Westlake Corporation (NYSE:WLK) Second Quarter 2022 Earnings Conference Call August 2, 2022 11:00 a. m. m. ET
Participating companies
Jeff Holy – Vice President and Treasurer
Albert Chao – President and Chief Executive Officer
Steve Bender, Executive Vice President and Chief Financial Officer
Roger Kearns – Chief Operating Officer
Conference Call Participants
Bhavesh Lodaya – BMO Capital Markets
Kevin McCarthy – Vertical Research Partners
Mike Leithead – Barclays
Aziza Gazieva – Fermium Research
Hassan Ahmed – Global Image
Mike Sison – Wells Fargo
Arun Viswanathan – RBC Capital Markets
Matt DeYoe – Bank of America
David Begleiter – Deutsche Bank
Matthew Blair – TPH
Aleksey Yefremov – KeyBanc Capital Markets
Josh Spector – UBS
Operator
Good morning, girls and gentlemen. Thank you for staying there. Welcome to the call of Westlake Corporation’s quarter 2022 earnings convention. During the presentation, all participants will be in listen-only mode. Following speakers’ comments, you will be invited to participate in a question-and-answer session. As a reminder, ladies and gentlemen, this convention is registered today, 2 August 2022.
I would now like to speak with today’s host, Jeff Holy, Vice President and Treasurer of Westlake. Lord, you can begin.
jeff saint
Thank you, Denis. Hello everyone and welcome to the Westlake Corporation convention call to discuss our quarter 2022 results. With me is Albert Chao, our president and CEO; Steve Bender, our Executive Vice President and Chief Financial Officer; Roger Kearns, our chief operating officer and other members of our control team.
During the call, we will refer to our two reporting segments, the housing and infrastructure products segment, which we will call HIP, and the functionality of the fabric segment, which we will call PEM. Today’s convention call will begin with Albert, who starts with some comments related to Westlake’s functionality. Steve will then talk about our monetary and operating results. After which, Albert will upload some closing comments and we will open the call for questions.
Today, control will talk about certain topics that will involve prospective data based on control beliefs, as well as assumptions made through control and data that must be controlled recently. These forward-looking statements recommend predictions or expectations and are subject to risk. or insecurities.
These dangers and uncertainties are discussed in Westlake’s Form 10-K for the year ended December 31, 2021 and other documents filed with the SEC. FILINGs with the SEC, which are also found on our Investor Relations website.
This morning, Westlake issued a press release with the main points of our quarterly results for the time being. This document can be found in the press release segment of our online page at westlake. com. We have also included a presentation of the results, which can be discovered in the Investor Relations segment of our online page.
There will be a repeat of today’s call starting today, two hours after the conclusion of this call. This replay can be obtained through the Westlake website. Please note that the data recorded in this call is only valid as of today, August 2, 2022, and therefore, you are told that time-sensitive data may no longer be accurate at the time of any repetition. Finally, I would like to tell you that this convention call is broadcast live through an Internet broadcast formula available on our website. in westlake. com.
Now I would like to put the ground on top of Albert Chao. Alberto?
Alberto Chao
Thank you Jeff. Hello everyone. Thank you for joining us in discussing the effects of the 2022 quarter. I am pleased to report that we achieved record quarterly effects at the time of the 2022 quarter, adding record net sales of $4500 million, record EBITDA of $1500 million, and a record net revenue stream of $858 million.
These record effects were driven by strong demand with significant value and margin innovations in our chlorovinyl business, strong demand from new home construction, repair and renovation activities, and acquisition contributions we have made over the past 12 months.
The grounding of those markets, combined with our incorporated operations in North America, generated record EBITDA and forged margins in one quarter, offsetting the impact of emerging energy and raw curtain prices, as well as continued supply chain disruptions. I must thank all my colleagues at Westlake for their effort and determination to help us achieve those results.
During the quarter, we continued to see earnings from our expanded portfolio driven through acquisitions during the year after. advantageous costs of raw energy.
As a world leader in chlorovinyls, those products made a significant contribution to strength year after year, driven by the higher costs of caustic soda, PVC resin and special PVC materials. Our specialized and differentiated product portfolios provide a transparent margin advantage, while our product diversity also sets us apart.
