Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Westlake Corporation Third Quarter 2023 Earnings Conference Call. [Operator Instructions] As a reminder, ladies and gentlemen, this conference is being recorded today, November 2, 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, Maria. Good morning, everyone, and welcome to the Westlake Corporation conference call to discuss our third 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’ll 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 disclosed 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 third 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 of that website. A replay of today’s call will be available beginning today, 2 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, November 2, 2023. And therefore, you are 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 third quarter 2023 results. For the third quarter of 2023, we reported sales of $3.1 billion, net income of $285 million and EBITDA of $682 million, including record HIP segment EBITDA of $327 million. Our HIP segment benefited from resilient North American housing and infrastructure construction activities, while higher operating rates in our PEM segment drove sequential volume growth, despite generally lower average selling prices. The strength of our business portfolio was highlighted by the quarterly earnings achieved by our HIP segment where EBITDA exceeded the segment’s previous record set in the second quarter of 2022, during a much stronger housing and overall economic environment. HIP segment EBITDA margin of 29% was also a record, driven by our strong brands and disciplined pricing in a period of lower material costs as well as solid progress in our cost-saving initiatives. The EBITDA generally in our HIP segment typically comes from with lower capital requirements than in our PEM segment and converts to cash flow generation at a higher rate, which is additional benefit of our vertical integration and downstream diversification strategy. We will have more to say about our HIP results and outlook later in the call. But I want to congratulate all of our HIP employees on their record performance. Overall, our third quarter results reflect the advantages of our portfolio diversification. While our PEM businesses experienced pricing pressure and margin compression, our housing and infrastructure businesses delivered significant cost and earnings improvement. As a result, Westlake EBITDA margin of 22% was consistent with our second quarter margin of 21% and our prior year margin of 20%, demonstrating the earnings and cash flow stability of our strategy, to be a vertically integrated Performance and Essential Materials producer, combined with our value-added portfolio of leading offerings for Housing and Infrastructure Products. Our consistent focus on cash flow generation enabled Westlake to deliver $696 million in cash flow from operations in the third quarter and $1.8 billion year-to-date. The solid cash flow generation, the strength in the business and our confidence in the Company’s future allowed us to increase our dividend by 40% in August and to return approximately $180 million to shareholders since January. I would now like to turn our call over to Steve to provide more detail on our financial results for the third quarter of 2023.

Thank you, Albert, and good morning, everyone. Westlake reported net income of $285 million or $2.20 per share in the third quarter of 2023 on sales of $3.1 billion. Net income for the third quarter of 2023 decreased $116 million from the third quarter of 2022 as a result of lower average selling prices and integrated margins as well as lower sales volumes. When compared to the second quarter of 2023, net income decreased by $12 million in the third quarter of 2023 due primarily to lower prices and integrated margins for most of our products in our PEM segment partially offset by higher operating rates and sales volumes. For the third quarter of 2023, our utilization of the FIFO method of accounting had a $50 million unfavorable impact in pretax earnings compared to what earnings would have been if we reported on the LIFO method. This is only an estimate and has not been audited. Before I discuss our segment results, I want to provide some high-level thoughts on the quarter. We were pleased with HIP segment’s ability to deliver value to our customers while managing cost to produce record earnings against a challenging North American housing backdrop. These results are a testament to the strength of our brands and the importance of our products to our customers. We believe this record performance illustrates the benefits of our vertical integration and diversification strategy as lower cost of materials used in our HIP segment drove margin expansion at a time when margins in our PEM segment compressed due to sales price decreases. The net result of this downstream integration was that Westlake delivered a 22% EBITDA margin in the third quarter compared to 21% in the second quarter and 20% in the third quarter of ‘22 despite a period of…

Thank you, Steve. Entering the fourth quarter, the economic backdrop remains challenging. The rate of inflation remains high and the mortgage rates are at the highest level in over 20 years. These inflationary and affordability pressures are negatively impacting consumer and housing demand. This volatile economic backdrop, combined with ongoing geopolitical turmoil and a normal seasonal decline in demand leads us to expect challenging conditions to continue throughout the fourth quarter. The uncertain macroeconomic outlook makes it difficult to predict demand trends over the next several quarters. That said, we believe that customer inventories are much lower today than they were at this time last year, which combined with the recent pricing momentum in some of our key products should reduce the degree of customer destocking activity in both our PEM and HIP segments relative to what we experienced in the fourth quarter of last year. As we head into 2024, our leading market position with a broad product portfolio and strong brands, combined with our globally advantaged low-cost position, enable Westlake to respond to evolving market trends while executing our business strategies. Westlake has demonstrated a solid cash generative nature of our business, resulting in $2.6 billion in cash flow from operations on a trailing 12-month basis. We will continue to maintain a strong balance sheet and invest in our long-term strategic priorities while continuing to return capital to shareholders. Notably, our quarterly dividend has doubled over the last five years as a testament to our commitment to returning value to our shareholders. We are also reaffirming our commitment to our broader stakeholder community to improve the sustainability of our products and operations. We continue to introduce new products into the market to meet customers’ sustainability requirements. In September, we are pleased to introduce our pivotal line of one-pellet…

