This discussion and analysis should be read in conjunction with information contained in the accompanying unaudited consolidated interim financial statements of Westlake Chemical Corporation and the notes thereto and the consolidated financial statements and notes thereto of Westlake Chemical Corporation included in Westlake Chemical Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 2008. The following discussion contains forward-looking statements. Please read "Forward-Looking Statements" for a discussion of limitations inherent in such statements.

We are a vertically integrated manufacturer and marketer of petrochemicals, polymers and fabricated products. Our two principal business segments are olefins and vinyls. We use the majority of our internally-produced basic chemicals to produce higher value-added chemicals and fabricated products.

In 2007 and 2008, weakness in the construction markets contributed to lower demand for our vinyls products, and operating margins declined in our vinyls business. In 2008, olefins margins declined significantly due to a sharp drop in product demand that started in August 2008 as customers began to anticipate lower product prices due to a weakened global economy and collapsing energy prices. This was followed by a sharp drop in product prices in the last quarter of 2008, which resulted in continued weak demand, lower operating rates and a significant operating loss for us in the fourth quarter of 2008. Continued weakness in the construction markets and lower demand for caustic contributed to operating losses in our vinyls segment in both the first and second quarters of 2009. However, volumes and margins in the olefins segment increased in the first six months of 2009, resulting in positive operating margins and cash flow in the segment. A cost advantage for gas-based ethylene producers over naphtha-based ethylene producers and lower production and customer inventory levels following the destocking that occurred in the fourth quarter of 2008 and first quarter of 2009 were the primary factors contributing to the increased demand and margins in our Olefins segment. Olefins industry forecasts, however, show a significant increase in worldwide capacity over the next few years, with the largest increase expected to come from the Middle East. As a result, olefins operating margins could deteriorate. While the economic slowdown has been challenging for our customers, we believe our customer base remains generally healthy. As we continue to manage our business in the current environment, we have taken steps designed to address the decrease in demand and margins and its resulting impact on our operations by matching production with sales demand and continuing to operate our plants in an efficient manner. We have also implemented cost reduction programs, temporarily idled some capacity and cut back on discretionary capital spending to preserve cash. The global economic recession has been challenging on our business and depending on the length and severity of the downturn could have a material adverse affect on our financial condition, results of operations or cash flows.

Recent Development

In March 2009, we acquired a PVC pipe plant in Janesville, Wisconsin for $6.3 million. The plant has the ability to produce PVC pipe in sizes up to 24 inches for use in a variety of applications including sewer, water, plumbing and irrigation. We began operating the plant in April 2009 with limited production, but the plant is designed to produce up to 175 million pounds of PVC pipe annually at full capacity.

Results of Operations



                                               Three Months Ended                  Six Months Ended
                                                    June 30,                           June 30,
                                             2009              2008              2009             2008
                                                              (dollars in thousands)
Net external sales
Olefins
Polyethylene                             $     303,160      $   499,024      $    559,534      $   943,187
Ethylene, styrene and other                     83,382          266,938           149,777          483,596

Total olefins                                  386,542          765,962           709,311        1,426,783

Vinyls
Fabricated finished products                    86,385          145,047           148,813          236,653
VCM, PVC and other                             101,938          195,440           204,992          358,074

Total vinyls                                   188,323          340,487           353,805          594,727

Total                                    $     574,865      $ 1,106,449      $  1,063,116      $ 2,021,510


                                               Three Months Ended                  Six Months Ended
                                                    June 30,                           June 30,
                                             2009              2008              2009             2008
                                                              (dollars in thousands)
Income (loss) from operations
Olefins                                  $      44,289      $    57,804      $     60,363      $    77,956
Vinyls                                          (4,829 )         18,354           (20,210 )         15,269
Corporate and other                             (3,285 )         (2,582 )          (4,881 )         (5,790 )

Total income from operations                    36,175           73,576            35,272           87,435
Interest expense                                (8,795 )         (9,287 )         (17,391 )        (17,815 )
Other income, net                                1,303            2,199             3,780            4,607
Provision for income taxes                      11,832           19,215            10,885           21,567

Net income                               $      16,851      $    47,273      $     10,776      $    52,660

Diluted earnings per share               $        0.26      $      0.72      $       0.16      $      0.80


