Good morning, ladies and gentlemen, thank you for standing by. Welcome to the Westlake Chemical Corporation Fourth Quarter and Full Year 2019 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 the question-and-answer session.

As a reminder, ladies and gentlemen, this conference is being recorded today, February 18, 2020. 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, Andrew. Good morning, everyone and welcome to the Westlake Chemical Corporation fourth quarter and full year 2019 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, 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 will refer to ourselves as Westlake Chemical. Any reference to Westlake Partners is to our master limited partnership, Westlake Chemical Partners LP, and similar references to OpCo refer to our subsidiary Westlake Chemical OpCo LP, which owns certain olefins facilities.

Today management is going to discuss certain topics that will be forward-looking, 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, energies and utilities, governmental regulatory actions, changes in trade policy and political unrest, global economic conditions, including the impact of the coronavirus, 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 fourth quarter and full-year results. This document is available in the Press Release section of our webpage at westlake.com. We have also posted a presentation on our website to assist in the discussion of our results.

A replay of today's call will be available beginning today, two hours following the conclusion of this call. 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 8467639.

Please note that information reported on this call speaks only as of today, February 18, 2020, 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 to discuss our fourth quarter and full year 2019 results.

Westlake's focus on operational excellence, cost management and prudent investments proved to be an advantage as our markets dealt with trade uncertainty that caused a slowing in global industrial manufacturing activities and drove prices lower throughout the year, particularly lower in the export markets.

In this morning's press release, we reported net income of $72 million for the fourth quarter of 2019, or $0.56 per diluted share. For the full year of 2019, we reported net income of $421 million, EBITDA of $1.4 billion, cash flow from operations of $1.3 billion, and achieved record sales volumes in 2019.

Our fourth quarter profitability was impacted by lower global demand for our products as economic uncertainties caused many of our customers to remain cautious, reducing the inventory levels and tightly managing their ongoing purchases. The impact to prices was most significantly in the export market.

In our Vinyls segment, industry experts reported that caustic soda export prices fell $130 per ton and reported domestic caustic price indices were down $85 per ton. Both of these decreases were from the fourth quarter of 2018 to the fourth quarter of 2019.

In our Olefins segment, the surge in new polyethylene capacity, primarily in the U.S., coupled with declining oil prices, which lowered our overseas competitors' costs, put pressure on polyethylene prices and led to a reported polyethylene domestic price decrease of $0.14 per pound since the fourth quarter of 2018.

Our drive for operational excellence and being positioned on the lower end of the global cost curve, which is the result of using cost advantage to ethane feedstock and gas-based power coupled with our product mix among the factors that drove our ability to achieve record sales volumes in 2019.

We also took steps throughout 2019 to rationalize some facilities around the world, which helped concentrate and optimize our production by lowering costs and we will continue to keep that focus. Even in these uncertain market conditions, we completed our investments to strengthen our business.

We have started up our previously announced the vinyls expansions in both Germany and Geismar, Louisiana, adding 750 million pounds of PVC production capacity. The expansion in Geismar provides us a higher degree of integration by consuming a greater portion of our chlorine into the production of PVC which broadens our global sales channels.

The expansion in Germany optimizes this capacity at improves cost in our specialty PVC business. We also increased our interest in the LACC ethylene joint venture with Lotte Chemical in October of 2019 to 46.8%.

This 2.2 billion pounds ethylene cracker in Lake Charles, Louisiana will lower our cost of ethylene feedstock in our vinyls business and reduce the amount of ethylene we purchase in the market, which keeps us on the lower end of the cost curve.

All of these initiatives increase our integration, lower our costs and improve our global competitive position. I would now like to turn our call over to Steve to provide more detail on our 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 Vinyls and Olefins segment results. Let me begin with our consolidated results.

For the fourth quarter of 2019, we reported net income of $72 million or $0.56 per share compared to net income of $123 million for the fourth quarter of 2018.

As Albert mentioned, the contraction in global industrial demand driven by the international trade uncertainties that persisted throughout 2019, led to lower prices and margins for our major products, especially in the international export markets.

In our Vinyls segment, the combination of significantly lower industrial activity and lower inventory carried by our customers impacted global demand, and therefore significantly lowered prices for many of our vinyl chemical products.

