Westlake Corporation (WLK) Earnings Call Transcript & Summary

Hi. Good morning. I'm Jeff Zekauskas. I analyze chemicals for JPMorgan. And it's my pleasure this morning to introduce the management of Westlake. And representing Westlake is Steve Bender, who is the Chief Financial Officer, who's been CFO since 2008 and has really guided the company through a period of transformation as they went from a focus on ethylene and polyethylene to one in Vinyls to one in building products. With Steve is Roger Kearns, who is the new Chief Operating Officer of Westlake. I think Steve has a few remarks to make in a preliminary fashion, and then we'll do a fireside chat. Steve?

Thank you, Jeff, very much. And what I thought I'd do is kind of turn to this first slide and really outline the fact that, as Jeff mentioned this morning, that really the business has gone through a series of transformational changes. Just going to let Roger kind of speak to kind of some of those changes on this first slide that I've illustrated here. You can see that we've re-segmented the business into 2 different reporting segments, a materials business, the Performance and Essential Materials business and the Housing and Infrastructure Products business. With that, I'll turn it over to Roger. And then I'll let him throw it back to me for just a few notes before we turn it back over to Jeff for some Q&A.

Yes. Thank you, Steve. Good morning, everyone. Thanks for being here this early. We've had a lot of changes going on at Westlake over the last several years, but certainly, we've accelerated that over the last 9 months, I would say. Just recently, we changed the name of the company. You might think that's a radical change from Westlake Chemical to Westlake Corporation. But in that change is a key message that we are no longer really just a chemical company. In fact, today, we are really focused on a large set of materials and the downstream building products focused. And so to change that name is a clear message that we see these 2 segments quite important. And we've made a really strong focus on what we're calling Housing and Infrastructure Products, which is our downstream business. And inside of that, we've got the Westlake Royal Building Products, which is a large building products segment; our Westlake Pipe & Fittings, which has pipe and fittings, both certainly North America, U.S. and Canada; and our Westlake Global Compounds, which is a true global business, which has a lot of specialties in areas of automotive, medical, in and around of PVC compounds. And then our newest kind of addition to this segment is called Westlake Dimex. And Dimex is one of the largest users of recycled polymers in North America, and it's taking recycled polymers and actually making products that you could buy at a big box retailer, at a Home Depot or a Lowe's, made specifically out of recycled materials. So we're growing that into a pretty significant segment. You kind of see across the chart -- I mean we have quite strong positions where we play. So we generally are in the top 3 leader in all those segments. And this business is really a North American business on the Housing and Infrastructure Products. The second segment is really the Performance and Essential Materials. This is our -- a bit of our upstream business, focused heavily on materials. That's where we are the largest chloro-vinyl player in the world. We have an extremely strong base for chlorinated products, PVC, caustic soda. And we have a very strong North American base, which really profits a lot from the raw material advantage here in North America of having ethane-based ethylene as opposed to a naphtha-based in most of the other parts of the world. And so that size gets us a really strong play here. And then our newest business that we've just added 6 weeks ago is Westlake Epoxy. And that was the acquisition of the epoxy business from Hexion, which gives us the #2 position globally and access to brand new markets that are very sustainability-focused, such as wind energy, lightweighting aviation, lightweighting cars, but also construction materials, construction coatings. That opens up a whole new area of growth for Westlake. So we're quite excited to have this. Today, we have about 16,000 employees, 60 manufacturing sites, probably 100 sites in 23 countries. So Westlake is really becoming a significant global player in our markets where we play.

And so when you think about kind of the numbers here, as you talk -- as Roger talked about the numbers here, the driver here is really a strong tailwind behind all these businesses. We ended the year with a very strong set of results, as you can see, $3.7 billion in EBITDA. And because of those transactions that Roger mentioned, whether it is the acquisition of the epoxy business that we didn't close until February 1 of this year or even the additions in our Housing and Infrastructure Products business, we closed in the latter part of the fourth quarter and a few in the third quarter, really very little contribution therefore in the year '21. So as you think about the strong performance we had in '21, in fact, it was a record performance in sales, income, EBITDA with a strong tailwind that we see in all these businesses and the contribution from these 4 transactions. We're very pleased to be looking forward into '22 with this new segmentation. So you can see the contribution that both sides of the business are making and really look forward to the strength that we're seeing in the markets. With that, Jeff, maybe I'll turn it back over to you for questions.

