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Westlake Chemical Corp  (NYSE:WLK)
Q1 2019 Earnings Call
May. 02, 2019, 11:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Westlake Chemical Corporation First Quarter 2019 Earnings Conference Call. During the presentation all participants will be in a listen-only mode. (Operator Instructions) As a reminder ladies and gentlemen this conference is being recorded today May the 2nd, 2019.

I would like to turn the call over to today's host Jeff Holy, Westlake's Vice President and Treasurer. Sir, you may begin.

Jeff Holy -- Vice President and Treasurer

Thank you. Good morning everyone and welcome to the Westlake Chemical Corporation first quarter 2019 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 followed by 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 open the call up to questions.

During this call we refer to ourselves as Westlake Chemical. Any reference to Westlake Partners is to our Master Limited Partnership, Westlake Chemical Partners LP and similar references to OpCo refer to our subsidiary, Westlake Chemical OpCo LP who owns certain olefins facilities.

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. Actual results could differ materially based upon 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; industry operating rates; the supply demand balance for Westlake's products; competitive products and pricing pressures; access to capital markets; technological developments; and other risk factors discussed in our SEC filings.

This morning Westlake issued a press release with details of our first 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 under our IR home page to assist in the discussion of our results. A replay of today's call will be available beginning today, two hours following the conclusion of this call. The 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 1248758.

Please note, that information reported on this call speaks only as of today May 2 2019 and therefore you are 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 in our web page at westlake.com.

Now, I would like to turn the call over to Albert Chao. Albert?

Albert Chao -- President and Chief Executive Officer

Thank you, Jeff. Good morning ladies and gentlemen, and thank you for joining us to discuss our first quarter results. In this morning's press release we reported a net income of $72 million for the first quarter of 2019 or $0.55 per diluted share. As we'll discuss on the call, we faced a difficult pricing environment this quarter for all of our major products. Continued international trade concerns resulting from trade tensions between the United States and China contributed to slower global economic growth and industrial activity, especially in Asia and Europe in the fourth quarter of 2018. And these impacts carried over into the first quarter of 2019. As these concerns and slower growth impacted global prices they affected export prices for our major chemical products which filtered into domestic prices as well.

In our Olefins segment polyethylene prices fell in the fourth quarter of 2018 following a 40% decline in global oil prices and from the increased supply from the new olefin industry production capacity that started up in the second half of 2018. In our Vinyls segment, the slowing global growth and industrial activity led sales prices for caustic soda to decline in the early fall of 2018 and continued into the first quarter. Weakening manufacturing activity over the past two quarters, along with high global carbide operating rates have led to excess inventories which has been weighing on global prices. In spite of these pricing challenges we saw good demand for all our major products in both the domestic and export market in the first quarter, delivering increased sales volumes compared to both the first quarter and fourth quarter of 2018. While the international trade tensions that weighed global economic activity and the pricing of our products for the past few quarters are continuing, we are cautiously optimistic that higher crude oil prices and the resolution to trade tensions between the U.S. and China will lead to improved industry fundamentals in the second half of 2019.

I would now like to turn our call over to Steve to provide more detail on the financial and operational results.

M. Steven Bender -- Executive Vice President and Chief Financial Officer

Thank you, Albert and good morning everyone. I will start with discussing our consolidated financial results followed by a detailed review of our Vinyls and Olefins segment results.

Let me begin with our consolidated results. For the first quarter of 2019 we reported net income of $72 million, or $0.55 per share on sales of $2 billion. Westlake's net income for the first quarter declined $215 million compared to the first quarter 2018, primarily due to lower prices and margins for our major products. As Albert noted polyethylene prices dropped in late 2018 as global oil prices fell by 40%. This steep drop in oil prices occurred at the same time new capacity was coming into the market and global demand was softening in light of the escalating tensions-trade tensions between the United States and China. These factors all played into the precipitous drop in polyethylene prices in the fourth quarter, resetting the price level which carried through the first quarter of 2019 resulting in lower average sales prices compared to the fourth quarter.

In our Vinyls segment, export prices for caustic soda began to decline in the summer of 2018 as international trade tensions escalated. This decline in export prices accelerated in the fourth quarter as global economic and industrial activity softened along with the unexpected dislocations caused by new licensing requirements cutting off all exports into India beginning in October. These events led to the sharp drop in export prices for caustic soda which impacted domestic sales prices in the fourth quarter that continued into the first quarter 2019. Despite the global macroeconomic headwinds we were able to increase volumes as we still saw strong global demand for polyethylene and styrene although integrated olefins margins were pressured by the lower sales prices and a higher ethane feedstock cost as compared to the prior year period.

