Westlake Corp Q2 FY2021 Earnings Call

Good morning, ladies and gentlemen, thank you for standing by. Welcome to the Westlake Chemical Corporation Second Quarter 2021 Earnings Conference Call. During this presentation, all participants will be in a listen-only mode. 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’ll 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, Westlake Chemical OpCo LP, which owns certain Olefins facilities. Today, management is going to discuss certain topics that will contain forward-looking information 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 on 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 acquisition 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, two 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 one-time 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 quarter increased $507 million from the second quarter of 2020, demonstrating the strength of our business and the economic recovery to expansion from the impacts of the pandemic. Before we dive into our record results, I just wanted to make some brief comments on our recent acquisitions. Westlake’s leading positions in PVC siding, trim and molding, compounds, pipe, and fittings provide our residential and commercial customers with a comprehensive building products portfolio of PVC products and solutions. We have recently announced two 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, trim and 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 housing, 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, our PVC pipe and larger diameter fittings. Yesterday, we announced plans to acquire Dimex LLC, one of the largest processors of recycled plastic materials in the United States. Dimex is a producer of a variety of consumer products made from processed post-industrial-recycled PVC, polyethylene, and thermoplastic elastomer, and sells these consumer products to national retailers for home and commercial uses. We anticipate closing these transactions in the second half of this year and 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 robust demand for most of our products in a strong pricing environment. The strengths in global demand for PVC and polyethylene, resulting from growth in building and construction, and strengths 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 a lack of housing stock over the last 10 years and limited global PVC capacity additions create a 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 ongoing strong 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 a 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 by discussing our consolidated financial results and then we’ll go into a more detailed review of our Vinyls 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 one-time tax benefit of $591 million in the fourth quarter of 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 increased 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 strong global demand in construction and building materials, as well as consumer packaged goods. Our building and construction materials business also continues to experience strong results as North American housing demand remained robust. For the first six months of 2021, net income was $764 million, or $5.91 per share, an increase of $604 million from the first six months of 2020. The increased net income was attributable to higher global sales prices for our major products driven by a rebound in demand for product offerings. The first six 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 less than $1 million difference compared to what earnings would have been if we had 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 two segments starting with the Vinyls segment. The robust global demand for PVC was anchored by strong global construction activity. Our building and construction materials business continue to benefit from robust North American residential construction and repair and remodeling demand. These factors drove higher PVC sales prices in the segment, and we’ve benefited from strong integrated margins during the quarter. For the second quarter of 2021, Vinyls operating income was a record $435 million, increasing $415 million from the prior year period as average sales prices increased by 54%, and sales volumes increased by 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 by $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 driven by higher prices contributed to this increase. 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 the Olefins segment were up 26% in the quarter. Olefins 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 by $97 million from first quarter 2021 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 in 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 II 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.

Thank you, Steve. Westlake’s customer focus product portfolio is well positioned to continue to benefit from the strong demand environment we are experiencing. This quarter’s results illustrated the earnings capacity of Westlake and highlight 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 growth in demand more than offsetting limited global supply additions. We also believe that rebounding manufacturing activity will drive caustic supply-demand fundamentals to improve. We see the global strengths in construction, especially in North American 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 healthcare dry polyethylene volumes. The strategic acquisitions of Boral North America and LASCO provide Westlake the springboard to significantly leverage our participation in this 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 strengths in housing and repair, remodeling supported by a limited supply of single-family homes due to a decade of underbuilding, coupled with the demographics of homebuyers 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 the 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 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’ll do this through the lens of being a good corporate citizen by applying the tenets of ESG as part of a commitment to building a more sustainable future. As discussed last quarter, 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 and we will continue to develop products that align with our sustainability goals while meeting the needs for greener products and delivering value to our shareholders. We are dedicated to our core tenets, 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’re 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 two hours after the call is ended. We’ll provide that number again at the end of the call. Julia, we’ll now take questions.

Your first question comes from the line of David Begleiter from Deutsche Bank.

Thank you, Albert and Steve, have your July polyethylene contracts settled yet? 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 four or five, six 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 industry players are discussing further price increases in August. We believe with a global recovery in the economy, even though we know there’s a Delta variant that’s highly contagious. But we believe that the demand for our product is still very strong. The industry and customers are not yet back to pre-pandemic levels. So, we believe that prices will remain good. Now, will they go down a bit probably? But prices are very good today, and the industry can handle some price fluctuations.

Thank you.

You’re welcome.

Your next question comes from Hassan Ahmed from Alembic Global.

Good morning, Albert and Steve.

Hi, good morning, Hassan.

