and caustic to be tight for this segment to remain profitable in Q4 or what is your outlook for continued profitability in that segment?

Certainly. I think we mentioned export in PVC has improved it did not decline versus last year third quarter also compared with the second quarter. We believe things US PVC demand, domestic demand is weak because of the slow construction market that the US Vinyls business is dependent on PVC exports, as well as caustic prices to help maintain profitability in the Vinyls segment.

Okay, thanks a lot.

You're welcome.

Your next question comes from the line of Don Carson with Susquehanna Financial. Please proceed.

Thank you. Just a question on how things are shaping up in the fourth quarter in terms of volumes. Obviously, ethane and propane costs are elevated here, but what are you seeing on volumes? Is it beyond just the normal seasonal decline in both polyethylene and PVC?

I think that certainly the fourth quarter generally is a slower seasonal quarter and certainly with the economic turmoil we are seeing has an impact on people's sentiment of how much they will purchase. So I think the volumes will be affected by all the above. However, I think globally economy is slowing down but still pretty strong from our point of view for exports. So we believe that PVC and polyethylene exports from the US will continue to be a major -- have a significant impact on our business.

How do you see volumes on a year-over-year basis in the fourth quarter? Do you expect them to be down with potential destocking at year end or do you think they can stay flat to slightly up?

Well, it's too early. We're just in October, finishing up October into November it's too early to tell.

Okay. And then finally on the chlor-alkali side I assume that you're with lower operating rates you're cutting back on your purchases, are you still able to run your own plants flat out or how severely have you cutback on purchase chlorine?

Yes, certainly we are a merchant buyer of chlorine so if the volume demand is weaker we will reduce our purchase, but our plans are running at full production.

And how much of the $65 caustic increase do you expect to realize this quarter?

We believe the industry will see the full $65 profit increase this quarter.

Okay, thank you.

You're welcome.

Your next question comes from the line of Frank Mitsch with Wells Fargo. Please proceed.

Hey, guys, good morning. It's Sabina Chatterjee in for Frank Mitsch.

Good morning, Sabina.

Good morning, Sabina.

Just trying to understand the Q3 volume changes a little better. It looks like in Olefins volumes increased about 10% sequentially. Can you just break down how much of that was actually related to Lake Charles being back online versus demand growth? And maybe similarly on the Vinyls side, volumes looked like they were down 7% from Q2, ex Q2 events like Calvert City and PVC. By what magnitude did volumes actually fall?

For sequential quarter?

Sequential, yes.

Yes, I think that polyethylene export has helped in third quarter versus second quarter. And also we had more byproduct co-product sales from Olefins because we had some problems during second quarter with the [Bellevue] storage issues so our ethylene plants in Lake Charles did not run at high rate during second quarter.

Okay, and then on Vinyls with volume down 7%?

Yes, the Vinyls sequentially PVC sales has been down somewhat but caustic volume has improved. As you know, we had turnaround during the second quarter Calvert City, which reduced the production in sales volumes. So third quarter we were in higher production rates.

Okay. And then you mentioned higher feedstock costs as one of the drivers of the sequential profit decline in Olefins, but if I look at the table in your release it shows industry prices basically flat on ethane from Q2 to Q3. I'm just curious what the discrepancy could be there if your costs were above the industry or?

Yes, I think those are quarterly averages and depend month-to-month when we buy that has a difference. As you know, we buy feedstock on a daily basis. Also propane is somewhat higher in the third quarter compared with second quarter.

All right, thank you.

You're welcome.

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

Good morning. This is Alex Ufrema for Kevin.

Good morning.

Good morning, Alex.

Just wanted to follow up on ethane. Albert, in ethane supply what do you view as the largest or the most important bottleneck right now? Is it defractionation capacity or the pipeline limitations or perhaps something else?

Well, I think it's really all the above. I think demand for ethane is strong because today on a spot price basis ethylene produced from ethane probably is $0.20 a pound cheaper than naptha because of the low co-product prices in aromatics and in C4. But demand for is ethane strong plus the bottlenecks had -- are still having a pipeline for wide grades, or even some of the finished products transportation and fractionation capacity. New plants are being started and run but I think we -- as I said earlier, we'll see more fraction in capacity coming up in the next two years.

So we have some visibility into fractionation capacity based on the announcements, but it's a little bit harder was the pipelines. Do you see any meaningful pipeline projects finishing over the next three to six months that could change the supply situation materially?

Certainly, I think pipelines, as you said, is less visible than fractionating capacity but there are quite a few pipelines some of the smaller ones being worked on that will help alleviate the constraint we have today.

