Westlake Chemical Hopes for Better 2009 as Fourth Quarter Brings Down 2008 Earnings

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Researched by Industrial Info Resources (Sugar Land, Texas)--Westlake Chemical Corporation (NYSE:WLK) (Houston, Texas) reported a rough fourth-quarter 2008, as the company suffered a net loss of $109.6 million in the quarter, compared to income of $18.8 million in the fourth quarter of 2007. The company's net sales were down almost 30% year over year, coming in at $597.1 million in 4Q08. The lower sales figures were caused by both a severe drop in the prices of Westlake's chemical products and reduced demand as customers ran down their inventories. Overall, Westlake reported a net loss of $29.5 million for the 2008 fiscal year. "Our losses for the year were all attributable to the inventory losses sustained in the fourth quarter," said Chief Financial Officer M. Steven Binder in a conference call regarding the earnings.

CEO Albert Chao discussed the impact of the falling price of polyethylene, one of Westlake's main products. "Industry polyethylene prices declined $0.41 per pound in the fourth quarter of last year, an unprecedented drop in prices for one quarter," said Chao. "Customers' buying patterns slowed down dramatically as they waited for some pricing stability to take hold. Due to the weakened demand, we idled one of our ethylene units in Lake Charles in December, lowered operating rates at some of our derivative units and accelerated a scheduled maintenance turnaround, which was originally planned for the second quarter of 2009. The ethylene unit is expected to resume operations in the first quarter of this year." Chao added that the price of PVC resin had dropped $0.20 per pound in the fourth quarter, another unprecedented fall in price.

Bender also described the overall bad-luck incidents that occurred during the year. "In the first half of 2008," he said, "we experienced a significant run-up in energy and feedstock costs, and just as raw material costs began to decline as we started the third quarter, the Gulf Coast was struck with two hurricanes which disrupted much of North American capacity. The second half of the year saw financial markets unravel and unprecedented destocking by customers that carry through to the end of 2008. This is reflected in the financial results we reported in the fourth quarter."

The company suggested that the worst of the hard times has been reached and that conditions in the olefins and vinyls industries will steadily improve. "We're seeing some signs of improvement in January after a dismal fourth quarter," said Chao. "The industry announced a PVC-resin price increase of $0.05 per pound on February 1st, and we're hopeful that customers will begin restocking inventories. Some elements of the new government stimulus package are aimed directly at infrastructure, housing and energy efficiency, so we remain guardedly optimistic about the outlook for the latter part of 2009 and beyond." Chao also noted that the price of polyethylene was gradually creeping up and that the market could soon improve. "A significant portion of our polyethylene is sold into food packaging and other consumer non-durable markets, and the underlying volume in those segments tends to be more resilient," he said. "We believe the possibility exists for restocking to begin going forward."

Chao said that Westlake expected capital spending to be between $100 million and $150 million in 2009, specifically highlighting the company's chlor-alkali expansion project in Geismer, Louisiana. Construction of the project, which has an estimated total investment value of $300 million, is scheduled to start later this year and is expected to be complete by mid-2011. CDI Engineering (Baton Rouge, Louisiana) is acting as engineer on the project. For additional information, see February 13, 2009, article - New Chlor-Alkali Capacity Nears Startup, Additional Capacity Gets Closer Scrutiny. Detailed information on this project and more than $60 million of other current projects belonging to Westlake can be found in Industrial Info's North American Industrial Database.

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