Jeff Holy - Westlake Chemical Corp. Albert Yuan Chao - Westlake Chemical Corp. Mark Steven Bender - Westlake Chemical Corp..

Emily Wagner - Susquehanna Financial Group LLLP Ian Bennett - Bank of America Merrill Lynch David I. Begleiter - Deutsche Bank Securities, Inc. P.J. Juvekar - Citigroup Global Markets, Inc. Hassan I.

Ahmed - Alembic Global Advisors LLC Arun Viswanathan - RBC Capital Markets LLC John Roberts - UBS Securities LLC James Sheehan - SunTrust Robinson Humphrey, Inc. Aleksey Yefremov - Nomura Instinet Kevin W. McCarthy - Vertical Research Partners LLC Aziza Gazieva - Wells Fargo Securities LLC Matthew Blair - Tudor, Pickering, Holt & Co. Securities, Inc..

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to Westlake Chemical Corporation Second Quarter 2017 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 3, 2017. I would now like to turn the call over to your host, Jeff Holy, Westlake's Vice President and Treasurer. Sir, you may begin..

Thank you. Good morning, everyone and welcome to the Westlake Chemical Corporation second quarter 2017 conference call. I am joined today by Albert Chao, our President and CEO; Steve Bender, our Executive Vice President (sic) [Senior 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 in the second quarter of 2017, followed by 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'll 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 references to OpCo refer to our subsidiary, Westlake Chemical OpCo LP, who 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 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 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 webpage at westlake.com. A replay of today's call will be available beginning two hours after completion of this call until 11:59 PM, Eastern Time on August 10, 2017.

The 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 57772493.

Please note that information reported on this call speaks only as of today, August 3, 2017, 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 would like to turn the call over to Albert Chao.

Albert?.

Thank you, Jeff. Good morning, ladies and gentlemen, and thank you for joining us on our earnings call to discuss our second quarter results. In this morning's press release, we reported quarterly net income of $153 million or $1.17 per diluted share.

Our results this quarter were impacted by $0.04 per share from integration costs associated with the acquisition of Axiall. In addition, our earnings were also impacted by lost sales and costs associated with our operational improvement programs, which Steve will discuss in more detail.

Our second quarter results included net record sales of $2 billion and record EBITDA of $411 million. These results show the benefit of our acquisition of Axiall and the strength of our businesses, which continue to benefit from improving economic conditions.

The second quarter also saw higher sales prices and solid demand for all of our major products, which reflects the strengthening of global demand. This quarter, we completed the ethylene expansion in our Calvert City, Kentucky facility, which added a 100 million pounds of capacity, utilizing low-cost ethane out of the Marcellus shale.

In addition to the ethylene expansion, we are continuing to perform extensive maintenance work on a number of our plants to improve their operational performance and ongoing reliability.

Thanks to the dedication and efforts of our employees, we are making good progress in our Axiall integration and remain on track to capture the $120 million of synergies and cost savings this year that we have previously communicated.

In addition, our operational improvement program to review the Axiall assets and identify areas for improvement, that was launched after we closed the transaction in August of 2016, is well underway and we are benefiting from these efforts.

Now, I would like to turn our call over to Steve to provide more detail on the financial and operating results..

Thank you, Albert and good morning everyone. I will start with discussing our consolidated financial results, followed by a detailed review of our Olefins and Vinyls segment results. Let me begin with our consolidated results.

This morning, Westlake reported net income for the second quarter of 2017 of $153 million or $1.17 per diluted share on net sales of $2 billion, as compared to the second quarter 2016 net income of $111 million or $0.85 per share on sales of $1.1 billion.

Our second quarter results were higher compared to the second quarter 2016, due to earnings contributed from our acquisition of Axiall, higher sales prices for our major products resulting in improved margins and a lower estimated annual tax rate when compared to the prior year.

The second quarter 2017 results were also impacted by lost sales and cost associated with turnaround and expansion of the Calvert City ethylene unit as well as other planned turnarounds and unplanned outages totaling $64 million or $0.34 per share, and pre-tax integration-related cost of $8 million or $0.04 per share associated with the acquisition.

