Westlake Sees Record Income in 2012 as Costs Plummet, Expects 2013 Spending as High as $550 Million

---

Researched by Industrial Info Resources (Sugar Land, Texas)--Chemical and plastic products manufacturer Westlake Chemical Corporation (NYSE:WLK) (Houston, Texas) saw record net income in fourth-quarter and full-year 2012, as lower sales prices for most of the company's major products were more than offset by a sharp reduction in feedstock and energy costs. Net income was reported to be $95.28 million for the quarter, compared with $26.44 million in fourth-quarter 2011, and $385.56 million for the year, a 48.88% increase from 2011.

Net sales stood at $801.04 million for the quarter, a 6.77% decrease from the same period last year, and $3.57 billion for the year, a 1.35% decrease from 2011, attributed to weakened sales volumes for feedstocks, polyethylene and styrene. The biggest drivers of Westlake's improved income were significantly lower feedstock costs, which strongly boosted integrated margins in the Olefins and Vinyls segments; increased shale gas production in the U.S. and Canada lowered ethane-based ethylene production costs. The Vinyls segment also benefited from stronger sales volumes for caustic and building products. Net income in 2011 was negatively affected by an unscheduled outage an ethylene unit in Lake Charles, Louisiana; a fire at a third-party Olefin storage facility in Mont Belvieu, Texas; and the closure of a PVC pipe facility in Springfield, Kentucky.

Capital expenditures for 2012 were reported to total $386.9 million.

Industrial Info is tracking $1.1 billion in active projects involving Westlake, including the $400 million addition of a chlor-alkali unit at a vinyls plant in Geismar, Louisiana. The project involves constructing a control room and chlor-alkali unit using membrane cell to increase capacity from 350,000 to 625,000 electrochemical units annually. James Construction Group LLC (Baton Rouge, Louisiana) has been named the general contractor.

"Our Olefins segment delivered its best year ever, and our Vinyls segment reported its strongest annual earnings since 2006," said Albert Chao, the president and chief executive officer of Westlake, in a conference call. "The growing production of natural gas liquids from shale gas and oil production has caused ethane to become oversupplied as significant capacity additions in gas liquids processing and pipeline infrastructure brought ethane to the market faster than the North American chemical industry can consume it.

"These lower-cost feedstocks have re-established the North American chemical industry's cost position globally, and have prompted a resurgence in debottlenecking and other expansion projects to capitalize on this advantageous position."

Both of Westlake's segments reported significantly stronger income from operations for the fourth quarter and full year. The Vinyls segment saw lower sales, but at a small rate for the year:

• The Olefins segment reported net sales of $555.2 million for the quarter, a 10.71% decrease from fourth-quarter 2011, and income from operations of $143.21 million, compared with $75.89 million in the same period in 2011. The segment saw net sales of $2.5 billion for the year, a 2.64% decrease from 2011, and income from operations of $552.76 million, a 20.36% increase from 2011.
• The Vinyls segment reported net sales of $245.84 million for the quarter, a 3.55% increase from fourth-quarter 2011, and income from operations of $18.22 million, compared with a loss of $19.55 million in the same period in 2011. The segment saw net sales of $1.07 billion for the year, a 1.81% increase from 2011, and income from operations of $85.94 million, compared with $4.01 million in 2011.

For 2013, capital expenditures are expected to be between $500 million and $550 million, boosted by expansions. Westlake executives believe that shale gas production in the U.S. and Canada will remain strong, keeping ethane-based ethylene production costs low and giving the company an advantage over naphtha-based ethylene producers. As with the Geismar facility, the company is expanding its ethylene units and adding to its chlor-alkali capacity, to take advantage of this trend.

"The billions of dollars in capital being invested in North America to produce, freshen and transport the natural gas liquids production from the shale gas and oil properties has fundamentally shifted the cost structure of the North American chemical industry, and has ensured that the shale gas advantage will benefit North America light ethylene crackers, such as Westlake's, for years to come," Chao said in the conference call.

For more information, visit Industrial Info's North American Chemical Processing Project Database.

Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, and eight offices outside of North America, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle™, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.