Within our HIP segment, we achieved significant sales and profit expansion from our housing and infrastructure product offerings in the current quarter. Large order books for the new home structure as a result of the strength of the North American real estate market, as an ongoing activity in the repair and renovation markets, which account for approximately 50% of our home sales, allow us to leverage our market-leading positions and our brands in many of our product offerings.
High infrastructure spending, which is now starting to be related to the recently passed infrastructure law, will continue to demand our products. The expenses will also drive PVC resin into our segments, allowing us to generate more value from our newly acquired businesses.
I would now like to pass on our call to Steve to provide more important points on the financial results for the current quarter of 2022.
steve dubber
Thank you, Albert, and good morning, everyone. As Albert said in his opening remarks, this quarter, Westlake recorded record sales of $4500 million, record EBITDA of $1500 million, and a record net revenue stream of $858 million. so far quarter 2021, driven by strong value and margin increases in both segments, driven by the global economic expansion we have noticed since the beginning of the COVID-19 pandemic, anchored through widespread strength in production and structure markets.
Compared to last year’s period, the sales and profit accumulation in the current quarter of 2022 spread across both segments, as year-over-year sales costs and volumes for Westlake increased by 32% and 25%, respectively. We are achieving those effects despite persistent supply chain disruptions, inflationary effects of our costs, and in particular higher global energy costs.
I will now move on to the functionality of our two operating segments, starting with housing and infrastructure products. Compared to the current quarter of 2021, HIP segment sales for the current quarter of 2022 increased from $666 million to $1. 4 billion, with segment EBITDA expanding from $180 million to $310 million. Segment EBITDA margins increased from 18% to 22%. Sales of housing products increased to $604 million thanks to value increases in all of our products, as well as contributions from the company we acquired in the current portion. of 2021.
Sales of infrastructure products increased by $62 million over the last year period, with higher promotion costs for various end users, adding the irrigation, automotive, and medical sectors. Compared to the first quarter of 2022, sales of household products increased $1. 1 billion by $144 million. , reflecting the continued strength of housing in our product offering.
Infrastructure product sales for the current quarter were $263 million, a cumulative of $11 million during the first quarter of 2022. In our performance and essential materials segment, Westlake is a global leader in the chlorovinyl market with incorporated operations in the United States, North U. S. Raw Curtains in terms of energy cost, which is complemented by our portfolio of specialty products in Europe.
Our production footprint, combined with strong market fundamentals for those products, allowed us to achieve a record quarterly result. For the current quarter of 2022, PIM segment EBITDA increased by $316 million compared to the current quarter of 2021 to achieve $1. 2 billion in sales of $3. 1 billion. Sales of functional fabrics for the second quarter of 2022 increased $2. 1 billion to $519 million compared to the current quarter of 2021.
Essential materials sales of $1 billion in the current quarter of 2022 increased to $439 million in the current quarter of 2021. While the operations and sales volumes of our European operations for any of the SIM cards were affected by the conflicts in Ukraine, the dynamics of the ECU market and strong basics in North America allowed us to realize significant global value gains in our chlorovinyl and epoxy businesses.
The current quarter is also the first full quarter since the acquisition of the epoxy business, which specifically contributed to earnings in North America. Despite the top load of herbal fuel and ethane in the U. S. to our global competition using petroleum-based naphtha raw materials.
With respect to balance sheet and money, as of June 30, 2022, money and money equivalents were $1. 3 billion and total debt was $4. 9 billion. Net money from operating activities for the quarter reached a record $913 million and capital expenditures for the quarter-current period were $230 million.
In the current quarter, we paid $250 million in debt, reducing interest expense by approximately $9 million consistent with the year. In addition, we returned approximately $80 million to shareholders in the form of dividends and consistent percentage buybacks. Westlake’s balance sheet is well placed for all stages of the market cycle with a net debt EBI leverage of 12 months lower than a well-staggered long-term debt maturity.
During the current quarter, we also completed the renewal of a revolving credit facility, bringing the duration of the commitment to $1500 million over five years through 2027. During the first part of 2022, we were able to identify and launch several bottleneck removal projects in our business. As such, we are revising our capital expenditure forecast for 2022 to $900 million to $1 billion, which will enable operations, reduce our prices, and increase power while preparing capacity for the next economic boom cycle.