                                               Three Months Ended                  Six Months Ended
                                                 June 30, 2009                       June 30, 2009
                                            Average                            Average
                                          Sales Price         Volume         Sales Price         Volume
Key product sales price and volume
percentage change from prior year
period
Olefins(1)                                      -37.0%           -12.6%            -34.4%           -15.8%
Vinyls(2)                                       -29.0%           -15.7%            -23.9%           -16.6%
Company average                                 -34.5%           -13.6%            -31.3%           -16.1%
__________

                                               Three Months Ended                  Six Months Ended
                                                    June 30,                           June 30,
                                             2009              2008              2009             2008
Average industry prices (1)
Ethane (cents/lb)                                 14.5             35.4              13.2             34.8
Propane (cents/lb)                                17.3             40.2              16.7             37.5
Ethylene (cents/lb) (2)                           31.5             66.3              31.5             63.4
Polyethylene (cents/lb) (3)                       68.0             94.7              66.5             91.3
Styrene (cents/lb) (4)                            46.3             78.8              43.4             75.7
Caustic ($/short ton) (5)                        368.3            540.0             595.0            496.7
Chlorine ($/short ton) (6)                       204.2            275.0             189.6            287.5
PVC (cents/lb) (7)                                48.5             58.7              47.1             56.5

(1) Industry pricing data was obtained through the Chemical Market Associates, Inc., or CMAI. We have not independently verified the data.

(2) Represents average North American contract prices of ethylene over the period as reported by CMAI.

(3) Represents average North American contract prices of polyethylene low density film over the period as reported by CMAI.

(4) Represents average North American contract prices of styrene over the period as reported by CMAI.

(5) Represents average North American average acquisition prices of caustic soda (diaphragm grade) over the period as reported by CMAI.

(6) Represents average North American contract prices of chlorine (into chemicals) over the period as reported by CMAI.

(7) Represents North American contract prices of PVC over the period as reported by CMAI.

Summary

For the three months ended June 30, 2009, net income was $16.9 million, or $0.26 per diluted share, on net sales of $574.9 million. This represents a decrease in net income of $30.4 million, or $0.46 per diluted share, from the three months ended June 30, 2008 net income of $47.3 million, or $0.72 per diluted share, on net sales of $1,106.4 million. Sales for the three months ended June 30, 2009 decreased $531.5 million compared to the second quarter of 2008 due primarily to lower sales prices for all major products and lower sales volumes for all major products except caustic and styrene. Income from operations was $36.2 million for the second quarter of 2009 as compared to $73.6 million for the second quarter of 2008. The decrease in income from operations for the three months ended June 30, 2009 was primarily due to reduced demand for polyethylene and vinyls downstream products and significantly lower sales prices, which were partially offset by lower feedstock and energy costs. Also partially offsetting this decrease, trading activity resulted in a gain of $9.8 million in the second quarter of 2009 as compared to a loss of $7.0 million in the second quarter of 2008.

For the six months ended June 30, 2009, net income was $10.8 million, or $0.16 per diluted share, on net sales of $1,063.1 million. This represents a decrease in net income of $41.9 million, or $0.64 per diluted share, from the six months ended June 30, 2008 net income of $52.7 million, or $0.80 per diluted share, on net sales of $2,021.5 million. Sales for the six months ended June 30, 2009 decreased $958.4 million compared to the first six months of 2008 largely due to lower sales prices for all major products except caustic and lower sales volumes for all major products except caustic and styrene. Income from operations was $35.3 million for the first six months of 2009 as compared to $87.4 million for the first six months of 2008. Income from operations for the first six months of 2009 was negatively impacted by a number of factors, including reduced demand for polyethylene, PVC resin and vinyls downstream products due to the economic downturn, an unscheduled outage caused by an ice storm at our Calvert City, Kentucky complex and a turnaround at one of our ethylene units in Lake Charles. The Calvert City outage and Lake Charles turnaround resulted in repair costs and the expensing of unabsorbed fixed manufacturing costs of $19.5 million during the first quarter of 2009. The decrease in income from operations was partially offset by a gain from trading activity of $12.2 million during the first six months of 2009 compared to a loss of $6.9 million during the first six months of 2008. Costs related to the closure of a fabrication manufacturing facility and a turnaround and revamp of our styrene facility in Lake Charles negatively impacted income from operations in the first six months of 2008.