Sure. Thanks very much, Steve. I think the biggest thing that Westlake does is it makes PVC and sells it. And particularly in the domestic markets, what are demand conditions like in PVC right now?

Yes, I'd say, certainly on the North American side, demand is very strong. And it's very much tied to this downstream housing markets. The North American players historically have exported between 35% and 40% of their product. Today, that number is about half of that because the domestic demand is quite strong, and we're really focused on serving our customers here. But I think -- so we see a continued strengthening in those markets, and that downstream housing products is really driving most of that.

So what does strong mean, 5%, 10%, 2%? What's your general sense of the domestic market?

I think we'll say -- so certainly, 2020, of course, was a hit on all our markets. So we had -- comparing to 2020 is not a great comparison. But even if you go back to 2019, yes, we're looking at probably 5% growth in an industry where there has not been a lot of capacity increases. And so it's made it much tighter.

I would have thought that in the first quarter, maybe you guys would be up 10% or something like that. Is your idea that you'll be sort of stronger in the first half and then a bit weaker in the second as comparisons get a little bit more difficult? Or how do you see the shape of your volume growth in PVC?

Today, I think the industry is running as hard as it can. And there are just simply -- sometimes there's challenges in logistics. There's challenges in shipping. Certainly, for export, it's quite a challenge. There's actually challenges in raw materials. And so I don't think, today, anyone is holding back. I think the industry is running as fast as it can, and that's more or less the limit of what we're selling.

So the industry domestically is running at a very high rate of utilization. So in the old days, Westlake would say that the money to be made in PVC was really through vertical integration. You would make money producing chlorine, you would make money producing ethylene. But there really wasn't much money to be made in PVC itself. Has that changed?

Jeff, it has. And the reason it's changed is because of the strong demand we're seeing and, frankly, less capacity coming into the marketplace. So when you think about the integrated chain, it is very important because over a period of a cycle, you will see margin move across the chain, whether it is in ethylene or it's in the ECU, meaning caustic and chlorine, or whether it's further downstream into PVC and, given our profile, even further downstream into the Housing and Infrastructure Products business. And so the value of that chain is to be in that chain as the margin does move across the chain. Because of the underbuilding that we saw here in the North American markets and, to a lesser degree, in foreign markets, we didn't see all the value that we're seeing today in PVC. And so you're quite right. Most of the value was really more upstream as we would say in ethylene or caustic soda. Today, given the strength we're seeing in PVC and in the building materials businesses, we're seeing a lot of strength not only in our building products businesses, but also in chlorine, but we're seeing strength in the industrial manufacturing side. So that's pulling on the caustic soda as well and, of course, you need that ethylene to be able to produce that PVC. So you're seeing really strength across the chain today. Roger, I don't know if you would add.

No, I agree. Just remember, when you make an ECU, you get both chlorine and caustic. And so you have to balance those 2 markets. And today, as Steve mentioned, we're at a place where the chlorine molecule is quite valuable because most of the downstream users of chlorine are also running very strongly and much of that tied to housing. But in addition, just the general industrial growth today is driving caustic as well. So we're at a space where we have both strong chlorine, strong caustic and competitive ethylene. So it's a good spot for PVC today.

Is China important to the global PVC market?

Yes, China is incredibly important. It's about half of the PVC capacity in the world. The difference between what I would say the North American PVC and Chinese PVC is the path in which you get to ethylene. So in North America, with shale gas, we have a quite competitive ethane route to get to ethylene. In China, it is much more coal-based. And so there is a difference today a bit in the competitiveness. And in time, I would say the sustainability of what are we going to do from a CO2 point of view, and China has made some very strong commitments, managing their use of coal is going to have to be part of that. But today, we see a large capacity in China, significant demand as well, but it's relatively balanced from an import-export position in China. They're fairly balanced today.

So in the old days, what North American producers would do is they would make ethylene, they would make chlorine, they'd make PVC. And what they would do is ship it to China. And what that did is it added capacity to the North American market, it added capacity to the global market. Do you see a change in the way that the normal exporters of PVC are behaving?