In our Olefins segment, new polyethylene production capacity has come online over the past two years, leading to excess supply, putting pressure on polyethylene prices. Our global low-cost position on the olefins and vinyls cost curve provided a competitive advantage that drove record sales volumes in 2019.

While we benefited from these record sales volumes, the lower prices and margins for our products more than offset those volume gains. Compared to the third quarter of 2019, we experienced lower prices for our major products and higher feedstock and fuel cost.

We also experienced the typical seasonal slowdown in our downstream vinyls products businesses, as many of these products to serve the construction industry.

Our utilization of the FIFO method of accounting resulted in a favorable pre-tax impact of approximately $13 million or $0.08 per share compared to what earnings would have been reported on the LIFO method. This calculation is only an estimate and has not been audited.

Now, let's move on to review the performance of our two segments, starting with our Vinyls segment. In the fourth quarter of 2019, our Vinyls business saw sharply lower sales prices for caustic soda as compared to the fourth quarter of 2018, driven by lower global industrial manufacturing activity.

Vinyls operating income in the fourth quarter of 2019 of $68 million decreased $57 million from the prior-year period, primarily as a result of lower sales prices for caustic soda that was partially offset by higher sales volumes for caustic soda, PVC and downstream vinyl products.

Fourth quarter Vinyls operating income of $68 million decreased $85 million from the third quarter 2019, as we saw higher ethane feedstock and fuel cost as well as lower caustic prices and the typical construction season slowdown that lowers demand for downstream vinyl products.

In mid-October, we increased our interest in the LACC ethylene joint venture to 46.8%, which reduced our total cost of ethylene by providing additional ethylene at cost and reducing the amount we purchase at higher market prices. Now turning to our Olefins segment. Full year 2019 saw solid increases in global demand for polyethylene.

However, the significant new ethylene and polyethylene production capacity that has entered the market has outweighed the increases in global demand which coupled with lower global oil prices in 2019 per sales prices and margins, lower.

For the fourth quarter of 2019, Olefins operating income of $49 million decreased $41 million from fourth quarter 2018, as a result of lower sales prices that was partially offset by higher polyethylene sales volumes.

Fourth quarter 2019 Olefins operating income of $49 million decreased $43 million from the third quarter of 2019, as we're impacted by lower sales prices, higher feedstock and fuel costs, and higher cost from polyethylene turnaround activity when compared to the prior quarter.

Next, let me turn our attention to the balance sheet and statement of cash flows. At the end of 2019, we had cash and cash equivalents of $728 million and total debt of $3.4 billion.

Cash flow from operating activities was $333 million in the fourth quarter of 2019, and $1.3 billion for the full year of 2019, helping to support our strong balance sheet and liquidity position.

We completed the previously announced vinyl expansions in the United States and Germany during the fourth quarter, which had 750 million pounds of annual PVC capacity. These expansions along with our increased interest in the LACC ethylene joint venture increases the level of integration in our Vinyls business.

To capture the margin within our product chain reduces our ethylene cost and further leverages our low-cost footprint for existing operations to reach markets around the world.

We will invest prudently and opportunities to acquire businesses with leading technologies and assets that further enhance the chain integration of our business, which improves our cost position and capitalize on our globally advantaged feedstock position. Now let me address some of your modeling questions.

Looking forward into 2020, as a result of our recent investments, we do not expect to be a cash taxpayer in 2020, and expect our tax - effective tax rate for 2020 to be approximately 23%. We expect cash interest expense in 2020 to be approximately $140 million and our cap expenditures to be in the range of $650 million to $700 million.

We are planning for a turnaround of our Petro 2 ethylene unit which could occur in September or later. The turnaround in an associated outage is expected to last approximately 60 days. We will update you later in the year as we finalize our turnaround plan.

The estimated maintenance cost of the turnaround is approximately $100 million and will be amortized over a five-year period. With that, I will now turn the call back to Albert to make some closing comments.

Albert?.

