Operator: Our next question comes from the line of Josh Spector from UBS.
Chris Perrella: It’s Chris Perrella on for Josh. Just following the guidance for HIP for the fourth quarter. What’s causing the halving of margin sequentially? Is that higher raw material costs? And is that vinyl headwinds? What are the moving pieces, I guess, up in the third quarter on the margin and then down in the fourth quarter sequentially there?
Steve Bender: Yes. A big piece of that headwind is really attributable to seasonal slowdown and so a diminished demand level. We’re also seeing — since we are a FIFO reporter, some of that costs will also roll through that — will roll through in the fourth quarter in terms of some of the feedstock costs will come through as well. And of course, the compounding of interest rates that we’ve seen will continue to be a headwind in terms of affordability. So, it’s a combination of those factors.
Chris Perrella: All right. I appreciate that, Steve. And then just one quick follow-up on the caustic soda. Albert and Steve, I’d just like to hear your thoughts on the caustic soda market as we move through the year given the weaker demand outlook for PVC.
Albert Chao: Yes. Caustic soda, generally, the global demand correlates well with the global GDP growth, and global GDP is really not doing that well. So, this year, we have experienced price declines almost every month of the year. And I think at least the consultants are saying that after the price erosion of this year, I think they’re expecting another $20 for November and December to drop. But next year, there will be more stable and more price increases coming up. All this subject to global economic demand, and it’s hard to forecast these days.
Operator: Our next question comes from the line of Hassan Ahmed from Alembic Global Advisors.
Hassan Ahmed: I wanted to revisit one of the earlier questions around chlor-alkali supply-demand fundamentals, particularly as they relate to your views on what ECU pricing and margins will do on a go-forward basis. Look, I mean, the ECU pricing and margins have obviously come down over the last couple of quarters. But one of your larger competitors over the last few years has shut down a fair bit of capacity and has recently announced the temporary idling of some capacity as well. And they were very vocal in saying that by the second quarter of 2024, they expect to see a positive inflection on the ECU pricing and margin side of it. So, are your views in agreement with that?
Albert Chao: Yes. Yes, generally speaking, we agree. Westlake, because of our historical strategy of being more fully integrated, we have downstream manufacturing of chlorine to PVC and then also further integration to HIP businesses. So, we have a lot more channel to sell products both domestically and export along the whole vinyls chain, which help us to moderate our operations, everything else. So, as we explained earlier, the last quarter, the value chain really has moved down to the downstream HIP business. And since we have, as mentioned, price declines for caustic throughout this whole year and consultant forecast is much more stable and actually improving prices for next year, we’re expecting things to get better. Now, this is subject to global economic conditions.
We don’t know what’s going to happen with high interest rate. We’re still seeing — feeling the impact of high interest rate, which — until that reverses, we’ll have a detrimental effect on demand, both in the U.S. and overseas as well.
Hassan Ahmed: Fair enough. Fair enough. And as a follow-up, Albert, I mean, we still seem to be living through some unprecedented times. The destock across a variety of sort of chemical product chains, including yours, has been quite severe 2022 onwards? And if we were to simplistically sort of put that into historical context, obviously, a massive destock cycle like the one we’ve seen is followed by a pretty impressive restock cycle, right? But I mean, is it fair to assume that on a go-forward basis, we may actually eventually see a pretty impressive restock cycle, or now with rates where they are, with housing doing what it’s doing, with China, doing what it’s doing, are we in a new sort of paradigm shift?