RESULTS OF OPERATIONS

Second Quarter 2009 Compared with Second Quarter 2008

Net Sales. Net sales decreased by $531.5 million to $574.9 million in the second quarter of 2009 from $1,106.4 million in the second quarter of 2008. This decrease was primarily due to lower sales prices for all major products and lower sales volume for all major products except caustic and styrene. Average sales prices for the second quarter of 2009 decreased by 34.5% as compared to the second quarter of 2008, and sales volumes declined 13.6% as compared to the second quarter of 2008 due primarily to lower demand. As a result of the economic downturn, order activity for most of our major products has declined due to the continued soft demand for consumer products and weakness in the construction markets.

Gross Margin. Gross margin percentage of 9.7% for the second quarter of 2009 increased from the 8.7% gross margin percentage for the second quarter of 2008. The increase was primarily due to raw material cost reductions that outpaced the drop in product sales prices and the trading activity gain of $9.8 million in the second quarter of 2009 as compared to the loss from trading activity of $7.0 million in the second quarter of 2008. Our raw material cost in both segments normally tracks industry prices, which experienced a decrease of 59.0% for ethane and 57.0% for propane as compared to the second quarter of 2008. Sales prices decreased an average of 34.5% during the second quarter of 2009. The increase in gross margin percentage was partially offset by lower sales volumes and lower operating rates. The lower operating rates were primarily due to the decrease in demand directly attributable to the current economic downturn and weakness in the downstream vinyls markets.

Selling, General and Administrative Expenses. Selling, general and administrative expenses decreased $3.4 million, or 14.8%, for the second quarter of 2009 as compared to the second quarter of 2008. The decrease was primarily due to cost reduction initiatives resulting in lower compensation expense and a reduction in total selling expenses consistent with the decrease in sales.

Interest Expense. Interest expense decreased marginally by $0.5 million to $8.8 million in the second quarter of 2009 from $9.3 million in the second quarter of 2008 as debt balances and interest rates were relatively flat.

Other Income, Net. Other income, net decreased by $0.9 million to $1.3 million in the second quarter of 2009 from $2.2 million in the second quarter of 2008 primarily due to lower interest income.

Income Taxes. The effective income tax rate was 41.3% for the second quarter of 2009. The 2009 tax rate was above the statutory rate of 35% primarily due to the loss of the domestic manufacturing deduction due to the carry back of the year-to-date taxable loss and state tax credits, partially offset by state income taxes. The effective tax rate was 28.9% for the second quarter of 2008. The 2008 tax rate was below the statutory rate of 35% primarily due to state tax credits, the domestic manufacturing deduction and a reduction of recognized tax benefits due to tax settlements, partially offset by state income taxes.

Olefins Segment

Net Sales. Net sales decreased by $379.4 million, or 49.5%, to $386.5 million in the second quarter of 2009 from $766.0 million in the second quarter of 2008. This decrease was primarily due to lower sales volumes for all major olefins products except styrene and lower sales prices for all major olefins products. Average sales prices and volumes for the Olefins segment decreased by 37.0% and 12.6%, respectively, in the second quarter of 2009 as compared to the second quarter of 2008.

Income from Operations. Income from operations decreased by $13.5 million, or 23.4%, to $44.3 million in the second quarter of 2009 from $57.8 million in the second quarter of 2008. This decrease was primarily due to lower polyethylene sales volumes and operating rates and the sharp drop in sales prices, partially offset by lower energy and feedstock costs. Also partially offsetting the decrease, trading activity resulted in a gain of $9.8 million for the second quarter of 2009 as compared to a loss of $7.0 million for the second quarter of 2008.

Vinyls Segment

Net Sales. Net sales decreased by $152.2 million, or 44.7%, to $188.3 million in the second quarter of 2009 from $340.5 million in the second quarter of 2008. This decrease was primarily due to lower sales prices and volumes for all major vinyls products. Average sales prices and volumes for the Vinyls segment decreased by 29.0% and 15.7%, respectively, in the second quarter of 2009 as compared to the second quarter of 2008.