I still think North America has quite an advantage because of that raw material advantage. And so you'll see a good portion of the industry based on the U.S. Gulf Coast where we have access to the raw materials and the ability to export. So I don't know that, that significantly is changing, but I think maybe India is the new China. India is the place where there's a significant amount of growth expected, a real deficit of capacity in India. So I think those exports may shift from Northern Asia a little more to Southern Asia.

The -- of course, when you make PVC, you need to make ethylene and you need to make chlorine. Have the costs of making ethylene or chlorine changed?

Certainly, the construction capital costs have risen, certainly not only in materials such as the carbon and nickel and stainless steel, but certainly labor availability as well as the labor cost. And so when you think about the underbuilding that we've seen in the vinyl space broadly, as you think about the strength we're seeing in margins today, questions people will ask is are we at a stage where new capacity might come into the market? The challenge, of course, is those capital costs continue to rise. And so undoubtedly, we'll be at a stage where incremental capacity will be added, but it's certainly higher cost. And so the advantage of having this nice integrated chain is we're very well positioned in a low-cost setting, and debottlenecking capability is certainly a much more cost-effective way than certainly a greenfield site certainly would be.

So when you're making PVC in Europe, what's happened to your cost structure recently?

Yes. So we have a business in Europe, Vinnolit, with 4 sites, in fact, in Germany. I would say our focus there in Europe is very much on specialty PVCs. We have a lot of paste, emulsion, microsuspension PVCs that generally have higher margins. And so in fact, we offset a little bit the higher cost in Europe with these higher-priced products because they're specialties. Obviously, with the invasion of Ukraine in the last 3 weeks, we've seen European prices on natural gas and energy spike significantly. So I think the entire industry in Europe is a bit -- yes, it's a bit rolled back at the moment with this spike in energy. And so as an industry and as literally all industries, I think, in Europe right now, the question is, is how do we manage to try to recover some of those costs without completely driving down demand. And that's the balance that's happening right now, but it's a real immediate issue for Europe.

So European PVC prices have to be -- have to have tremendous upward pressure right now, yes?

Yes.

Yes.

So we're seeing upward pressure on European PVC. And normally, you might say that's going to be difficult to maintain because product can come from North America, product could come from Asia to match that. The challenge today is that the logistic chains globally are very stressed. And so the ability to move product from the U.S. to Europe very quickly, it simply isn't there. So I think actually, there will be a bit of a higher umbrella price in Europe for a while here because simply flows aren't flowing very well.

Are there ECUs made in Ukraine? And how does -- is there a trade between Ukraine and Russia that comes into Europe in the vinyls market or chlorine or caustic?

Yes. Maybe I'll start.

Yes. There is capacity. It's not significant for [ resin ] capacity in Ukraine and, of course, in Russia. And certainly, given the dynamics that we're seeing with the war going on today, that certainly is going to tighten up that market. And so with the capacity that's probably offline in Ukraine at this moment, we're probably talking kind of a couple of percentage points of overall capacity. So it's not significant worldwide, but it certainly is working to tighten up that market in a market that's already tight.

Yes, The Ukrainian shut down late February as well the biggest site in Russia shutdown as well. So there's -- obviously, with the war, there's going to be a hit on demand, but the capacity is out of the market.

Yes. Do you think China is incentivized to expand its PVC capability? Does it have enough capacity? What's its real route to producing?

China is relatively balanced today with their supply and demand dynamics today. And so while they do export some PVC, they also import some PVC. So on balance. They're pretty well balanced from a supply-demand dynamic. And a very significant portion of their PVC is in the carbide technology. And so certainly, it's also especially to make the ECU that chlorine and caustic molecule is very energy-intensive. A very sizable piece of that power grid in China is coal-based. We've not really seen a lot of efforts by the Chinese authorities to permit new capacity in this market for several reasons. One, they're already pretty well balanced from a supply-demand perspective. They are a higher cost profile, given the fact they're using coal-based power for about 80% of their power grid. A great majority of their ethylene is coming out of naphtha or an oil-based feedstock. So from a supply-demand dynamic, from a cost perspective, they're not incented to use that expensive power in these kinds of products. You see them moving more into the specialty end of the application. And so we've not really seen a lot of new capacity being announced and built in China.