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

[Operator Instructions] Our first question comes from the line of Patrick Cunningham from Citi.

What drove the pricing declines in the HIP segment for the quarter? Was it broad-based, or are there any specific areas of pricing pressure to highlight? And any sort of outlook into 4Q and into next year would be helpful.

Yes. So, when you think about some of the pricing decline, we saw certainly -- we’re seeing certainly in pockets and some of these portfolio offerings where there is pressure. Certainly, you can see when you think about the quarter compared to second quarter, we certainly had nice volume pickup, 7% volume pickup over Q2. But certainly, as we all know, affordability is an issue in the housing sector. And so certainly, to continue to be performing very solidly as we did, in fact, record results, there is some pressure in certain segments within that portfolio within HIP.

Got it. And then just a similar follow-up. I appreciate the sales and EBITDA guide for the HIP segment. The narrower 4Q sales range seems to point maybe towards the bottom end of your previous range. Is this some indication that the business might be more challenged beyond just what you would expect from typical seasonality, or are there any other negative trends to point to there?

Well, it is a combination, Patrick, of both seasonal play plus we’ve seen certainly the compounding effect of interest rates and impacting affordability. But certainly, it’s a combination of both that impact of rising interest rates for mortgages and certainly a seasonal play. So, that’s really the two primary drivers within the guidance that we’ve provided.

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

If I could follow up on HIP. Obviously, very impressive EBITDA margins of 29% in the third quarter. And based on your guidance, it looks like the year is probably going to come in close to like 22% or so for the full year, which is up 200 bps from last year. How do you think about normalized EBITDA margins in HIP as you look out into ‘24 and beyond?

Yes, Frank, good question. And certainly, I think you see from the strong portfolio offering that we had and the acceptance by our broad customer base that we continue to perform even very well in a period of rising interest rates. And so, I think the portfolio we offer does provide an ability to deliver really strong and compelling EBITDA margins in this business. It is a combination of what I would call exterior building products. Of course, our infrastructure products going into some of the infrastructure markets that we’re seeing, both pipes and fittings, and of course, our portfolio adds compounds, which goes into a variety of applications, whether it is building wire or other applications in automotive or medical. So, it’s a broad portfolio offering. And I think the portfolio we offer attracts, I think, the kind of good margins that you see even in the face of these strong headwinds we’ve seen, given interest rates and some of the pricing pressures. So, I do believe that it’s performing incredibly well, and we expect it to continue to be strongly performing.

That’s helpful -- yes, hi, go ahead, please.

It’s Albert. I just want to comment that, I think, Steve, in the past has said, our target for the HIP business EBITDA margin is the high-teens. Now, it can go up and down depending on the time of the season. Usually, it’s maybe higher second and third quarter, lower first and fourth quarter.

Understood. And then obviously, then this does appear to be somewhat of an anomalous year, and I was trying to get at that. But I also think that the cost improvement that you’ve talked about, you’ve raised your target for the year fairly significantly. You did $80 million year-to-date. How much of that cost improvement is coming from the HIP segment versus PEM?

It’s actually well across the portfolio, everything from procurement opportunities in both PEM and in HIP as well as logistics opportunities. So it really is across both segments roughly, let’s say, equally so.

Our next question comes from the line of Aleksey Yefremov from KeyBanc Capital Markets.

Great. This is Ryan on for Aleksey. Thanks for taking my question. My first question would be around current dynamics in chlor-alkali. Have recent capacity reductions by some of your peers had a positive impact on the market thus far? And are there any areas like where you’re seeing incremental demand for your product?

Yes. As we know that chlorine, the biggest use of chlorine is for PVC and the biggest user of PVC is construction. And as Steve mentioned, not only we are impacted by the high interest rate, high mortgage rate impacted affordability on new housings and also on the repair/remodeling activities, but also seasonality is impacting it. So, I think the operating rate tends to go down for both PVC and for chlorine and chlor-alkali especially in the fourth quarter and maybe even part of the first quarter.