Second quarter 2017 net sales of $2 billion were driven by sales contributed by Axiall and higher sales prices for all of our major products, partially offset by lower polyethylene sales volumes due to maintenance activities.

Operating income of $267 million for the second quarter 2017 also benefited from the earnings contributed by Axiall, as well as higher sales prices for all of our major products, which resulted in higher integrated product margins.

Sales in the second quarter of 2017 of $2 billion and operating income of $267 million, both increased when compared to the first quarter of 2017 sales of $1.9 billion and operating income of $235 million. Second quarter 2017 sales benefited from higher sales prices for all of our major products, partially offset by lower polyethylene sales volumes.

The improvement in operating income was due to increased Vinyls operating margins, partially offset by lower polyethylene sales volumes. For the six month ended June 30, 2017, we reported operating income of $502 million on net sales of $3.9 billion, compared to operating income of $382 million on net sales of $2 billion in the first half of 2016.

The increase in net sales for the first six months of 2017 was due to sales contributed by Axiall and higher sales prices for our major products, partially offset by lower polyethylene sales volumes when compared to the first six months of 2016.

The increase in operating income was mainly attributable to earnings contributed by Axiall as well as higher integrated margins and lower cost associated with turnarounds and outages.

Our utilization of the FIFO method of accounting resulted in an unfavorable pre-tax impact of approximately $13 million or $0.07 per share in the second quarter, compared to what earnings would have been if we reported on the LIFO method. This calculation is only an estimate and has not been audited.

Now, let us move on to review the performance of our two segments, starting with the Olefins segment. In the second quarter of 2017, the Olefins segment reported operating income of $143 million on net sales of $489 million, as compared to second quarter 2016's operating income of $141 million on sales of $494 million.

Operating income increased $2 million over the same period due to higher Olefins integrated product margins, resulting from higher sales prices of major products, partially offset by higher feedstock and energy cost. Second quarter 2017 operating income of $143 million was $37 million lower than first quarter 2017 income of $180 million.

Operating income decreased due to lower polyethylene sales volumes and cost associated with planned turnarounds and unplanned outages. For the first six months of 2017, Olefins' operating income of $323 million increased $33 million from the first six months of 2016.

This increase in operating income was mainly due to higher Olefins integrated product margins, which were driven by higher prices for our major products and lower cost associated with turnarounds and the outages when compared to the first six months of 2016. Now moving on to the Vinyls segment.

The Vinyls segment reported record operating income of $143 million in the second quarter 2017 and net sales of $1.5 billion. Net sales for the Vinyls segment increased $898 million from the second quarter 2016 net sales. This increase is due to sales contributed by Axiall and increased sales prices.

Operating income increased $91 million year-over-year to $143 million, primarily due to earnings contributed by Axiall and higher sales prices for PVC resin and caustic soda, partially offset by higher feedstock and energy cost.

Second quarter 2017 operating income of $143 million increased by $72 million from first quarter 2017 operating income of $71 million. The improved results were due to higher margins, as a result of higher sales prices for all of our major products and lower feedstock and energy cost.

The second quarter 2017 continued to be impacted by planned turnarounds and expansion of our Calvert City ethylene unit and other planned turnarounds and unplanned outages as we work to improve the operational effectiveness of all of our facilities.

For the first six months of 2017, Vinyls operating income of $215 million increased from $114 million for the first six months of 2016. This increase of $101 million was mainly due to earnings contributed by Axiall and higher sales prices for PVC resin and caustic soda.

These increase is partially offset by unabsorbed fixed manufacturing cost and other cost associated with planned turnaround and expansion of our Calvert City facility and other planned turnarounds and outages during the first six months of 2017. Now let's turn our attention to our balance sheet and statement of cash flows.

For the first six months of 2017, cash generated from operating activities was $480 million and we invested $281 million in capital expenditures. At the end of the second quarter, we had cash and cash equivalents, including restricted cash, of $404 million and our total debt was approximately $3.5 billion.

We will continue to prudently manage our balance sheet, while continuing on our planned investments to address deferred maintenance. Now let me provide updated guidance for modeling purposes. We will continue our efforts that began last year to improve our operational performance.