So if we had to summarize the state of the PVC market in the United States, we're producing at very, very high rates of utilization. Normally, we export 40% of our PVC. Maybe we're exporting 20% or so because demand is so high. That shortens the global market because the United States is not a material -- a larger exporter. In Europe, we have energy prices pushing up chlorine. We have oil prices pushing up ethylene. In China, housing markets slowed down. They make PVC from coal. Is this the reason you like this chain more than you like polyethylene?

Well, I think the reason we like this chain is, frankly, we're significantly advantaged, given the integration model that we've got. You're on the low end of the cost curve. And I think the dynamics here, being on the low end of the cost curve, meaning relatively cheap natural gas for power, relatively cheap and widely available ethane to make ethylene. You've got a chain that is using those cheap feedstocks, therefore, make PVC. And you've got a low cost of production, therefore, to make that PVC. You've got a strong domestic market. To your point, historically, before the markets and construction going back probably over 10 years, there was exports. And even prior to 2020, the industry was exporting 35% to 40% of that production. Because we have that integration model going down in the building products, we export far less than the industry, probably approximately half than the industry exports. And so consequently, a better netback margin for the resin we're selling to our own building products business. To the extent that we don't need to export and don't want to export, it's because, frankly, it's a better netback to us. And so that integrated model is very attractive to us, and that's why we like that core vinyls chain. Being the leader in the core vinyls chain, being all the way through the ECU, chlorine and caustic, all the way out through the PVC on a worldwide basis, it allows us to really have a low-cost production, integration in the building products and service or growing demand in building.

So do you think that the strong demand you're seeing in PVC in 2022 is a one-off event. That is, is it from pent-up demand that really wasn't satisfied? Or what's your view as -- in terms of how the PVC market in the United States will grow over a period of time?

Yes. I say I'll start and let Roger add on. But certainly, if you think about what's really driving PVC demand, it's worldwide demand for construction and building materials. You see it here in the United States very strongly with the change in demographics that's evolved over the course of time. You've got a very significant change in demographics. If you look at the age grouping between 35 and, let's say, 45, you've got a strong uptick in that population wanting really kind of single-family homes in family formation years and you see a very strong driver in demographics. You couple that with a significant underbuilding that goes all the way back to 2008 and '09 during the recession. So if you go back and say, over the 12-year period here going back to '08 and '09, you've seen significant underbuilding. In the meantime, the population has continued to grow here in North America, and you've got a strong demographics that is driving demand. Similar dynamics in that demographic feature in other markets as well. Strong demographics in Europe and in Asia where you've got a population really wanting housing, be it a single-family home or a multifamily home. So globally, we see a strong demand in building materials. So that's driving PVC demand. You couple that with the fact that to the point you made earlier, significant less value in PVC and most of that value was upstream in the feedstock to make PVC, which incented people to not invest significantly relative to the growth in PVC. So if you look at the growth in PVC and the growth in global demand, you had underinvestment coupled with growing demand drivers. So it puts, I think, a number of years of visibility we can see, since it takes 3 to 5 years to build either a PVC facility or an integrated facility, which could be 5 to 6 years. You've got good visibility of capacity adds that are coming, which we don't see at this moment. So we've got a very strong demand picture, a very clear picture of less capacity coming into the market relative to growth. So very strong tailwind.

Yes, I think wanted to comment globally is the largest use for PVC is PVC pipe. And the reason I mentioned India before is that we have a country of more than 1 billion people with significant needs for infrastructure on water. And so we actually believe that the growth that will come from simply India, putting in the infrastructure they need on water, will drive this industry for a number of years as well. And we're just at the beginning of that.

So we began our conversation by reflecting that historically, people haven't really made that much money in PVC. They've really made it in caustic and chlorine and ethylene. What's happening in the domestic chlorine and caustic market? What are the price trends? And is this something that's benefiting Westlake?

