Good morning, ladies and gentlemen, thank you for standing by. Welcome to the Westlake Corporation Second Quarter 2023 Earnings Conference Call. [Operator Instructions] As a reminder, ladies and gentlemen, this conference is being recorded today, August 3, 2023. 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. Good morning, everyone, and welcome to the Westlake Corporation conference call to discuss our second quarter 2023 results. 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. During the call, we will refer to our two reporting segments: Performance and Essential Materials, which we refer to as PEM or Materials; and Housing and Infrastructure Products, which we refer to as HIP or Products. Today's conference call will begin with Albert, who will open with a few comments regarding Westlake's performance. Steve will then discuss our financial and operating results, after which, Albert will add a few concluding comments, and we will open the call up to questions. Today, management is going to discuss certain topics that will contain forward-looking information that is based on management's beliefs as well as assumptions made by and information currently available to management. These forward-looking statements suggest predictions or expectations and thus are subject to risks or uncertainties. These risks and uncertainties are discussed in Westlake's Form 10-K for the year ended December 31, 2022, and other SEC filings. We encourage you to learn more about these factors that could lead our actual results to differ by reviewing these SEC filings which are also available on our Investor Relations website. 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 website at westlake.com. We have also included an earnings presentation, which can be found in the Investor Relations section on our website. A replay of today's call will be available beginning today, two hours following the conclusion of this call. This replay may be accessed via Westlake's website. Please note that information reported on this call speaks only as of today, August 3, 2023. And therefore, you're advised that time-sensitive information may no longer be accurate as of the time of any replay. Finally, I would 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 second quarter 2023 results. For the second quarter of 2023, we reported sales of $3.3 billion, net income of $297 million and EBITDA of $690 million. In our PEM segment, the continuation of soft industrial and construction activity and unplanned maintenance activities drove sales volume declines, particularly impacting PVC resin, caustic soda and epoxy in North America and Europe. The elevated level of unplanned outages resulted in lost sales that impacted operating income by approximately $50 million. While our PEM segment average selling prices were lower than in the first quarter. We benefited from our strategically located globally advantaged feedstock position in North America, where we saw lower feedstock and fuel costs compared to the first quarter. In our HIP segment, we experienced an increase in sales volumes quarter-over-quarter with the start of the construction season in North America with housing starts in the second quarter, averaging 1.4 million units and repair and modeling continuing to grow. HIP segment EBITDA margin increased sequentially due to the 13% volume improvement and raw material cost reductions. And its margin remained in line with the record second quarter of 2022 at approximately 22%, reflecting the strength in our branded products and relationships with our customers. While we expect the challenging macro backdrop to continue in the third quarter, we will focus our efforts of operating our assets reliably and reducing costs. To that end, we now expect our cost reduction program to achieve between $75 million to $105 million of cost savings in 2023, up from the previous $55 million to $105 million target after we achieved approximately $25 million of cost savings in the second quarter and $50 million in the first half of 2023. Overall, our second quarter results reflected the weakness in global manufacturing and industrial activity, along with the impact to sales volumes and margins from the planned and unplanned outages, and we continue to take a disciplined approach to managing our operations in this volatile economy and advance our long-term strategic priorities. I would now like to turn our call over to Steve to provide more detail on our financial results for the second quarter of 2023.

Thank you, Albert, and good morning, everyone. Westlake reported net income of $297 million or $2.31 per share in the second quarter of 2023 on sales of $3.3 billion. Net income for the second quarter of 2023 decreased $561 million from the second quarter of 2022 as a result of lower average selling prices and integrated margins and more production and sales volumes. When compared to the first quarter of 2023, net income decreased by $97 million in the second quarter of 2023, primarily to lower average selling prices, particularly for caustic soda, PVC resin due to softer market conditions and unplanned production outages. For the second quarter of 2023, our utilization of the FIFO method of accounting had a negligible impact on pre-tax earnings compared to what earnings would have been reported on the LIFO method. This is only an estimate and has not been audited. Moving to our segment performance. Our performance in Central Materials segment's second quarter 2023 sales were $2.1 billion with EBITDA of $435 million compared to EBITDA of $1.2 billion in the second quarter of 2022 due to lower average selling prices, particularly for Performance Materials in addition to lower sales volume, largely in PVC and epoxy. PEM segment EBITDA of $435 million in the second quarter decreased $180 million from the first quarter of 2023, largely due to lower average selling prices for both Performance Materials and essential materials particularly for caustic soda, epoxy resins and polyethylene. Lower demand and resulting in sales volumes, particularly, for PVC, caustic soda and epoxy resin, and elevated level of unplanned outages that impacted both sales volumes and integrated margins. Turning to our Housing and Infrastructure Products segment. Second quarter sales were $1.1 billion, with EBITDA of $244 million, which declined $66 million when compared to the…

