Westlake - Earnings Call - Q2 2016
July 28, 2016
Transcript
Speaker 0
Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the Westlake Chemical Corporation Second Quarter twenty sixteen Earnings Conference Call. During the presentation, all participants will be in a listen only mode. After the speakers' remarks, you will be invited to participate in a question and answer session.
As a reminder, ladies and gentlemen, this conference is being recorded today, July 2836. I would now like to turn the call over to today's host, Ben Editorrington, Westlake's Vice President and Chief Administrative Officer. Sir, you may begin.
Speaker 1
Thank you. Good afternoon, everyone, and welcome to the Westlake Chemical Corporation second quarter twenty sixteen conference call. I'm joined today by Albert Chao, our President and CEO Steve Bender, our Senior 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 in the second quarter of twenty sixteen, 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 will open the call up to questions. During this call, we refer to ourselves as Westlake Chemical. Any reference to Westlake Partners is to the master limited partnership Westlake Chemical Partners LP, and references to OpCo refer to our subsidiary, Westlake Chemical OpCo LP, who owns certain olefin 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 chemical industry availability, cost and volatility of raw materials, energy and utilities governmental regulatory actions and political unrest global economic conditions industry operating rates the supplydemand balance for Westlake's products competitive products and pricing pressures access to capital markets technological developments the pending acquisition of Axial and other risk factors discussed in our SEC filings. This afternoon, Westlake issued a press release with details of our second quarter twenty sixteen results. This document is available in the Press Release section of our webpage at westlake.com. A replay of today's call will be available beginning two hours after completion of this call until 11:59 p. M.
Eastern Time on 08/04/2016. The replay may be accessed by dialing the following numbers. Domestic callers should dial 505056. International callers may access the replay at (404) 537-3406. The access code for both numbers is 40009754021.
Please note that information reported on this call speaks only as of today, July 2836, 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 on our webpage at westlake.com. Now I'd like to turn the call over to Albert Chao. Albert?
Speaker 2
Thank you, Ben. Good afternoon, ladies and gentlemen, and thank you for joining us on our earnings call to discuss our second quarter twenty sixteen results. In this afternoon's press release, we reported quarterly net income of $111,000,000 or $0.85 per diluted share on net sales of $1,100,000,000 Our quarterly results reflect good demand for our olefins and vinyls products, following steady improvement in consumer spending and commercial and residential construction activity, which has been supported by low crude oil prices and a growing economy. Sales prices for our products also showed improvement over levels seen in the first quarter as supply was impacted by high levels of seasonal turnaround activity and unplanned events, but are lower compared to the second quarter of twenty fifteen due to lower global crude oil prices. Our second quarter Olefins and Vinyls segment earnings were impacted by the planned maintenance turnarounds and other unplanned outages, which Steve will comment more in more detail.
However, we are pleased with the recent milestones that we have achieved. In June, we entered into a definitive agreement to acquire Axial Corporation, a leader in the chlor alkali PVC and building products businesses. Additionally, we recently completed work that began in the quarter on expansion of our Lake Charles Louisiana Petrol I ethylene unit, which adds two fifty million pounds of ethylene capacity, further strengthening our Olefins integration, along with the successful restart of our Culver City, Kentucky units following an unplanned outage. I would now like to turn our call over to Steve to provide more detail on the financial and operating results for the second quarter of twenty sixteen. Steve?
Speaker 3
Thank you, Albert, and good afternoon, everyone. I will start with discussing our consolidated financial results, followed by a detailed review of our Olefins and Vinyls segment results. Let me begin with our consolidated results. In this afternoon's press release, Westlake reported net income for the second quarter of twenty sixteen of $111,000,000 or $0.85 per diluted share on net sales of $1,100,000,000 compared to the second quarter of twenty fifteen net income of $2.00 $5,000,000 or $1.54 per diluted share on net sales of $1,200,000,000 Net income for the second quarter of twenty sixteen was impacted by pretax unabsorbed fixed manufacturing costs and other costs associated with the planned maintenance turnaround and expansion of our Lake Charles Petra one ethylene unit, an unplanned outage at our Calvert City facility and other unplanned outages totaling approximately $66,000,000 or $0.33 per diluted share and approximately $11,000,000 or $05 per share in loss margins associated with these turnarounds and outages. Additionally, the second quarter net income was impacted by pretax cost related to the Axial acquisition of approximately $8,000,000 or $04 per diluted share.
