Westlake Chemical Strengthens Position in Chlor-Vinyl Market as Prices Set to Rise, IHS Markit Says

Company leveraging dominant regional position to enhance exports and
add geographic diversity through acquisitions

HOUSTON–(BUSINESS WIRE)–Houston-based Westlake Chemical, a leading producer of polyolefins in
North America and a global leader in the chlor-vinyl chemicals segment,
is positioning itself to capture synergies and strengthen its market
position as the chlor-vinyl market strengthens, according to new
analysis from IHS
Markit (Nasdaq: INFO), a world leader in critical information,
analytics and solutions.

According to the IHS Markit report entitled the Westlake Chemical
Competitive Company Analysis, Westlake had reported revenue of $5.08
billion in 2016, Westlake was ranked in 66th place on the
IHS Chemical Week “Billion Dollar Club 2017” list (ranking of
chemical companies, by revenue), based on 2016 revenue.

“Westlake Chemical has traditionally been a major regional chemical
producer in the U.S., but has diversified its portfolio through
acquisition of Vinnolit (2014), and Axiall (2016),” said Mohit Sood,
senior principal chemical analyst at IHS Markit and lead author of the
IHS Markit Westlake competitive company report. “Additionally, the
company has made timely investments in North American ethylene
production by undertaking capacity additions, debottlenecking and
feedstock conversion projects, which have allowed it to capitalize
ethane feedstock availability in the region. This in turn, has ensured
Westlake’s margin expansion along the vinyl’s chain.”

Sood said Westlake has the lowest ethylene cash-cost among major
chemical producers, which is driving higher margins, and the company is
strengthening its position as a market leader in the polyethylene and
chlor-vinyl’s market.”

Westlake solidified its position as a major chlor-vinyl producer with
recent acquisitions of Axiall, a U.S. producer, and Vinnolit, a European
producer. According to Sood, Westlake is experiencing robust revenue
growth and has a largely solid financial position with reasonable debt
levels, which enables the company greater flexibility to take advantage
of market opportunities and capture synergies, such as its recent
acquisitions.”

The Axiall acquisition substantially increased the company’s product
diversity along the chlorine chain, while the Vinnolit acquisition
helped diversify and expand its operations to Europe, and provided
access to critical vinyls technology, noted the IHS Markit report. This
expansion is enabling Westlake to transition beyond commodity chemicals
to the more profitable specialty PVC (poly-vinyl chloride) production,
where Europe has a leading global position.

According to the IHS Markit analysis, Westlake is the leader in terms of
vinyl chloride monomer (VCM) production, it ranks second in terms of
ethylene dichloride (EDC) and third globally in terms of both chlorine
and caustic soda production. Westlake is the leader in terms of
production capacity for low-density polyethylene (LDPE) in North America
and is among the top five linear low-density polyethylene (LLDPE)
producers in the United States. The company uses autoclave technology
for LDPE production, which helps produce high-margin specialty
polyethylene products.

However, Westlake has no high-density polyethylene (HDPE) production.
The Axiall acquisition has enhanced the ethylene deficit for Westlake,
but the company does have first rights to increase its ownership to 50
percent in the New Lake Charles, La. (U.S.) cracker project (with Lotte)
within the first three years of completion.

“Westlake’s ethylene business is highly integrated into the polyolefins
and chlor-vinyl’s chain,” said Steve Lewandowski, global business
director of light olefins at IHS Markit. “Following the Axiall
Corporation integration in 2016, the EDC integration for Westlake has
increased from 0.5 million metric tons (MMT) per year to 1.4 MMT per
year. This has enhanced the net-short ethylene position for Westlake in
2017, but we at IHS Markit expect this shortfall to moderate once the
Lotte-Axiall cracker comes on stream in Lake Charles, in 2020, assuming
the company significantly increases its stake in the project, as
expected. Presently, the company is primarily reliant on third-party
suppliers of ethylene for its U.S. and European operations.”

According to Lewandowski, Westlake continues in its strategic growth
plan. “Westlake has focused on its ethylene-chain integration by
debottlenecking existing assets, changing feed slate on another to an
advantaged feedstock, and finally, through a merger, has taken an equity
position in a green-field cracker build,” Lewandowski said. “With these
changes, it has reduced the production of propylene, a non-core
product. Westlake now has many options to consider—such as investing in
additional backward integration to ethylene in the U.S., or taking a
position in Europe on ethylene production to develop integration there.”