While those decongestions will take place at several of our sites, the primary allocation will be an expansion of our site in Geismar, Louisiana, adding 110,000 ECU of chlor-alkali membrane and 600 million pounds of VCM to aid increased PVC production. the balance of curtains from our Geismar site and the power of our chlorovinyl network or plans with capacity from the end of 2024.
Let me give you some tips for your models. Our use of the FIFO accounting approach gives merit in emerging price periods compared to the effects that would be reported in a LIFO approach. Due to the charge environment, at the quarterly time of 2022, we had a favorable FIFO merit of $52 million over the earnings that would have been reported with a LIFO approach, with approximately 70% of the profit of the PEM segment and the rest reaping benefits in infrastructure products.
For the full year 2022, we expect our effective tax rate to be approximately 23% and our interest expense to be approximately $170 million and depreciation and amortization expenses to be approximately $1 billion. Based on an existing call and pricing view, we also reaffirm our previous guidance that HIP earnings in 2022 are expected to grow between 50% and 60% by 2021, and full-year earnings for 2022 are expected to be between $4500 million and $5 billion.
Now, I would like to talk to Albert to provide him with some existing perspectives for our company. Albert?
Alberto Chao
In addition to the record effects for the current quarter of 2022, we are proud of everything we have completed over the past 12 months. Through acquisitions in our two operating segments, we have repositioned Westlake into new markets and sectors.
For the time of year, we identify the uncertainty surrounding the macroeconomic environment, adding maximum interest rates, the possible slowdown in economic expansion or the option of a recession, and the volatility of energy and electric power prices. Although those points will have some have an effect on our business. We believe we are very well placed to take advantage of market opportunities during the economic cycle.
We continue to see strong demand in our two segments in North America for China’s reopening following COVID-19 lockdowns that will drive pent-up demand and economic expansion in the current part of the year. For functionality and must-have materials, we have sustainable charge merit over global competitors as the difference between North American gas-based payment inventory and tracking some other oil-based charges [ph] continues.
While affordability and emerging interest rates have recently reduced housing starts, which may be just our sales volume in the current part of the year, investment in housing will continue as the U. S. continues to grow in the U. S. While U. S. housing starts are structurally undersupplied to meet existing market demand, that housing starts have declined since their recent highs, we expect the new structure to remain stable and at the highest levels as the market returns to a normalized average of 50 years since the 2007-2008 housing slowdown.
The amount of new home loans available on the market also encourages other people to invest in their existing homes, which saves the demand for our products for repair and renovation activities. These factors, compared to a nationwide agent housing inventory, provide a solid foundation for the repair and renovation market, which anchors many of our products and accounts for a portion of our home sales.
The recently passed Infrastructure Bill, as well as proposed legislation, such as the Inflation Reduction Act, may generate new demand for any of our segments, as our pipe and fitting products are suitable for renovating U. S. aging water infrastructure. USA While oblique fabrics are in the energy production of choice.
We will also continue to gain advantages from newly acquired corporate integration and product innovations, allowing us to cross-sell products, operations, generate efficiencies, and build vertical integration of our operations. Westlake has a strong commitment to sustainability and advancing our ESG projects by focusing on our core tenants operating safely, protecting the environment and offering valuable products for the daily lives of others around the world.
As we try to achieve our carbon intensity relief goals, we are also advancing our efforts to expand a wide variety of sustainable products, such as caustic soda and low-carbon PVC, bio-based solutions for building materials, low-carbon PVC pipes. and recycled plastic customer products. Our portfolio of product inventions will continue to introduce new sustainable products to meet the needs of society.
Our supply of premium PEM fabrics is very well placed in the market to meet customer needs, while our state-of-the-art HIP product portfolio will continue to turn customer tastes and long-term expansion into housing demand. business today and in the long term.
Thank you very much for listening to our call about the results of the current quarter. Now I’ll pass the call on to Jeff.
jeff saint
Before we begin answering questions, I would like to remind listeners that our presentation of the results, which provides more main points about our results, is available on our online page and that a repeat of this teleconference will be to be held two hours after the end of the call. We will provide you with this data at the end of the call. Dennis, we will now accept questions.
Q&A session
Operator
Thank you. [Operator Instructions] And your first questions from John McNulty’s line with BMO Capital Markets. Continue.