These second quarter results compared to net income for the second quarter of twenty fifteen, which included a pretax gain of $16,000,000 or $0.13 per diluted share related to the bargain purchase gain from the acquisition of a controlling interest in Wazu, our Chinese PVC operation, which we acquired in June 2015, with a partial impairment of an equity method investment. To summarize, our net income for the second quarter of twenty sixteen was lower as a result of several non recurring pretax items. These items included the cost related to the planned turnaround and expansion project, unplanned outages and the loss margin associated with these outages and the transaction costs related to the pending Axial acquisition. Excluding these nonrecurring items, our second quarter earnings would have been 1.27 per share, which compares to the $1.54 per share as reported in the second quarter of twenty fifteen and the $0.94 per share reported in the first quarter of twenty sixteen. Continuing on with our second quarter results, our net sales for the second quarter of twenty sixteen decreased by $99,000,000 compared to the second quarter of twenty fifteen, mainly due to lower sales prices for all major products and lower sales volumes for polyethylene and lower ethylene and ethylene co product sales related to the planned Petro one turnaround and expansion project.
This was partially offset by higher sales volumes for PVC resin and styrene and sales contributed by Wassou. Income from operations was $180,000,000 for the second quarter of twenty sixteen compared to $295,000,000 for the second quarter of twenty fifteen. The decrease in operating income was also impacted by lower sales, partially offset by lower average feedstock and energy cost and higher product margins in our European operations as compared to the second quarter of twenty fifteen. Sales revenue in the second quarter of twenty sixteen was $1,100,000,000 increased by $111,000,000 compared to the first quarter of twenty sixteen, while income from operations of $180,000,000 decreased $22,000,000 The increase in net sales was largely due to higher sales prices for most of our major products, higher sales volumes for polyethylene, specialty PVC resin, building products and styrene and sales contributed by Wausau. The decrease in operating income was primarily due to lost sales and costs associated with the planned turnaround activity and unplanned outages in both of our segments and our ethylene expansion project, partially offset by higher integrated product margins.
For the six months ended June 3036, we reported operating income of $382,000,000 on net sales of $2,100,000,000 compared to operating income of $525,000,000 on net sales of $2,300,000,000 in the first half of twenty fifteen. The decrease in net sales for the first six month period of 2016 was due to lower sales prices for all of our major products and lower sales volumes for ethylene and ethylene co products related to our planned Petro one turnaround and expansion project. This was partially offset by higher sales volumes for PVC resin and styrene and sales contributed by Wausau. The decrease in operating income was mainly attributable to the lost sales and costs associated with the planned and unplanned turnarounds and our ethylene expansion project. In addition, income from operations for the first six months of twenty sixteen was impacted by lower sales prices associated with lower crude oil prices and costs related to the pending Axial acquisition, partially offset by lower average feedstock and energy cost and higher product margins in our European operations as compared to the prior year period.
Our utilization of the FIFO method of accounting resulted in a favorable impact of $26,000,000 pretax or $0.13 per share in the second quarter compared to what earnings would have been if we reported on the LIFO method. Please bear in mind that this calculation is only an estimate and has not been audited. Let's move on to review the performance of our two segments, starting with the Olefins segment. In the second quarter of twenty sixteen, the Olefins segment reported income from operations of $141,000,000 on net sales of $494,000,000 The second quarter results reflected the impact of lost sales, lower production and unabsorbed fixed manufacturing costs and other costs related to the planned turnaround and expansion of the Lake Charles Petrol I ethylene unit and several other unplanned outages in the second quarter of twenty sixteen. The lower results for the second quarter of twenty sixteen as compared to the second quarter of twenty fifteen also reflect a decline in Olefins integrated product margins due to lower sales prices, partially offset by lower feedstock and energy cost.