Helpful. Thank you. And then, can you just talk about what you’re seeing in the epoxy market? It seems like there might have been some stability in prices here in October, albeit it’s at a low level, and it seems like costs are kind of continuing to get at margins. Just any commentary you can give us there would be much appreciated.

Yes. As Steve mentioned, that our epoxy business is impacted by imports, both Asian imports to Europe and Asian imports to U.S. And the prices both in Europe and U.S. have dropped and very close now to the imported price. So we see some stability even though the margin is pretty poor.

Our next question comes from the line of Bhavesh Lodaya from BMO Capital Markets.

Yes, this is Bhavesh for John. Good morning, Albert and Steve. Congrats on the quarter and the continued outperformance on the HIP segment. If I compare your performance in HIP this year versus last, during the quarter, so volumes are roughly flat, and your margins are up 8% year-over-year. Is that all price versus cost, or is there an element of changes in the product mix of what you are selling?

No. So when you think about year-over-year results, of course, you’re right, volumes are flat, but I would say that given the headwinds we’ve seen related to affordability driven by higher rates, it really is, I think, a testament to the strength of the portfolio offered. Obviously, we’ve seen some pressure on price, either quarter-over-quarter or year-over-year. But nevertheless, I think the strength relative to the year-over-year with ‘22 a much stronger year than ‘23 is a testament to really the strength that we have with our customers and the offerings that HIP does provide. I think if you think about the performance we had quarter-over-quarter, a nice pickup in volume of 7% from 2Q to 3Q, which tells you even in this market that we’ve seen, we’re right where rates are at 8%-plus from 30-year mortgages, still strong performance from a volume perspective in the portfolio in our HIP business.

Got it. And then, a question on the PE markets here. So, we have seen international prices move higher in line with the feedstocks and pretty heavy volumes going from the U.S. into exports in general. How do you see the mix going ahead? And any color on your outlook for PE pricing here?

Yes. The U.S. industry is exporting in the high-40-odd percent in polyethylene. And with new additional capacity coming up, U.S. local demand, domestic demand cannot absorb the capacities. So, I think as the new capacity comes up, more export, more volume will be exported, which has come to a lower price, of course.

Our next question comes from the line of Matthew Blair from TPH.

With $3.1 billion of cash, could you assess the M&A landscape? What kind of areas would you be interested in adding in? And is it fair to think that if you did make an acquisition it’s more likely that would be in HIP than PEM?

Matthew, it’s Steve. I would say that as we look across the landscape, we look equally hard at both the material side in our PEM segment as well as in our building products space. We’re looking for opportunities where there is compelling value, good compelling synergies that are immediately accretive to the bottom line. And so as you’ve seen, we’re willing to invest where we find the right opportunities as we have over the last year or two. But we’re looking for opportunities in both segments, not necessarily focusing on one or the other, but those that really drive real value at the bottom line. And while we do have cash on the balance sheet, it doesn’t compel us to really go out and do just a transaction to spend that cash. It’s incredibly easy to spend the cash. It’s always more challenging to get the return. And as you know, we’re really focused on that return basis. So, that’s where our focus will be as synergistic opportunities in either the HIP or the PEM segment, and we’ll continue to look for those.

Sounds good. And then, Steve, you mentioned the raw material tailwinds in HIP. Would that be PVC? And if so, are there any other raws that helps you out in the quarter? And also, were there any onetime boost in HIP?

The impact on the onetime items were -- or the period items were really all in PEM. And as it relates to the reduction in inputs, it was really vinyl. We’ve seen actually that being the biggest input that had a benefit to the contribution of margin expansion in the HIP business.

Our next question comes from the line of Michael Sison from Wells Fargo.

Maria, maybe we put Mike back in the queue, and let’s take the next question.

Our next question comes from the line of Arun Viswanathan from RBC Capital Markets.

Arun, are you there? Maria, do we have a connectivity issue?

Not that I am seeing. Everything looks clear. Do we want to try to go on to the next person?

Yes. Let’s put Arun also in the next queue and let’s go to the next question.

Our next question comes from the line of David Begleiter from Deutsche Bank.

Thank you. Can you hear me?

Yes, David, we can. Thank you.

Thank you. You mentioned some -- in PEM some onetime impacts in the quarter. How much were they and should they all be a tailwind into Q4? And are there any other one-timers in Q4?