Bhavesh Lodaya
Hello hello, Albert and Steve. This is the Bhavesh dial for John. Congratulations on the record quarter. Regarding its HIP earnings outlook, it is advocating for a relief of approximately $450 million in sales in the current part of the year compared to the first part. Could you raise a bit of color about how this breaks down into your expectations in terms of volumes rather than prices?And then what steps do you plan to take to sort out the strong margins we’re seeing right now in the current quarter?
steve dubber
Yes, then, it’s Steve. Bonjour. So when you think about the very strong contribution he noticed within HIP, he obviously noticed a very strong recovery in costs, as well as a recovery in volumes, as you may know. , the current quarter is a quarter forged in structure, housing structure markets. So we’ve noticed some excellent contributions, either in terms of volume and costs. Great contributions from both sides.
Bhavesh Lodaya
And for the next question, what if I can touch the polyethylene trade a little?For example, we saw contract values fall to $0. 03 in July. For the whole year. Can you comment on the reduction in value you made during the month of July?And if you can share your thoughts, what are you waiting for the next one, maybe a quarter or two, please?
Roger Kearns
Yes, thanks. It’s Roger. Just a quick comment about it. We have noticed that the market has stabilized at $0. 03, and I think we are at a tipping point in stock tightening. But as we look to the future, we see our polyethylene business. they constitute almost 45% of our activities, specialized and differentiated, which means that we have a rigidity of safe value, so to speak. And so it’s going to insulate us a little bit, I think, from change as inventories readjust.
Bhavesh Lodaya
Ok thanks.
Operator
The next one comes from Kevin McCarthy’s line with Vertical Research Partners. Continue.
Kevin McCarthy
How much did your learned average value of caustic soda increase if it increased in the current quarter to the first quarter?And how do you expect that number to adjust to the trends that are entering the third quarter, please?
Roger Kearns
Yes, I would say that we see an intelligent and uninterrupted force of chlor-alkali in general in any aspect of the ECU, in fact, caustic and chlorine, either. to continue with the third trimester and also with the appearance of chlorine of the molecule. So, you can see that several industry analysts have continued to report an increase in the values of caustic soda and chlorine, and we actually see that.
Kevin McCarthy
It is ok. And then secondly, maybe for Steve, he’s made a lot of progress on deleveraging in the quarter, it turns out to me that net debt has been reduced by over $500 million. So, in this context, what are you doing?He discussed Geismar’s expansion project, and how would you rate future expansions compared to what you see in the personal market right now?
steve dubber
So Kevin, smart question. And you might see our capital expenditure direction increased for the time being or for the whole year through the middle of this year, because of those biological opportunities that I mentioned. So, we’re looking at smart opportunities to be able to unclog a number of those sites, and we’re going to continue to look internally to see if there are other smart value-added opportunities to make other decongestions, beyond the ones we’ve talked about today.
And of course, as you know, we looked at opportunities outside the company to see if there were acquisitions that could be big acquisitions or additional opportunities and in fact, given the expansion that we noticed and the strong balance sheet and the flow of money, we believe that we have the ability to execute the internal opportunities and potentially the external opportunities if they give us the right kind of price proposition.
Kevin McCarthy
Thank you very
steve dubber
You're welcome.
Operator
Next is Mike Leithead’s line with Barclays. Continue.
Mike Leithead
Great. Thank you. Hello guys. First question, I guess if we take a look at the quarterly results of its time, either sequentially or year after year, or which is the simplest, is there a way to help us quantify the benefits of acquisitions?for your earnings or EBITDA instead of simply saying how your underlying business performed in the quarter?
steve dubber
So Mike, when you think about the contributions we’ve had from acquisitions, I guess I’d say it all performed very well in the current quarter. Of course, the epoxy business was the full first quarter of a three-month contribution. the quarter. But if you think about the other contributions we’ve had, they’ve all contributed very well. And I would say that given the run rate we experienced in the current quarter, they contribute to the return of teenagers on the investments we’ve made over the last 12 months. Therefore, we believe it would have been a great contribution.
Mike Leithead
Or is it not in a position to reveal it?I guess it’s hard to measure its true underlying functionality because of the inorganic moving parts.
steve dubber
So, I guess what I mean is that when you think about the investments we’ve made and you think about going back to mid-teens, it gives you a clever concept of what the EBITDA contributions are for those 4 acquisitions can bring.