Second quarter twenty sixteen results saw a decrease of $9,000,000 in operating income compared to the first quarter of twenty sixteen, while sales increased $64,000,000 The decline in operating income was partially offset by higher integrated margins and higher sales volumes for polyethylene and styrene in the second quarter of twenty sixteen as compared to the first quarter of twenty sixteen. For the six months ended June 3036, the segment reported income from operations of $290,000,000 as compared to income from operations of $412,000,000 for the six month period ending June 3035. Olefins' integrated product margins in the first half of twenty sixteen decreased following the decline in sales prices, partially offset by lower feedstock and energy costs as compared to the prior year period. Now moving on to the Vinyls segment. The Vinyls segment reported income from operations of $52,000,000 in the second quarter of twenty sixteen on net sales of $592,000,000 Our Vinyls segment second quarter results were impacted by lost sales, lower production and unabsorbed fixed manufacturing costs and other costs associated with the unplanned outage at the Calvert City facility and cost incurred related to several planned maintenance turnarounds completed in the second quarter of twenty sixteen.
Compared to the second quarter of twenty fifteen, operating income decreased by $36,000,000 and additionally was impacted by lower sales prices for all of our major products, partially offset by higher product margins in our European operations. The Vinyl segment income from operations decreased $10,000,000 from the $62,000,000 reported in the first quarter of twenty sixteen. This decrease was partially offset by higher integrated margins. Operating income for the Vinyl segment for the first six months ended June 3036 was $114,000,000 as compared to operating income of $135,000,000 for the six months ended June 3035. In addition to the operational impacts on results that I previously described, this decrease was also a result of lower sales prices for our major products, partially offset by higher product margins in our European operations and higher caustic soda sales volumes, primarily attributable to higher production at our Geismar, Louisiana core alkali plant.
Now let's turn our attention to the balance sheet and cash flow. For the first six months of 2016, cash generated from operating activities was $370,000,000 and we spent $287,000,000 on capital expenditures. At the end of the second quarter, we had cash and marketable securities of approximately $1,100,000,000 and long term debt was approximately $758,000,000 Now allow me to provide some 2016 guidance for modeling purposes. Our estimate for 2016 capital expenditures is expected to be lower than our prior guidance of 500,000,000 to $550,000,000 as we review our capital project spending in light of the pending Axial acquisition, and we will provide updated guidance on our next conference call. The 2016 capital spending includes spending for the expansion of our Petro one ethylene unit in Lake Charles, which we recently completed and is in the process of restarting.
It also includes early engineering work and the purchase of long lead items related to the expansion of our Calvert City ethylene unit that we announced in January and which is currently planned for the first half of twenty seventeen. We estimate that our third quarter twenty sixteen income from operations will be impacted by lost production and associated costs from the Petro one planned maintenance turnaround and expansion project. The unplanned outages of our Calvert City ethylene unit and other normal planned maintenance turnaround activity of approximately $55,000,000 pretax, which will be evenly split between our Vinyls and Olefins segment. We also expect to see transaction expenses in the third quarter related to the pending Axial acquisition, and I will provide guidance prior to the end of the third quarter. We estimate that our 2016 effective tax rate for the year will be approximately 36%.
With that, I'll turn the call back over to Albert to make some closing comments. Albert?
Speaker 2
Thank you, Steve. We saw improving fundamentals in the second quarter as we benefited from higher integrated product prices and margins and strong demand for end products. Although we were impacted by the planned and unplanned outages at our Lake Charles and Culver City sites, we are excited about our recently announced acquisition of Axial Corporation, which we believe creates a more diversified and competitive company. This acquisition will make us a leader in the chlor vinyl markets as we become the number three chlor alkali producer and the number two PVC producer in North America and the number three PVC producer globally. This acquisition provides greater scale and synergies with the combined Westlake and Axial businesses.
