Westlake Corp (WLK) 2021 Q2 法說會逐字稿

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Westlake Chemical Corporation Second Quarter 2021 Earnings Conference Call. (Operator Instructions) As a reminder, ladies and gentlemen, this conference is being recorded today, August 3, 2021.

I would now like to turn the call over to today's host, Jeff Holy, Westlake's Vice President and Treasurer. Sir, you may begin.

Thank you, Julia. Good morning, everyone, and welcome to the Westlake Chemical Corporation Second Quarter 2021 Conference Call. I'm joined today by Albert Chao, our President and CEO; Steve Bender, our Executive Vice President and Chief Financial Officer; and other members of our management team.

The conference call agenda will begin with Albert, who will open with a few comments regarding Westlake's performance and a current perspective on the industry. Steve will then provide a more detailed look at our financial and operating results. Finally, Albert will add a few concluding comments, and we will then open the call up to questions.

During this call, we refer to ourselves as Westlake Chemical. Any reference to Westlake Partners is to the master limited partnership, Westlake Chemical Partners LP, and similar references to OpCo refer to our subsidiary, West Chemical OpCo LP, which owns certain olefins facilities.

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 many factors, including: the cyclical nature of the industries in which we compete; availability, cost and volatility of raw materials, energy and utilities; governmental regulatory actions, changes in trade policy and political unrest; global economic conditions, including the impact of the coronavirus; industry production capacity and operating rates; impacts of extreme weather events; the conditions to the closing of Boral, LASCO and Dimex acquisitions may not be satisfied or the closing of either acquisitions, otherwise may not occur; the supply-demand balance for Westlake's products; competitive products and pricing pressures; access to capital markets; technological developments; and other risk factors as discussed in our SEC filings.

This morning, Westlake issued a press release with details of our second quarter results. This document is available in the Press Release section of our web page at westlake.com. We have also posted a presentation on our website to review the second quarter results. A replay of today's call will be available beginning today, 2 hours following the conclusion of this call. This replay may be accessed by dialing the following numbers: domestic callers should dial (855) 859-2056. International callers may access the replay at (404) 537-3406. The access code for both numbers is 4594733. Please note that information reported on this call speaks only as of today, August 3, 2021, and therefore, you're 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 would like to turn the call over to Albert Chao. Albert?

Thank you, Jeff. Good morning, everyone. We appreciate you joining us to discuss our record second quarter 2021 results. In this morning's press release, we reported record net income, excluding prior onetime tax benefits for the second quarter of 2021 of $522 million or $4.04 per share as well as quarterly records for net sales, operating income and EBITDA.

Net income for the third -- for the quarter increased $507 million from the second quarter of 2020, demonstrating the strength of our business amid the economic recovery and expansion from the impacts of the pandemic.

Before we delve into our record results, I just wanted to make some brief comments on our recent acquisitions. Westlake's leading positions in PVC siding, treatment molding, compounds, piping fittings, provide our residential and commercial customers with a comprehensive building product portfolio of PVC products and solutions. We have recently announced 2 acquisitions in the building and construction materials space that will provide exciting new platforms of growth and development for Westlake.

In June, we announced we will be acquiring Boral North America's Building Products business. This acquisition will place Westlake into leading positions in concrete and clay roofing, premium PVC siding, treatment shutters, decorative stone and PVC windows, creating new strategic product platforms, complementary to our existing building products business. These products improve the energy efficiency, durability and value in residential housings, schools, hospitals and other buildings while enhancing the everyday lives of countless individuals.

Additionally, we announced in July that we will acquire LASCO Fittings, a leading manufacturer of injection molded PVC pipe fittings. The addition of LASCO will further expand our PVC fittings offering footprint into additional markets, serving the plumbing, pool and spa, industrial, irrigation and retail markets in North America. This product mix is also complementary to our existing product portfolio of PVC pipe and larger diameter fittings.

Yesterday, we announced plans to acquire Dimex LLC, one of the largest processes of recycled plastic materials in the United States. Dimex, a producer of a variety of consumer products made from processed post-industrial recycled PVC, polyethylene and thermoplastic elastomer and sell these consumer products to national retailers for home and commercial users. We anticipate closing these transactions in the second quarter -- in the second half of this year. We look forward to welcoming Boral, LASCO and Dimex employees to the Westlake family.