Alberto Chao
But most of the remaining earnings in the current quarter come from our legacy business.
steve dubber
Yes she is.
Mike Leithead
I compris. Logique. Et then, and only in epoxy, there are many moving parts. at the time of part of this year?
Roger Kearns
It’s Roger, I would say, we see a kind of epoxy from 3 other worlds in the other regions. China is quite slow and where pricing has become quite difficult. We have a pretty small position there. Europe has been, I would say, a moderate demand, but costs have risen to offset the costs of raw materials. So we control maintaining our margins. And then, in the United States, the request is still reasonable. And so we are, I think we will continue to watch the beginning of China’s recovery. We expect that when China’s recovery begins, there will indeed be a reinvestment in wind energy with its effort to revise to get the economy back on track. And I hope we can start to see China’s return.
Mike Leithead
Super. Thank you
Operator
The next one is in line with Frank Mitsch of Fermium Research. Continue.
Aziza Gazieva
Hi, guys. This is Aziza for Frank. For starters, can you quantify some of the monetary effects of the chlor-alkali force majeure during the quarter?
steve dubber
Yes, Aziza, we haven’t actually given any express indication about force majeure, but as you know, we’ve had several force majeure cases this year and in fact we’ve also had a very significant change in one of our services in Louisiana. So this shift is a general operational activity, as you well know, but force majeure is just a mirror image of the occasions we’ve noticed happening in the industry over the last year or two.
Aziza Gazieva
And I think he also pointed out that the special PVC industry had a positive effect on margins. Could you also talk about the customers there?
Roger Kearns
This is Roger. In general, I would say that in the specialized PVC market, those margins tend to be less volatile than in the aspect of uncooked curtains. I would say it’s largely in Europe where we have those products from our vein branch [ph]. I would say that, on the positive side, we continue to see touches on the structure, on the negative aspect that the war in Ukraine has an effect on this enterprise. So, we can say just moderate on this, however, those products sometimes have higher margins and are less volatile than suspended PVC.
Aziza Gazieva
they gave it to me Very much thanks.
Operator
Your questions from Hassan Ahmed’s line with Alembic Global. Continue.
hassan ahmed
Hello, Alberto and Steve.
steve dubber
Nice day.
hassan ahmed
Question about polyethylene. Obviously, crude oil prices have been higher so far this year, and at least when you read representative reports and communicate with other people in the industry, at least in the first part of the year, total global communication on source and demand adjustment. . So, for me, that at least meant it was a very conducive environment for a decent value increase. And I just don’t think the stocks have followed the trail of oil values. Right?
So my query is literally that, with all those little quirks that we see in terms of logistics and shipping issues and whatever, are we lately in a scenario where we’re in a global market place, we’ve become a regional market place and as those types of supply chain and shipping issues are fixed and maybe some assignment cancellations are decreasing. because of the adjustments in energy prices, we would again become a global market place, this kind of overcapacity that we see in the United States, what was intended for the export market is starting to make its way?And suddenly, the price of polyethylene starts to stick to the global price curves, tell us?
Alberto Chao
Yes, that’s a smart question. Surely he is right. There is capacity to come to China and there is still capacity to come to the US. Despite logistical issues since the beginning of the year, with the June polyethylene industry as a whole, including top density and low LDP, exporting around 36% of its sales. Therefore, exports are born to start, of course, with the capacity due to the US. In the U. S. , exports will most likely increase more than that. So, I think it’s a source and a calling factor in China. , due to their COVID-19 lockdowns, demand is quite weak. And as a result, with new capacity coming to China, they also have access capacity.
Separately, the polyethylene business is not a big deal for Westlake, less than 15% of our sales. So, although it is a very important business for us, it has to have a smaller effect than the chlorovinyl business, which is our largest segment of our business.
hassan ahmed
That’s fine with me. That’s fine with me. And just like a follow-up that tweaks things a bit on the epoxy side, I know some previous comments were made on the call about this company. I’m just looking to get a broader idea. You said europe well, America well, notoriously that the blockades were affecting China.
I mean, do we deserve us to think of this company as a company that fluctuates with the Chinese market?Which means that, as I perceive it, almost part of the world’s demand comes from China. So, I mean, if we were to assume that Chinese blockades are starting to ease, I mean, do you deserve that we start seeing upward dynamics in this company immediately afterwards?