Thank you, Steve. Looking ahead, with continued high interest rates and a slowing economy we're expecting a challenging environment in the second half of this year. However, we remain confident in our long-term growth plans, the strength of our business portfolio and our disciplined approach to creating long-term value. We look to expand our sales through differentiated product offerings and innovations with sustainable products to meet our customers' needs on managing our costs and adapting to the changing market conditions as they unfold. In our PEM segment, we will leverage our North American feedstock advantage and highly integrated production chain. We remain positive on the outlook for our PEM segment, driven by increased consumer activity and demand for clean, fresh water, electrification and renewable energy benefits from the Infrastructure Investment Act and Inflation Reduction Act and favorable demographic trends, all driving demand for PVC resin, caustic soda, polyethylene and epoxy. While PEM average selling price ending in June were below the average selling prices of the second quarter, in the last few weeks, we have seen some signs of improvement in both PVC resin and polyethylene markets from tightening export markets with unprofitable high-cost international producers curtailing production and lower industry inventory levels. As a result, we remain constructive on the outlook for our PEM segment from recent levels. We also remain positive on the outlook for our HIP segment supported by the structural undersupply of homes in North America, improving demographics to support more first-time homebuyers over the coming decade and potential benefits to our infrastructure product sales volumes from spending related to the Infrastructure Investment Act. We will continue to offer a broad portfolio of branded products and deliver value through innovation and service to meet our customers' needs. Over the past several quarters, our HIP business has…

Thank you, Albert. Before we begin taking questions, I'd like to remind listeners that our earnings presentation is available on our website and a replay of this teleconference will be available 2 hours after the call has ended. We will now take questions

Thank you. [Operator Instructions] Our first question comes from the line of Joshua Spector from UBS. You may proceed.

Hello. Good morning, everyone. It's Chris Perrella on for Josh. I want to follow up on the outlook for the third quarter in the PEM segment. With the volumes being impacted by turnarounds in the second quarter, -- how -- what is the volume improvement that you're looking for sequentially in the third quarter? And then are you expecting normal seasonality in the fourth quarter? What's the outlook there?

Yes. Normally, the third quarter, a strong quarter this like second quarter are the 2 strong quarters for the year. And fourth quarter typically seasonally is the weaker weakest quarter. So assuming the economic continues to be growing even though at a modest rate, that the volume should improve in the second quarter -- in the third quarter, pretty much like the second quarter.

What -- but what were they doing underlying, I guess, in the second quarter that you should see something similar in the third quarter absent the turnaround -- the unplanned turnarounds?

Yes, Chris, it's Steven. So when you think about the -- both the turnaround planned outages and the unplanned outages, as Albert said, the third quarter tends to be a good strong quarter, just like the second quarter. quarterly, the second quarter was impacted by both planned and unplanned outages. And so I do expect that, that third quarter should have more normalized sales volumes and production volumes as we would have expected in the second quarter, not then for those outages. -- as I noted in that fourth quarter, we also see some seasonality impacting both the PIM and the hip segment. So that typically is lower than the second and third quarter volumes.

All right. And then just a follow-up, one quick one on the pricing that I think Albert called out average PEM pricing at the end of June was below the 2Q average. How does it lag through how do you -- as your pricing lag? And how quickly can it improve over the course of 3Q?

Well, prices when it comes down, it comes down pretty quickly, it does a -- but when price increase, as we and some industry members have announced price increases in both polyethylene and PVC for the third quarter. Some of those price increases may have a lag going up.

All right. Thank you very much.

You’re welcome.

Thank you. Our next question comes from the line of Patrick Cunningham from Citi. You may proceed

Hi. Good morning. Thanks for taking my question. You delivered roughly flattish margins in the hip segment year-on-year. It's a pretty steep volume decline. How should we think about the long-term margins through the cycle in that business?