Our utilization of the FIFO method of accounting resulted in an unfavorable pre-tax impact of approximately $19 million or $0.15 per share in the first quarter compared what earnings would have been under the LIFO method. This calculation is only an estimate and has not been audited. In our Vinyls segment volumes for our major products were comparable with the prior year period even as severe winter weather in much of the United States combined with flooding in the Midwest delayed shipments of caustic soda and the start of the spring construction season which slowed our sales in vinyl building products in the first quarter.

In summary, as compared to the first quarter 2018 our results for the first quarter 2019 resulted from lower margins for all of our major products due to lower sales prices and higher ethane feedstock cost. Partially offsetting the declines in margins were lower purchased ethylene costs and higher polyethylene sales volumes. The first quarter 2019 also saw higher cost attributable to about $22 million restructuring acquisition and integration-related charges as we completed our acquisition of the NAKAN compounding solutions business and optimized our global vinyls operations. First quarter 2019 net income of $72 million decreased $51 million from fourth quarter 2018 net income of $123 million. This decrease in first quarter 2019 income is primarily due to the lower sales prices for our major products and higher restructuring acquisition and integration-related cost. Partially offsetting the lower sales prices for our major products were lower feedstock and fuel costs and higher sales volumes for PVC resin.

Now let me move on to review the performance of our two segments starting with our Vinyls segment. For the first quarter 2019, Vinyls operating income of $101 million, decreased $165 million from first quarter 2018 operating income of $266 million. The decrease in income and operations in our Vinyls segment is primarily due to the lower sales prices for caustic soda and PVC resin, higher ethane feedstock costs and higher restructuring acquisition and integration-related cost while benefiting from lower purchased ethylene cost. Vinyls' first quarter operating income of $101 million decreased $24 million from fourth quarter 2018 operating income of $125 million. The decrease in operating income from the prior quarter was due to lower sales prices for caustic soda and PVC resin and higher restructuring acquisition and integration-related cost. Partially offsetting these effects were lower ethane feedstock and purchased ethylene cost and higher PVC sales volumes.

Turning to our Olefins segment; as we discussed we saw strong demand for our products in the first quarter. In spite of the strong global demand the precipitous decline in global oil prices in late 2018 pulled global ethylene prices down as customers destocked inventories and uncertainties in international trade weighed on the market. This reset of the global price level in the fourth quarter of 2018 carried through into the first quarter 2019. In the first quarter 2019 our Olefins segment operating income of $37 million decreased $126 million from first quarter 2018 operating income of $163 million as margins were squeezed by lower sales prices and higher ethane feedstock cost. First quarter 2019 operating income decreased $53 million from fourth quarter 2018 operating income of $90 million due to lower sales prices and higher costs associated with planned turnaround activity partially offset by lower ethane feedstock cost.

Next, let's turn our attention to the balance sheet and statement of cash flows. As of March 31, 2019 we had cash and cash equivalents of $445 million and total debt of $2.7 billion. First quarter 2019 cash flows from operating activities were $147 million while capital expenditures were $203 million. In the first quarter we completed our acquisition of NAKAN and continued to invest in our portion of the construction cost of the 2.2 billion pound ethylene joint venture with Lotte Chemical which is expected to start-up in the second quarter of 2019. We have an option to increase our ownership to 50% at any time over the next three years and we will continue to assess this option. We continue to invest to improve the reliability of our plants and in attractive opportunities to grow our business.

We have previously announced VCM and PVC expansions in Geismar, Louisiana and in Germany and are continuing to opportunistically debottleneck several other VCM and PVC plants in the U.S. All of these investments continue to further integrate our vinyls chain. We continually evaluate acquisition opportunities to invest where we believe they will provide attractive returns grow our earnings and leverage our existing operations. The acquisition of NAKAN, a leading global PVC compound solutions business is an example of that investment philosophy. As we look forward into the rest of the year, ethane prices have declined through the start of 2019 as new NGL pipeline capacity along with the accompanying fractionation capacity has increased supply, while global oil prices have rebounded from their December lows, highlighting the beneficial cost position enjoyed by North American olefins producers.