Roger Kearns
Hassan, it’s Roger. Je I think if you look at even 3 corporations, if you look at polyethylene, PVC and epoxy, you see similar trends in that, in general, China is an importer of those corporations in those products with the closures and because of the slowdown in demand, they have moved to neutral or export. And certainly, we expect this China to start, the Chinese leader in wind energy that consumes a massive amount of epoxides, we expect this market. to take off when China’s recovery begins.
hassan ahmed
Very useful. Thank you so much.
Alberto Chao
You're welcome.
Operator
Next is Mike Sison’s line with Wells Fargo. Continue.
mike sisón
Hi guys, great neighborhood.
Alberto Chao
Ok thanks.
mike sisón
I guess, Albert, when you think of functional fabrics more on the chlor-alkali side, on the PVC side. We know how the industry has performed in recent recessions and whether this has resulted in a significant slowdown, long-term or in 2023 and there are not many new features to come. How do you think the margins or margins of the PVC ECU are maintained?This time it could be another one from the past.
Alberto Chao
That’s a smart question. Compare with polyethylene a very limited amount of new capacity ordered around the world, not just in the United States or China. And as you know, China has a moratorium on new PVC capacity, so new products like capacity covering mercury catalyst issues. therefore, demand remains very strong on a global scale for cellulose products based on chlorinated derivatives such as PVC, but also for your product and any other product.
And caustic is simply a very broad general product that uses everything from water treatment, pulp and paper and everything in between. So, while there is a potential recession, peak interest rates, and a global economic slowdown, we are beyond those disruptions and in a position for the next upward cycle.
mike sisón
they gave it to me AND then their PVC customers in the current part of the year in terms of demand and price?
Alberto Chao
Well, right now, China, as I said before, the economy is very weak. They have carbide-based PVC. The demand for PVC is low because the structure is severely affected. And I think the government is starting to try to do anything to stimulate the consortia industry, which is the most expensive industry in the private sector. So China still exports its carbide-based PVC and also to India and all those economic effects on demand, our demand is weak.
So I think industry analysts predict some weaknesses in PVC prices, which is possible, and a reduction in stocks is also occurring. But I think Roger said before, we think the garage of the industry will end and the economy will recover, I think the return [indistinguishable].
mike sisón
Super. Thank you.
Alberto Chao
You're welcome.
Operator
Our questions from Arun Viswanathan’s line with RBC Capital Markets. Continue.
Arun Viswanathan
Super. Thank you for attending my query. I guess the first query I had was correct if you think about epoxy, I think the main comment we heard is that China hasn’t actually bought and they make up a big component of the market. Europe has also been weak. Are the closures basically what will cause this market?And has there been any additional updates you can provide on this in recent weeks, perhaps, if there’s been a problem or what are your customers there?
Alberto Chao
Speaking of China?
Arun Viswanathan
Yes she is.
Alberto Chao
As I said earlier, we, the government, are looking to start stimulating the economy. As you know, they have the party election in October. They have a National Congress, March or next year. There will be a fiscal stimulus in the next government. And after saying that the epoxy industry, especially in the United States, is quite far removed from the Chinese industry with our specialized epoxy programs in many programs, especially now with the Infrastructure Bill and the Inflation Reduction Act, we believe there is a lot of demand for epoxy, PVC and other materials. Who will get advantages of those projects in the United States.
Arun Viswanathan
It is ok. Thank you for that. And as another follow-up, it has done an excellent job in the afterlife capitalizing on the asset slowdown. Is this something you started thinking about besides getting out of debt after your last acquisitions as a couple?And if so, what spaces are you heading to? And when do we expect to see part of this capital deployed?
steve dubber
Arun, you can see that we’re already acting on some of those biological opportunities, and that’s why we’ve raised our capital expenditure direction for the year. And we will continue to look for biological opportunities. These are less difficult to understand, but at the same time, because I think we look for non-stop outdoor opportunities.
So, on second thought, you will have noticed that we have made a number of acquisitions over the past 12 months. And that point of activity doesn’t slow down. We continue to have a very active opportunity on both sides of our business, be it PEM and HIP. And I think there would be smart opportunities as we look to the future. And it’s just a question about whether they meet our expectations for functionality. , however, there is still an initiative underway to take a look at the opportunities that can be smart additions to any of our business segments.