Thank you, Steve. Recent trade resolutions such as the U.S. MCA, an agreement between the U.S., Mexico and Canada as well as the Phase 1 agreement with China was a positive for global demand, and we saw improvements in domestic and export prices for PVC and polyethylene. Housing starts in the U.S.

grew over 3% in 2019 and saw a stronger growth in the fourth quarter. This improving trend should also bode well for domestic PVC demand and our downstream vinyl products business.

However, with the outbreak of the coronavirus, we are taking a conservative view of 2020 as potential impact on global industrial demand, which will be dependent on the time period it takes for the Chinese and global economy to recover from this contagion. We continue to optimize our operations and lower our cost position.

These steps compared - paired with the discipline we have shown in the past will guide our actions in 2020 and beyond. With our advantaged position on the global cost curve, combined with a strong balance sheet, we are positioned to continue to create value for the long-term for our shareholders.

Thank you very much for listening to our earnings call this morning. Now, I'll 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 two hours after the call has ended. We will provide that number again at the end of the call. Andrew, we will now take questions..

[Operator Instructions] And our first question comes from the line of Bob Koort with Goldman Sachs..

This is Dylan Campbell on for Bob. On caustic soda, there is price increases have been announced for caustic soda in January.

Could you discuss in kind of opine on those potential price increases? And generally, what you're seeing in the caustic soda market in regards to inventory levels, producer outages and maybe demand trends to give us a sense of kind of likelihood or chances for that price increase to actually go through?.

Sure. As you know that we reported caustic soda prices dropped both in export and domestic market in 2019 by a larger amounts and the industry, Westlake and other company has made various price increases for the first quarter and between $35 to $40 of dry short term and both are effective immediately as allowed by the contract.

So we foresee - because of the lower inventories from our customers with a decrease in price last year, we see chunk for restocking by our customers and the increased demand, we believe that these prices will be put in place..

And then on PVC pricing, looking into 2019 and some consultants had anticipated some nice pricing growth that then ultimately materialize in any meaningful form in 2019. And I think that despite some nice demand trends that you talk about for PVC in construction.

I mean give your sense of a kind of what prevented the industry from gaining price in 2019? And then I guess looking into 2020, it looks like there are similar expectations for some nice pricing growth, and give us a sense of kind of the likelihood of that is to kind of go through as we look through 2020..

Sure. With the weakness in export demand, export pricing globally in 2019, export size came down and which resulted - impacted on U.S. domestic price. But with the increasing seasonal demand as well, we see a pent-up demand for PVC and downstream fabricated products.

And industry including Westlake, we have passed a price increase of $0.03 a pound for January, and there is - we have announced another $0.03 per pound price increase for February, and time will tell whether the second $0.03 a pound price increase can be passed.

But we see that export prices have moved up and the domestic price, some prices have been higher than netback to domestic prices. So we believe the price increase momentum should improve..

And our next question comes from the line of Steve Byrne with Bank of America..

Just continuing down this line of thinking, would you say that your chlor alkali operating rates have increased in the last couple of months in line with an improving demand in pricing for PVC? And does that represent maybe an increased differential between the demand for caustic and the demand for the chlorine side of the ECU? And does that present any concern to you for caustic pricing moving forward?.

Certainly. Because of the fourth quarter demand for PVC generally is weak with seasonal construction slowing down, so demand for PVC and caustic production has also come down. But as the market recovers and the building construction season starts, there'll be more production of PVC and caustic. And we'll see how industrial demand grows, both U.S.

and in the international markets, how well support price increases for caustic..

And then Albert, you mentioned some of your customers continue to reduce inventory levels.

When you think about your largest end markets for caustic, are you seeing any signs of an inflection into those end markets? Anything that would suggest that those end markets have meaningfully decoupled from global GDP growth?.

Well, caustic as you know are used broadly in many manufacturing sectors, not only in alumina but also in pulp and paper, refinery, cosmetics, consumer products. There's a very broad application. So it has a very strong correlation with GDP as well.

And time will tell, we are concerned of the impact of coronavirus potentially on just the general industrial activities around the world, and time will tell how much that will impact both production and demand because some of those plants, particularly in China has been producing lower rates or shut down or they cannot ship.

So not only sub-demand could be down but the production cost will be down. So we'll - time will tell, what's the impact of both capacity production and demand will be..