In our Vinyls segment we are entering the start of the construction season in most of the country which we expect to increase demand for PVC resin and our downstream vinyls products. We have also seen improvements in some of the areas restricting demand that affected our industry. In March the Bureau of Indian Standards resumed issuing licenses allowing imports of caustic soda back into India. We also believe the largest alumina refinery in the world which had their production curtailed since spring 2018 due to environmental concerns could resume full operations in the second half of 2019. This refinery is a large consumer of caustic soda and therefore we believe this resumption of full operations will benefit U.S. caustic soda producers. As always we also continue to aggressively execute on cost management while running a productive organization and we have increased our cost reduction actions given these short-term macroeconomic challenges.

Before turning the call back over to Albert, I would like to provide some guidance for your modeling purposes. For the full year of 2019 we expect CapEx to be between $600 million and $650 million. As I mentioned earlier, the next turnaround of one of our ethylene facilities is scheduled for the first half of 2020, and we'll provide more information on the duration and impact on earnings later in the year as we complete our turnaround planning. We continue to expect our effective tax rate this year to remain around 24% and our cash tax rate to be around 18%.

With that I'll turn the call back to Albert to make some closing comments. Albert?

Albert Chao -- President and Chief Executive Officer

Thank you, Steve. While we faced a difficult pricing environment in the first quarter we've recently seen some improvement in the global business environment. We are cautiously optimistic that there will be a solution to the trade dispute between the U.S. and China, which will reduce trade uncertainties and spur global economic activity.

Caustic soda consumption is closely tied to global industrial activity and the lack of industry investments sufficient to keep pace with demand in chlor-alkali is expected to tighten the global caustic soda supply demand balance as we look forward. As Steve discussed earlier rebounding oil prices combined with competitively priced North American ethane highlights the low- cost position we enjoy in the U.S. We are also well positioned in the Olefins segment with a concentration of our sales in higher margin specialty and differentiated polyethylene products. In both our vinyls and olefins businesses and we are well positioned on the lower end of the global cost curve as our industry continues to enjoy the cost advantages.

Thank you very much for listening to our earnings call this morning. Now, I'll turn the call back over to Jeff.

Jeff Holy -- Vice President and Treasurer

Thank you, Albert. Before we begin taking questions I would like to remind you that a replay of this teleconference will be available two hours after the call has ended. We'll provide that number again at the end of the call. Latif, we'll now take questions.

Questions and Answers:

Operator

(Operator Instructions) Our first question comes from the line of Stephen Byrne of Bank of America. Your line is open.

Steve Byrne -- BOFA Merrill Lynch -- Analyst

Yes, thank you. When you compare your olefins and vinyls results in the quarter, say against your pure-play peers your income from operations seems disproportionately lower. Is there anything that you can call out that's differentiated about your results? Any one-offs; anything that would highlight a differential result?

M. Steven Bender -- Executive Vice President and Chief Financial Officer

Steve, I think when you look at the direct peers that we have, certainly not all of them are integrated all the way into building products. So as we said we had a late start to the construction season. So certainly the impact to our downstream building products was year-over-year, a portion of that. And of course we had the restructuring charges that I mentioned of $22 million that are part of those results as well.

Albert Chao -- President and Chief Executive Officer

And our polyethylene business are really U.S. North American-based while some of our competitors results are more global and they have a different dynamics in local polyethylene pricing.

Steve Byrne -- BOFA Merrill Lynch -- Analyst

And just one more for me please; how would you rank the 2019 pricing outlook for three key commodities you produce, polyethylene caustic and PVC?

Albert Chao -- President and Chief Executive Officer

Well, in polyethylene in April, we announced and we have $0.03 a pound price increase coming to affect. Now the impact of that will be the usually large customer have some price protection over a month. So we'll see that coming in from that in the coming months. On the PVC side there is $0.02 price decrease we are seeing in April. And then, the forecast by industry consultants looking at prices to improve in the third quarter of this year. And in caustic soda I think HIS, one of the industry consultants announced there's a $5 dollars short-term decrease in April. And then expect the fourth quarter the caustic soda prices to increase. And we've seen a large part of that impact in the first quarter is from a sharp decline in the global export prices which we participate in both polyethylene PVC and caustic.

And the global tensions and trade issues have caused international price to decline sharply. And the U.S. chemical producers are large players in the export market and that also differentiates our U. S. local producers from other regional producers. So as trade tensions ease and we're seeing prices in many of these areas improving especially in Asia in PVC and caustic. So we believe that that prices should improve on the export price which have an impact on the U.S. prices above. And higher crude oil prices also make the U.S. ethane-based producers in polyethylene much more competitive.