Arun Viswanathan
It is ok. Thank you so much.
steve dubber
You're welcome.
Operator
The next one comes from Stephen Byrne’s line with Bank of America. Continue.
matt deyoe
Hello. It’s Matt to Steve.
Alberto Chao
Nice day.
steve dubber
Hello Mat.
matt deyoe
So, the epoxy sector, on the right, recorded smart numbers in 2021. And the overall forecast was for normalization, maybe something like $300 million of EBITDA to $200 million. Or are the measures taken by your peers to the markets staying at this point longer than you might have thought at first?
steve dubber
Well, I think Matt, as Roger heard, we see a slightly different market in each of those markets, whether it’s in Asia, Europe, or the North American market. But I think the recommendation we provided in terms of going back to is in mind some kind of normalized income source point. And I think if you take a look through the sector call and Albert was talking about the kind of stimulus projects that we’re all looking forward to in China that you’re starting to see in China, it’s going to drive demand on the resin front.
And certainly, the epoxy will be one of those that we will be waiting to see. So I think the normalized point of [indistinguishable] that we would be expecting from the epoxy industry would be, I think as we have guided it, not as high as it was in 2020 and 2021, but it was still a big contribution through the cycle. And I think the strength that we’ve seen in corporate restructuring in recent years has been a smart incentive for us to invest in the old corporate this year. So we have a very constructive view of epoxy this year and in the future.
matt deyoe
It is ok. And I know the Westlake team doesn’t like to answer assumptions, however, I’ll pull out one of them. What do you think of the resolution to exploit chlorine volumes in the current part of the year, which deserve PVC markets to decline seasonally and cyclically, right?So caustic values are good. PVC stocks are quite high. Does it make sense to continue generating PVC or would they move some of those molecules to commercial chlorine if this opportunity is greater because caustic is still very good?
Roger Kearns
Oui. Je I think Matt is Roger. Just to be honest, we constantly look for what is the most productive position to place the chlorine molecule and monitor it monthly. So we’re at the height of a water remedy season right now, which is really good, we still have a few months left. And then, as for deceleration, let’s take a look at what PVC is capable of. Obviously, we return to some of the logistical problems, to what extent is the industry capable of exporting?But we are constantly tracking what is the correct position to put the chlorine.
Alberto Chao
But it is also that if the demand for chlorine decreases, there will be less caustic production. And if the demand for caustic soda remained strong globally and there may be pressure on caustic soda costs in the future.
matt deyoe
Of course. I that thanks alberto
Alberto Chao
You're welcome.
Operator
The next one comes from the line of David Begleiter of Deutsche Bank. Continue.
david begleiter
Thanks. Albert, back in PVC, the value gap between the United States and Asia has widened significantly during the last era here. How do you see this reversal or normalization with U. S. values?do you have here today?
Alberto Chao
As I said before, due to the lack of structure in China, Chinese PVC production has been exported and has caused the value of PVC to fall in Asia as stimulus returns to China and other people recover from COVID-19 lockdowns, many cities in China have been the mode of confinement. Those we demand will grow and, as a result, the pressure on values will be less and the gap, the price gap between the United States and China, will narrow.
david begleiter
Entendu. Et only about Ethane Albert, with ethene now in the ’60s around the ’60s, how do you think about ethane costs in the long run?Is it a function of the price of fuel and the additional charge for [indistinguishable]
Alberto Chao
Of course. I think the value of ethane is also similar to the value of herbal fuel. While the value of herbal fuel is expected to decrease, the value of ethane will also decrease. down until next year. I think the time part of next year, they’re probably hunting in their thirties, mid-thirties.
david begleiter
Sounds good. Thank you so much.
Alberto Chao
You're welcome.
Operator
The next one is similar to Matthew Blair’s with TPH. Continue.
Matthieu Blair
Hey HELLO. I hope you can communicate about the type of trading rate your epoxy assets are performing lately.
Roger Kearns
So right now we have some genuine changes and our rates are a little bit lower, because we have a significant change in the Netherlands and we have one later in the year here in the United States. So, in fact, our execution schedule is fortuitous right now, with calls for softening a bit.