Maybe I make a comment on chlorine. I mentioned earlier, one of the reasons chlorine is extremely tight in North America is that many of its downstream end users are very strong and PVC being a very large one. But in addition, you have other things still related a little bit to building and construction. So TiO2 with paints and pigments is very strong. Polyurethanes are very strong. And so we're seeing a number of downstream uses. And quite honestly, with COVID, we realized how important the chlorine molecule is in COVID because all of those disinfectants, the bleach, all of that is really strongly based on chlorine. So we've got a market today where the chlorine molecule is extremely strong. And chlorine is not a molecule that you export like PVC. If you want to export chlorine molecule, you get it in some other form before you export it. So that's where it gets downstream. So today, we're seeing quite strong pricing on chlorine. We've -- every quarter at a minimum, we're seeing pretty solid price increases. IHS is predicting another quite strong 3-digit price increase in chlorine in the second quarter.

I'm sorry? 3-digit, is that what you said?

3-digit, yes. And so we're...

Trading above $100.

Above $100, yes. And so we're seeing just a quite strong market today in chlorine. This is simply because we've got this confluence of very strong demand in almost all of the chlorine uses. And we're in the non -- one of the other big uses is water treatment. Water treatment is a market that is seasonal, and it starts to come up around April. All the pools open, we need to treat all that water. And so that's still to come.

So when you make chlorine, you will also make caustic soda. And at least in my experience, when the price of chlorine goes up, the price of caustic soda tends to go down. And when the price of chlorine goes down, caustic soda goes up. But it seems that it's different these days. They seem both to be rising. What do you make of this anomalous situation?

You are right. You are seeing value on both sides of the ECU, on both chlorine and caustic soda. The strength in chlorine, as we mentioned earlier, is really being driven by the strong demand in PVC and a lot of the other products that Roger just mentioned. When you think of the outright driver that you see in demand on the industrial and manufacturing side, that's also driving the strength in caustic. Remember, if you had -- as Roger just mentioned, it's difficult to ship chlorine because of the hazards of shipping chlorine. So there hasn't been significant capacity additions also in manufacturing the ECU. And so given the strong demand drivers that we see, both on the industrial and manufacturing side for caustic, the strong demand drivers we're seeing in chlorine, whether it's going in PVC or TiO2 or other chlorinated derivatives, you really see a situation where you've seen some substantial underinvestment in this business over a period of time. And so certainly, the demand drivers are driving that, and you just get an undersupply in the marketplace.

Are the different participants in chlorine market acting differently than they have in the past? That is, is the structure of the production of chlorine and caustic changing because different producers have taken a different strategic approach to how they might produce?

Yes. I mean I do think there has been some change in...

There's been a contraction, right, of chlorine capacity.

There's a couple of different processes to make the ECU. And some of those, especially the older ones can be less competitive. And so we have seen the industry taking some of that less competitive capacity out and not investing as fast in the newer, more productive technologies. And so in fact, there has been a bit of a net contraction in the capacity of the ECU in the United States.

So we've had strong demand and a contraction in the amount of chlorine coming into the market, okay? So all that seems pretty good. Okay. You've been buying chlorine derivatives in that you bought an epoxy business. Why was that an appealing thing? Why was that a good value for Westlake?

Go ahead.

Okay. I'll dive in. As you think about some of the significant opportunities that we see in this space, both in the position that we hold with the epoxy business. Strong drivers, whether it be in macro trends such as wind energy. The epoxy business, the Hexion epoxy business we acquired is a leader in wind energy, a strong leader that you see in applications such as lightweighting going into applications such as aviation and auto. When you think about some of the structural changes that we were just speaking to in some of the chlor-alkali business, we think that the business itself in epoxy has also seen more of a rationalization of thinking and, frankly, I think, a better performing overall industry set. You put together that overall more rational operating industry set along with some of the significant demand drivers that we see, whether it is sustainable wind power, whether it is in some of the lightweighting materials, we felt that this was a significant long wind -- long-term, I should say, opportunity to get into a business with good foundations from an investment perspective and strong long-term demand drivers. Roger, you'd like to add?

Yes. I have to say we look every month -- there's a limited amount of chlorine today, and we look at all the various applications that are taking that, and we look at what's the value of chlorine in all of those applications. And so when we look at the epoxy chain, it is based on chlorine molecule, which is a [indiscernible]. So that was very attractive for us to find, what I would say, a sustainable, focused product line that really is chlorine-based, but its whole goal right now is really focused on ideas of long-term sustainability, where are these applications going to go to. And so we think there's a very long runway on that as well as an innovation focus. So we're bringing in 3 R&D centers globally that we will start to blend with some of our other product lines on the R&D side to continue to drive the innovation focus on that.