Okay, thank you. And I guess switching to Vinyls you have a window into Chinese construction markets for your JV there. Do you see a change in growth in demand for construction materials in general and [DV2] resin in particular over the past few months in the country?

In China or globally?

In China.

Certainly, China is slowing down in its economic market and construction materials has been impacted. But Chinese -- China is a big market and the Chinese carbon-based manufacturing today is not competitive compared with the US-based PVC manufacturing.

Okay, thank you.

You're welcome.

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

Morning, Albert and Steve.

Good morning, Hassan.

Good morning.

Just wanted to revisit -- obviously, the question du jour is all about ethane prices and the like, just again wanted to revisit that subject. Just trying to -- sort of struggling a bit trying to understand what really is happening on the ground. Everyone talks about bottlenecks be the pipeline or the case for the time being as prices and capacity, yet we haven't really seen any meaningful declines in ethylene operating rates. So it seems that ethane is available. I mean, is it a question of the pricing power really being where the gas prices is and then just saying no to business at lower price?

I think you're right. The demand for ethane is strong because the naptha co-product prices, as I said earlier, aromatic spending, C4 [building] and propylene have come down a long way and that has increased in naptha and manufacturing costs a lot globally. And so the ethane demand in US in particular is quite strong, which put pressure on supply especially when there were constraints in supply system.

Right, but I mean it's not that people are not receiving it ethane is being delivered, right? I mean, as seen by sort of decently higher operating rates at ethylene facilities across the US.

Yes, the ethane inventory has come down a fair amount it's on a very quite low side. People have been depleting inventory and that's why I think the ethylene --

So hence we see these spikes in ethane prices.

Exactly.

Fair enough. Now on the pricing side of things you, obviously, mentioned co-product values sort of coming down and the like and one of the things that you talked about earlier was that high ethane prices, ethylene prices sort of a bit lower maybe the -- all else equal energy remains where it does, maybe they hit some sort of a bottom here. As you look at Asia in particular, are you sort of seeing Asian ethylene facilities and crackers sort of scaling back production levels or utilization rates? I mean, just trying to establish if crude and knockouts remain where they do are we approaching some sort of bottoming out in pricing?

I agree with you, Hassan. I think that, as you know, most of the Asian crackers are naptha based and with the low polymer prices in Asia that integrate producers are not making money. So I foresee some of the smaller, older naptha crackers maybe forced to reduce production.

Very helpful, thank you so much.

You're welcome.

Next question comes from the line of Jeff Zekauskas with JP Morgan. Please proceed.

Hi, good morning.

Good morning, Jeff.

Good morning.

You were kind enough to provide your forecast or consultancy forecast of the amount of additional ethane that will come on over the next two years and you said it was 300,000 barrels per day. I was wondering how much you thought would come on by the end of 2012.

There's some that's coming on this year, there's a bit less next year and a lot more in 2013.

Yes, and then so I was wondering how much you thought was coming on in the '11 or '12 or according to the same consultant that you use.

As I said earlier, I think probably about less than half this year, next year and more than half in 2013.

Okay. Can you remind me when your new chlor-alkali unit should be on stream?

It's second half of 2013.

The second half of 2013. And can you also remind me when your next ethylene expansion should be online?

Second half of 2012.

Second half of '12. And can you remind me what the size of that is?

It's about 240 million pounds. And our second ethylene expansion we are targeting for second half of 2014. And both of these dates tie in with our turnaround for the ethylene plants.

Okay. In general, as far as domestic PVC demand goes, can you talk about the change in the industry from say the second quarter to the third quarter and your expectations for the fourth adjusted for seasonality?

Yes, I think as we probably said earlier that domestic construction market is still quite weak and that domestically we see that third quarter was weaker than the second quarter, at least from what we have seen. As I said earlier, we're heading into a slow season the fourth quarter so we'll expect that fourth quarter business will be as slow or slower than the third quarter.

And year-over-year do you believe that export volumes will be -- PVC export volumes will be higher in the fourth quarter than they were in the fourth quarter of last year?

That's a good question. We hope it will be as high as last year, but depends on the global economic health and that will impact it then as well.

Okay, thank you very much.

You're welcome, Jeff.

Your next question comes from the line of Gregg Goodnight with UBS. Please proceed.

Good morning, gentlemen.

Good morning, Gregg.

Good morning, Gregg.

A question on you mentioned your potential conversion from propane to ethane of your Calvert City plant. Have you guys quantified how much that would cost yet, at least in terms of order of magnitude and potential timing?