Yeah. Well, Patrick, as you can see, even in these markets where we're seeing home starts in the neighborhood of 1.4, which was the average for the second quarter, we continue to see real resiliency in pricing. And certainly, even though we've seen the challenges in volume, if you think about year-over-year, we certainly have got a branded product that continues to sell through and is a product of selection by our customers. And so as we think about using that branding and that relationship with our customer base, as we see improvements in starts over the horizon, we do expect we'll continue to improve the overall margin. We've not given the high-end range of margins. But you can see, we still expect to see some headwinds in the second half of this year. I've guided to the high teens range for the second half of this year. But nevertheless, we think there's certainly with the innovative products, the branding that we have and the relationships that margins should improve as the market improves.

Got it. That's helpful. And then what's driving the weakness in epoxies and how do you see demand trending by region for the balance of the year?

Yes. Epoxies applies to many areas, mostly into the industrial coatings and also in windmill blades and lightweighting of vehicles. And windmill blades business is still coming back slow demand, especially China. China has one of the largest capacities in the world in Epoxie and China's economy is really not growing much and there's overcapacity of new plants coming on. So the business is very weak and impacted global. And we expect US, European policy man pick up in the coming quarters or years, but it takes a while. China is the main issue we have.

Great. Thank you.

You're welcome.

Thank you. Our next question comes from David Begleiter from Deutsche Bank. Your line is now open.

Thank you good morning. Howard Albert and Steve, if you think about PEM sequentially, you will have lower Aziz in Q3, but might be facing lower price as well as well as higher feedstock costs. So is PAM still up sequentially in Q3 versus Q2 given those dynamics?

So David, when you think about the strength that we expect seasonally in Q3, that -- and given the fact that we don't have the headwinds in our PEM business because of both the planned and the unplanned outages, that volume improvement should pick up. Certainly, from a pricing perspective, we exited the end of the quarter at lower average prices than we had over the course of the second quarter. But obviously, as we look forward into the future for ethane pricing, ethane pricing was certainly elevated at the very tail end of the second quarter. And if you look at out to the second half of the year, we see ethane pricing still staying really in kind of the low to mid-20s over the course of the second half of the year.

Very good. And Albert, you mentioned some improvements in the global polyethylene market landscape. Can you give a little more color as what you're seeing right now in that market?

Yes. I think The export polyethylene prices primarily in Asia, been quite weak and prices dropped a fair amount over the months during the year. We see some kind of bottoming out in polyethylene prices and demand picked up in Asia as well. And so we expect there's some kind of price improvements in the US as a result as well as the higher feedstock cost, as Steve mentioned, we saw a the tail end of second quarter, early part of July. So with the cost price increase push and as well as demand improving globally for polyethylene, we expect some kind of pricing improvement in the third quarter for polyethylene and PVC. But that's assuming the economy is still going strong, we see that the 10-year rate is almost approaching 4.2% -- so we don't know the impact will have on general economy and also on housing.

Thank you

You’re welcome.

Thank you. One moment, please. Our next question comes from the line of Aleksey Yefremov from KeyBanc. Your line is now open.

Thanks and good morning everyone. So lately with some improvement in new residential construction domestically. Have you seen any up-tick in PVC demand?

Yeah. And so Aleksey, when you think about the strength that we've seen in the construction materials business pulling through into pipes and siding and trim, I would say that -- and you see this really in the announcements that many of our competitors have announced as well as we in PVC pricing. So we have price announcements out for August and September. And so that is reflective of what we're seeing in strength. And you may have seen that we've also seen export prices also begin to rise in PVC in overseas markets. So that strength that we've seen in the construction markets pulling through in volume but also pricing nominations reflecting that strength both domestically and are seen as I mentioned, in the export markets.

Thanks, Steve. And second question on M&A. How does your pipeline look today -- do you find more or fewer attractive deals? And how will you characterize your kind of level of engagement on M&A right now?

Yeah. So there's always an active dialogue amongst ourselves and others for opportunities in the market, both on the materials side as well as on the building products side. it's all about really looking for the right kind of value opportunity that we see in the marketplace. But I would say there's still a good number of opportunities deploy capital. It's just about finding the right value-added opportunity for both parties, obviously.

Thanks a lot, Steve.

You’re welcome.

Thank you. One moment please. Our next question comes from the line of Kevin McCarthy with Vertical Research Partners. You may proceed.