There are opportunities to apply our strategy of vertical integration, while improving operations by sharing best practices and synergies across both companies. We expect this transaction will close by the fourth quarter and will meaningfully add to the earnings potential of our company. We look forward to welcoming the Axial employees into the Westlake family. Thank you very much for listening to our earnings call this afternoon. Now I will turn the call back over to Ben.
Ben?
Speaker 1
Thank you, Albert. Before we begin taking questions, I would like to remind you that a replay of this conference call will be available starting two hours after we conclude the call. We will provide that number again at the end of the call. Crystal, we will now take questions.
Speaker 0
Thank you. And our first question comes from Alexei Yefremo from Nomura Securities. Your line is now open.
Speaker 4
Good afternoon. Thank you. Afternoon. What was your caustic soda price realization in the second quarter? What was the increase in dollars per ton?
And do you expect to realize further increases in the third quarter?
Speaker 2
Yes. As you know that at least IHS reported since April of this year, each month there has been price increases announced by the industry totaling over $130 a short term. And Westlake, we have been increasing realize our price increases as the terms of our contracts allow. So we've been enjoying increase in the prices as our terms allow.
Speaker 4
And if I may follow-up, Albert, do you expect any sort of lag the increases to benefit you in the third quarter from those resets and contracts from the second quarter?
Speaker 2
Yes, we expect that the price increases as announced will flow into the third quarter.
Speaker 4
You. Then a second on European chlor alkali. European natural gas prices have declined and you have chlor alkali assets in the region. Do you see any change in the cost position for your assets there? Did you see any decline in electricity prices or do you expect it to occur in the near future?
Speaker 2
We see a reasonable demand for chlor alkali in Europe and we see potential price increase as well, but it will time will tell whether those price increases will succeed or not.
Speaker 4
And anything on the cost side? Are your costs moving lower Europe by any appreciable amount?
Speaker 2
Yes. The cost of we use electricity that we don't produce, we buy electricity from the European market and they are reflective of natural gas prices, but it will take a while to have those power costs reflect natural gas price changes.
Speaker 4
Thank you very much.
Speaker 2
You're welcome.
Speaker 0
Thank you. Our next question comes from David Begleiter from Deutsche Bank. Your line is now open.
Speaker 5
Thank you. Albert, what's your expectation for polyethylene prices Do you expect any erosion to occur?
Speaker 2
Well, as you know that we have been enjoying price increases in polyethylene this year. There has been since February and March, there has been $09 price increases and IHS and CDI are projecting that July prices to stay flat. So but they are projecting prices to decline in the second half or fourth quarter of this year and time will tell whether it will happen or not. I think the industry inventory are quite good for producers and somewhat on low side for consumer side. So we will see whether there'll be price declines in the second half of the year or not.
Speaker 5
And Albert, just on the feedstock side, ethane, with that exports increasing in the back half, do you expect ethane prices to stay in the teens? Or do you think they could go higher again later in the year?
Speaker 2
Well, projection by IHS are saying that ethane prices will move up near the end of the year with more ethane exports and as well as new expanded ethylene capacity increases. And again, time will tell whether additional production from oil and gas production will add more volume to supply of ethane.
Speaker 5
Thank you very much.
Speaker 2
You're welcome.
Speaker 0
Thank you. Our next question comes from Don Carson from Susquehanna. Your line is now open.
Speaker 6
Yes. Question going back to caustic soda. You talked about higher caustic volumes in the first six months, but was Q2 down from Q1 because of the Calvert City outage or is that more of an issue that you were selling out of inventory and you'll be somewhat constrained by the outage in Q3?
Speaker 2
Yes, I was talking about caustic prices earlier. And because of our Culver City unplanned outage, our volume has come down.
Speaker 6
Okay. And was will that be ongoing in the current quarter?