Have epoxy prices changed very much over the past 12 months? Do you think that they might change in the future?

Quite honestly, the epoxy business looks a little bit like the PVC business over the last 12 months. Several of the building blocks for making epoxies went quite tight with very strong demand. And so we saw like really very, very high pricing on bisphenol A, on ECH even, on liquid epoxy resin called LER. So all of those have seen quite tight industry dynamics and also a similar increase in price.

Are there any larger capacity additions globally that are coming on in epoxies that can change the supply-demand balance? Is it easy to bring on epoxy capacity efficiently?

I think what we'd see in China is we'll see a fair amount of bisphenol A, which is a building block for epoxies, but that's also the direct building block for polycarbonate. And so most of what we're seeing in China are additions to BPA, bisphenol A, linked to a polycarbonate expansion, which means that the balance, I don't think, is going to change that much. It's going to be consumed in that polycarbonate business.

I think one of your competitors declared force -- either declared force majeure in a plant or shut down an epoxy plant because they felt that their level of demand was unsatisfactory. Is that something that you're experiencing or your dynamics are a little bit different from theirs?

Yes. I think this was specifically a European discussion. No, I think with the increase in energy cost and natural gas over the last couple of weeks, everyone in Europe is looking at their manufacturing footprint. And as I say, for me, if you have significant maintenance to do in Europe, now is the time to do it. Your input costs have spiked. And so I think their announcement talked of a temporary curtailment. So I don't know exactly what that means. But we believe that, yes, they're using this time probably to pull that plant back to manage inventories because we do see with this spike Europe is a bit unstable today, right? So they're not sure exactly which way it's going to go. At the same time, the industry is working to put in energy surcharges. Those take a week or 2 to get in place, quite honestly. So I think that's also a bit what's going on. We actually have implemented sales control to make sure that we didn't have a rush of orders coming in at pricing today when we know that there's some margin recovery we're going to have to take care of. So we're working to make sure we manage the number of orders we get while putting in place mechanisms to try to recapture some of the margin from this energy spike.

So over a shorter period of time, are you squeezed a little bit in epoxies or no?

Well, I think everyone in Europe over the last 3 weeks has been squeezed, yes. Because the input prices have spiked, while you just don't have the ability to get your market pricing change that fast.

So Westlake's changed its name from Westlake Chemical to Westlake Corporation because what you've done is you've migrated into building products. Is this an area where Westlake has an expertise that is, is it a very different kind of diversification or a natural diversification? What does Westlake know about building products?

It's a good question. And so you're right, Jeff. The migration really in the building products has actually been over a long period of time. The name change was just very recent, but actually, it goes back to a period where we've been evolving into a much larger building products business. And I think many people understood. We've actually been in building materials, vinyl building materials for nearly 20 years. And so we are actually one of the nation's largest providers of large-diameter PVC pipe and fittings, in siding and trim and shutter material. We had that business folded up under our Vinyls business for many, many years. And with the addition of 3 businesses over the course of this past year, building products business called Boral North America, providing kind of architectural roofing, decorative stone, siding as well as windows, gave us an ability to broaden that portfolio of offering to make it not just a Vinyls building products business, but a more fulsome portfolio building products business. The acquisition of LASCO provide us an ability to provide a full spectrum of PVC fittings. They're focused really in the smaller-diameter fittings, 2 inch and smaller that allowed us to really provide a wider range of portfolio offerings. And of course, Dimex was an investment really into a post-industrial recycler of PVC and polyethylene to go into consumer products that are sold to big box stores and actually online to firms like Amazon. So the ability to portfolio expand that product set, we recognized we really needed to characterize that to the public more clearly as a business that really had a materials business, Performance and Essential Materials, but also a very large Housing and Infrastructure Products business. So we felt removing chemicals from the name was probably appropriate, given the rather large transformational change we've really seen in the business. And that's really a long process. This past year was just really in addition to those evolutional portfolio changes, but something that's really been underway for a very long time.