Yes. Good morning. Just a follow-up on PVC. We've seen the export prices come up appreciably over the last three to four weeks. Can you speak to what is driving that? How sustainable do you think the move might be? And do you think it will be enough for PVC producers to raise the US domestic contract price in August, I believe you and others have a proposed increase on the table there?

So Kevin, there are a number of Asian producers that really are at either the bottom end or very near the bottom end from a margin perspective. And as you can see from our remarks, we see a number that have really lowered operating rates because of the margin challenges they're facing with their feedstocks. If you use Brent as a benchmark in the mid-80s, those producers are seeing margin challenges, and that really is supportive of that driver for rising prices in the market. And I think as we see the seasonal strength in Q3 and the price announcements by ourselves and frankly, others for August for PVC, my comments about the strength we're seeing in even at this more muted level for building products continues to pull vinyl through into the construction markets, not only here in the North American market, but elsewhere.

That's helpful. And then as a second question, Albert, I would appreciate any updated thoughts you might have on China. Generally speaking, we've seen demand from China languish across many commodity chemical markets. In the markets where you compete, are you seeing any signs of improvement there following recent efforts to stimulate or for that matter, any improvement on the supply side dynamics in China?

China is the elephant in the room. It has the largest capacity produce many of the chemicals and plastics as well as one of the largest market for it, and as we all know that China did not recover much since the Chinese New Year, people expected after coming out of the pandemic. And the economy is still quite weak. As a result, polymers and chemical market prices has dropped a lot and impact global prices as well. Not only that, they used to import products and now they're being exporting products. So all that impacted global prices for those products. And as we’re aware that the economy, especially for unemployment for young people has been quite surprisingly high, and recently, the Chinese Government have made a statement, they are coming up with policies to stimulate, but those statement has not come out with concrete actions, specific action plans yet. But I think with Chinese -- I presume leadership in China as they said very well the issues. And the central government is still quite well off. They have a lot of buyer power to do things. So we believe that over time, the Chinese economy will improve and they talk about targeted 5% GDP growth for the near term coming years. So time will tell, but the meantime, as Steve mentioned, the spot price has really bottomed out in China. We see coupled with some planned issues with turnaround all that, that there the prices have started moving up the last several weeks. We hope that will be sustained, especially during the third quarter, which is usually a busy quarter. So time will tell, but we think China should improve over time.

Very good. Thank you so much.

You’re, welcome.

Thank you. One moment, please. Our next call comes from the line of Michael Leithead from Barclays. You may proceed.

Great. Thank you. Good morning, guys. My first question on PEM and maybe sticking on the last topic. Your slides talk about competitively priced exports out of China for epoxy and when you sort of do the back of the envelope math, it seems like producers there are selling export products below cash breakeven levels, so how do you think this dynamic or down cycle plays out? And does it change at all how you approach…

Certainly, some of the Chinese -- depending on the industry, definitely in the integrated ethylene to polyethylene, our information shows that in to the present China based on naphtha cracking are losing cash, whereas the US integrated players are still based on ethane feedstock ethylene up, we still have very good cash margin. So -- but in business like epoxy, where they have built additional capacities. Some of the Chinese plants are running below 50%. And some new plants have not started up – idle and starting up. So I think companies are adjusting to the new dynamics. And over time, they should make the right decisions, what to do with their businesses.

Great. That's super helpful. And then maybe just a follow-up on HIP, could you maybe talk to the different product lines or categories within the segments you can obviously fairly decently tracked the moving pieces you doesn’t have so such within the HIP, what areas perform, say, better or worse relative to the overall segment this quarter?

Yes. So we saw a broad strength across really the portfolio. So strength really in our businesses, such as stone, siding, roofing, of course, pipe for storing wastewater applications, so a broad application really in what we would call the Westlake Royal building products business as well as our pipe and fittings businesses. So broad strength in all of those businesses within the HIP business really made nice contributions in the second quarter.

Okay. Thank you.

You’re welcome.

Thank you. One moment, please. Our next call comes from the line of Matthew DeYoe from Bank of America. Please proceed.

Good morning, everyone. What percent of China's PVC production do you suspect they're exporting right now?