A question around – and a two-part question: one is basically Olefins has obviously been one of the largest producers out in North America, has been talking about working away from lower return business. So with that in mind and as they are doing that, they’re looking into sort of getting into sort of region extending contracts moving on to launch the contract in the line. So there are two questions I have around that: are you sort of reconsidering your contracted trial? I understand a large amount of story in the market, but do you do some dimensioning as well? So that’s one side. The second side, it seems that there is a good mobility in the pricing of story and it seems that may have over the next couple of years. How do you see the PVC cost curve changing with that in mind? And how do you see Westlake positioning in this evolving world?

Certainly, yes. Westlake is well integrated downstream into our PVC business. So, we look through the value chain as well as maximize our optimized return to our company and to our shareholders. We have contracts, and we certainly reevaluate our contracts. When contracts come due, we certainly work with our customers; many of them are very long-term customers, and we aim to derive value based on market conditions. We have many avenues to integrate our chlorine versus some of our competitors with limited avenues. The PVC margin today is very good, and we indeed try to maximize the PVC value chain. So absolutely, I think all companies are doing their best for themselves while looking out for the interest of their long-term customers. It’s about balancing those needs.

Understood. And moving towards the ethylene and polyethylene side of things, one of the largest producers of polyethylene in North America recently went on record talking about how the industry expects that between now and 2025, there is an expectation of around 31 million tons of polyethylene capacity to come online. I would love to hear when Westlake stands on that?

Certainly, there’s a lot of capacity being announced, especially in Asia, particularly in China, as well as some ethylene plants that are being announced but haven't gotten to the final stages of building or breaking ground yet. We are aware of all these projects. However, we believe that time will tell whether all these announced projects will proceed. China, while being the largest consumer market for polyethylene, is still a net importer of polyethylene. The U.S. remains the largest exporter of polyethylene, so what China does has a significant impact on the future supply-demand dynamics for polyethylene globally.

Very helpful, Albert. Thank you so much.

You’re very welcome.

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

Hi, Albert and Steve.

Hi, John.

So quick question on Dimex. One of the comments made in your press release about Dimex is one of the largest processors of recycled plastic in addition to GreenVin. Can you provide some detail about the overall market and how you see it growing, and then how are the margins working with the existing platform?

Yes, Dimex is, as we said in the release, one of the largest players in the recycled materials business. We see this business as a growing opportunity; they recycle, reuse, and manufacture products from PVC, polyethylene, and TPE. We continue to see this as a growing important market, and certainly the opportunity is there. Their business is over $100 million in size, and we see very good margins in that business going forward, which is the basis behind a very good investment. We expect to see good returns on our investment in Dimex.

Got it? Within your building products project, are you still seeing issues around supply chain and logistics constraints with concrete? And if you are, how much of the earnings potential of the platform would be subdued because of that?

Well, I would say certainly, there have been some challenges really given the logistics and supply chain issues. Some of these are additives and plasticizers and such. However, we have multiple suppliers that allow us to adjust to those challenges. Certainly, we’ve seen some opportunities to continue to grow the business and meet the growing market demand. So, while those challenges are sometimes present, we’ve been able to adapt with our multi-sourcing approach and meet our customers' needs.

Okay. And just one final quick question. If PVC prices are still flat?

Yes, I think PVC was flat.

You’re asking for July? Flat for July?

Okay, thank you.

You’re welcome.

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

Yes. Thank you. 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 per pound range, not the $1 per pound range on your Slide 13. All I got from Jeff was a smile, but perhaps you can comment on how much of that is in dollar pounds remark. How would you characterize the margin in your building products business versus the rest of the Vinyls?

Yes. The building products business is doing quite well. We are passing resin price increases and cost increases along, sometimes there’s a time lag. But by and large, we are able to pass through some price increases. Depending on the products, we sometimes expand the margin as well. We see 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 the platform, are you at the point where you have some negotiating leverage with the home centers and specialty construction distributors, where you could offer them a broader portion of the shelf space, and thus have some negotiating leverage, or you’re not there yet?

No, you’re absolutely right. Part of our synergy is that we are much more important to distributors and retailers. For our products, we have more products to offer. Today, in the building products area, having supply is more important to customers. So, they are almost literally hand-to-mouth in terms of deliveries. While I think the other gentlemen talked about logistics, it’s sometimes hard to find truck drivers, and delivery delays exist. But by and large, we are becoming more important to our customers. We like it, and we would like to be more relevant to them. They appreciate that we have been working with them for many, many years, and they want us to grow larger and more relevant to their business. So, I think it’s a win-win for both parties.

Thank you.

You’re welcome.