Our current maintenance plan includes several planned outages in the remainder of the year that will impact our earnings by approximately $25 million in each of the third and fourth quarters.

This number reflects the higher maintenance expenses that will be incurred for these outages along with the associated lost sales, as we continue our maintenance efforts to improve reliability and performance. Moving on to capital spending. Our current estimate for 2017 capital expenditures ranges from $550 million to $600 million.

These capital and maintenance investments will improve the reliability and competitiveness of our plants. We estimate that our 2017 effective annual tax rate for the year will be approximately 30% to 33% and our cash tax rate will be approximately 25%.

We are on track to capture the full synergies and cost savings of $200 million that we previously announced by 2018, and we expect to capture approximately $120 million of these savings this year, while expensing integration-related cost around $25 million in 2017. With that, I will now turn the call back to Albert to make some closing comments.

Albert?.

Thank you, Steve. This quarter's results demonstrate benefits of the combination with Axiall. We're able to benefit from solid demand, higher prices and integrated margins and improved availability, which delivered record EBITDA for the quarter.

We continue to focus on capturing synergies related to our Axiall acquisition and are investing to improve the operational reliability and the competitiveness of our assets. Looking forward, we expect to see greater ethylene availability with new ethylene plants start-up, and capacity expansions are completed to take advantage of the low-cost U.S.

shale-based oil and gas production. We also see favorable underlying demand trends continuing forward for all of our major products. We are seeing some chlor-alkali capacity reductions in North America, and there have been no new plants announced.

Additionally, European regulatory authorities have mandated the mercury-based chlorine production must shut down or convert to another technology by the end of this year, which led to capacity reductions in the region. We believe that Westlake is very well positioned to benefit from these market developments.

Thank you very much for listening to our earnings call this morning. Now, I will turn the call back over to Jeff..

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 begin to take questions..

Thank you. Our first question comes from Don Carson of Susquehanna. Your question please..

Good morning. This is Emily Wagner on for Don. Just wanted to clarify the maintenance spending in second quarter. I think you guided to $60 million. Well, was that actual number? And can you give us the split between the segments? And then you're still guiding to $50 million in the second half 2017, but there were some unplanned outages.

Did some planned maintenance get moved to 2018? What was the shift there? Thank you..

Good morning, Emily. The impact in the second quarter, I guided to $60 million, the actual number was $64 million. And yes, I'm guiding for the second half to be a total of $50 million split between the two quarters, third quarter and fourth quarter, to be $25 million each.

The allocation of the impact in the second quarter is still very heavily oriented in the Vinyls segment. So there certainly was some maintenance activity in the Olefins segment. I mentioned that we had some maintenance activity related to our polyethylene businesses. Thank you..

Great.

And as a follow-up, could you provide an update on your ethylene sourcing options for the $1.8 billion, that short position?.

So I think you know that we're working in partnership with Lotte with the construction of a cracker. And certainly that – well, certainly with the 10% ownership of that venture give us access to additional ethylene.

We also have an option that gives us access to ethylene should we elect it, that would step up that interest from 10% up to a top, to a maximum of 50%.

We'll assess that opportunity as we go forward with the initiative, but we'll continue to compare any other alternatives for ethylene against that one, because that one is the obvious one to compare it to. But we'll continue to assess opportunities in ethylene to further integration as the market continues to develop..

Thank you..

You're welcome..

Thank you. Our next question comes from Steve Byrne of Bank of America..

Thank you. This is Ian Bennett on for Steve. In the Vinyls segment, there was a positive 8.9% price in the quarter.

Can you comment a little bit about how that price year-over-year compared to the different product lines and the expectation for the remainder of the year?.

Certainly. In the Vinyls business, in chlor-alkali, we had good price improvements in the quarter along, well, with chlor-alkali improvement in the first quarter. And IHS is projecting that for the whole year, we'll have a $90 per dry metric by – shorten of price increase over last year. And in PVC as well, we are seeing price improvements this year.

First quarter, we had $0.06 a pound price improvement. And so far, there's no decrease and we expect demand to be strong both domestically and internationally for PVC..

Okay. Thanks.

And as a follow-up on Vinyls, do you expect Vinyls earnings in 3Q to be above or below 2Q levels?.