Operator

Our next question comes from Robert Gordon of Goldman Sachs. Your question please.

Robert Gordon -- Goldman Sachs -- Analyst

Thank you, good morning. I was wondering if you can talk a little bit it didn't seem like the weather issues affected your sales in the Vinyls segment. Is that because you exported more? Is it filling the inventory channels? Did it not actually any of the weather issues cause you challenge? Can you give us some clarity there?

M. Steven Bender -- Executive Vice President and Chief Financial Officer

Bob, the impact of the colder weather and wetter weather that we saw in the Midwest back to the earlier question was really impacting some of our building products businesses. And so certainly as we see the onset now of spring and the construction season we continue to pick up-have an expectation of picking up the volume. But volume was actually year-over-year a good result but it did impact some of our downstream building products and vinyls products businesses.

Robert Gordon -- Goldman Sachs -- Analyst

Can you talk a little bit about your business in Asia and China specifically? Have you've seen any intensified environmental inspections? And then on the competitive base do you expect there might be some facility closures there in the wake of these plant problems that have happened over there? And what do you sort of see on the outlook for the incremental supply in the industry over there?

Albert Chao -- President and Chief Executive Officer

Yes, we have a PVC and downstream compounding and film production facility in China. And we are seeing a much more heightened awareness by local government and central governments not only on the environment but also on safety as in the recent past few weeks and months there were explosions in the chemical industry and one recent last week a major explosion in Mongolia in PVC. And we are seeing reactions from local governments of potentially shutting down unsafe and old chemical plants. So that would take capacity away. But it still takes time to understand what are those initiatives will be effective quickly or just a warning to the industry. So I think China is becoming more environmentally conscious and safety conscious which is good for the industry and for the local communities.

Operator

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

David Begleiter -- Deutsche Bank -- Analyst

Thank you. Albert, back to the olefins decline in the quarter I know you have styrene in that segment and that's probably down by 15%. Any other items that could cause the divergence versus maybe a lined who had EBITDA decline roughly half of yours? Polystyrene would be one of them perhaps?

Albert Chao -- President and Chief Executive Officer

Well, certainly I think the polypropylene business with the drop in propylene price probably and also less capacity in polypropylene is right now. It has less impact than the polyethylene which we saw the 40% of capacity increase in the last few years. And also companies have positions in Europe and Asia. They are much less European polyethylene producers not participating in the export market much unlike the U.S. so not affected by lower export international prices. So I think as I said earlier the impact is more on North American companies which exports international markets.

David Begleiter -- Deutsche Bank -- Analyst

Very helpful. And just on the Lotte cracker; how do you expect that cracker to ramp-up over the next few months or couple of quarters?

M. Steven Bender -- Executive Vice President and Chief Financial Officer

Well, I think as any new plant start people are probably more cautious until the plant's the management team operating team feel comfortable in ramping up. So I'm sure they will do it on a gradual basis.

Operator

Our next question comes from Mike Leithead of Barclays. Your question, please.

Mike Leithead -- Barclays -- Analyst

Good morning, guys. First I know you don't give earnings guidance but can you maybe just talk broadly about your expectations for margin trends in your three main products, integrated polyethylene caustic and PVC? And any other incremental earnings contributions we should get as we go through the year? I guess I'm just trying to understand what we should layer in on top of this quarter's run rate as we move to the back half of this year.

M. Steven Bender -- Executive Vice President and Chief Financial Officer

So as Albert noted earlier we certainly have seen a price increase in polyethylene. We achieved a $0. 03 price increase in April. But the large volume buyers of course will have some price protection for typically a month. And that will be constructive if we see that carry through into May and into June. As Albert also noted we saw a price decrease in PVC as well as in caustic. And so while we remain very optimistic for the second half of the year I think we'll continue to see some of the some of these trade issues continue to weigh on the overall global demand.

Mike Leithead -- Barclays -- Analyst

Got it.

Albert Chao -- President and Chief Executive Officer

And also if I may add that we are coming to the building season. So our building products' volume should be improving for the second and third quarter. That's usually there are two building seasons the first and the fourth are usually the weaker seasons.

M. Steven Bender -- Executive Vice President and Chief Financial Officer

We've certainly seen ethane relatively contained and ethylene has trended down and we're a buyer in both feedstocks. So we're hopeful that it remains also constructive to the bottom line.