Now turning to our second quarter results. Our earnings for the second quarter of 2021 reflect the robust demand for most of our products and strong pricing environment. The strength in global demand in PVC and polyethylene resulting from the growth in building and construction and the strength in consumer packaged goods drove price increases and margin expansions across both of our business segments. The 23% year-over-year increase in U.S. housing permits demonstrated the strength in residential construction activity that is driving U.S. demand for PVC, benefiting both our Vinyls and downstream building products businesses. The demographics of the U.S. population in peak household formation ages, paired with the lack of housing starts over the last 10 years and limited global PVC capacity additions, created secular and structural strength in demand for PVC and building and construction materials.

In our Olefins segment, Westlake experienced strong margins as the polyethylene industry experienced strong ongoing global consumer packaging product demand and tight inventory conditions due to lingering effects of the severe winter storm in February. Westlake has made significant progress in our strategic growth plans this year. And with the tight supply-demand picture, we believe our businesses are very well positioned going forward.

I would now like to turn our call over to Steve to provide more detail on our financial and operating results for the second quarter.

Thank you, Albert, and good morning, everyone. I will start with discussing our consolidated financial results, and then we'll go into a more detailed review of our Vinyl and Olefins segment results. In the second quarter, Westlake benefited from the continuing global economic expansion resulting in healthy demand for a majority of our products.

We reported net income of $522 million, which excluding the onetime tax benefit of $591 million in the fourth quarter 2017, is a quarterly record for Westlake. In addition, we reported record income from operations of $720 million, and record EBITDA of $932 million for the second quarter of 2021. The $507 million increase in year-over-year net income is a result of significantly higher sales prices and margins for PVC resin and polyethylene as well as strong earnings in our Building and Construction Materials business.

Second quarter 2021 net income increased by $280 million from first quarter 2021 net income of $242 million. The increase in net income was largely attributable to the higher sales prices and margins for PVC resin and polyethylene. As Albert noted earlier, our higher sales prices and margins were driven by global strong demand in construction and building materials as well as consumer packaged goods.

Our building and construction materials business also continue to experience strong results as North American housing demand remained robust. For the first 6 months of 2021, net income was $764 million or $5.91 per share, an increase of $604 million from the first 6 months of 2020. The increase in net income was attributable to the higher global sales prices for our major products, driven by a rebound in demand for our product offerings. For 6 months of 2021 did reflect approximately $120 million impact caused by winter storm Uri, but continued strong demand drove higher product margins for PVC resin and polyethylene as a result of higher prices.

Our utilization of the FIFO method of accounting resulted in a less than $1 million difference compared to what earnings would have been if we reported on the LIFO method. This is only an estimate and has not been audited.

Now let's move on to discuss the performance of our 2 segments, starting with the Vinyls segment. The robust global demand for PVC was anchored by strong global construction activity. Our Building & Construction Materials business continued to benefit from robust North American residential construction and repair and remodeling demand. These factors drove higher PVC sales prices in this segment, and we benefited from strong integrated margins during the quarter.

For the second quarter of 2021, Vinyl's operating income was a record $435 million, increasing $415 million from the prior year period as average sales prices increased 54% and sales volumes increased 9%, driving higher margins for PVC resin. We also benefited in the second quarter by solid earnings, driven by strong sales prices and volumes in our Building and Construction Materials business.

For the second quarter of 2021, Vinyls operating income increased $235 million from first quarter 2021 as a result of average sales prices being up over 18%. Higher sales volumes for PVC resin and strong earnings in our building and construction materials business, driven by higher prices.

In our Olefins business, robust global demand for consumer product packaging drove polyethylene prices higher in the second quarter and expanded margins. Industry consultants reported polyethylene price increases in the second quarter of $0.19 per pound and average sales prices for Olefins segment were up 26% in the quarter. Olefin's second quarter 2021 operating income of $277 million increased $252 million from the second quarter of 2020, driven by strong pricing and margins that were partially offset by lower sales volumes, resulting from the lingering effects of winter storm Uri and our own planned maintenance activities. For the second quarter of 2021, Olefins operating income increased $97 million from first quarter 2020 primarily due to higher sales prices and margins.