Speaker 2
I think, yes, our Culver City operation as we started over a week ago, but we will have some impact in the third quarter because of the downtime experienced earlier this month.
Speaker 6
Okay. And you talked earlier about the contract price increases. What is the exact lag between when we see say the IHS index go up and when you realize those price increases in your actual transaction prices?
Speaker 2
Well, it's dependent. Spot price suddenly reflect much faster contract price, their price projections. And that always the IHS announced dollar amount is realized. So a portion of those has been realized.
Speaker 6
And then turning to the actual acquisition, you'll be somewhat short ethylene as you absorb those assets. So would you plan on running some of the ethylene derivatives like BCM where margins are relatively low right now? Or would you wait until you were more back integrated into additional sources of ethylene to run those assets flat out?
Speaker 2
Well, those things we haven't closed yet. We don't know the details how they run the business. But I would expect that if there's a margin from purchased ethylene to run those assets, they will run them and sell the products. If there are no margins, then they will not run it.
Speaker 6
Right. Okay. Thank you.
Speaker 7
You're welcome.
Speaker 0
Thank you. Our next question comes from Bob Koort with Goldman Sachs. Your line is now open.
Speaker 8
Good afternoon. This is Ryan Boerne on for Bob.
Speaker 3
Good afternoon. Hi, Ryan.
Speaker 8
Hey, Steve and Howard. I was hoping you give us a sense for you decided to reduce maybe your CapEx guide a little bit this year given the actual deal, which makes sense. Given kind of the position you see yourself now with the balance sheet, if an acquisition became available for you to kind of close some of that ethylene gap, is that something that you feel like you could do with this Axial deal on the table?
Speaker 3
Yes. We'll continue to look at opportunities. My comment on capital was certainly just to continue to use the cash flow that we see from the business in a very cost effective manner. But should there be an opportunity for us, be it in that business, as you mentioned, or other opportunities, we'll continue to take a look at those. And if they're value additives, there's always a way to make that materialize and finance that.
Speaker 8
Great. Thanks. And then can you provide any update on kind of how you're thinking about the dropdown pace into the OpCo and whether or not you think you'll see an adjustment there?
Speaker 3
Well, with the opportunity to expand the Petro one unit this year and the planned expansion in 2017 in Calvert City, there isn't a near term need to have a dropdown. That organic growth provides us the earnings growth that the partnership needs into 2016, '17 and well into 2018. So we don't see a need for drops to continue the track that we're on for that low double digit growth rate for several years.
Speaker 8
Thank you very much.
Speaker 7
You're welcome.
Speaker 0
Thank you. Our next question comes from Frank Mitsch from Wells Fargo Securities. Your line is now open.
Speaker 7
Yes, good morning. Good afternoon, gentlemen.
Speaker 3
Good afternoon. Good afternoon, Frank.
Speaker 7
I wanted to talk about the planned and unplanned outage impact. I believe you said it was $65,000,000 for Q2. And Steve, I thought I heard you say $55,000,000 Was that just a Q3 number that you're expecting for planned and unplanned outages impact?
Speaker 3
Yes. Frank, the number for the second quarter was 66,000,000 And for the third quarter, that's right, that was just third quarter impact. The carry on impact in Q3 for the both planned and unplanned outage.
Speaker 7
All right. And at this point, do you have any planned turnarounds for Q4?
Speaker 3
Nothing other than the normal small minor some of the derivative units, but those are very small.
Speaker 7
Terrific. And it's been six weeks since you announced the deal. I'm wondering how much contact you've been able to have with Axial and if your thinking is any different regarding the $100,000,000 synergy target that you laid out at the time that you announced the transaction?
Speaker 3
Well, Frank, we'll continue the $100,000,000 is the number that we believe that we can achieve. And certainly, we're not going to stop if we think there's an opportunity to drive more value. But once we close the transaction and have a good opportunity to get into the business in more detail, we'll look to see if there's more opportunity. We won't stop at that $100,000,000 number, of course.
