Q1 2020 Earnings Call
Of caustic soda price indices increased sequentially by 6% during the first quarter and an additional $85 per metric ton in April of 2020.
Domestic caustic soda pricing in that indices increased by $20 per ton in April.
Olin has announced additional caustic soda price increases totaling $140 per ton for May and June we expect lower North American Chlor alkali industry operating rates during the second quarter to reduce the caustic soda supply, which is expected to support improved caustic soda pricing.
Now, let's move to the performance of our proxy segment, which is on slide seven.
During the first quarter of 2020 owns a proxy business generated adjusted EBITDA of $33.2 million, our European Apociii business experienced a force majeure declaration by phenol supplier during the first quarter rich reduced a proxy resin and apociii resin precursor production at our started Germany facility.
The epoxy business also faced the manufacturing plant closures and operating reductions in Asia due to the cobot 19 buyers.
These issues reduced.
2020, a policy segment, our earnings by approximately $10 million.
The epoxy business was able to partially offset these first quarter challenges through sequentially higher approximating volumes higher product pricing and lower raw material and operating costs.
In the second quarter. The Apociii business is expected to experience weakening demand from its automotive industrial coatings and oil and gas related customers in both Europe and North America.
Lower raw material costs, primarily benzene and propylene are expected to provide an offset to these anticipated lower resin volumes.
Finally, the second quarter 2020, a proxy adjusted EBITDA will include approximately $15 million of costs associated with the planned maintenance turnaround at our Freeport, Texas Epichlorohydrin plant.
We will now look at liquid apociii resin prices, which are shown on slide eight.
During the first quarter European and North American liquid of Hoxsey resin pricing improved sequentially from fourth quarter 2019 levels due to tight supply conditions, the lower raw material costs, primarily benzene and propylene together with the expected weaker resin demand environment in Europe.
In North America are expected to pressure a proxy resin pricing during the second quarter.
Moving onto our Winchester business, which is summarized on slide nine.
For the third consecutive quarter, the Winchester beer business experienced year over year improvement in segment earnings in the first quarter of 2020 Winchester experienced at 20% increase in sales compared to the same quarter last year, resulting in a 31% year over year increase in first quarter adjusted EBITDA.
Winchester experienced a $20 million increase in sales to commercial ammunition customers and a $10 million increase in sales to law enforcement and military customers to first quarter of 2020 represents the strongest first quarter in commercial demand since 2016.
At this level of improved commercial demand has continued into the second quarter.
Electing this improved level of demand winchesters commercial ammunition backlog has more than doubled since this time last year. Our ammunition plants are currently increased operating rates to meet the stronger demand.
Finally, Winchester announced price increases ranging from 4% to 6% across its product line.
Moving to.
Slide 10, I'll provide an update on Winchesters Lake City project.
Winchester is now five months away from assuming operational control as the US Army Lake City Army ammunition manufacturing facility. This multi year contract is expected to increase winchesters annual revenue by $450 million to $550 million and contribute adjusted EBITDA of $40 million to $50 million.
During 2020 on expects to incur approximately $20 million to $25 million that transition costs and invest approximately $80 million in working capital of as part of this contract acquisition.
This worldscale facility will benefit from more than a century of Winchester operational knowledge and experience Likewise Winchester will benefit from the scale and the incremental ammunition production capacity offered by this facility and its dedicated workforce.
And with that I'd like to turn the call over Slater owns Chief Financial Officer Todd.
Thanks, John.
We have placed a premium on preserving and enhancing our liquidity given that the near term demand outlook for our chemicals business is unclear.
We've initiated several ongoing actions that we believe will mitigate partially mitigate the impact of the economic decline on our financial performance and also enhance our financial position. Several of these actions and on liquidity resources are included on slide 11.
Our cash and cash a club CLO equivalents at March 30, Onest were $195 million.
Olin has senior unsecured revolving credit facility with commitments of $800 million, which is undrawn.
During the first quarter of 2020, we expanded and borrowed $150 million under our receivables financing agreement and during April we expanded our receivables financing agreement by an additional $100 million.
We also have the ability to increase our accounts receivable factoring arrangements, which ultimately can accelerate the timing of cash receipts and enhance our cash position.
Neither of these receivable programs impact our senior credit facility debt ratio covenants.
We are continuing to evaluate all sources and uses of cash, including expanding our leasing portfolio alternatives available to us under our senior credit facility early retirement of outstanding debt and the ability to access the high yield debt markets.
We have no required debt repayments until August of 2022.
Our debt profile is comprised of manageable towers of debt with staggered maturities in future years.
We are executing a strategy to improve our working capital and manage our balance sheet to maximize our financial flexibility during 2020, only expects to reduce working capital by approximately $150 million, which would result in approximately $250 million.
Of incremental cash flow from March 2020 levels.
We are forecasting capital spending to be in the $250 million to $275 million range in 2020, which is approximately $125 million lower than prior year levels.
Based on our current outlook and lead time to implement we expect an additional reduction in capital spending and 2021.