Next, let's turn our attention to the balance sheet and statement of cash flows. We generated $617 million in cash flows from operations from the second quarter of 2021, resulting in total cash and cash equivalents of $1.8 billion. Second quarter 2021 capital expenditures were $129 million. We maintain a long-dated debt maturity profile with a weighted average debt maturity of 13 years, while maintaining strong credit metrics, anchoring our investment-grade balance sheet.

Now, to address some of your modeling questions, we expect our effective tax rate for the full year of 2021 to be approximately 23% and a cash tax rate of approximately 20%. Our capital expenditures forecast for the year is expected to be between $750 million and $850 million. We are planning for a turnaround of our Petro 2 ethylene unit to begin in September of this year. We expect this turnaround and associated outage to last approximately 60 days.

With that, I'll now turn the call back to Albert to make some closing comments. Albert?

Thank you, Steve. Westlake's customer focus for the portfolio is well positioned to continue to benefit on the strong demand environment we are experiencing. This quarter's results illustrate the earnings capacity of Westlake and highlights the value of our products and our high level of integration, which extends through the value chain from natural gas liquids and other feedstocks through to consumer building products.

As supply chains and manufacturing fully recover to meet the globally strong demand for consumer and industrial products, Westlake is well positioned to continue to deliver strong results. We see PVC supply-demand fundamentals remaining favorable with a growth in demand more than offsetting the limited global supply additions. We also believe that rebounding manufacturing activity will drive caustic supply-demand fundamentals to improve. We see the global strength in construction, especially North America residential construction and repair remodeling activity, continuing to drive demand for our building and construction materials.

In our Olefins business, demand remains robust as essential everyday products such as consumer packaging and health care drive polyethylene volumes.

The strategic acquisitions of Boral North America and LASCO provide Westlake the springboard to significantly leverage our participation in the strong housing and repair remodeling market by adding to our current product portfolio. Housing starts increased again in May and are projected to continue to rise.

The secular strength in housing and repair remodeling, supported by limited supply of single-family homes due to a decade of underbuilding and compelling demographics of home buyers in the U.S. The proposed $1 trillion infrastructure bill would also significantly benefit our building and construction materials business and drive construction demand for many years.

Our ongoing growth initiatives are driving expansion of complementary products to our existing portfolio, which, when coupled with strong market growth, will deliver value for our shareholders. We will continue to look at opportunities that both further our strategy of adding complementary assets as well as increasing our vertical integration capabilities in all of our business segments to deliver good returns to our shareholders. We will do this through the lens of being a good corporate citizen by applying the tenants of ESG as part of the commitment to building a more sustainable future.

As discussed last quarter, a part of our green initiatives includes the introduction of green caustic soda known as GreenVin, which has a reduced CO2 impact of more than 30% compared to conventional caustic soda. The planned acquisition of Dimex adds to our green portfolio of products, that will continue to develop products that are in line with our sustainability goals while meeting the needs for greener products and deliver value to our shareholders.

We are dedicated to our core tenants, namely to protect the health and safety of our employees, deliver on our value commitments to our customers and be an environmentally and socially responsible corporate citizen, while strengthening all aspects of our company. Anchored by these values, we are confident Westlake is well positioned to serve the growing worldwide needs of our customers while maintaining financial discipline, which combined with the strong fundamentals of our business, enables us to deliver long-term value to our shareholders.

Thank you very much for listening to our second quarter earnings call. Now I'll turn the call back over to Jeff.

Thank you, Albert. Before we begin to take questions, I would like to remind you that a replay of this teleconference will be available 2 hours after the call has ended. We will provide that number again at the end of the call. Julia, we will now take questions.

(Operator Instructions) Your first question comes from the line of David Begleiter.

Albert and Steve, have your July polyethylene contracts settled yet? If they did, where do they settle?

Yes, we believe the July polyethylene contracts will be up $0.05 a pound.