Matthieu Blair
It is ok. And then, can you share the main points about any kind of herbal fuel coverage you might have and what was the impact in the current quarter and what might it look like in the current part of the year?
steve dubber
Matthew is Steve. De fact, we will manufacture blankets on the edges, but in fact we do not adopt significant long-term fuel covers on the market, but we do some on the edges, but not much and in significant volume.
Matthieu Blair
they gave it to me Thank you.
Alberto Chao
You're welcome.
Operator
Your questions from Aleksey Yefremov’s line with KeyBanc Capital Markets. Continue.
Alexeï Efremov
Thank you and good morning everyone. Could you communicate about. . .
Alberto Chao
Nice day.
Alexeï Efremov
Hi Albert. Can you tell us about your intake of electrical energy or herbal fuel in Europe?How do you buy them on the continent and what is your sensitivity, if you can communicate about it?
Alberto Chao
Well, the price of herbal fuel is really very high, and the price of electric power is even better. And there is a market price and other people pay those higher prices. And as we heard before, Roger said, we’re going to convey some of those values increase the values of our products. Today, the values of European products are the best in the world, whether it is epoxy pvc or polyethylene.
Alexeï Efremov
And Albert, you talked about a potentially lower demand in the current part of the year for a new Array residential structure. Was he talking about PVC or structure or maybe?
Alberto Chao
Well, in fact, with the highest interest rate, the highest loan rate, and you see that home construction is slowing down, it’s still slowing down to a very high level. annual average, which is in the U. S. In the U. S. for residential construction, about 1. 5 million games or so. Therefore, we believe that pent-up demand will still be quite strong, not as high as 1. 8 as we saw. previous in the month – annualized on the basis of one space per month. But we think it’s still pretty strong.
Alexeï Efremov
Heard. Thank you so much.
Operator
Your questions from Josh Spector’s line with UBS. Continue.
Josh Spector
Hello, thank you for answering my question. On the HIP margins alone, you continue to do more than you expect. So, I’d like to know if this kind of new general is such that you expect margins to remain in the low 20s, due to higher yield?Or is there anything you comment on pricing or the origin call that has helped you in this segment over the past two quarters?Thank you.
steve dubber
So, Josh, we’ve advised senior teens, upper middle teens in HIP, and you’re actually right over the last few quarters, we’ve had margins of 21%, 22%, Q1, Q2. So, in fact great to see this, the strength of the build numbers, however, we continue to consult through this diversity of teenagers from middle to high level. High-end products produced through our HIP segment, so we continue to expect intelligent functionality in this area. , however, we continue to advise middle to high school adolescents for this segment.
Josh Spector
It is ok. Thank you.
steve dubber
You're welcome.
Operator
Kevin McCarthy’s line can be followed with Vertical Research Partners. Continue.
Kevin McCarthy
Yes, smart tomorrow. And thank you for taking my follow-up. Therefore, consider the acquisitions you have made. It acquired Hexion’s epoxy business about six months ago and borrowed structural products from North America about 10 months ago. Are the prices of those platforms? And if so, what is the total amount of prices you have extracted so far?And what do you think that number will look like in 2023 compared to 2022?
steve dubber
So, Kevin, you’re right. While we continue to observe the activities of our acquired acquisitions, on the housing side, especially in the case of loans, we have guided some synergies. These are cargo synergies in the mid-30s, and we’re on the right track. to deliver these fee reduction initiatives. These are ongoing at the moment.
Undoubtedly, there will be synergies beyond the simple reduction of charges. And we’ve talked about some of the profit opportunities we expect to see. You see some of that and part of the margin improvement in the business, but we still maintain our forecasts in terms of margins. But from a burden relief perspective, I think we’re still on track to reach that many cuts from the mid-thirties. On the epoxy front, we are actually comparing those opportunities and we actually see opportunities on this front. they are not yet in a position to quantify it, but I think there will also be smart opportunities for the relief of charges.
Kevin McCarthy
It is ok. Thank you so much.
steve dubber
You're welcome.
Operator
And at that point, the Q&A consultation is over. Are there any final comments?
jeff saint
Thank you for participating in today’s call. We expect you to sign up with us on our next conference call to discuss third quarter results.
Operator
Thank you for participating in Westlake Corporation’s quarterly earnings convention call today. As a reminder, this call can be played back two hours after the call ends. Reproduction is available through The Westlake website. Good bye.