Speaker 7
And at this point, haven't had as much opportunity to get in and see what you're actually going to be buying, correct?
Speaker 3
Well, we need to obviously get to the point where we own the asset and really get into the running of the businesses. And even if we and even at this stage, while we have good dialogue with the company, the answer is we can't have the level of dialogue that's necessary until we close the transaction and look across all elements of the business.
Speaker 7
Terrific. Thank you. You're welcome.
Speaker 0
Thank you. Our next question comes from Jim Sheehan from SunTrust. Your line is now open.
Speaker 9
Good afternoon. Afternoon. Guys, could update us on the status of your discussions with the IRS about MLP status?
Speaker 3
Yeah, Jim, it's Steve. The IRS has said that they thought this was Kurt Wilson who is the Associate General Counsel of the IRS made a comment about two months ago and he said he thought he'd have some comments out by Labor Day. And there's been no other commentary by himself of a date other than that. Our expectation still is this summer. But there are a number of other items they're dealing with other than just this proposal that are in front, which I think are keeping them busy.
But it's still my expectation that we'll see something before the end of the summer.
Speaker 9
Thanks. And for the third quarter, do you expect to have any variance in the FIFO impact?
Speaker 3
Well, it's hard to know where prices will go between now and the end of the third quarter. But as I say, we always try to give that FIFO LIFO. We're a FIFO company, we always try to give that sense. But you can see where product prices are and so we've tried to give some guidance where we were in the second quarter.
Speaker 7
Thank you. You're welcome.
Speaker 0
Thank you. Our next question is from Edlain Rodriguez from UBS. Your line is now open.
Speaker 10
Thank you. Good afternoon, guys.
Speaker 11
Good afternoon.
Speaker 10
Just one quick one on caustic soda. I mean, you have to ship more to the export market than normal or was everything similar?
Speaker 2
Yeah, Westlake typically do not participate in the export market. Our Cover City plant is up in the Midwest, but unfortunately, we experienced some downtime in the second quarter as well.
Speaker 10
Okay. So it's all domestic. And just one last quick one for you, Albert. Going into 2017, I mean, you worrying at all about all the new capacity coming online? I mean, what's your view there?
Like what's the potential impact on pricing there?
Speaker 2
You're talking about polyethylene?
Speaker 10
Polyethylene, yes. Yes.
Speaker 2
Certainly, there are more planned or scheduled plans coming up, but we don't know. We have heard some stories that those scheduled plan startup could be delayed. So we don't know where they will be. And suddenly, it will add more capacity to the market if they do come on the right time. But we expect that most of those products will be exported.
And depending on the global economy as well as how fast those capacity will be absorbed by the global market.
Speaker 10
Okay. That makes sense. Thank you very much.
Speaker 7
You're welcome.
Speaker 0
Thank you. Our next question comes from Hassan Ahmed from Alembic Global. Your line is now open.
Speaker 12
Afternoon, Albert and Steve.
Speaker 2
Good afternoon. Just
Speaker 12
wanted to follow-up on one of the earlier questions. Someone asked you if you would potentially consider acquiring assets fill the net short position in ethylene that will obviously evolve post the Axial acquisition. My question is that I don't know whether you guys have gotten a chance to study at all or in length the agreement between Axial and Lotte, the question really is that, let's assume for a second that via an acquisition, you were to address most of that net short position. In that scenario, is there enough flexibility in that agreement to maybe potentially walk away from it?
Speaker 2
Well, as far as we understand, and I think the agreement has been filed publicly that Axial will be taking approximately 50% of the output of their plants ethylene and that amount is approximately 50% of Axcel's internal demand for ethylene. And we're buying additional ethylene from the marketplace. So I think there's a contract that they have to purchase. So as far as I know that you can't walk away from the purchase for at least for the term of the contract.