Yes, China used to be importer of PVC. And I think they have been exporting – their export is 80% of the Chinese PVC are produced from a carbide process usually -- so the quality is not a great. And I think India has put a VCM, VCM monomer level on import PVC and some of the Chinese producers are not able to meet it. So I think the PVC export volume has reduced from China. But nevertheless, it does has an impact on those markets, primarily export into – there was South Asia and Southeast Asia as the main market.

Do you have a number, I guess, Steve, when we've talked in the past, I think you had said you expected it to be -- or you thought it was around 20%. I'm assuming to Albert's comments, it's less than that now. But -- and is it 10%? Is it 5%? Is it 15%? Do you have any idea?

Yeah, it's meaningfully lower than that 20%.

Understood. And if I can, what was your mix of import versus exported product shift for caustic and PVC in the quarter? And do you expect it to change meaningfully next quarter with when you get your capacity back?

Yeah. And so when you think of the exports that we have both in caustic and PVC, the industry is exporting in the 20% range, and we're just below that a number. And from a PVC perspective, the industry has been exporting historically in the 30s. And so we're also below that threshold number as well, because remember, PVC is going into our building products business. So we have a pretty good domestic consumption number internally for our own PVC.

Understood.

Thank you. One moment please. Our next question comes from the line of Matthew Blair with TPH. You may proceed.

Hey, good morning, Albert and Steve.

Good morning.

Good morning, Matthew.

Could you share any more color on the $50 million outage impact in PEM in Q2. What assets did that impact? And were they fully back up and running by July 1st, or do you expect anything to roll into Q3? And then also, are there any plan turnaround for Q3 or Q4 that we should be keeping in mind?

And so in terms of the businesses within PEM, it was in our core vinyl's business. And I would say that we obviously took corrective action in the second quarter, and I think those issues are behind us as we are into the third quarter at this stage.

And for our turnaround concerned, there are always more turnaround going on, but nothing major.

Okay. Sounds good. And then, Albert, I think you mentioned that you're matching production with demand. Could you clarify when you run your ECU assets, are you matching up to the caustic demand in the market or to chlorine demand in the market?

It depends on the products and markets and pricing, certainly, we would look out for all these areas. Right now, the PVC demand is in the construction season that's stronger and cost of demand is a bit weaker, caustic price has been coming down globally and every month gradually. So until the industrial activity picks up, economy picks up, caustic is becoming weaker.

Okay. And are you running to meet all of that marine demand? And I guess the implication is that -- would that mean that the caustic side is oversupply?

It's a combination. We have plans integrated to chlorine PVC, and we have plans to not integrate it. So depending where they are, and the market situation in those areas we adjust.

Okay. Sounds good. Thank you

You're welcome.

Thank you. One moment, please. Our next question comes from the line of Arun Viswanathan from RBC Capital Markets. Your line is now open.

Great. Thanks for taking my question. Hope you well. Just wanted to look into the PBC side, you noticed some weakness maybe in terms driven by approximate EBIT. what are your comments on PBC as you head into the rest of the year, there's been obviously some volatility on the ethane and ethylene side -- is that affecting PVC? And then similarly, building products and the housing market with your outlook for PVC market?

As we said earlier, PVC market has turned tighter export prices improved, demand being a seasonal quarter, has increased domestically and internationally. So there's price announcements for both August and September, domestically in the U.S. And if you look at the consultants' view of pricing, they think in this pretty, pretty much flat from now maybe it will increase in third quarter, down a little bit in the fourth quarter and also looking at prices improving next year. So I think just from general view of the market, it seems PVC is stabilized and it's improving going forward.

And I just wanted to also ask about the compounding and European side. Are there any nuances that you'd add to your comments as it refers to that part of the business? Thanks.

Yeah. So Arun, the compounding business has been a nice business. We -- as you know, the markets that we're addressing really are the wire and cabling business, the medical and auto businesses. That business continues to perform well. As we think about some of the contributions we've been making really in the wire and cabling business, we've mentioned the strength we've seen really in the infrastructure bill, and part of that is Internet connectivity. And certainly, we also see that were in cabling going into the construction markets as we see housing starts. Of course, the auto business, the medical businesses have their own cycles, but continue to be good markets at this stage. And so we're pleased with that compounding business, both domestically as well as in Europe

Thank you.

Thank you. One moment, please. Our next question comes from the line of Vincent Mangiere from Morgan Stanley. You may proceed.