Very good. And the consultants are calling for some erosion over the next 4 or 5, 6 months here. Do you agree with that conclusion? Or do you think we'll see a little more stability and resiliency in polyethylene pricing?

As we said, the demand for polyethylene is still very strong. and some of the industry players has done further price increases in August. And we believe with a global recovery in economy, even though we know there's a Delta variant that's been quite contagious, but we believe the demand for our product is still very strong. The industry and customers' inventories are not that high. We're not back to the pre-pandemic levels yet. So we believe with strong demand, and there's some capacity coming up, but so yet the end of the year or next year and globally. So we believe that prices still be good. Now would it go down a bit? Probably. But the prices are very good today and the industry can weather some of the price volatilities.

Your next question comes from Hassan Ahmed from Alembic Global.

A question around (inaudible) and a 2-part question. One is basically, Olefin, obviously, being 1 of the largest (inaudible) of America has been talking about working away, lowering that business, right? So with that in mind, and I'm going to -- you're looking into sort of getting into sort of region exiting contracts, moving on to long-term contracts and the like. So the 2 questions that I have around that. Are you sort of recompeting your contract as well? I understand a large amount you're (inaudible) but you do (inaudible) margin as well. So that's 1 side. And it seems that there is upward mobility in the pricing of (inaudible) may have over a couple of years. How do you see the PVC cost curve changing with that in mind? And how do you -- with the Westlake positioning is involved?

Certainly. Yes. As you know, that Westlake is well integrated downstream to our PVC business. So we look through the value chain as well as to maximize our optimized return to our company and to our shareholders. And we have contracts, we certainly honor our contracts. And when contracts coming due, we certainly would work with our customers, many of them are very long-term customers and to get value where the market dictates. So we have a lot more avenues to integrate our chlorine versus some of our competitors with limited avenues.

And as you know, the PVC margin today is very, very good. And suddenly, we're trying to maximize the PVC value chain. So absolutely, I think all the companies, everybody is doing the best for the company and also looking out for the interest for the long-term customers. So we'll balance those 2 needs.

Understood. Understood. And moving towards the ethylene polyethylene side of things. One of the largest sort of producers of DSP in North America recently went on record talking about Dow, the consultants you (inaudible) now and 2025. There is an expectation of around 31 million in polyethylene capacity to come online. And this company's view is 215 million tons gone. Of those 31 million, may either get delayed beyond 2025 or canceled. So I'd love to hear when you are talking about that?

Certainly, there's a lot of capacity announced, especially Asia, and especially in China, as well as some few ethylene plants that's been announced but haven't gotten into final stages of building -- starting breaking ground yet. So we are aware of all these projects, but we believe that time will tell whether all these announced projects will go ahead. As we know that China, even though they're the largest consumer market for polyethylene, they're still a net importer of polyethylene. And I think U.S. is still a net, a large exporter of polyethylene. So what China does has a big bearing on the future supply-demand dynamics for polyethylene globally.

Your next question comes from the line of John McNulty from BMO Capital Markets.

A quick question on guidance. One of the comments made in your press release on Dimex is one of the largest processed cycling plastic in (inaudible) Can you provide some detail? The overall market for recycled (inaudible) How do you see it growing? And then how the margins are (inaudible) what's the existing platform?

Yes. Dimex is, as we said in the release, one of the largest players in this recycled materials business. And we see this business as a growing opportunity. You can see that they recycle and reuse and manufacture products coming from PVC, polyethylene and TPE. So we continue to see this as a growing, important market. And certainly, the opportunity is there. You saw in the release that we said their business is over $100 million in size, and we certainly see very good margins in that business going forward. And that's the basis behind I think a very good investment, and we expect to see good returns in the investment in Dimex.

Got it. I think you're building your product from -- are you still seeing issues around (inaudible) And if could you add as to how much of potential of the platform is subdued because of those...

You're cutting out. Can I get you to repeat that question? You were cutting out during parts of the question.

This is a question around the building of (inaudible) platform. Are you still seeing issues around supply chain and logistics constraints? And if you are, how much of the earnings potential of the platform is being subdued because of this?

