Powell speech takes center stage in Tuesday’s economic events
Investing.com -- S&P Global Ratings has revised its outlook on Westlake Corp. to negative from stable, citing weaker margins and operating performance in the company’s Performance and Essential Materials (PEM) segment.
The PEM segment’s earnings have declined significantly in 2025, with adjusted EBITDA falling to just $112 million in the first half of the year, down from more than $600 million during the same period in 2024. This decline is attributed to weaker demand, margin compression, and one-off company-specific factors.
Like many industry peers, Westlake has been affected by lower pricing (down about 2%) and higher energy and feedstock costs (up $183 million). Additionally, the company incurred approximately $200 million in costs related to planned and unplanned outages so far in 2025, including a significant turnaround at its Petro-1 ethylene cracker and the tie-in of new vinyl chloride monomer capacity at its Geismar facility.
S&P expects Westlake’s PEM margins to remain under pressure into 2026, though the company should benefit from lower planned maintenance costs, structural cost reductions of $150-$175 million, and the shutdown of its Pernis, Netherlands epoxy facility, which is expected to save about $100 million annually. These factors could support a more than $400 million improvement in the PEM segment’s EBITDA in 2026.
The rating agency highlighted that Westlake’s Housing and Infrastructure Products (HIP) segment has demonstrated resilience, consistently generating EBITDA of $900 million-$1 billion on margins exceeding 20% every year since 2022. S&P forecasts the HIP segment will generate EBITDA of about $900 million in 2025 despite the recent cooling in the housing market.
Westlake had $2 billion in cash as of June 30, 2025, which S&P expects will increase by year-end as the company generates positive free cash flow in the second half of the year.
The negative outlook reflects S&P’s expectation that Westlake’s funds from operations (FFO) to debt will remain below 45% over at least the next few quarters due to weaker margins and operating rates in its PEM segment. The rating agency believes the company will improve its metrics in 2026, primarily through strengthening the operational performance of its PEM business.
S&P could lower its ratings on Westlake if global oversupply in the chemical business or weaker-than-expected housing demand leads to a drop in operating rates or reduced EBITDA margins, causing FFO to total debt to average below 45%. The outlook could return to stable if Westlake improves the profitability of its PEM business in 2026 while maintaining resilient HIP earnings amid a weaker housing market.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.