Do you have regional strengths in your business in your building products business?

We do. We do. And so the legacy, if you will, building products business that we had was stronger really in the Southeast, Northeast and Gulf Coast areas. The addition of Boral and LASCO really strengthened our position on the West, the Midwest. So it's a nice geographical fit. So it allowed us to be able to provide building product materials from coast-to-coast and a much broader array of building products materials to all of our customers.

Do the big box retailers matter to your building products business significantly? Or are they more peripheral to what you do?

They matter. But what's very important is really recognizing that those distribution channels are clearly very important. A huge piece of this process is how do you go to market. And so we go to market with about 80% of our portfolio in the building products business through what we call one-step distribution, which means we're going from production of that product to a distributor who goes straight to a customer. The more steps that you can remove from the process means more margin for us. And so a huge portion of Boral's business that we acquired in October of last year is also a one-step distribution channel. So that ability to go into the market through that one-step distribution channel is critically important. And those big box players, be it a Home Depot Supply or Lowe's or ABC or others, are important partners in this process.

So you've made a group of acquisitions. And historically, Westlake has always been a very lean operation. When you look at these acquisitions, are there cost synergies that you think that you can achieve? And if there are, what kind are there? And when you compare your core building products operations to what you bought, how do the businesses compare?

And so you're right, Jeff, there are some good synergies in this business. And of course, when we think about the synergies, we think in terms of cost synergies that we publicly speak to, and there are some compelling synergies in the Boral business. But importantly, as you would guess, there are revenue synergies and product sales synergies that we see in this business as well. So cross-selling some revenue synergies, but we recognize those are harder to absolutely quantify externally and not always sticky over a long period of time. So we really think in terms of talking about kind of the cost-related synergies, and those are important. But -- when we think about chasing all those synergies, we do.

So historically -- so this is a real sea change for Westlake in that historically, you've always been involved in ethylene and polyethylene. But I don't really hear you talking about expanding those particular businesses. Is there a reason for that? Or if there's just a delay and maybe a few years from now, you'll go back and you'll expand? Where does the ethylene, polyethylene business sit within the Westlake envelope now?

Well, I'll add a few comments and then toss it over to Roger. But we actually have expanded our ethylene position pretty substantially going back to 2019. We invested in a large joint venture with our partner, Lotte, in Louisiana, and that was a $1 billion investment, let's say. And so when you think about our position in ethylene today, we're about 1 billion pounds or so short. And so the investment there in that joint venture was critically important. It gave us a nice cost base form of ethylene, but we're still ethylene-short. Finding a way where we can be more balanced is always important, but you want to do that in a cost-effective way. And so it's also finding solutions to that balancing equation across the chain is critically important. So it's just a matter of time and opportunity to invest at the right stage. And Roger, I'll let you add some thoughts to that.

Yes. I think so ethylene is one of our core building blocks because it's important both on the polyethylene side and the PVC side. And as Steve mentioned, we're still about 1 billion pounds short. So we'll continue to look for opportunities to probably close that gap a little bit on the ethylene side. So we look at -- and we have potentially opportunities in our own sites today in Louisiana and in Kentucky of debottlenecking with our Lotte partner. So we'll continue to look at those pieces. I think on the polyethylene side, we haven't made any announcements of big expansions. But we have been working very hard on, I would say, upgrading the polymers that we make today into much more specialties. So our asset mix in polyethylene happens to be a lot of autoclave reactors, which if you were building a new polyethylene line today, you're probably not going to build that. You're going to build a massive loop that's made for high-volume, single products. But we're taking these smaller autoclaves and able to make pretty significant specialty products in those. Some of those actually are even more used as additives than actually as polyethylene, you would [ seek in that ]. And that's allowing us to continue to upgrade our portfolio. We're -- today, I think we'd say more than 40% of our polyethylene we sell is in this specialty differentiated set. And just as an example, as we saw pricing kind of come off a bit in polyethylene early this year, we were actually putting out price increases on our specialties because they were extremely oversold and continue to see a nice dynamic on the specialty side of polyethylene.

Okay. Well, it sounds like Westlake is sharp and fit. And we hope you'll return next year and tell us how you fare.

Thank you very much.

Thank you so much.

Thank you all.