Well, as you know, we don't give specific guidance. But I think that you can see from the comment that Albert made that we're continuing to see strong price performance across that product chain..

Thank you very much..

You're welcome..

You're welcome..

Thank you. Our next question comes from David Begleiter of Deutsche Bank..

Thank you. Good morning..

Good morning, David..

Good morning, David..

Well, Albert – good morning. It looks like we'll see some new polyethylene capacity coming on stream in Q3 here.

Do you think that precludes any potential price gains from the announced price increases in August and September?.

You talk about the August price increase the industry announced, $0.03 a pound, polyethylene..

Correct. And I believe somebody has also announced an increase for September as well..

Yes. Well, we are in the early part of August, so we will see how the $0.03 a pound price increase comes into effect, and then we'll talk about the September price increase. I don't think the September price increase is industry-wide. I think it's a very selected announcement.

But demand for our products, both domestically and internationally for polyethylene is still quite strong..

Very good. And lastly, there's been a lot of discussion on the China recycle scrap issue.

Where do you come out on that debate in terms of its impact on the market?.

Certainly. I think from a demand for polyethylene, that will be very positive. China is the largest PE market in the world, and they have been importing various types of plastic scraps all over the world primarily from the U.S.

And if we reduce the imports of scrap, the consumption of virgin polyethylene will increase; that's a positive for our industry..

Thank you very much..

You're welcome..

Thank you. Our next question comes from P.J. Juvekar of Citi..

Yes. Hi, good morning..

Good morning, P.J..

Good morning, P.J..

Now that Calvert City expansion is complete, can you just tell us how does the cost of ethane or ethylene at – COE at Delaware City compare with your Gulf Coast cracker? So just give us ballpark numbers so that we can understand the Marcellus ethylene advantage?.

Yeah. I think we have said in the past, the Calvert City's ethane purchase is market-related pricing. So with expansion, suddenly it will be even more competitive from a cost point of view. And Calvert City is one the most integrated from ethylene, chlorine to PVC complex in the U.S. So it's quite competitive, and is doing quite well..

How much lower the cost of ethylene at Calvert City would be compared to your Louisiana crackers?.

We'll just say it's quite competitive..

Okay. And then on caustic soda, exports have remained strong here.

Can you comment on what you're seeing in the caustic export market? And is that strength mainly coming from China?.

Certainly. I think the global demand for caustic is quite strong, especially industrial demand is quite strong, as well as alumina demand for caustic is very strong globally, and we are seeing very strong volume and price improvements globally.

And I think the Chinese operating rates is quite high already and expect the price to stay up for the foreseeable future. So, as you know, China is the largest caustic capacity country in the world. So, if we are running at a high rate and demand continues to be strong, that's a good sign for global caustic business..

Okay. Thank you very much..

You're very welcome..

Thank you. Our next question comes from Hassan Ahmed of Alembic Global..

Good morning, Albert and Steve..

Good morning..

Good morning, Hassan..

My first question is around volumes within the Olefins segment. As I took a look at your Q1 numbers, volumes were up decently quarter-on-quarter, sequentially, volumes were up 8%, and obviously Q1 was a quarter where you had a variety of the same turnarounds that you had in Q2, be it Calvert City, (25:49) and the like.

Now, as one looks at Q2, the volumes dipped down by around 7% and you guys also talked about lower polyethylene sort of sales of volumes within Q2. Just trying to understand what was going on there.

Was there something about the underlying demand? Was it some sort of an unplanned outage? I mean, what caused that dip in volumes on a quarter-by-quarter basis?.

Hassan, it's Steve. As I mentioned in my prepared remarks, we noted we had some maintenance issues, which have been addressed with one of our polyethylene lines, and that speaks to one of the maintenance issues that we had in Olefins. It's been addressed. And moving forward, demand remains very strong, though..

So, I mean, so in theory, had that not happened, volumes would have been flattish, up, I mean, how should we think about that?.

That's correct. Demand remains strong and had we not been performing maintenance on the unit, we would have been able to produce and sell those pounds..

Understood, understood. Now, as a follow-up, I guess, a two-part follow-up. It just seems that 2017 obviously is a bit of a transitional year for you guys, heavy turnaround schedule, sprucing up some of the sort of acquired assets and the like.