Speaker 12
Fair enough. Okay, fair enough. Now moving on to the outage impact. I know you guys sort of broke out $0.33 a share as sort of the impact from planned and unplanned outages. Would really appreciate if you could kind of just give us some sort of an estimate as to what part of that $0.33 was planned, what part of it was unplanned?
Speaker 3
Hassan, we gave some indication of the impact of Calvert outage earlier in the quarter where we indicated $40,000,000 of that would be split between the second quarter and the third quarter. And so that was obviously an unplanned outage,
Speaker 8
of course.
Speaker 3
And we said that the greater portion of that was in the second quarter. And so I think you can get some good sense of how much that was relative to the $66,000,000 or the $0.33 that I earlier reflected.
Speaker 12
Got it. So 40,000,000 basically was Calvert City split between Q2 and Q3 with the bulk of it in Q2?
Speaker 3
With the majority of it in Q2 and the minority of it in Q3.
Speaker 11
Fantastic and very helpful.
Speaker 7
Okay. Thank you. You're welcome. Thank
Speaker 0
you. And our next question comes from Arun Viswanathan from RBC Capital Markets. Your line is now open.
Speaker 9
Hi, this is Dan DeChico on for Arun. I appreciate you guys taking my question.
Speaker 2
You're welcome.
Speaker 9
A competitor mentioned consultant forecast of ethylene capacity additions over the next five could be overstated and they're expecting some project delays, postponements and stuff like that, which could keep operating rates maybe higher than people are expecting. Just curious on your thoughts on this.
Speaker 2
Well, most of the new plants that being added are accompanied with the derivative plants. So those new plants, they would sell the ethylene into the derivative products and which will be sold on a global basis.
Speaker 9
Okay, great. And then just as a follow-up, following the Axial transaction to make up some of that short ethylene, would there be more interest in maybe brownfield expansion or going out and purchasing an existing asset such as like Eastman's Longview Cracker or something like that?
Speaker 2
The actual corporation, they are one of the largest purchaser of ethylene in the merchant market. The new Lotte joint venture will not come on the market until I presume the schedule is 2019. So the interim Axial and Westlake will be buying ethylene from the market. Certainly, as Steve said, we'll look at opportunities that comes out comes up as to acquisitions. But I presume we'll be doing merchant purchases as well as opportunities.
Speaker 9
Okay, great. Thank you.
Speaker 7
You're welcome.
Speaker 0
Thank you. And our next question comes from David Wang from Morningstar. Your line is now open.
Speaker 11
Hi, thank you for taking my question. Your operating costs, can you talk to us about what your cost to produce ethylene was this quarter and how you see that trending in the coming years?
Speaker 2
Well, according to IHS with the relative low ethane prices, I think the cash costs for ethane crackers produce ethylene is between $0.01 0 and $0.11 a pound.
Speaker 11
Okay, great. And then I know this was brought up a little bit earlier, but what are your thoughts on the potential delays for the Greenfield crackers that planned to come online? Do you see the current environment as conducive to them to continue to come online? Or do you think that some of them will eventually be delayed or some of them even canceled?
Speaker 2
Well, I think those projects that's already a broken ground and ongoing, they will presume get built. We have heard some projects the public have announced that the project being delayed for various reasons. And we know that the Gulf Coast skilled labors are still quite short. So it will impact the construction schedule by how much we don't know and the time will tell.
Speaker 11
All right. Thank you.
Speaker 7
You're welcome.
Speaker 0
Thank you. I'm showing no further questions at this time. The question and answer session has now ended. Are there any closing remarks?
Speaker 1
Thank you for participating in today's call. We hope you will join us for our next conference call to discuss our third quarter twenty sixteen results. Good evening.
Speaker 0
Thank you for participating in today's Westlake Chemical Corporation second quarter twenty sixteen 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 11:59PM Eastern Time on Thursday, 08/04/2016. The replay can be accessed by calling the following numbers. Domestic callers should dial 505056. International callers may access the replay at (404) 537-3406.
The access code for both numbers is 49754021. Thank you.