David, I see none at this stage in terms of impacts in Q4. And I would say these all were attributable to the PEM segment, and this was a $20 million item that we called out.

Very good. And Albert and Steve, looking at ‘24, do you have an early view on HIP volumes next year given the weakness you’re seeing in North American construction.

Yes. We expect the HIP -- general housing industry to still be impacted by the high mortgage rate, high interest rate. So, until the Fed start lowering rates, we don’t see any recovery in housing demand or in building-related demand.

So, would you expect your volumes to be down next year in HIP?

Possibly.

Our next question comes from the line of Duffy Fisher from Goldman Sachs.

Question around epoxy. With the oversupply we’re seeing largely out of China, which of your end markets are being impacted by that, which are not? And have you seen kind of a change in global trade flows for epoxy?

I think the coatings generally are the largest market for epoxy and as well as areas such as composite and wind mills, I think, generally, China has the largest capacity in the world by a big stretch over the next producer. And the economy in China really has not recovered, even though government has put in several steps of incentives. Again, we’re heading into the winter season and things are slowing down in China as well. So, I think it’s -- the impact is across the board in all epoxy activities.

Okay. And then, do you think the industry, if we roughly stay at these levels, because you talked about construction may still struggle in next year, does the industry need to do something strategic? Meaning, are people running kind of below cash breakeven do you think in some parts of the world, or is this just something we’re going to have to wait out until we get some demand rebound?

I think generally speaking, if you talk about just chemical industry or...

I’m sorry. Epoxies in general.

Yes. As I said, one of the questions earlier was where we’re seeing prices. And as mentioned that prices pretty much has dropped in both U.S., European markets to meet imports. And we’re seeing the imports to start slowing down as well because of the cost pressures, oil price going up, and the economy is not great. And even companies in China are curtailing production or some of the plants are not running. So, we are seeing people are taking actions to reduce production, reduce losses all across the world. So, I think very few epoxy people we know are making any money.

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

Albert, I’d appreciate your updated view of PVC resin prospects moving into 2024. The U.S. contract price seems to be trending about flat, but seems also that there’s a lot of supply length in China against the backdrop of dislocated property sector there. So, how do you see that playing out? Would you anticipate rationalization of capacity or throttling back? What is your view on PVC for next year?

I think, at least the U.S. market, PVC demand was impacted by both domestic housing construction and as well as global economy. As you know, about a third of the U.S. production PVC are exported and being at that ratio for quite a while. And the U.S. has the lowest cost to produce PVC in the world. We have benefit from low-cost natural gas for generating power for making chlor-alkali and low-cost natural gas for producing ethane, which is predominant feedstock for the U.S. ethylene producers. And half of PVC is ethylene and half is chlorine. And so, we have the lowest cost producers in the world to produce PVC, and we can export anywhere in the world and compete. The issue then is margin. And China, one thing is going on is that the Chinese government are moving less and less in the carbide -- about 80% of the Chinese capacities are carbide, coal-based, which is high cost and high polluting process, and the Chinese government having curtailment of any new capacities in carbide process and switching to ethylene-based PVC production, which comes at a higher cost because ethylene in China is all based on naphtha, which comes from cracking refining oil. So the cost base is higher. And so, they are less able to compete on a global basis. So, from that sense, again, our U.S.-based producers are much better positioned to compete globally against even Chinese exports. So, at the end is the global economy and China construction activity is a big part of the Chinese economy and is really going through a recession right now. So until the construction and housing activity in China improves, you are not going to see improvements in profitability in the vinyl business in China either, which should impact the rest of the world as well.

Thank you for that. And then, Steve, I had maybe two housekeeping ones, for you. Apologies if I missed it. But how did the $50 million FIFO headwinds that you referenced split between your segments? And also curious, do you have any fourth quarter maintenance turnarounds planned?

Yes. And so about three quarters of that is in PEM, Kevin. And your second question was -- tell me again.

Are you planning to turn around any of your manufacturing plants in the current quarter?

In the current quarter, only small activity from a maintenance level perspective. Our bigger activity will be in ‘24 when we have a ethylene turnaround in ‘24. But otherwise, in the fourth quarter, it’s really small maintenance activity not attributable to any significant turnaround levels.

Our next question comes from the line of Josh Spector from UBS.

It’s Chris Perrella on for Josh. Just following the guidance for HIP for the fourth quarter. What’s causing the halving of margin sequentially? Is that higher raw material costs? And is that vinyl headwinds? What are the moving pieces, I guess, up in the third quarter on the margin and then down in the fourth quarter sequentially there?