So the first part of the question is that as we look at 2018, is it fair to assume that the bulk of your turnarounds are behind you? So that's part one. Then part two is, if that truly is the case, it just seems that the underlying earnings power thus far has been masked by all of these turnarounds.

So, as I sit there, take a look at your Q2 numbers, call it around $420 million in recurring EBITDA, adjusting for the sort of Axiall deal-related cost and the like, and then on top of that, one can add around $60 million, call it, $64 million, as you said, in terms of lost EBITDA because of the turnaround.

So, very simplistically, if I just annualize those numbers, I mean, I come up with an earnings power of north of $1.9 billion, and that's not even fully factoring in the full impact of the Axiall synergies.

So, I mean, barring the complete meltdown, I mean, it seems chlor-alkali fundamentals are fine and improving, so barring the complete meltdown in Olefins, I mean, isn't that the right way we should think about sort of the go-forward earnings power of the company post Olefins turnarounds?.

Hassan, as you think about the work that we've been undertaking, we certainly addressed deferred maintenance issues starting after the acquisition of Axiall and addressing some even within the legacy Westlake. And we hope to get the majority of those done this year.

And you can see that the guidance that we've been giving, that the volume has been higher in the first half of the year, tapers in the second half of the year.

So we do hope that we can complete the majority of this work and get it all largely behind us this year and get to a more normalized operating situation in 2018 and allow us to get to more normalized activities going forward..

And what are your thoughts about the earnings power? I mean, am I completely off on that?.

Hassan, if you look at IHS forecast, I'm not saying that they're always correct, they're looking at the whole year 2017 and 2018 polyethylene price more or less flat, caustic prices up about $40 a ton and PVC is up on the average year-over-year, it's about $0.05 – $0.04 to $0.05 a pound.

So at least IHS is looking at the Vinyls business price still going up in 2018 and we are seeing demand continue to be strong and polyethylene price being flat is what they are saying..

Okay. Very helpful. Got you. Thank you..

You're welcome..

You are welcome..

Thank you. Our next question comes from Arun Viswanathan of RBC Capital..

Great. Thanks. Just a question on....

Good morning..

Good morning..

...PVC – good morning – to begin with, you know, ethylene prices have come down over this summer, and I understand PE is just holding up.

But PVC, what gives you the confidence that you can actually start making a lot more margin in that business and sustain it?.

Certainly. You're right, ethylene spot price has come down, so PVC margin has improved somewhat from a cost point of view, but ethylene price hasn't changed that much overseas. And overseas, PVC price is quite strong. And, as you know, U.S. is a large exporter of PVC around the world. So that export price also stabilizes the domestic price.

And domestic demand for construction and all that is doing quite well, especially during the second and third quarter. So, we are seeing continued good demand domestically and strong demand overseas..

Okay. Thanks. And, similarly on caustic, you've got through several months of increases here. There's another $55 or so on the table for Q3, and then some of that maybe pushed into Q4. And then you just noted that IHS is possibly calling for another $40 in 2018.

At what point do you start getting worried is that you could see some announcements of new capacity? And are you not worried about that because there's no place for the chlorine. Thanks..

Certainly, we are certainly aware of competitiveness of our products versus, vis-à-vis alternatives. But, well, there's no new capacity announced in the U.S., and generally takes about three years or up to five years to get permit and build a new plant.

And overseas-wise, again, Europe is actually reducing capacity due to the shutting down of the mercury cell capacities in Europe; we're talking about potentially 850 million metric tons to 1 billion metric tons of reduction capacity. Again, overseas, even in Asia, we have not heard any major announcements of new capacity expansion.

So, global GDP is growing 3% a year and typically caustic demand follows between 0.5 to 1 time GDP growth rate and the demand is growing, no new capacity added, and it takes time for capacity to come in place. So we are seeing very positive signs..

And then just lastly on the maintenance. You've had an elevated year of expenses here. What's the kind of level of negative EBIT impact or EBITDA impact you expect for maintenance in a more typical year? Thanks.

Sorry, you said in a more typical year?.