Westlake, in line with other ethylene producers in the U.S., has
invested in various projects to benefit from the advantaged feedstock
position in the region, said IHS Markit. Westlake completed its
conversion of Calvert City, (La.) ethylene feedstock from 100 percent
propane to 100 percent ethane in 2014. However, Westlake has the
flexibility to process 100 percent propane in the event that the
feedstock price scenario changes.

The company also completed ethylene capacity at Lake Charles, increasing
capacity by 110,000 metric tons per year, and the company plans to
increase Calvert City ethylene capacity by 30,000 metric tons per year
by end 2017.

Westlake pursues a strategy of product concentration and vertical
integration through acquisitions, expansions and modifications of
existing plants, and new projects. With that in mind, Sood said, “The
company is leveraging its pipeline connectivity across sites to capture
synergies and improve operational efficiencies. Westlake has a 50
percent stake in a natural gas pipeline that supplies feedstocks to the
Lake Charles, cracker site. This helps the company improve the long-term
reliability of feedstock supply at the site and its North American
portfolio concentration, to drive greater profitability. In addition,
Westlake’s downstream integration into PVC -fabricated products offers
higher value, specialty products.”

While the company continues to expand its position in the vinyl’s
segment, Westlake’s olefins segment is more profitable that the vinyl’s
segment. In 2016, the olefins segment contributed about 76 percent to
the company’s total income from operations, while the vinyl’s segment
contributed just 25 percent. This is in contrast with sales
contributions from both the segment as sales from olefins segments
contributed only 37 percent to the overall sales of the company, while
vinyl’s segment contributes around 63 percent.

Westlake has witnessed a substantial increase in EBITDA as a percentage
of total revenue since 2008. The company’s EBITDA percentage surged from
2 percent in 2008, to 30 percent in 2014, before returning to 20 percent
level in 2016.

Aside from its ethylene deficit, which the company is addressing, the
only other significant vulnerability for Westlake, IHS Markit said, is
the company’s limited geographical diversification and continued heavy
revenue dependence on North America, which makes it more susceptible
than its peers to any volatility in the country’s economy.

Despite this, IHS Markit expects that continued North America
chlor-alkali industry consolidation will aid remaining larger industry
players like Westlake, which stand to benefit from prospective increased
pricing power position. Additionally, the Minamata Convention on Mercury
and its potential impact on the carbide-based PVC industry in China can
open new market opportunities for export-focused U.S. vinyl producers,
the IHS Markit report said. Westlake will also benefit from the improved
vinyl’s operating rates during the next five years, which should boost
the company’s margins.

The growing chlor-vinyl’s market will be a key focus of discussions at
the upcoming IHS Markit 33nd Annual World Petrochemical
Conference (WPC), March 19 – 24, 2018, at the Houston Hilton Americas
Hotel. WPC is the premier annual international gathering of chemical
industry leaders, experts, government officials and policymakers, as
well as leaders from key end-use markets and technology innovators. To
view the current agenda for WPC 2018: 33nd Annual World
Petrochemical Conference and register for the event or the training
workshops please visit: https://wpc.ihsmarkit.com/

MEDIA REGISTRATION: The WPC 2018 will include an on-site workroom
for media, featuring internet access, ample workspace and a dedicated
staff liaison to assist with facilitation of interviews. Credentialed
members of the news media interested in covering the event can do so
free of charge pursuant to their advanced registration approval, and
their acceptance of the event media policy. Contact Melissa Manning at [email protected]
or +1 713-906-2901. Please send your name, organization, phone,
e-mail and organization website.

For more information regarding the IHS Markit Westlake Competitive
Company Analysis, please contact [email protected].
To speak with Mohit Sood or Steve Lewandowski, please contact [email protected].

About IHS Markit (www.ihsmarkit.com)

IHS Markit (Nasdaq: INFO) is a world leader in critical information,
analytics and solutions for the major industries and markets that drive
economies worldwide. The company delivers next-generation information,
analytics and solutions to customers in business, finance and
government, improving their operational efficiency and providing deep
insights that lead to well-informed, confident decisions. IHS Markit has
more than 50,000 business and government customers, including 80 percent
of the Fortune Global 500 and the world’s leading financial
institutions. Headquartered in London, IHS Markit is committed to
sustainable, profitable growth.

IHS Markit is a registered trademark of IHS Markit Ltd. and/or its
affiliates. All other company and product names may be trademarks of
their respective owners © 2018 IHS Markit Ltd. All rights reserved.

Contacts

IHS Markit
News Media Contact:
Melissa Manning, +1
713-906-2901
[email protected]
or
Press
Team
+1 303-305-8021
[email protected]