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

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

So, Kevin, as we think about the building construction materials business, we continue to see a very good outlook for both residential construction and certainly in some commercial construction opportunities. We look forward to participating with our distributors for the products to expand that portfolio offering that Boral and LASCO certainly bring. As you think about the three transactions that we’ve recently announced, we’re very comfortable that we can integrate these businesses into the broader Westlake. We look forward to welcoming all those employees into the family of Westlake. Certainly, there’s a lot of activity involved. You can see that there is the chemical side of the business that will continue to look for opportunities to invest in. We have been investing organically over the last couple of years with expansions in PVC and investments in the LACC, ethylene joint venture. We’ll continue to look for opportunities for investment on the chemical side as well. I’m very confident that the leadership team will be able to integrate these three transactions. The opportunity to grow the business is something that we’ve done over time and I’m confident we can continue to look for opportunities.

And how would you describe the future pipeline?

I think the opportunity set is out there. The answer is always looking for the right value set that we see. Our focus is generating bottom-line return risk-adjusted. We’re very comfortable finding synergies in these transactions to achieve that return and bring value to our shareholders. So, when you think of the pipeline of opportunities, there are numerous interesting opportunities, but it’s always a function of whether the value proposition meets our expectations for shareholders.

Understood, thank you very much.

Kevin, I just want to add that we are looking for more recycled plastic. As you know, there is a lot of plastic waste out there in the world. With the introduction of Dimex, we plan to add more recycled plastic materials into our consumer products. With our GreenVin, we plan to introduce more lower carbon products into our building products materials as well. I think over the next five years, the entire industry is moving towards lower carbon emissions, and we are committed to that shift.

That makes sense. Thank you.

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

Hey, nice quarter.

Thank you.

Do you think you can grow Vinyls EBITDA in 2022 with acquisitions?

So Mike, when you think of the opportunity set to do that, remember we added significant capacity in PVC in late 2019. We’ve begun to ramp that up with sales of those incremental pounds since late 2019. In 2020, we faced challenges due to COVID. As we think about the run rate from 2021 into 2022, we continue to see good volume growth opportunities. We’ve talked about those expansions in the Vinyl sector and those in Germany. We continue to work on completing several smaller debottlenecks as well in the Vinyls space. We see solid demand from key markets allowing us to introduce those incremental pounds into the marketplace.

Got it. And do you think PVC margins could continue to improve in the second half and into 2022?

We’ve seen strong demand in this marketplace. While consultants show some seasonal weakening during the construction season, we’ve seen construction seasons extend well into the later quarters of the year. As long as we continue to see the strong demand that we are currently seeing, we anticipate that the market remains snug from a materials perspective and inventories. Demand remains strong, which is a function of whether weather cooperates with us, allowing construction to continue well into the winter as it has in the past couple of years.

Thank you.

Industry consultants are forecasting the average price for 2022 PVC to be higher than the average for 2021 by about $0.03 per pound.

Thank you.

You’re welcome.

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

Good morning and congrats on the good results.

Thank you. Good morning.

As I look at the second quarter to the third quarter, could you size the negative impact of the turnaround amount by segment in the second quarter and talk about what you anticipate the expected negatives are here in Q3 from turnaround planned outages? I’m just trying to assess the order of magnitude from Q2 to Q3 from this?

Yes, Frank, it’s Steve. We don’t have any other major turnarounds other than the Petro turnaround occurring in the third quarter. So it’s really just that outage that we expect to begin in September for 60 days. The other units have no significant turnaround activity in Q3 except for starting that turnaround.

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, so it’s hard to know when the government will clear those. Our best view is in the second half of this year, but we certainly look forward to closing them as soon as possible to integrate these businesses.

Terrific. Thank you.

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

Good morning. Congratulations on the Dimex acquisition.

Thank you.

Following the other acquisition, can you remind me of your target leverage, and what’s the plan to prioritize going forward?

Sure. Westlake’s target for leverage is really those established by the agencies: S&P, Moody’s, and Fitch. We’ve seen over the years they change their targets. Rather than being fixated on a particular number, we focus on what the expectations are to remain strongly investment-grade. Today, we’re rated BBB flat with a stable outlook, and believe our metrics are even stronger than those ratings. Our focus is really to maintain strong ratings by all three agencies. Our capital allocation perspective focuses on using free cash flow to maintain the plants and run reliably, and then look for projects with compelling returns risk-adjusted beyond maintenance. We’ll also reward investors through dividends and share buybacks. We look for opportunities for capital deployment in this manner.

Thank you for that. Can you also comment on your customer polyethylene inventory? When do you expect inventory levels to return to more normalized levels?

As we mentioned, we got inventory back to the pre-winter storm levels from February of this year. However, we haven’t yet returned to pre-pandemic levels. We believe that customers’ production inventories remain between low and medium depending on the grade and will likely return to normalized levels by the end of the year.

Thank you.

You’re welcome.

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

Thank you. Do you have a view on how much capital costs for new polyethylene and PVC plants might be out this year? Could CapEx cost inflation result in delays of new project approvals?