And our next question comes from the line of Kevin McCarthy with Vertical Research..

Albert, just a follow up on the prior point.

What is your preliminary assessment of the likely net impact of the virus on China's net trade position? Do you expect it to be a net negative? Or are there examples of a net positive for you when you take into account the reduced supply position in China?.

That's a good question. We're still trying to get information feedback. As you know, this is the issue just started less than a month ago. China does or did export a fair amount of caustic on the coastal regions. So with the plants not able to produce or can't get ships to load or unload, the export market could be affected.

On the other hand, we don't know what the demand for the export markets are for Chinese caustic. So that - we don't, come and tell you, and I think at a month or so we can get better information..

And then secondly, I wanted to ask about your M&A pipeline. And I think Westlake was mentioned in a Bloomberg article several weeks ago as a possible acquirer of Orbia in Mexico, perhaps you can comment on a specific deal.

But in general, what would you say about your appetite for sizable acquisitions as the businesses approach trough conditions here?.

Look, Kevin, as you can imagine and you heard our comments earlier, we're taking a conservative view as we enter this market. And so we're going to be cautious about any opportunity that might be in the marketplace.

You're right, I can't comment about any particular activity that we might look at or any particular trend that we see in terms of assets in the marketplace. But we're going to take a conservative stance in terms of how we deploy capital in this business to make sure that we're creating real value to grow the business on a long-term basis..

And our next question comes from the line of Neel Kumar with Morgan Stanley..

I think you mentioned some rationalization of your capacity around the rolling your comments.

Can you just give us some more color on that? Just what kind of impact that had in terms of overall size and how well it impacts your cost structure in 2020?.

So, Neel, we took the opportunity to rationalize an asset in the UK and at the same time added some capacity as you can see in Germany.

So the net change was a mild nil net change in our production capacity in Europe that allowed us to really concentrate and reduce our cost structure by having a more centralized location to produce products there in Germany. So it allowed us to really reduce our cost structure and not have such a widespread footprint.

But it didn't have a significant change in our production capacity. We've also taken the opportunity to rationalize some of our downstream vinyl product assets in the North American market and have shuttered the facility to make that - again that more a cost-effective business and reduce our costs, but still, service customers well..

And I think you mentioned a $13 million positive impact from the FIFO method versus LIFO. I was wondering if you just give a little bit more color on that as it seems that ethane prices actually came down throughout the fourth quarter, so I thought it would be a negative.

And just how your feedstock cost looking so far in the first quarter relative to the fourth quarter?.

Well, as we think about feedstocks during the course of '19, we saw that ethane did trend down, but certainly, it still was fairly elevated at the end of the fourth quarter compared to the first quarter. And so we did have a positive benefit as you note. Since then, we've seen ethane prices trend even further down.

And so as long as we see that benefit, we'll have a similar outcome in the first quarter of '20..

And our next question comes from the line of Arun Viswanathan with RBC Capital Markets..

Just curious, you know, it looks like polyethylene was able to - the industry was able to ink a $0.04 increase in January. Maybe I can just get your comments on that.

Is that kind of within your realm of expectations? Do you expect further pricing as we move through 2020? How is your inventory looking, I guess? And what do you think drove the increase there?.

Yes. Inventory was quite low going through the end of 2019, and with a price drop, and with the improving export price at the end of - middle-end of December, so the industry announced the $0.04, which is not push through earlier was effective in January, and some other company announced another $0.05 a pound price increase for February.

And time will tell whether that would be able to put in place. But particularly in LDPE, the inventory is quite low, demand is quite strong and - well, time will tell whether that you know, $0.05 can be put in place..

And similarly, on the caustic front, I know there's been a number of increases here by yourselves and your competitors in the industry. Maybe you can just give us your chances of success there for the increases that have been announced in caustic soda as we move through the year.

I guess I'm just curious what it would take if there is anything that the industry can do outside of macro improvements or cyclical improvement or even coronavirus kind of settling.

But how do you look at the caustic market right now?.

Yes. I think it takes both U.S. and global demand increase for industrial manufacturing. As you know, the PMI index for manufacturing is going - being below 50 in many parts of the world. And so if we see signs of improvement, that will help in increasing demand for caustic. There has been some rationalization of capacities in caustic in the U.S.