Yeah..

You know, Arun, what I've tried to do is call out that, that is outside of the norm. And so certainly, when you think of the impact we had in the first quarter, the $64 million in the second quarter. And I'm giving guidance of $25 million in quarter three and four, those numbers are the numbers that we think are outside the norm.

And so we haven't really gotten to calling out the normal activity because, frankly, that's been embedded in our normal run rate of earnings. So what I've been doing is calling out that is outside of the normal run rate..

Got you. Okay thanks..

You're welcome..

Thank you. Our next question comes from John Roberts of UBS..

Hi. Good morning..

Good morning. John..

Good morning, John..

Some of the paint companies that we reported already have talked about wet weather, significantly depressing June exterior paint sales.

Did your building products experience the same sort of effect?.

Well, certainly, there's the variables of months-to-months or week-to-week, but we're seeing quite strong demand for our building products throughout the spring and into the summer..

Okay. And Albert, you made a comment earlier on Asia caustic, and I know you don't have a lot of export business there. But I had thought the Australian alumina production was having problems with electricity availability, so that maybe caustic consumption was weakening in Asia.

You actually think it's strong there?.

Yeah. So what we are seeing is not just the cost of alumina for carbon paper for general industrial usage is quite strong and certainly for Tio2 also is quite strong in overseas..

Okay. Thank you..

You're welcome..

Thank you. Our next question comes from Jim Sheehan of SunTrust..

Thanks. Question on the PVC market, it looks like it's fairly tight of late. There's a competitor outage that maybe contributing to that.

Just wondering how does your demand pattern, has it been shaping up in July and early August here? Have you seen any slowdown in your PVC order patterns in August?.

No. We are seeing a pretty general demand we see in this year. The demand is strong both domestically and export..

How do you see the PVC inventory situation right now?.

As you said earlier, there were industry offsets in this PVC or VCM market. So the PVC inventory is quite tight..

And in terms of PVC prices for exports, how are your netbacks comparing to domestic pricing?.

Netback been quite good. At times netback earlier year has been higher than domestic in certain sectors, but I think it's quite attractive, and we expect the export market to continue to support domestic market prices..

Thank you..

You're welcome..

Thanks, Jim. Our next question comes from Aleksey Yefremov of Nomura Instinet..

Good morning. Thank you..

Good morning..

Have you realized – good morning.

Have you realized all of the price increases reflected in the index in the second quarter, are all of them reflected in your second quarter EBITDA run rate or you may still have more in the third quarter?.

Well, depending on what products. So, in PVC, we announced we have received – industry has implemented $0.06 a pound in the first quarter, which we got in the second quarter. I said earlier, with lower ethylene prices, it helps improve the margin for PVC business. But right now, there's no additional price announcement being made to PVC.

Likewise, in polyethylene, we had about $0.08 a pound price increase implemented. And there was, first quarter, the $0.03 a pound reduction in May.

And right now, the people are talking about another $0.03 a pound price increase in August, and time will tell whether we will implement that, whereas in caustic soda, there's price announcements in the first quarter and second quarter and then moving to third quarter.

So there's still continuing to have price improvements in the caustic soda area and chlorine as well..

I guess, more a question about lags in the caustic soda market, have you realized – does your EBITDA reflect all the caustic soda increases that were in the index during the second quarter?.

Oh! Caustic soda, generally industry lags, whatever announcement that historically we were not able to achieve 100% of the announced price increases. And depending on supply/demand, it will carry over into next quarter. And we also added further price announcements for the third quarter.

So, these price increases are kind of mixed together between the first announcement and second announcement..

Thank you, Albert.

And to stay on caustic soda, can you tell us about contracts that you have been renegotiating this year? Were you able to reduce the discounts versus index in your longer-term contracts?.

Well, certainly, we're trying to improve the net margin received. And with the tight market as contract to yield comes, usually the contract pricing improves..

Thank you very much..

You're very welcome..

Thank you. Our next question comes from Kevin McCarthy of Vertical Research..

Yes, good morning. How would you characterize....

Good morning, Kevin..

Good morning..

How would you characterize – good morning, sorry.

How would you characterize the margin trend among your downstream products that are fabricated from PVC?.