Yes. A big piece of that headwind is really attributable to seasonal slowdown and so a diminished demand level. We’re also seeing -- since we are a FIFO reporter, some of that costs will also roll through that -- will roll through in the fourth quarter in terms of some of the feedstock costs will come through as well. And of course, the compounding of interest rates that we’ve seen will continue to be a headwind in terms of affordability. So, it’s a combination of those factors.

All right. I appreciate that, Steve. And then just one quick follow-up on the caustic soda. Albert and Steve, I’d just like to hear your thoughts on the caustic soda market as we move through the year given the weaker demand outlook for PVC.

Yes. Caustic soda, generally, the global demand correlates well with the global GDP growth, and global GDP is really not doing that well. So, this year, we have experienced price declines almost every month of the year. And I think at least the consultants are saying that after the price erosion of this year, I think they’re expecting another $20 for November and December to drop. But next year, there will be more stable and more price increases coming up. All this subject to global economic demand, and it’s hard to forecast these days.

Our next question comes from the line of Hassan Ahmed from Alembic Global Advisors.

I wanted to revisit one of the earlier questions around chlor-alkali supply-demand fundamentals, particularly as they relate to your views on what ECU pricing and margins will do on a go-forward basis. Look, I mean, the ECU pricing and margins have obviously come down over the last couple of quarters. But one of your larger competitors over the last few years has shut down a fair bit of capacity and has recently announced the temporary idling of some capacity as well. And they were very vocal in saying that by the second quarter of 2024, they expect to see a positive inflection on the ECU pricing and margin side of it. So, are your views in agreement with that?

Yes. Yes, generally speaking, we agree. Westlake, because of our historical strategy of being more fully integrated, we have downstream manufacturing of chlorine to PVC and then also further integration to HIP businesses. So, we have a lot more channel to sell products both domestically and export along the whole vinyls chain, which help us to moderate our operations, everything else. So, as we explained earlier, the last quarter, the value chain really has moved down to the downstream HIP business. And since we have, as mentioned, price declines for caustic throughout this whole year and consultant forecast is much more stable and actually improving prices for next year, we’re expecting things to get better. Now, this is subject to global economic conditions. We don’t know what’s going to happen with high interest rate. We’re still seeing -- feeling the impact of high interest rate, which -- until that reverses, we’ll have a detrimental effect on demand, both in the U.S. and overseas as well.

Fair enough. Fair enough. And as a follow-up, Albert, I mean, we still seem to be living through some unprecedented times. The destock across a variety of sort of chemical product chains, including yours, has been quite severe 2022 onwards? And if we were to simplistically sort of put that into historical context, obviously, a massive destock cycle like the one we’ve seen is followed by a pretty impressive restock cycle, right? But I mean, is it fair to assume that on a go-forward basis, we may actually eventually see a pretty impressive restock cycle, or now with rates where they are, with housing doing what it’s doing, with China, doing what it’s doing, are we in a new sort of paradigm shift?

Absolutely. I think as you mentioned, we’ve been seeing destocking pretty much through the whole year. And I think most companies mentioned earlier, the destocking activity is over. The question is what is the true demand? And people are really -- because high interest rates -- high inventory costs are expensive to carry, people are really ordering what they need. The issue is their need changes. And they don’t know -- they’re very short-term oriented now. And so, as demand came down, we have more ability to serve. As you know, back in 2022, our HIP business, we have a backlog over a year of certain products, and that’s not good for our customers. So now, by and large, most of our businesses we are ready to serve our customers in a relatively short notice. So, we -- as a producer, we carry a bit more inventory to serve our customers which also benefits from any import competition and the businesses. But having said that, we don’t know and customers don’t know what is the true demand, and we are ordering -- they’re ordering as only they need and we’re supplying them. And as you said, when the market turns and they want more of a reasonable higher level inventory, then will be a multiply effect, if that -- you can say that to production in the future. But who knows when that market turn will be. On the housing side, generally speaking, springtime, which starts probably February, March is when people are seeing benefits of the weather and they start putting sticks in the ground and do that. So, we should see some signs of improvement on housing in February, March related. But who knows? Time will tell.

[Operator Instructions] Our next question comes from the line of Michael Sison from Wells Fargo.

Hey guys, can you hear me?

Yes, we can, Mike.

Albert, where do you think you’re going to run your chlor-alkali facilities in the fourth quarter in terms of the operating rate? And how do you think about that as you head into next year, if demand continues to be sort of challenged?