Well, I would say, certainly, there have been some challenges really given the logistics and supply chain. Some of these are additives and plasticizers and such, but we have multiple suppliers that allow us to be able to jockey through those kinds of challenges. Certainly, we've seen some opportunities to continue to grow the business and the ability to continue to meet this growing market demand. So those challenges, while they are sometimes there, we've been able to adjust and adapt with our multi-sourcing approach in meeting the needs of our customers by sourcing with alternative suppliers if need be for some of those additives and plasticizers.

Okay. And just 1 final question. (inaudible) PVC prices close flat?

Yes. I think PVC was flat for July.

Flat for July. You were asking for July, flat for July.

Your next question comes from the line of Steve Byrne from Bank of America.

I hope you can hear me. The echo on our end is terrible.

So I recently complained to Jeff Holy about the cost of some PVC fittings that were in the $10 a pound range, not the $1 a pound range on your Slide 13. All I got from Jeff was a smile. But perhaps you can comment on how much of that $10 a pound margin versus Home Depot maybe more broadly, how would you characterize the margin on your building products business versus the rest of vinyls?

Yes. Building Products business is doing quite well, and we are passing resin price increases or cost increases along. Sometimes there's a time lag, but we are, by and large, we're able to pass through some price increases. And depending on the products, sometimes we expand the margin as well. And we see a very strong demand for all our downstream building products for the rest of the year and some of them into next year.

And so as you build out this platform, are you at the point where you have some negotiating leverage with the home centers and the specialty construction distributors where you can offer them a broader portion of the shelf space, and thus have some negotiating leverage, or you're not there yet?

No, you are absolutely right. Part of our synergy is we are much more important to distributors and retailers for our products. We have more products to offer. And today, in the building products area, having supply is more important to customers. So we are almost virtually hand to mouth in terms of deliveries. And I think the other gentleman talked about logistics, sometimes it's hard to find truck drivers and some cost delivery delays. But by and large, the -- we are getting -- become more important to our customers, and we like it. And we would like to be more important to them and they like us to -- we've been working with them for many, many years, and they like us to become the -- larger and more relevant to their business. So I think it's a win-win for both parties.

Your next question comes from the line of Kevin McCarthy from Vertical Research.

With regard to our building products business, can you speak to your medium- to long-term strategy? That is, how do you think this business will be different in 3 to 5 years relative to 2021? Also, can you speak to your capabilities to integrate free pending acquisitions? And what does your future pipeline look like? Is 3 enough for now? Or does it remain quite active?

So Kevin, as we think about the building construction materials business, you can see that we continue to see a very good outlook, both in the residential construction and certainly in some of the commercial construction opportunities. And we look forward to really participating with our distributors for the products to expand that portfolio offering, that Boral and LASCO certainly bring. As you think about the 3 transactions that we've recently announced, the answer is, of course, we are very comfortable that we can integrate these businesses into the broader West Lake, and we look forward to welcoming all those employees into the family of Westlake.

Certainly, there'll be a lot of activity in terms of that involvement, but you can see that there is the chemical side of the business that we'll continue to look for opportunities to invest in. We have been investing organically, as you know well, over the last couple of years with expansions in PVC and investments in the LAC ethylene joint venture, and we'll continue to look for opportunities to invest on the chemical side as well.

And so I'm very confident that the leadership team and the fellow employees will be able to well integrate these 3 transactions. The opportunity to grow the business is something that we've done over time, and I'm comfortable that we can continue to look for opportunities going forward.

And how would you describe the future pipeline?

I think the opportunity set is out there. I think the answer always is looking for the right value set that we see. Clearly, our focus is generating the bottom line return, risk-adjusted, and certainly, we're very comfortable that we can find the synergies in these transactions to achieve that return and bring these values to our shareholders.

So when you think of the pipeline of opportunities out there, there are a number of interesting opportunities, but it's always a function of -- is the value proposition to our shareholders what we believe it should be. So that's really where we get very focused, to making sure the value for any opportunity is going to drive long-term sustainable value for all of our stakeholders.

Kevin, I just want to add also that we are looking for more recycled plastic. As you know, there's a lot of plastic waste out there in the world. And with the introduction of Dimex, we plan to add more recycled plastic materials into our consumer products. And also with our GreenVin, we'll plan to introduce more lower carbon products into our building products material as well.

