Westlake Reports Decent First Quarter but Rising Ethane Costs Should Weigh on Profits Going Forward

Westlake Chemical reported decent first-quarter 2016 results, with EBITDA increasing 9% from the fourth quarter to $268 million. Similar to its peers that had already reported, the company saw fairly stable olefin margins as commensurate declines in feedstock costs accompanied declines in ethylene prices. While planned closures may tighten the market in the short term, the benefits for Westlake Chemical are offset by operating downtime as it completes its Petro 1 ethylene expansion. Over a longer time horizon, we continue to believe the company will be unable to restore the record profits of recent years. Although Westlake Chemical's operations will remain advantaged thanks to low-cost feedstock, a flatter cost curve and rising ethane feedstock costs should weigh on profits. We maintain our $45 per share fair value estimate and narrow moat rating.