And as I said earlier, we don't know what impact of the caustic manufacturing and sales in China will be because even though the demand will presumably less, but production is coming down a lot also..

And just lastly, could you comment on your styrene business as well? I know that trends may have been a little challenging there, what's your outlook for that business? And are you looking at it within your portfolio longer term? Thanks..

Certainly. While against supply-demand was the fall in oil prices, benzene price come down a lot as well, so that helped the cost position for styrene. And the global demand for styrene which dependent in plastics and tires, again depending on global GDP and industrial manufacturing, whether they would increase demand for that as well.

But the styrene, everybody know that China has added some styrene capacities. But now with all the coronavirus, we don't know the impact of production of those for cities in China. So if those new capacities are not impacting global market, that could change the dynamics of global market again..

And our next question comes from the line of David Begleiter with Deutsche Bank..

Just on your CapEx forecast this year, what is maintenance CapEx in that number? And what are you spending on the growth capital for this year? And how should we think about growth capital going forward over the next couple of years?.

So, David, the guidance I gave for CapEx this year in total was $650 million to $700 million, and a little bit more than $500 million is that ongoing maintenance capital component.

As I mentioned earlier, we have several other small expansions or debottlenecks that make up the rest of that capital beyond that, a little over $500 million of maintenance capital that we expect to complete over the course of the next year and a half to two years.

We haven't given guidance for '21 CapEx and will do that as we get further into the year and look at our 2021 numbers. As we typically do, we give those numbers early in the New Year, once we finish our full budgeting process..

And so you just saw - you mentioned cash taxes, you expect to pay no cash taxes this year.

What's driving that and is that sustainable going forward?.

David, the benefit of the investments that we've made as we get the benefit of the bonus depreciation in the current year, and so the investments we made in both in the U.S. through our PVC expansion, and of course, the investment in the ethylene unit allow us to avoid paying cash taxes, this year..

And going forward, do you think or?.

It will depend on how earnings play out in '21 and beyond. We'll give guidance as we see how earnings develop..

And our next question comes from the line of P.J. Juvekar with Citi..

This is Eric Petrie on for P.J. China recently announced that importers may be able to import U.S. high density and linear low density at pre-trade war duties of 6.5%.

Do you have any read on that and how it could benefit the industry?.

Certainly, as we understand on February 17, the U.S Chinese regulation has put - has canceled all the punitive tariffs on U.S. polyethylene exports to China or imports to China other than the normal tariffs. So I think U.S. polyethylenes can get back to normal to the pre-trade war era polyethylene and other - some other polymers as well.

But again, we don't know what the demand for Chinese on polyethylene. Although China imports about 40% of its normal polyethylene needs, but today their needs could have changed. On the other hand, the production also could be hampered.

So depending on the region of China, some region that does not - cannot get local production, they may have to import..

Okay, helpful.

And then secondly, how do you see, supply-demand balances for caustic soda in Brazil? It looks like Braskem is now importing salts to Macelo?.

Yes. Well, the - as we understand, domestic economy in Brazil has not been at robust, so a demand for general polymers in Brazil has been slow. I think Brazil is coming back from its salt problems and - so I think that Brazil used to import and that's what export caustic, so with the due dynamics, things could change a bit..

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

A question on polyethylene. As I take a look near to medium term supply-demand fundamentals, there seem to be quite divergent depending on the grade I'm looking at. It seems LDPE, there isn't that much capacity coming online. Over the next year or two, quite a lot of HDPE and LLDPE capacity coming online.

Now, obviously, historically pricing for most of these grades moved in tandem, and what are you guys' views about how sort of these divergent supply-demand fundamentals up impacts pricing power going forward by grade?.

That's a good question. As you know that most of the polyethylene - there three types of polyethylene that's price movements are all intended. And there's been discussions that it doesn't make sense that the dynamics supply demand for each product are quite different.

As you mentioned, there are more capacity added linear, low or high density than LDPE. And also the LDP added in the U.S. are all tubular which are more of the commodity grades. And with 80% of our grades are auto play. So time will tell whether the industry would have bifurcate or trifurcate prices for all three different types of polyethylene..