So I think talking about the next 5 years, I think the whole, the whole industry, the world is marching towards lower carbon emission products and lighter weight energy efficiency. So that's the plan we plan to move towards to.

Your next question comes from the line of Mike Sison from Wells Fargo.

Hey, nice quarter. Do you think you can grow Vinyl EBITDA in '22, ex-acquisitions?

So Mike, when you think of the opportunity set to do that, remember, we added significant capacity in PVC in late '19. And as we think about the full run rate into next year -- this year, we've begun to ramp that up with sales of those incremental pounds as we started in late '19. 2020 was a challenge, as we all know, with COVID. But as we think about the run rate from '21 into '22, we continue to see good volume growth opportunities. And we've talked about those in Geismar and those in Germany there where we've expanded our vinyl footprint. But we continue to look for the completion of several smaller debottlenecks as well in the United States in the vinyl space. So we continue to see solid demand and that allows us to put those incremental pounds into the marketplace.

Got it. And do you think PVC margins could continue to improve in the second half and into '22?

So we've seen significant strong demand in this marketplace. I know the consultants showed some seasonal weakening because of the seasonal demand that you see during the construction season. But as you have noted, over the last couple of years, we've actually had a construction season that extended well into the latter quarters of the year and well into the traditional slow season for construction activities. So as long as we see the strong demand that we currently see continuing and we do, the issue is more of a weather-driven issue than it is anything else. The market remains relatively snug from a materials perspective and inventory level. Demand remains pretty strong. And so it's really a function, does weather cooperate with us and can we continue to have a construction season well into the winter season as we have over the last 2 years.

Yes. In IHS, the industry consultant, IHS industry consultants are forecasting the average price for next year 2022 PVC higher than the average for 2021 by about $0.03 per pound.

Your next question comes from the line of Frank Mitsch from Fermium Research.

Congrats on the results. As I look at the second quarter to the third quarter, could you size the negative impact of turnaround plan now that you (inaudible) in the second quarter? And talk about what you mentioned in the expected negative impacts are here in 3Q from turnaround in unplanned outages, obviously have to Q2 turnaround. I'm just trying to get a sense of the order of magnitude from 2Q to 3Q from this.

Yes. Frank, it's Steven. So we don't have any other major turnarounds other than the petro turnaround occurring in the third quarter. And so it's really just that outage that we expect for 60 days occurring in -- starting in September. And so the other units, we don't have any, what I would call, significant turnaround activity in Q3 other than starting that turnaround in September for the Petro unit.

Okay. And when is the expected closing of Boral, LASCO and Dimex?

We expect those to close in the second half of this year. It's somewhat a function of getting HSR, Hart-Scott-Rodino approval. It's hard to know when the government will clear those. And so our best view is in the second half of this year. But we certainly look forward to closing them as promptly as possible so that we can move forward with integrating these businesses into our own.

Your next question comes from the line of John Roberts from UBS.

Congratulations on the acquisition. Following this, and the other acquisition, can you remind us your target leverage is, and what you're allowed (inaudible) a priority going forward?

Sure. So it's been quite clear for a very long time that Westlake's target for leverage is really those that are established by the agencies, SP, Moody's and Fitch. We've seen over the years, they changed their targets. So rather than being fixated on a particular number, we'll focus on what the expectations are of the rating agencies to remain strongly investment-grade. Today, we're BBB flat, stable outlook or equivalent with each 1 of those 3, and believe our metrics are even stronger than those ratings. And so our focus is really to stay strongly rated by all 3 agencies. And as I just mentioned, our credit metrics are even stronger than the current rating assigned by all 3 agencies.

From a capital allocation perspective, we focus on using that free cash flow to maintain the plants and have them run reliably, consistently. Looking at -- taking that free cash flow beyond that maintenance activity, and if we can find projects that we believe have compelling returns, risk-adjusted above the cost of capital to deploy that way. We'll also reward investors through distributions in the form of dividends as well as share buyback. So we certainly look for the opportunities to deploy that capital across that spectrum.