Albert Chao -- President and Chief Executive Officer

And one more thing; crude oil prices has a large impact on polyethylene prices. So, if crude prices stays high where we are or higher, some industry analysts are projecting even higher prices toward the end of the year. That will help the U.S. polyethylene business.

Mike Leithead -- Barclays -- Analyst

Okay, that's helpful. And then a follow-up for Steve on the cash flow statement. Can you first break down how much of the CapEx spent in the quarter was related to the Lotte project? And second can you just parse apart the $160 million use of cash in operating cash on other balance sheet items? I assume most of it is working capital but most product prices declined sequentially. So any color there would be helpful.

M. Steven Bender -- Executive Vice President and Chief Financial Officer

So on the cash flow statement you can see that the PPNE was $203 million the $42 million that you see is really attributable to the Lotte investment in the quarter.

Mike Leithead -- Barclays -- Analyst

And the $160 million use of cash on other balance sheet items?

M. Steven Bender -- Executive Vice President and Chief Financial Officer

Remember we had the acquisition of NAKAN in the first quarter and then the bigger piece of that was working capital as we continue to build working capital for the quarter.

Operator

Thank you. Our next question comes from the line of P.J. Juvekar of Citi.

Eric Peter -- Citi -- Analyst

Good morning, this is Eric Peter (ph) for PJ. Caustic producers have announced pricing increases of $50 to $80 per ton. Do you see that more achievable in third quarter ahead of what IHS projects as a fourth quarter implementation? And what variables would affect that?

Albert Chao -- President and Chief Executive Officer

Well, it's possible if the trade tension eases the industry activities globally improves and with the Indian licensing issues behind us, then it's possible that and with Alunorte refinery coming back to full operation and consuming more caustic that could hasten the price increase.

Eric Peter -- Citi -- Analyst

Okay. And how many months of raw material inventory do you keep? Ethane prices have trended lower in the second quarter. Do you expect to see any benefit from that?

M. Steven Bender -- Executive Vice President and Chief Financial Officer

Because we're a FIFO reporter there is typically a four to six week lag between a FIFO reporter and those in the industry that are reporting on a LIFO basis. And so those cost that you see-that have fallen through as I reported in my prepared remarks we had a $19 million headwind. And certainly as prices trend further down in ethylene as we have seen in April, and ethane has been relatively contained, we'll continue to benefit from those lower cost but we'll be carrying some of those higher costs into the second quarter that we incurred in the first quarter.

Operator

Thank you. Our next question comes from Hassan Ahmed of Alembic Global.

Hassan Ahmed -- Alembic Global -- Analyst

A quick question on the turnarounds; you guys in the press release talked about opportunistically turning around several VCM and PVC facilities. And you also sort of talked about higher turnarounds within the Olefins segment. So could you just sort of parse out what sort of EBITDA impact that had in the quarter? I'm just sort of trying to get a sense of what the earnings probably would look like in the quarter.

M. Steven Bender -- Executive Vice President and Chief Financial Officer

So Hassan, the turnaround was really just a polyethylene turnaround that was normally taken. And the impact of that was between $5 million and $10 million in the quarter.

Hassan Ahmed -- Alembic Global -- Analyst

And what about VCM and PVC side?

M. Steven Bender -- Executive Vice President and Chief Financial Officer

Very small.

Hassan Ahmed -- Alembic Global -- Analyst

Very small, OK. So less impact. Now as a follow-up, slightly longer term it seems there's a lot of newbuild activity, at least announced out in Asia. How does that factor into your thought process about the cycle quality medium-term?

Albert Chao -- President and Chief Executive Officer

Well, the newbuild is based on the NAKAN cracker. They're oil-based. Certain newbuild are based on imports of U.S. ethane which has potentially a $0.34 $0.40 a gallon extra cost of shipping costs and all that. And then I think very few but a few are coal-based which are much more competitive with the cheap price of coal in China but the capital costs are very high.

Operator

Thank you. Our next question comes from Kevin McCarthy of Vertical Research. Your line is open.

Kevin McCarthy -- Vertical Research -- Analyst

With regard to your building products business a number of other companies across the chemicals industry have pointed to some weakness in housing and construction. As you think about the business and how to manage it for 2019, do you think that the weakness evidenced in the first quarter was more in that category of weather-related and timing-related pressure? Or do you think we're going to see a more durable macro impact on that business? I guess the second part of it would be if you could comment on any differentials in terms of what you're seeing in the U.S. versus the Canadian market?