Hi. This is Turner Hinrichs on for Vincent. You commented that you're optimistic about the longer-term opportunity from public and private investments in US infrastructure and construction, can you size the degree of exposure Westlake has to these medium-term tailwinds? We generally think of Westlake as having more residential and nonresidential exposure. So any color and potential sizing of the opportunity would be helpful.

Yeah. And so when you think of our Infrastructure Products business, our pipe business, we are seeing the majority of that going into residential construction, but certainly, there is a significant portion not 50%, but a significant portion, nevertheless, that is a larger diameter pipe that is well suited for the infrastructure bill that we see that's $55 billion. that is sizable that will address the infrastructure needs the country has. So we think we're very well positioned to be able to address those needs for counties and municipalities.

So we are one of the largest large-diameter pipe for water and sewer as mentioned, as Steve mentioned, municipalities. But also, our epoxy business is a bigger supplier for of coatings for any infrastructure bridges and structures. So as those funds are getting sent to the municipalities and government same governments we'll see more demand for both PVC and as well as for epoxy.

Okay. That makes a lot of sense. Thanks for the color. I was also wondering if you could remind us of your view of HIP's profit margin through the cycle from trough to peak? And has that changed at all with mix?

No. I think what you've seen is the very resilient capabilities of the business to scale based on market conditions. And you can see the -- I think, the performance in this market where we have housing starts at about 1.4 million averaging over the course of the second quarter with still margin -- EBITDA margins in the 22% range. And so when you think of the business and its ability to scale, we think it's a very good business and certainly has an ability to perform well beyond the kind of margins we're delivering even in this market condition. So given the strength of the product brands that we have and the customer relationships and the innovation that comes out of that business because it's very brand-oriented, as you would guess, we think has good upside to it. We have not given specific guidance of margins beyond the current guidance we've been providing. But I would say that we do see good solid upside in that business.

Great. Thank you.

You’re welcome.

Thank you. One minute, please. Our next question comes from the line of Michael Sison from Wells Fargo. You may proceed.

Hey, good morning. Albert, when you think about your portfolio after the Boral transaction, what -- are there any other product lines or sort of areas you'd like to do acquisitions to sort of continue to expand that business and longer-term?

Well, we are very pleased with our PEM and HIP business, and we have nine strategic business units. Each one are leaders in the markets around the world, and we can grow organically as these in these nine platforms as well as potential integration, vertically adjacencies, so on and so forth. So as Steve mentioned, we are in constant dialogue with various parties looking opportunities as well as we are doing a lot of internal studies on debottlenecking where we have opportunity in the markets and also reducing our cost, cost reduction is a major continuous improvement is a major part of our internal initiatives and reliability. So we are working on all these areas, but certainly, outside inorganic growth is something we're also looking at.

Got it. And then just as a follow-up. If China continues to recover, will China end up importing PVC again? And if they do start importing PVC, what do you think or how do you think that affects the margins here in the U.S. and how much going from that?

I think so long China stopped exporting PVC, that will be very good. As you know, I think in our investor -- investment -- investor slides, we show that global additions of chlor-alkali and PVC capacities are below the GDP growth. And typically, we are looking at about around GDP growth as a measure. And as for many years and projects going forward, the capacities are below GDP growth. So we believe that the business and also -- there's a lot of energy needed to make ethylene to make chloirde and US by far, the lowest energy cost producer in the world. So having piece of advantage and energy advantage makes us much more competitive anybody else in the world making PVC and chloirde. So with the lack of new investment and with our cost position, we can really have a very good position globally in our business.

Thank you.

You're welcome.

Thank you. One moment please. Our next question comes from the line of Frank Mitsch from Fermium Research. You may go ahead.

Thank you and good morning. I guess the pronunciation was close enough. I noticed that the inventory levels dropped 9% sequentially. Your inventory levels dropped 9% sequentially, and I assume some of that might be selling out of inventory from the unplanned downtime or lower pricing. And so can you talk about some of the factors there and what we should be expecting to see happen on that line?

Yeah. So, Frank good morning. And so you're right, because of some of the both planned and unplanned outages, inventory did come down because obviously, we were not producing during those outages, but we were selling and so naturally, that has an impact on inventories. But when you think of where -- as we think about where producers are, we're continuing to address and adjust our production levels to meet market demand conditions. So I would say that as we think about it, inventory levels over the course of the second half of the year should be kind of in the medium level. And so as we think about it, both vinyl as well as polyethylene.