And then Albert, you touched on it a bit before. But can you comment on your customer polyethylene inventory and when you expect customer inventory levels to get back to more normalized levels?

Yes. As I mentioned, we got inventory back to pre-Uri, this pre-winter storm, February of this year. We haven't got inventory back to pre-pandemic time yet. And so we believe that both inventory customers and produce inventories between low and medium, depending on the grades, and probably will be by the end of the year, when things get back to more normal.

Your next question comes from the line of Alex Yefremov from KeyBanc.

Do you have a view on how much capital cost for new polyethylene and PVC plants might be out this year? And could CapEx cost inflation result in the delays of new projects approvals this year?

So certainly, we've seen capital cost for equipment continue to rise with some of the inflation. So certainly, since that is certainly going to be a consideration. Certainly, those who are investing in new plant and equipment, certainly watch that constantly and look at a variety of sources to source major pieces of equipment. And it varies quite a bit in terms of whether we're talking both materials such as pipes or whether we're talking, rotating equipment. But certainly, we have seen cost creep into both of those, whether it's the bulk materials or whether it's higher-value rotating equipment. So certainly, they certainly elevated in cost.

And you've talked about favorable supply/demand outlook for PVC. Why do you think PVC export prices have fallen in recent weeks? And do you see that as temporary, or a start of a new term?

Yes, there has been some weakness in China with PVC. And -- but recently, last few weeks, we see prices start moving up on a global basis.

Your next question comes from Mike Leithead from Barclays.

First question on natural gas. Prices have gone up pretty materially in the past few months. Can you just give us a rough sensitivity of how to think about rising natural gas prices on your cost structure?

Sure. So when you think about the sensitivity on natural gas, $1 in MMBtu can cause an EBITDA impact of $100 million, and that's mostly in the vinyls side of the business. But 90% of that impact is on the vinyl side of the business. But you've seen as prices have moved, that given the strong demand that we've been able to move a lot of those pricing momentums through downstream into our customer base.

Got it. That's helpful. And then second, maybe just a smaller question, but the corporate and other line, I think this quarter, EBIT would be positive $8 million or so. What drove that?

Yes, there are some small transactions that occur, whether it is some of the small hedging gains that we take as we hedge activities and such. So there's certainly some interest expense. You noticed that our cash balances have grown. And so it's a combination of items such as that.

Your next question comes from the line of Angel Castillo from Morgan Stanley.

Just, Albert, to expand a little bit more on the Dimex acquisition and interest for potential future bolt-ons. Curious if there's any particular area within the ESG sphere that is of particular interest as you look at, whether it's technologies or your potential expansion engine down the line?

Yes. We're looking all the advanced, reducing greenhouse gases emissions from our plants, recycling water, reducing solid waste. And through the Dimex, we are trying to able to source and recycle the post-industrial, hopefully, going to post-consumer material, recycle material and produce products. So I think we are different from just recyclers, who just recycle and sell the compounded resin, we are making finished consumer products and really going to the circular economy, and we plan to grow that business in a measured way going forward. This is just the beginning.

And is it fair to assume that that's maybe going to be that they're focused near term as you kind of integrate and complete the acquisitions within building products?

Well, that's right. Certainly, as we think about the opportunity to take some of this material, this post-industrial product further downstream. And certainly, when you think about the integration, there is product integration today in our vinyls products. And certainly, this opportunity with Dimex provides opportunities to have further integration, directly or indirectly.

But we also see, as you've seen us talk about our Building Materials business, really having some also sales channel integration, which is very important, as Albert noted, to have more products to our customers, to be able to offer a much wider product offering is also very important to our customers as well as to Westlake.

Got it. That's very helpful. And then just on olefins. You noted the $0.05 per pound for July. There's some price increases out there for August. I was just wondering if you could contextualize that with maybe what you're seeing from a customer level. And it seems like you played some of the spot availability, maybe improving across certain grades. So are you seeing any increased pushback from customers to future price increases, any kind of demand destruction or I guess, whether it's stock or the inventory levels, allowing you to continue to push price beyond July?