(Loss) Income from Operations. The Vinyls segment produced a loss from operations of $4.8 million in the second quarter of 2009 as compared to income from operations of $18.4 million in the second quarter of 2008, a decline of $23.2 million. The change was primarily due to lower sales volumes and lower operating rates. Weakness in the construction markets reduced demand for vinyls downstream products, resulting in lower operating rates and margins. Also negatively impacting loss from operations for the second quarter of 2009 was a reduction in industry caustic prices of 31.8% as compared to the second quarter of 2008.

Six Months Ended June 30, 2009 Compared with Six Months Ended June 30, 2008

Net Sales. Net sales decreased by $958.4 million to $1,063.1 million in the first six months of 2009 from $2,021.5 million in the first six months of 2008. This decrease was primarily due to lower sales prices for all of our major products except caustic and lower sales volume for most of our major products. Average sales prices for the first six months of 2009 decreased by 31.3% as compared to the first six months of 2008. Customer order activity slowed in the first six months of 2009 compared with the same period in 2008, largely due to the negative impact of the economic downturn.

Gross Margin. Gross margin percentage of 7.1% for the first six months of 2009 increased from the 6.6% gross margin percentage for the first six months of 2008. The increase was primarily due to raw material cost reductions that outpaced the drop in product sales prices. Our raw material cost in both segments normally tracks industry prices, which experienced a decrease of 62.1% for ethane and 55.5% for propane as compared to the first six months of 2008. Sales prices decreased an average of 31.3% during the first quarter of 2009. The increase in gross margin percentage was partially offset by lower sales volumes and lower operating rates.

The lower operating rates were primarily due to the decreased demand for most of our major products and continued weakness in the downstream vinyls markets attributable to weakness in the construction markets and the general economy, the ice storm in Calvert City and the turnaround at one of our ethylene units in Lake Charles during the first quarter of 2009.

Selling, General and Administrative Expenses. Selling, general and administrative expenses decreased $5.3 million, or 11.5%, in the first six months of 2009 as compared to the first six months of 2008. The decrease was primarily due to a reduction in total selling expenses consistent with the decrease in sales and cost reduction initiatives resulting in lower compensation expense and consulting fees.

Interest Expense. Interest expense in the first six months of 2009 decreased marginally by $0.4 million to $17.4 million in the first six months of 2009 from $17.8 million in the first six months of 2008 as debt balances and interest rates were relatively flat compared to the first six months of 2008.

Other Income, Net. Other income, net decreased by $0.8 million to $3.8 million in the first six months of 2009 from $4.6 million in the first six months of 2008 primarily due to lower interest income, partially offset by higher equity in income from our joint venture in China.

Income Taxes. The effective income tax rate was 50.3% for the six months ended June 30, 2009. The 2009 tax rate was above the statutory rate of 35% primarily due to the loss of the domestic manufacturing deduction due to the carry back of the year-to-date taxable loss and an increase in state income tax liabilities. The effective tax rate was 29.1% for the six months ended June 30, 2008. The 2008 tax rate was below the statutory rate of 35% primarily due to state tax credits, the domestic manufacturing deduction and a reduction of unrecognized tax benefits, partially offset by state income taxes.

Olefins Segment

Net Sales. Net sales decreased by $717.5 million, or 50.3%, to $709.3 million in the first six months of 2009 from $1,426.8 million in the first six months of 2008. This decrease was primarily due to lower sales prices for all major products and lower sales volumes for all major products except styrene. Average selling prices for the Olefins segment decreased by 34.4% in the first six months of 2009 as compared to the first six months of 2008.

Income from Operations. Income from operations decreased by $17.6 million, or 22.6%, to $60.4 million in the first six months of 2009 from $78.0 million in the first six months of 2008. This decrease was primarily due to the decrease in polyethylene and styrene sales prices and lower operating rates. The lower operating rates were primarily due to reduced polyethylene demand and a turnaround at one of our ethylene facilities in Lake Charles in the first quarter of 2009. These decreases were partially offset by lower raw material costs and by trading activity. Trading activity resulted in a gain for the first six months of 2009 of $12.2 million as compared to a loss of $6.9 million for the first six months of 2008. The first six months of 2008 were negatively impacted by the styrene plant turnaround in Lake Charles.