No, we have not yet. But as you know, people have given rule of thumb of $0.50 a pound for new plant so the conversion will be less than that.

Okay. Would you typify it as a reasonably easy conversion if you can get the ethane pipe to the plant?

We believe so, yes.

Okay, that's great. Second question, are you having any pickup at all in your large diameter PVC pipe business?

That's being probably in line with the general construction business.

Okay.

Just better than the small diameter.

Okay. Third question, as background I don't remember you guys talking this much about PVC exports in any previous conference call. Certainly that's where the opportunity is and it's getting your attention. Would you typify for us your participation in the export market in terms of percent of your PVC production? I seem to recall that you're not an extremely large -- typically an extremely large participant in the market perhaps that has picked up.

You're right, Gregg. I think the industry exported around 35% to 40% of its production during this year, and because we have our downstream fabricated doing part business that we as a rule export much less than industry average.

That's typical. Your recent experience, though, would you typify that as certainly up?

Still is up from in the past but still less than industry average.

Okay. Thank you for your help, Albert.

You're welcome, Gregg.

Your next question comes from the line of Paul Leming with Ticonderoga Securities. Please proceed.

Good morning and thanks for taking my questions, I had two. First, could you talk about what your actual dollar of capital spending is going to be in 2012 and then maybe break that down either among the segments or the major projects? And then I've got a second follow-up question after that one.

As it relates to the 2012 capital spending program, we haven't finalized that program and we will be announcing our CapEx program for next year as we get into the fourth quarter results and so we'll be talking about that then. But as you would imagine, the big portion of those would be these major projects that Albert just spoke of. It'll be the chlor-alkali project since we're underweight to day, as well as the 2012 expansion into bottleneck our facilities in Lake Charles. But we'll get into the specifics when we get into the fourth quarter results.

Fair to assume that it's going to be up a significant amount from 2011?

That's correct.

Fair enough and I'll wait until the fourth quarter call. Could you just talk about the availability -- and this kind of gets back to the question on ethane logistics I'll call it. Can you talk about the availability of ethane for your Calvert City facility as you look out into the future? As you get out to 2013, 2014 are you really confident that there is going to be kind of an ample logistics supply available to get ethane into Calvert City?

Certainly, Paul. As you know, there have been quite a few projects in discuss of getting Marcellus ethane down to the Gulf Coast and there are two projects that have been in discussion for the past few months and we believe that when those projects come fruition we will get access to ethane to Calvert City.

What's your view on the timing of really beginning to see deliveries of gas out of the Marcellus into the Gulf Coast region?

There are projects being discussed for the first part of 2014.

Fair enough. Thanks very much.

You're welcome.

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

Morning, guys. Just a quick question, the gap between linear low and low density, which had gotten up pretty high in terms of pricing, where does that stand now and how far off of its peak number has it come?

Certainly, Charlie. The gaps it moves month by month quarter to quarter, there was some reduction by a penny or two during this year when the price started to move down, but it moves on a monthly basis. But I think there's still -- LDP still commands a large delta higher price and medium density in the US and overseas.

I guess historically that number for a while was running round numbers about $0.05 gap on the two commodity versions of the products and I think you guys had talked about the number getting north of $0.10 at one point. Is it now sitting between that $0.05 and $0.10 range, again, on the sort of commodity versions of the two products?

Yes, if you look at TDI's report for the [butane] grade there's about a $0.09 difference.

Okay. And I guess, again, I guess fabricated products also that's -- there's going to be the normal seasonality surrounding that. Obviously, the housing market or the construction markets are not that all great, but you still got as well the seasonal issues that come with the winter as well to take into account?

That's right.

Okay. And in terms of the Calvert City conversion, is it simply a matter of bringing product to the plant or are there more significant things to do to the plant in order to take on more ethane? I mean, is it mostly pipeline work or some -- or mostly plant work or sort of evenly split?

Yes, I think that certainly some work needs to be done to the plant to be able to run ethane and propane on a flexible basis. Right now it's only propane.

Okay. And in the propane -- since you're running propane I guess there's some propylene. Where is that going right now?

Sold in the US markets.

Okay, just straight out sold. So that would, obviously, get reduced in time. Is there any contract structure around that that's going to commit you to a certain amount of propane going forward if you are able to bring in ethane? Are you pretty much free to run whatever mix you can run for the best economics?

Yes, we'll have the flexibility.

Okay. Thanks very much.

You're welcome, Charlie.