Understood. And as a follow-up, going back to the whole M&A side of things, I know you can't specifically comment on the Bloomberg article about Orbia, but just strategically, thinking through things.

I mean as I took a look at the Westlake portfolio historically, I mean you guys would run a pretty sort of integrated portfolio into building blocks and the like.

Now you guys are net short ethylene, just strategically speaking, how do you want the portfolio to be positioned going forward? I mean are there certain building blocks that you want to be sort of net short? Do you want to be net long caustic PVC? I mean, just broadly speaking, what are the preferences and what - how do you sort of see the portfolio evolving over the next couple of years?.

So, Hassan, as you think about the investments that we have historically made and those that we're continuing to make whether it be the recent investment in the ethylene unit with Lotte, or whether it be these PVC expansions using some of our merchant chlorine to feed those into VCM and PVC, you see the focus is continuing to build out that integrated chain.

And so we find that to be a very valuable strategic approach and being very cautious in terms of how we invest in new incremental chain integration. So we think that makes good logical sense.

And you see over the course of 2019, we also extended that integration change to include some additional downstream products with the addition of NAKAN and DaVinci in that portfolio. So we think that the means to further that integration is important.

You heard us also speak to some of the rationalization steps that we took in 2019 to increase our footprint and reduce our costs. And so we think those integrated sites that bring us more value and lower cost. And the integration model is I think very important in terms of how we think about the path moving forward..

And our next question comes from the line of Frank Mitsch with Fermium Research..

Albert, the press is reporting that you've had some production issues at Longview, Texas, in terms of polyethylene. I was wondering if you might be able to comment on that.

Is that something that we should be concerned about the length of delay, et cetera or anything or more broadly on the operational front, as we sit here in the first quarter?.

Yes. While we do not report on specific client operations, but we don't have any material operational issues in Longview, Texas..

And Steve, you said before, I think in response to the M&A question would have you - just some of the conservative nature in terms of cash use, how should we think about Westlake's appetite for buybacks during 2020?.

So Frank, we still have ample authorization from the Board to buy opportunistically. And that's how we've operated to look for opportunities where we think the valuations are inappropriate and to take action accordingly.

So the Board has given us ample authority and certainly, as we think about that, we'll act on those opportunities where we think that the valuation proposition is favorable to investors, for us to buy and return some of that cash back to shareholders..

And our next question comes from the line of Mike Leithead with Barclays..

I think in your prepared commentary, you made a comment that you want to be conservative on demand this year. I know, you usually stick with the consultant guidance in terms of outlook.

But is it fair to say you're taking a more conservative view than them with your 2020 outlook? Or how should I think about how you're thinking about the market versus some of the other consultants out there?.

Well, I think the impact of coronavirus on China and the rest of the world is really just the beginning and nobody has a crystal glass on understanding what's going to happen. So time will tell. We just want to be cautious..

No, that's fair. And then you touched on some of the excessive weakness in the export market today. Can you maybe just give us a sense with all of this new capacity coming on in the market, how you think about your domestic versus export sales mix in your three key products polyethylene, PVC and caustic? Thank you..

Sure. Now, I think the export weakness was primarily it's starting in 2019 with the trade tensions and slowing down in Chinese manufacturing economy and global manufacturing economy. So that caused much of the price weakness, both in the export market and in the U.S. market. But with the Phase 1 agreement U.S.

MCA, the tone has changed in December and we saw price moving up and we are seeing continued price moving up, especially in polyethylene, PVC. Caustic, I think is somewhat slower, but we have seen some price increases also.

So barring the coronavirus' impact if it's only contained within China, and China seems to be controlling the spread of the sickness then things could recover faster. If the converging spreads to more countries or get worse in China, the impact could be worse. So we cannot tell how that will impact demand and pricing in the coming months..

And our next question comes from the line of Jeff Zekauskas with JPMorgan..

Early in the call, you spoke of $0.04 per pound price increase in polyethylene. But I think the IHS guys said that the net transaction price for them was zero in January, that is that there was some increase, but there were maybe some discounts that weren't factored in.

Is it really a $0.04 per pound increase in January? Will that benefit your margins in the first quarter? Or is it more subtle or complicated?.