Certainly, we’ve seen capital costs for equipment continue to rise with some inflation. This will certainly be a consideration for those investing in new plant and equipment. We have seen cost creep into both bulk materials and higher-value rotating equipment. So costs are elevated.

You’ve talked about a favorable supply-demand outlook for PVC. Why do you think PVC export prices have fallen in recent weeks? Do you see that as temporary or neutral?

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

Thank you.

You’re welcome.

Your next question comes from Mike Leithead from Barclays.

Great, thanks. Good morning, guys. 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. When you think about the sensitivity on natural gas, $1 in MMBtu can cause an EBITDA impact of $100 million. That’s mostly in the Vinyl side of the business, with 90% of that impact occurring there. However, with strong demand, we’ve been able to push much of that pricing momentum downstream into our customer base.

Got it? That’s helpful. And then second, a smaller question. But the corporate and other line, I think this quarter EBIT was positive $8 million or so, what drove that?

Yes, there are some small transactions, whether from hedging gains and such. Some interest expense has decreased as our cash balances have grown.

Got it. Thank you.

You’re welcome.

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

Hi, thanks for taking my question. Just to expand a bit more on the Dimex acquisition. Are there any interests for potential future bolt-on acquisitions? Is there a particular area within ESG that you’re looking into, whether it’s technologies or potential expansion down the line?

Yes. We’re looking at both reducing greenhouse gas emissions from our plants and recycling water, reducing solid waste. Through Dimex, we’re enabling recycling of post-industrial material. We aren’t just recyclers who simply sell compound resin; we’re making finished consumer products and engaging in the circular economy. This is just the beginning for us.

And is it fair to assume that this will be the better focus near term while you integrate and complete acquisitions for planning resin products?

That’s right. We think about the opportunity to take some of the recycled materials and integrate them further downstream. Currently, we see integration within our Vinyls products. This opportunity with Dimex enables us to have further integration directly or indirectly. We’re also seeing sales channel integration in our building materials business. Offering more products to customers is crucial for both them and Westlake.

Got it. That’s very helpful. Just on Olefins, in order to address the July conditions, there are price increases being discussed for August. I was just wondering if you could give some context for what you’re seeing from a customer perspective. There appears to be some improvement in spot availability across certain grades. Are you seeing any pushback from customers to future price increases due to economic demand destruction?

Yes. We don’t anticipate demand destruction. Demand remains very strong. While the industry’s plants have come online, we expect some inventory builds in the coming weeks. Prices will likely stabilize; we don’t expect prices to increase indefinitely. However, we believe margins will remain quite good moving forward.

Very helpful. Thank you.

You’re welcome.

Your last question comes from Arun Viswanathan from RBC Capital.

Great, thanks for taking my questions. I just wanted to understand your 2022 drivers with the acquisition machine from Boral, which should be around $200 million or so. Vinyls right now should be solid given the supply disruptions experienced in 2021, and maybe the margins for just them as well. So really only Olefins may experience some moderation in margin. Is that a fair view of how to think about 2022?

Yes. When you think about Vinyls, if you look at the consultant forecasts, they are showing average prices for 2022 to be higher than for 2021. We’ve had substantial weather-related outages over the past couple of years affecting supply. Given the forecast for demand improvements and the expected incrementals from Boral, we will continue with good volumes in 2022. There is definitely strong demand within Vinyls, supported by strong market growth.

Great, thanks. If I can just ask a quick question on Dimex and the recycled market. When you acquired Vinnolit, there was excitement around penetration into medical and other applications. Is there potential to increase share in those attractively growing markets through Dimex?

Yes, we certainly do. The opportunity to really utilize post-industrial materials and extend it into a different sales channel that we’re not in today and will be post-close is a very exciting opportunity for us. It enhances our competitiveness in the downstream building products sector.

Thanks.

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

Hi, good morning. It’s Peter Yuen 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 an opportunity to consider replicating production capacities in other areas as we think about scaling the business. We’ll dive into capacity metrics and future opportunities as we progress towards closing this transaction. There could be opportunities to expand the footprint into other areas, and we’ll evaluate which products make sense to introduce with the competitive capital necessary.

Thanks. As a follow-up, do you expect to see volume benefits for chlorinated organics and refrigerants following the passage of the U.S. climate bill reducing HFCs?

We’ll know more about this in the future. The trend towards green products is presenting opportunities for us as global warming concerns grow. We see demand increasing for refrigerants, and we’re positioned well for that.

We 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 two hours after the call has ended and may be accessed until 11:59 p.m. Eastern Time on Tuesday, August 10, 2021. The replay can be accessed by calling the following numbers: Domestic callers dial (855) 859-2056. International callers may access the replay at (404) 537-3406. The access code for both numbers is 4594733. Thank you. Have a great evening.