Your next question comes from the line of Jonathan Chung with Lord Abbett. Please proceed.

Hey, guys. How are you?

Fine, Jonathon. How are you?

Fine. How are you?

I feel like all the smart guys asked all the detailed questions I'm surprised no one asked if you guys send resin to Greece, just joking. I was hoping that -- I have two questions, one is housekeeping. Where are you guys in terms of the buyback and just kind of remind me what your thoughts are in terms of a bigger sense maybe a small recap or something. Said you guys are net cash now I know you have calls for capital with the integration projects and all, but just kind of help me understand on a higher level.

Yes, Jonathan. We did -- and you'll see this in our 10-Q when it gets filed tomorrow. We did initiate some share buyback late in the quarter, last quarter we bought $2 million worth of shares and we'll continue to buy opportunistically as the market conditions permit.

Okay. When it's down 15% obviously you guys were in the market today. But the other question I wanted to ask you was less kind of exactly what's happening this quarter or possibly even next quarter, and I think everyone's kind of killed a thing question to death. But can you guys kind of talk and help me understand how this all plays out in your minds? Obviously, the world's a little choppy. It seems like every day we have to deal with kind of the Europe situation, but it feels like -- I don't know if people are getting -- will ultimately get desensitized to it because, obviously, the US is okay and China feels like it's shifting to a little more of an expansionary policy. But help us appreciate how this plays out for you guys in the businesses that you are in over the next couple quarters or years if you can kind of talk to that.

Certainly. As we believe that oil price will stay relatively high compared with gas and from both consultants in the futures market show futures ethane price to trend downward as more ethane fractioning capacity come on stream, as well as pipeline logistics. So we believe that the US Olefin producers in particular in our case would integrate to polyethylene with the [LDP] position, we'll be able to benefit from this very strong cost competitive position in the US going forward.

In the Vinyls side with low natural gas prices we believe that US will be a very good position benefit from low gas price, which will translate into low electricity price would translate into very cost competitive qualified position and US also has one of the largest markets for caustic in the world so that will benefit the Vinyls business. And with both the chlor-alkali position and the ethylene position US will be very competitive in the Vinyls position to supply the rest of the world.

So basically really you guys kind of, obviously, agree with the consultants out there and I'm just looking at a consensus estimate for the most part. So if you guys do believe -- if it does play out the way the consultants are kind of talking about and kind of what you're exactly saying, when you think about the earnings potential and the ranges for the company because I'm assuming polyethylene is going to run full. We're waiting for the integration that could potentially help out with a dollar in earnings it sounds like plus or minus. How do you kind of perceive the range of quarterly earnings to be? What needs to happen for you guys to really breakaway below of $0.80 or something like that because I'm just looking at back historically if we do have an ethane advantage how does this actually crack for you guys? And we're already seeing $0.90 something ethane prices.

Certainly I think as we've talked about the historic paradigm that the industry worked in has changed and the feedstock environment we have today in front of us will continue to be well positioning those of us that are like crackers. And so I think as we look forward there is good strong earning power but we certainly, as you know, don't give guidance. But there is very good strong earnings power in the business and that feedstock position is going to set that up to be a good sustained run.

Okay, very good. Thank you, guys. Appreciate the call.

Thank you.

Your next question is a follow-up from the line of Charles Neivert with Dahlman Rose. Please proceed.

Just you guys are talking about relatively speaking low gas cost going forward. Do you currently buy for the chlor-alkali operations electricity off the grid and would you consider going to cogen if you think gas is going to be on a relative basis cheap going forward. I don't know what you're paying off the grids in different places, but does gas make -- does it make sense to go to gas cogen and get the steam and everything else that comes from that situation?

Yes, most of the US electricity today are priced more of gas so as gas price goes down both of the US petrochemical plants are enjoying lower power costs.

Is there any reason that you would go after a cogen situation where it would benefit the company?

It's possible if we think that cogen would benefit more than buying power on the market.

Okay. So at this point the power pricing is reflective of the low gas and you guys are benefiting from that so --

Yes.

-- making that move, okay. Great, thank you.

You're welcome, Charlie.

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

We'd like to thank you for your participation in today's call. We hope you will join us again for our next conference call to discuss our fourth quarter results. Have a great day and thank you very much.

Thank you for your participation in today's Westlake Chemical Corporation third quarter earnings conference call. As a reminder, this call will be available for replay beginning two hours after the call has ended and may be accessed until 1:00 p.m. Eastern Time on Tuesday, November 8, 2011. 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 60922534. Great day.