Yes. We don't think they really demand destruction. There are very little out of those materials being used. The demand is very strong, and it's kind of supply. As plants come back, there are quite a few plant problems. And as supply comes back, inventory builds, I think the price as said, will be stabilized. We don't expect to grow each month forever. So we expect prices to stabilize and -- but we still believe the margin will be quite good going forward.

(Operator Instructions) Your next question comes from the line of Arun Viswanathan from RBC Capital.

Great. Just -- I'll make this quick. So I just wanted to understand the '22 drivers. You will have the acquisition chain from Boral, maybe that's $200 million or so. Vinyls, I imagine should be up, just given -- assuming that there's not the supply disruptions or force majeure like you experienced in '21 in the first half and maybe some margin emergency as well. So it's really only olefins where there's some moderation in margins. Is that the right way to think about '22?

Yes. When you think about -- as you said, when you think about the Vinyls business, if you look at some of the consultants out there, they're still showing average prices for the course of the year in '22 to be higher than the average price of '21. And you're right, we've had a series of weather-related outages over the course of late '20 that affected '21 and then, of course, the freeze in early '21.

And so with the run that we see in demand in Vinyls, and the consultants reflecting higher average prices for vinyl, we certainly see strength. And as I mentioned earlier to a question, we certainly have good volumes that will continue to be additive to our sales volumes over the course of '22 from '21.

On the Vinyls side of the business, certainly, we've seen continued tight inventory situations across the chain. And certainly, while there are concerns about demand pulling back, we've certainly continued to see currently a very strong demand picture. And prices, certainly as we've seen before, continue to reflect that strong demand picture. So as we look into '22, it's a little bit cloudier to be able to give you a price forecast, but I can say that we continue to see a very strong picture from a demand perspective, and the demand for -- from the consumer packaged market continues to seem unchecked.

Great. And then if I can just ask a quick question on Dimex and the recycled market. When you acquired Vinnolit, there was some excitement around getting into medical and some other applications that maybe you're underpenetrated in. Is that part of the situation here as well? Do you see an opportunity to increase your share in some of these attractively growing markets through Dimex?

Yes, we certainly do. I think the opportunity to really take some of the post-industrial materials and put it into a different sales channel that we're not in today and will be post close is an exciting opportunity for us. It allows us really to have more product relevant to our downstream customers, our distributors. Many of these distributors are similar distributors who are selling already building product materials, too, as well. And so when we think about the opportunity that Dimex brings, we're excited about the ability to take this recycled material, but also add to the portfolio of products in the overall downstream building products businesses.

And your last question comes from the line of P.J. Juvekar from Citibank.

It's Eric Petrie on for P.J. How many pounds of recycling capacity does Dimex have? And how are you looking at scaling that footprint and the associated CapEx to do so?

Yes. There's certainly, I think, an opportunity to think about replicating these production capacities in other areas, as we think about scaling the business. We'll get more into the capacity size and the opportunity set as we get closer to closing this transaction.

But certainly, as we think about the footprint it has currently in Ohio, there could be opportunities to expand that footprint into other areas. We'll take a look and see the products that make sense and the capital necessary to do that. But as you can imagine, that will be a combination of looking at the product set to put that recycled material into more consumer downstream products. And of course, making sure that we have the ability to do that cost effectively for our customer downstream.

And as a follow-up question, do you expect to see a benefit in volumes for chlorinated organics and the refrigerants following the passage of the U.S. AIM Act with water reductions for HSP?

Well, we will know more about it going forward. Certainly, with global warming, there's more demand to refrigerants. And we are in a raw material side for the refrigerant business. So as that business grows, we should be benefiting from that as well.

You have no further questions at this time.

Thank you, Julia. Thank you again for participating in today's call. We hope you'll join us again for our next conference call to discuss our third quarter 2021 results.

Thank you for participating in today's Westlake Chemical Corporation Second Quarter Earnings Conference Call. As a reminder, this call will be available for replay 2 hours after the call has ended. And maybe accessed until 11:59 p.m. Eastern Time on Tuesday, October -- I'm sorry, August 10, 2021. The replay can be accessed by calling the following numbers: Domestic callers, dial (855) 859-2056. In International callers may access the replay at (404) 537-3406. The access code for both the numbers is 4594733. Thank you, and have a great evening.