M. Steven Bender -- Executive Vice President and Chief Financial Officer

Yes. So Kevin I think what we've seen, with the longer winter weather this year and the weather that we've seen, I do believe a great majority of that is driven by just the delays in the start of the construction season. The Canadian market certainly is also a little bit more sluggish than the U.S. market and of course it also experienced the delays in the construction market because of the strong winter weather there. But it is no doubt a little bit weaker than the U.S. construction markets. But I think the big portion of that is really weather-driven.

Albert Chao -- President and Chief Executive Officer

And in April, we are seeing the pick-up in demand for all our building products already.

Kevin McCarthy -- Vertical Research -- Analyst

Okay, that's helpful. And secondly, I think you indicated a capital budget of $600 million to $650 million. Last quarter my impression was that you were looking for that number to trend flat versus last year which I think was around $700 million. And so wondering what changed there and whether or not you are finding savings or deferring any projects at this point.

Albert Chao -- President and Chief Executive Officer

Look Kevin, naturally we're looking at making sure all these products have got the return potentials that we believe they should have and looking to also make sure that as we have seen some choppy markets over the past quarter or two, that we're making sure that we're doing putting capital to work in a constructive productive manner. And that's what's really driving that.

Operator

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

Arun Viswanathan -- RBC Capital Markets -- Analyst

Great, thanks, good morning. Just curious on your reaction to polyethylene price increases. Do you expect-it looks like the industry was able to get $0.03 in April. I mean do you expect another $0.03 in May? And if so what's the mechanism for that? Is it low inventories, strong demand or a combination of everything? Restocking; how do you see the polyethylene markets right now?

Albert Chao -- President and Chief Executive Officer

I think that the inventories for polyethylene in the U.S. are between average to average to the high side for producer and about average or average low side for consumers. And I think it's really a crude oil-driven and international price-driven. And prices -- the margin for oil-based naphtha producers overseas producing polyethylene the prices are almost there's no margin. So as crude oil prices stays higher or goes higher there's more pressure for international price to go up. And I think the U.S. is reflecting the increased price overseas.

Arun Viswanathan -- RBC Capital Markets -- Analyst

Okay, thanks. And I guess on the Vinyl side PVC looks like it was flat. Do you expect increases in PVC to stick over the next couple of months given some seasonal strength? And how would you kind of characterize the supply demand metrics?

Albert Chao -- President and Chief Executive Officer

Yes. I think the demand, as Steve said, would largely go to building products. As building products demand increases the PVC demand will increase as well. But U.S. industry exports around the 30% odd of the PVC production overseas. So it's really the overseas impact on pricings and we are seeing in Asia PVC price already started going gradually up from the bottom. So as the economies and trade tension eases in Asia and Europe then the demand for PVC will increase and that will now have a price impact, international price and they'll come back to the U.S. price. I think partly our PVC price decline was due to the drop in spot ethylene price in U.S. As you know half of PVC's cost is on ethylene. So if ethylene price goes down consumers are saying that as your cost goes down you should pass on the savings to us.

Arun Viswanathan -- RBC Capital Markets -- Analyst

And then, lastly, on caustic as well; what would you consider to be the main kind of metrics you guys are watching for an improvement in the market? I mean is it a resumption of production, full production in Alunorte? And if so I guess when would you expect markets to improve in caustic?

Albert Chao -- President and Chief Executive Officer

Again, caustic is very much industrial activity-driven on a global basis. And as we said earlier that if we believe that the global economy improves the second half with less trade tensions and with other stimulus policies that the Chinese government implemented recently will take some time to see of the effect we believe the global affect for caustic will improve especially with the Indian license issue behind us. And if Alunorte returns to production sometime in the second half of this year than the demand for caustic globally would increase and that will benefit the pricing. As we said earlier on a global basis not much capacity added. Unlike polyethylene there's a little capacity added. So look forward the next two years we believe that vinyls and caustic market supply demand will improve and will help prices going forward.

Operator

Thank you. Our next question comes from Aleksey Yefremov of Nomura Instinet. Your question please.

Matt Skowronski -- Aleksey -- Analyst

This is Matt Skowronski (ph) on for Aleksey. You mentioned M&A possibilities. Are there any areas in particular that you're kind of looking at for bolt-ons?