Yes. Our operating rate pretty much follows the industry operating rates, and as mentioned earlier, generally, the demand goes down in the fourth quarter and the first quarter. So, our industry operating rate tends to go down and picks up again in the second and third quarter. And this is the general pattern. And of course, as Steve mentioned, we have not only seasonality, but also impact of high interest rate on the demand for construction activities. So, those are compounded effects.

Got it. And then, if -- when you think about PVC demand in 2024, if demand weakens, as you head into ‘24, how do you think you run your facilities to sort of compensate for that? Will you pull back some capacity or just sort of run it as is?

Yes. The industry has pulled back -- we have pulled back capacities when the demand is not there. But as I mentioned, that in the vinyl industry, we are one of the more fully integrated companies going for -- all the way from making ethylene and chlorine down to making pipes, windows and sidings and compounds. And the further you go down, the more easy for you to reach out a broader customer base. And for PVC resin, we don’t export much HIP business, but PVC resins, mentioned the industry exports about 35% of production. And we are the lowest cost producer in the world for PVC, we being American vinyl producers. So now, the margin is good enough. Our industry will export PVC, and we’ll also benefit the upstream chlorine, ethylene side.

Our final question comes from the line of Arun Viswanathan from RBC Capital Markets.

So, I guess, my first question -- I have two questions. So first question is on HIP. When you, I think, discussed this segment in the past, you’ve noted kind of a 15% to 20% EBITDA margin range. You’ve done very well in executing here. And do you think that’s still the appropriate range to consider? And could you potentially go well beyond that range in a higher volume environment? I’ll start with that.

So, Arun, when we think about the demand environment we’ve been in, we’ve been guiding to kind of the upper teens, and you see that we’ve exceeded that in a couple of quarters. This quarter was a record quarter with 29. But I think in a much stronger demand environment, given the fact that we’ve got a very broad product offering, there is a potential for that. But I think as we’ve seen here, we’ve got to see a much stronger demand market to be able to then move margins and pricing up. We’ve got a very strong headwind currently with seasonality coming into play and with mortgage rates, 8% plus for 30-year mortgages, that’s quite a bit of a sticker shock for most home buyers. And so, to be able to get a better -- a tighter market, if you will, we need a much better backdrop in terms of affordability and a more constructive macroeconomic outlook. There’s a lot of uncertainty in the market these days, and that’s causing a lot of people to be cautious about deploying personal capital into repair and remodeling and other construction. But yes, there is potential, but we need a better macroeconomic backdrop.

And just on PEM as well, another question I had was, I think you touched on the footprint on chlor-alkali, your operating rates kind of following the industry. But what about epoxy? I mean do you think that there’s further rationalization required there just given the weakness that we’ve experienced over the last couple of years? What’s it going to take to really see a better market there, understanding that China appears to be the biggest driver, but could there also be some capacity reductions on your part that would -- that accelerate that?

Yes. That’s a good question. As we discussed earlier that there’s overcapacity in the world. I think China build a lot capacity for their anticipation of demand for both EV, lightweighting cars, windmills, generating the renewal power. So, that’s the reason why China has built up capacity. But for one of the reasons, the EV demand is not going that strong, I think adoption still takes a while globally, and China is exporting EV cars around the world and leading competition. At the same time, the renewal power, the windmill blades, the various activities going on even in the U.S. and Europe. While people want do it, but the cost increases and all these issues are impacting the pace of further development in windmills, we think will come. And Westlake, we have technology that can make over 100-meter long blade, and longer the blade, the better the properties or efficiency of the windmills. So this takes time. And I think some of the older plants in China are not integrated plants, running low rates or shutdown. So just like anything, it will be rationalization going on and it takes time. But I think the demand for epoxy globally is still very strong, especially in the U.S., you have infrastructure, we build bridges and ship and so on and so forth. And they all need coatings, car needs coatings, and the windmill blades and epoxies and electronics. So the global demand for epoxy, we’re very optimistic on long-term demand. I think short term, we have these issues to go through. And I think the industry will go through that.

Thank you. At this time, the Q&A session has now ended. Are there any closing remarks, Jeff?

Thanks. Thank you again for participating in today’s call. We hope you’ll join us again for our next conference call to discuss our fourth quarter and year-end 2023 results.

Thank you for participating in today’s Westlake Corporation third quarter conference call. As a reminder, this call will be available for replay beginning 2 hours after the call has ended. The replay can be accessed via Westlake’s website. Goodbye.