Okay. Thank you. And one of the features of I think the last conference call was -- speaking of inventories was talking about customer destocking, et cetera. Do you feel that we're at an underlying level of demand throughout all of your businesses, or are there businesses that are still seeing some destocking going on?

Yeah. I'd say, Frank that the destocking really started almost a year ago in this business and so accelerated at the very end of last year. So I would say that we're at a point in time where our customers' inventory levels are at, I would say, low to low-medium levels. And so I would not say that we've continued to see any destocking. That's behind us at this stage.

Great.

Frank, I want to add also that with high interest rates and uncertainty in the economy, our customers are very careful they only order when they need to.

That's very helpful. Thank you.

You’re welcome.

Thank you. One moment please. Our next question comes from the line of John Roberts, Credit Suisse [ph]. You may proceed.

Right. Thank you. Back to Building Products, do you have a sense for the divergence between new construction and repair remodeling activity?

So John, I would say that we did see continued strong demand in both sides of that HIP business. So strong demand really in repair and remodeling. And given the 1.4 million average start number, you can see, again, a resilient business being able to adjust to lower volumes year-over-year and still continue to perform. So I would say both the starts, the new construction activity in repair and remodeling continued to perform well in both sides of the HIP business.

And then you noted merchant chlorine volume was up sequentially Q-over-Q. Was that largely greater availability given the weakness in vinyls, or was demand actually strong in chlorine?

You know, in the summertime, there is a pickup for water treatment activity in chlorine, and so that's part of that story, John.

Okay. Thank you.

You’re welcome.

Thank you. One moment. Our last question comes from the line -- Hassan Ahmed at Alembic Global Advisors. Please proceed.

Good morning, Albert and Steve.

Good morning

Question around ECU pricing. Operating rates globally seem to be quite depressed, yet, I know caustic soda pricing has come down recently, but on an ECU basis, pricing relative to history continues to be quite strong. So my question really is how sustainable are those pricing levels?

Well, demand for chlorine derivatives are still strong. PVC, we mentioned globally, even though come – global prices has bottomed out. We believe, will improve. And housing demand, we think both new construction and repair and remodeling R&R is still pretty strong. And global demand in India is coming out of the monsoon, the demand coming back. So I think chlorine demands are very, very strong, but I will say that it's really peaking, but it's coming back on the bottom. I think caustic is really far of the general industrial activity. And in the US so far, we still have positive GDP. And I think most of the countries in the world are having possible GDP in Europe and Asia, but at a low level. So as they improve, I think the demand will be strong and more so, as I mentioned earlier, there's very little new capacity added around the world as demand continues to grow, hence makes the supply-demand tighter going forward.

Understood. Very helpful. And just sort of following up where you left off on sort of chlorovinyl supply-demand dynamics. Look, one of the virtues, I guess, or positives of the chlorovinyl story was lack of investment under supply, I call it, right? And one of your large competitors recently has talked about considering sort of chlorovinyl investments in Texas, in particular. So how do you see the supply-demand story with that announcement out there now? Do you still feel that in the medium to longer term, that market will be sort of undersupplied and will continue to sort of tighten A – Albert Chao: Well, as I said earlier, globally, there's undersupply. So one plan would not make much difference that, as you know, this -- the vinyl business, unlike the olefins business, other business, is very much integrated. You need a lot of investments, whether it's chlorine, power plants or renewal power ethylene plants and VCM, EDC and PVC. It's a very complete, very heavy investment and a very seasonal business. So we are looking purely on the return on investments. We certainly mentioned earlier, we're looking at organic growth and find out which will give us adjusted return on a long-term basis but the cost capital. So we're not looking at short-term returns on -- really on a long-term basis. Long term basis, this business has been, as you know, challenging in the past. And China is one of the major issues. And as a big -- like anything in our industry, what China does have a huge impact and China going through its own review of double control energy, global warming, which area they want to allow for investments and phasing out of some high energy industries. So all of that is going on, and it's all uncertainty going on, time will tell.

Very helpful, Albert. Thank you so much A – Albert Chao: You’re welcome.

Thank you. At this time, I'm showing no further questions. And I would now like to turn the conference back to Jeff Holy for closing remarks.

Thank you. Thank you, everyone, for participating in today's call. We hope you'll join us again for our next conference call to discuss our third quarter 2023 results

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.