M. Steven Bender -- Executive Vice President and Chief Financial Officer

We look across the spectrum of our businesses on a regular basis as well as things that could be adjacent to the segments that we're in. So there's no particular focus in one particular segment or the other. But to the extent that we see opportunities where we think we can add incremental meaningful value. I think that have a good return associated with them on a risk adjusted basis, we'll deploy capital. And so it's a pretty regular process that we undertake, and has been for many years.

Matt Skowronski -- Aleksey -- Analyst

Understood. And have you noticed any uptick in export prices for caustic in April so far?

Albert Chao -- President and Chief Executive Officer

Yes. Export prices, I think international price in Asia has gradually moved up slowly, but it's moving up. So we believe that if the trend continues it will help bridge the gap.

Operator

Thank you. Our next question comes from Josh Spector of UBS. Your line is open.

Lucas Beaumont -- UBS -- Analyst

This is Lucas Beaumont (ph) on for Josh. So just on vinyl; so you noted that your pricing was down about 2.5% sequentially but that was versus the benchmarks which was up 2% in the quarter. What was the difference there?

M. Steven Bender -- Executive Vice President and Chief Financial Officer

You are talking about prices sequentially year-over-year or quarter-over-quarter?

Lucas Beaumont -- UBS -- Analyst

Sequentially, quarter-over-quarter.

M. Steven Bender -- Executive Vice President and Chief Financial Officer

So, as I mentioned earlier the biggest change that we saw quarter-over-quarter in the vinyls segment was really all driven by both PVC and caustic pricing drivers. The other driver of course was the restructuring charge that we took in the first quarter. But those were the only headwinds that we had in the period quarter-over-quarter in the vinyls segment. As we noted in our prepared remarks we had improvements, both in feedstocks and volume was very good.

Lucas Beaumont -- UBS -- Analyst

Great, thanks. And on so you mentioned that you'd seen the demand improve a little sequentially into April so how would you categorize those levels now versus say last year or a normal year? Is it in line higher or lower?

M. Steven Bender -- Executive Vice President and Chief Financial Officer

It's moving higher because we certainly are getting into what I would call the catch-up season because we didn't have the start of the normal construction season due to the cooler weather and wetter weather. So we're beginning to see good order intake and shipments in the month of April to catch up for that later start that would've otherwise occurred in March or late February.

Operator

Thank you. Our next question comes from Jonas Oxgaard of Bernstein. Your line is open.

Jonas Oxgaard -- Bernstein -- Analyst

Good morning, a two-part question. Since the Lotte cracker is in start-up mode does that mean you're contributing to the start-up cost as well?

M. Steven Bender -- Executive Vice President and Chief Financial Officer

So we're owner proportionately of the cracker. So those items that are our proportional share we do contribute, that are capital-related items.

Jonas Oxgaard -- Bernstein -- Analyst

And thinking about this cracker longer term, I guess if I'm looking at current ethylene margins come it doesn't look like buying out the remaining 40% at this moment in time would get to a 10% return. Now if I'm looking three years from now when your option expires and it still looks like you're not getting a 10% return how would you think about that option then?

M. Steven Bender -- Executive Vice President and Chief Financial Officer

Well, I think the benefit of the option is that we can assess the market during the time period of that option. And so, as I mentioned earlier we're continuing to assess the benefits of making incremental investments. We're still in the process of making those assessments and because of the nature and the structure of the option we have the opportunity to do that analysis over if we choose to over the entire three year period. But it will be an assessment that we're doing on an ongoing basis looking at both current and future expectations.

Operator

Thank you. Our next question comes from Don Carson of Susquehanna. Your line is open.

Donald Carson -- Susquehanna -- Analyst

Thank you. Steve, could you quantify the year-over-year negative impact from the lower building products' EBITDA? And would you expect to make that up in the balance of the year? And then you talked about $20 million in restructuring charges. You mentioned optimization of the global Vinyls business, what exactly does that mean? And then finally I see the EPAs once again looking at asbestos use in diaphragms. Are you feeling any pleasure or do you have any plans to accelerate conversion to membrane capacity?

M. Steven Bender -- Executive Vice President and Chief Financial Officer

Don, as we think about the building products, it was between $20 million and $30 million impact on the building products business year-over-year because of the cooler and wetter weather that we had. And certainly in terms of the restructuring charges we always do, we look at how we are optimizing our businesses across the vinyls chain. And so the charge that we took in the first quarter is really a combination of charges related to the acquisition of NAKAN as well as some optimization related to the entire vinyls chain that we look at now that we're really continuing to expand our footprint in VCM and PVC these expansions that I made reference to. As it relates to the environmental issues the answer really is that we'll just continue to assess. There is no specific time line that this new focus brings to the table.