Yes. I think there were some down market adjustments at end of the year with contract resetting. So some of those penalties were impacted in the fourth quarter of last year.

And so if you combine depending when those - putting in place, if you combine the $0.04 and some people saying that net debt could be neutral or a little bit positive, but depending on the customers, but the $0.04 price increase, as we understand as was in effect in January..

So does that mean, all things being equal, your per pound margins should be $0.04 per pound higher sequentially? Or is it more complicated than that?.

There should be a positive impact in the first quarter earnings, at least for January. Yeah..

And what were the cash taxes you paid in 2019?.

So, Jeff, we'll get - we won't - we'll get a refund of all the cash taxes we paid in '19 because of those investments that earlier mentioned, the ethylene unit, as well as the PVC. So while we were accruing and paying some small amount of taxes in anticipation of that, those will all be refunded. And so, our net cash tax effect in '19 will be zero..

So what will your deferred? So can you forecast your deferred tax number on your funds flow statement for….

So we will - yes. So our effective tax rate, ETR will continue to grow and we'll continue to accrue at a 23% rate. But from a cash tax perspective, both '19 and '20, I expect to pay no cash taxes. But as I said, we will continue to show an ETR, an effective tax rate of 23%..

With all of the difficulties about the virus, has import - has your import demand for your Olefins business slowed down in 2020 so far? Or have you not detected any change?.

Import?.

I'm sorry, I misspoke. Export..

So far we haven't seen much change. Actually, demand has been quite strong..

And our next question comes from the line of John Roberts with UBS..

Albert, the customers on the vinyl side globally in the construction industry very labor-intensive. And on the caustic side, we have a lot of large-scale process industries that use caustic.

So how we think the virus is going to reduce demand for construction-related materials more than it would reduce demand for caustic? And so there should be a sort of a net favorable to caustic eventual outcome from this?.

Well, the time will tell. But this is the construction season, and also, India is a big importer of PVC, especially, there's the dry season. And globally, whether it's been quite warm for construction seeing start pretty early, so the PVC demand has been quite strong, hence the price increases..

And Steve, what was the impact from two months of LACC in the quarter? Are there any discussions to go higher in your ownership?.

And so, John, the impact as I mentioned earlier, we expect between $20 million and $25 million a quarter, given the delta between producer economics and market prices for ethylene. And so we got a partial benefit in the fourth quarter because our investment was made during the quarter but on a go-forward basis.

It's in that range depending on where market prices for ethylene are, of course.

And so certainly as we think about the ownership percentage, we certainly believe that the - nearly 47% is a number that we are invested in today and certainly, to the extent that we can raise that to something slightly higher 50%, we'll continue to have those discussions with our partner..

And any plans to put it into the partnership sometime soon?.

That's certainly an option that we consider as we move forward. It certainly is a qualified income stream and could be structured to be in some of our manners or existing three units. And so certainly, that's a consideration as we think about growing the partnership's earnings potentials in the future..

Your next question comes from the line of Matthew Blair with Tudor, Pickering, Holt..

So your olefins volumes were down 7% quarter-over-quarter. If I look back over the past three years, the drop was about 4% quarter-over-quarter.

If I take that delta there - that 3% delta, is that a good approximation for the turnaround impact that you alluded to? And could you clarify, was that mostly on the PE side?.

No. The driver really was driven by some of the ethylene co-products and some of the styrene timing of vessels moving polyethylene continue to have good volume during the period. We had - we - as I say, it was mostly ethylene co-products and just timing of styrene shipments..

And then Steve, are you planning any debt reduction in 2020? And in general, how are you feeling about a dividend raise later this year?.

So when we think about the balance sheet, we certainly have a series - a several series of GO Zone and IKE bonds that could be considered later this year. They have a par call opportunity and so certainly we'll assess those and see what the right action is on those bonds.

And certainly, as we think about the dividend, we'll have conversations with our Board as we do every quarter about the dividend..

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 first quarter results..

Thank you for participating in today's Westlake Chemical Corporation fourth quarter and full year 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 11:59 PM Eastern Time on Tuesday, February 25, 2020.

The replay can be accessed by calling 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 8467639. Thank you..