Well, since most of that goes into the building sector, when the economy improves and the housing market improves, that would carry over to our building product business. And we have a mixture of more commodity grades like water and sewer pipe, we have specialty pipe with sidings and trim, the moldings.

And so, some are much more specialty market, some are more commodity. But generally speaking, we are seeing improvements in all sectors..

Okay. That's helpful. And then shifting over to Europe, I believe one of your competitors has suffered an outage in the Netherlands.

Is there any benefit to Vinnolit's specialty PVC business from that? And also, I realize Europe is not a large region for you, but with the currency moving as it is, is there any material tailwind that you would anticipate in the back-half of the year related to your European operations?.

Yes, certainly, European economy, generally speaking, is doing better than people expected. I think you mentioned about the competitors problem that's more in caustic area. We also had our own problems up in the caustic area, but we are recovering from those. So, the caustic business is balanced to tight.

And I think there are price increase announced potentially for the third quarter, time will tell whether those price increases would come into fruition or not. But generally speaking, business is quite good in the Vinyls business in Europe and we're seeing good results..

Okay. Then last one, if I may. Steve, I think you mentioned a FIFO impact of negative $13 million.

How might that split between your two segments?.

It's largely attributable to our Olefins segment..

Thank you very much..

You are very welcome..

Thank you. Our next question comes from Frank Mitsch of Wells Fargo..

Hi good morning, it's Aziza on for Frank..

Good morning..

Good morning..

Good morning. I wanted to follow up on Hassan's question to better understand the volume declines noted in Olefins. You mentioned maintenance issues, but could you maybe provide more details perhaps about the amount of capacity affected or how long the issues lasted? Thanks..

Well, the outages certainly were more of a extended outage than we had certainly planned. And as I gave an indication in our guidance for the quarter was $60 million of impact; and as you can see, it turned out to be a $64 million impact. So that gives you some sense of the relative impact that we had there..

Okay. Thanks..

You're welcome..

Thank you. Our next question comes from Matthew Blair of Tudor, Pickering, Holt..

Hey, good morning, Albert and Steve..

Good morning..

Good morning, Matt..

I just had one question, in Vinyls, we've seen electricity prices spike up here in Q3, natural gas prices have been, let's call it roughly flat.

How is that going to impact your costs going forward in Vinyls and on the ECU margin? Are you more exposed to raw electricity prices or are you more exposed to natural gas prices?.

That's a good question. We are exposed to both. We do have a large cogeneration capacities in our Vinyls business. So natural gas is a big component in our cost of generating electricity. And having natural gas in the recent months being stabilized and coming down a bit will be helpful for our cost of making ECU..

Are you willing to give a split on, maybe, like 60% exposed to electricity, 40% nat gas?.

We are not making those comments..

Okay. Thank you..

You're welcome..

Thank you. We have time for one more question. That question comes from Aleksey Yefremov of Nomura Instinet..

Thank you, again. Just wanted to follow-up on the maintenance. I think, Steve, you mentioned earlier that your outage cost of $25 million each in the third and the fourth quarter represent only excess maintenance for the Vinyls segment.

Could you give us an idea of what we should expect from the Olefins segment on a sequential basis from the second to third quarter? How much could maintenance cost change either higher or lower?.

Yeah, you may have misheard me. The $25 million is both segments, Vinyls and Olefins, for each quarter. And so as I said, it's largely attributable to the Vinyls businesses, but it does cover both Olefins and Vinyls for each of those two quarters..

But, I guess – so just to clarify, in total, you have incurred between the two segments, $64 million in the second and will incur $25 million, both planned and excess maintenance.

So sequentially between the two segments, this should represent a decrease in maintenance costs?.

Yes. That'll be $25 million in Q3 and the guidance for Q4 is $25 million. And so, as I said, that $25 million is the planned work that we have for both segments in each of those respective quarters..

Thank you..

You're welcome..

You're welcome..

Thank you. At this time, the Q&A session has now ended.

Are there any closing remarks?.

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 2017 results..

domestic callers should dial (855) 859-2056; international callers may access the replay at (404) 537-3406. The access code for both numbers is 57772493. Thank you for attending..