Vinyls Segment

Net Sales. Net sales decreased by $240.9 million, or 40.5%, to $353.8 million in the first six months of 2009 from $594.7 million in the first six months of 2008. This decrease was mainly driven by the decrease in the sales prices and sales volumes of all products except caustic, as well as lower operating rates. Average selling prices for the Vinyls segment decreased by 23.9% in the first six months of 2009 as compared to the first six months of 2008.

(Loss) Income from Operations. The segment produced a loss from operations of $20.2 million in the first six months of 2009 as compared to income from operations of $15.3 million in the first six months of 2008, a decline of $35.5 million. This decrease was primarily due to lower sales prices for most of our major products and reduced margins in our vinyls downstream businesses due to the continued weakness in the construction market. In addition, an ice storm at our Calvert City facility caused an extended outage at that facility during the first quarter of 2009, adversely impacting production rates for all major products produced at Calvert City and resulted in lost sales and margins due to the reduced production. These decreases were partially offset by higher sales volumes and selling prices for caustic compared to the same period in 2008.

CASH FLOW DISCUSSION FOR SIX MONTHS ENDED JUNE 30, 2009 AND 2008

Cash Flows

Operating Activities

Operating activities provided cash of $153.4 million in the first six months of 2009 compared to cash used by operating activities of $8.0 million in the first six months of 2008. The $161.4 million increase in cash flows from operating activities was primarily due to favorable changes in working capital, partially offset by a reduction in income from operations and capitalized

turnaround costs of $23.6 million resulting from the turnaround of our ethylene unit in Lake Charles. Income from operations decreased by $52.2 million in the first six months of 2009 as compared to the first six months of 2008 primarily as a result of the decline in volume and margins for most of our major products due to lower demand and pricing pressures. Changes in components of working capital, which we define for purposes of this cash flow discussion as accounts receivable, inventories, prepaid expense and other current assets less accounts payable and accrued liabilities, provided cash of $113.1 million in the first six months of 2009 (including a federal tax refund of $30.0 million, resulting from over payment of 2008 federal income taxes), compared to $105.7 million of cash used in the first six months of 2008, a favorable change of $218.8 million. This change was largely due to reduced working capital requirements as a result of a reduction in inventory levels, a decrease in energy and feedstock costs, a decrease in average sales prices, and an increase in accrued taxes, as compared to the prior year period.

Investing Activities

Net cash used for investing activities during the first six months of 2009 was $53.3 million as compared to net cash used for investing activities of $80.9 million in the first six months of 2008. Capital expenditures were $50.4 million in the first six months of 2009 compared to $81.8 million in the first six months of 2008. The decrease in capital expenditures in the 2009 period was partially attributable to a reduction in our discretionary capital spending in 2009 due to the current economic environment as well as expenditures related to the expansions at Calvert City and the opening of the new plant in Yucca, Arizona during 2008. The remaining capital expenditures in the first six months of 2009 and 2008 primarily related to maintenance, safety and environmental projects. In addition, we purchased a PVC pipe plant in Janesville, Wisconsin for $6.3 million during the first quarter of 2009.

Financing Activities

Net cash provided by financing activities during the first six months of 2009 was $13.7 million as compared to net cash provided of $86.5 million in the first six months of 2008. The 2009 activity was primarily related to a $22.0 million draw-down of our restricted cash for use for eligible capital expenditures, partially offset by the payment of cash dividends. The 2008 activity was primarily related to borrowing a net $38.0 million under our revolving credit facility and a $55.0 million draw-down of our restricted cash, partially offset by the payment of cash dividends.

Liquidity and Capital Resources

Liquidity and Financing Arrangements

Our principal sources of liquidity are from cash and cash equivalents, restricted cash, cash from operations, short-term borrowings under our revolving credit facility and our long-term financing. As a result of the economic downturn, cash flows from operations have been negatively impacted. However, cash flows remained positive for the first six months of 2009 primarily due to the reduced working capital requirements resulting from the reductions in energy and feedstock costs compared to the first six months of 2008. In addition, we have increased our focus on cost cutting and implemented various cost reduction initiatives designed to preserve cash and improve our liquidity.

In August 2008, we announced plans for the construction of a new chlor-alkali plant at our Geismar, Louisiana facility. The project is currently estimated to cost between $250 million and $300 million and would be partially funded with funds drawn from the proceeds of the issuance of the 6 3/4% revenue bonds of the Louisiana Local Government Environmental Facility and Development Authority (the . . .