Albert Chao -- President and Chief Executive Officer

Yes, the diaphragm plans are pretty competitive if you have low power cost that we have.

Operator

Thank you. Our next question comes from Jim Sheehan of SunTrust. Your line is open.

Jim Sheehan -- SunTrust Robinson Humphrey -- Analyst

For NAKAN, could you elaborate on any cost synergy targets you have for that acquisition?

M. Steven Bender -- Executive Vice President and Chief Financial Officer

Jim, we haven't given any public guidance to synergies but certainly as you would expect we're going to look to strive to backward integrate into resins and certainly kind of also pull-through the intellectual property capabilities because we're obviously a compounder here in the North American market. And to the extent that NAKAN's capabilities and know-how allow us to expand that IP if you will into other markets that we are already serving that's something we'll be very much focused on. But we've not given any specific numbers on synergies.

Jim Sheehan -- SunTrust Robinson Humphrey -- Analyst

And Albert, could you give us your outlook on ethane prices for the rest of the year?

Albert Chao -- President and Chief Executive Officer

Yes. I think if you look at the future of prices ethane prices will be staying more or less in this range maybe move up a little bit as new plants start up. But we believe that with the pipelines and the fractioning capacity being built there will be a lot more ethane coming from the Permian Basin.

Operator

Thank you. Your next question comes from Matthew Blair of Tudor Pickering Holt. Your line is open.

Matthew Blair -- Tudor Pickering Holt -- Analyst

Steve, do have an estimate of potential FIFO impact for Q2 2019 if pricing stays at current levels? And if it's material do you have a split between Vinyls and Olefins segments?

M. Steven Bender -- Executive Vice President and Chief Financial Officer

Yes. It isn't going to be overly material but I would say in the range of less than half of what we experienced in the first quarter. And so it's not a really material driver assuming that ethane and ethylene stay in this kind of range going forward in the month of May and June.

Matthew Blair -- Tudor Pickering Holt -- Analyst

And then are there any turnarounds in Q2 that we should be aware of?

M. Steven Bender -- Executive Vice President and Chief Financial Officer

Matthew, we undertake turnarounds in all of our plants on a regular basis but none that are significant in the individual nature except those on the ethylene side. As you know we do expect to do at a turnaround in 2020 of one of our ethylene units. And as we finish our planning we'll give some better guidance in terms of exact timing and length of outage. But the other derivative units we undertake aren't individually material enough. So we've not gotten into specific guidance because there are frankly a number of plants.

Operator

At this time the Q&A session is now ended. I'd like to turn the call over to Jeff Holy for any closing remarks.

Jeff Holy -- Vice President and Treasurer

Thank you again for participating in today's call. We hope you'll join us again for our next conference call to discuss our second quarter 2019 results.

Albert Chao -- President and Chief Executive Officer

Thank you for participating in today's Westlake Chemical Corporation First Quarter Earnings Conference Call. As a reminder this call will be available for replay beginning two hours after the call has ended and may be accessed until 11:59 P.M. Eastern Time on Thursday, May 9, 2019. The replay can be accessed by calling the following numbers. Domestic callers should dial 855-859-2056. International callers may access the replay at 404-527-3406. The access code for both numbers is 1248758. You may disconnect your lines at this time.

Duration: 53 minutes

Call participants:

Jeff Holy -- Vice President and Treasurer

Albert Chao -- President and Chief Executive Officer

M. Steven Bender -- Executive Vice President and Chief Financial Officer

Steve Byrne -- BOFA Merrill Lynch -- Analyst

Robert Gordon -- Goldman Sachs -- Analyst

David Begleiter -- Deutsche Bank -- Analyst

Mike Leithead -- Barclays -- Analyst

Eric Peter -- Citi -- Analyst

Hassan Ahmed -- Alembic Global -- Analyst

Kevin McCarthy -- Vertical Research -- Analyst

Arun Viswanathan -- RBC Capital Markets -- Analyst

Matt Skowronski -- Aleksey -- Analyst

Lucas Beaumont -- UBS -- Analyst

Jonas Oxgaard -- Bernstein -- Analyst

Donald Carson -- Susquehanna -- Analyst

Jim Sheehan -- SunTrust Robinson Humphrey -- Analyst

Matthew Blair -- Tudor Pickering Holt -- Analyst

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