In late 2020, and beginning in 2021, we expect incremental annual cash generation approximately $120 million 100, Im sorry, $200 million from the initiatives on slide 12.
The vital chloride monomer contractors transitioning from a toll manufacturing arrangement that hit that has been in place since the acquisition to a direct customer sale agreement beginning on January Onest 2021, the VCM facility as one of two operations that has had the most significant and.
Packed on our call our cropland products and vinyls results.
The full year effect of the New Lake City Us Army ammunition contract and the expected.
35 million dollar reduction in operating costs from the previously announced permanent shutdown of Chlor alkali plant, where the capacity of 230000 tons and olin's modality and chloride production facility. Both in Freeport, Texas. These closures are expected to be completed before the end of 2020.
And these closures will allow alone to optimize its chlor alkali operations and cost structure and Freeport, Texas.
And the winding down of the multiyear information technology project to integrate the acquired Dow chlorine products businesses will reduce spending by approximately a $110 million between capital expense. These cash flow enhancements of approximately $200 million provides signal.
Perfect and incremental cash flows to Olin independent of industry conditions.
Finally on Thursday April 20 Threerd.
Olin's Board of directors declared a dividend of 20 cents on each share bowling common stock. The dividend is payable on June 10th 2022 shareholders of record at the close of business on May 11, 2020. This is the 306, the 374th consecutive quarterly dividend paid.
By the company.
Operator, we're now ready to take questions.
We will now begin the question and answer session.
You may want to ask a question. The press Star then one on your Touchtone phone.
If you are using a speakerphone please pick up your handset before pressing the key.
Two with regarding your question. Please press Star then too.
At this time, we will pause momentarily to assemble our roster.
First question comes from Don Carson with Susquehanna Financial Please go ahead.
Thank you couple of questions.
Todd on the financing of the 493 million payment to to Dow for the final ethylene tranche, how do you anticipate funding that.
And at current rates and access to markets are you still anticipating calling youre up.
Well bonds and refinancing those.
Don.
The as far as the Dow bonds.
I do as you know become callable in October but.
But they are not due until 2023 year 2020 fives.
Given the lack of visibility in our outlook for our chemical businesses, we will continue to evaluate all.
Optional uses of cash in this environment.
And as far as the Dow ethylene payment, we would fully expect.
Based on our liquidity and availability under the revolver and.
The expansion of our a our securitization a are factoring in the various other items that I had just went through in our prepared remarks.
To be able to fund the Dow payment at the end of year.
And Joe will follow up on caustic outlook. So that the index went up $20 for April what's your expectation for.
May and June and.
Out of expand on what kind of price strength, you see in caustic as we swing back to from.
Chlorine over waiting to caustic overweight.
Well I think our view of it is reflected by the price increases we announced we havent $60 price increase out there for May one and an $80 price increase out there for June one.
And when we as I said in the remarks, we're looking at 70% to 80% allocation on caustic soda as we speak so I think we at least in the short run are bullish on caustic pricing.
Thank you.
Your next question comes from Hassan Ahmed from.
Element Global please go ahead.
Morning, guys.
Just.
Question around what you guys are seeing in terms on chloride CNI ocular vinyls.
Sort of capacity Restocks, particularly in China.
And obviously all of this chatter out there about China is sort of beginning to open up again and alike, but.
Obviously, the cost curve today is quite different and all oil thats coming down coming down high, but clearly that doesn't impact the chlor alkali market that March, particularly keeping in mind, how coal exports chlorovinyl production is in China. So just would love to hear your talks about our their facilities that you are hearing about.
In China, which are delaying their restart curtailing their restock, maybe even considering sort of shuttering some facilities and the like just.
Go towards China specific about the supply situation and maybe a little more on the golden side of things as well.
Hi, Tom This is Jim.
It's a bit on a choppy picture as you might imagine in China, I think that there were some initial restarts with some of the chlorine in chlorine derivatives being.
Little bit stronger. So there were some there was restarts and so forth. But then you also hear about restarts and shutdowns.
That that have taken place. So I think China is exactly where you would expect them to be which is trying to restart and gradually.
Refilling supply lines, and so forth and Thats.
Thats up and down as you might expect in some of the that for alkali side of things.
I don't know I think that around the world.
Right now in terms of operating rates.
Here operating rates that are in the 75% range or so.
And it's interesting that that seems to be something that you here in a lot of different regions. So I don't have a lot of specific insights inside of China, very choppy, which is exactly what you would expect.
Understood understood and as a follow up on the raw material side of things again coming back to the oil seeing in oil is coming down.
A lot of people, fearing that there would be fairly deep sort of production cuts on the shale side of things and associated with these oil production costs, maybe the natural gas market tightens and Nat gas prices go up a fair bit.
How are you guys thinking about your Nat gas as it pertains to you guys as it will all material.
Yeah.
Are you into account that you think that may be.
In the near to medium term natural gas prices do go up and.
What are your thought processes about maybe even knocking hedging well are looking into sort of prices as we see them where they are today.
Hassan This is Todd as you as you May know, we do hedge.
Natural gas as a proxy for our energy as you know 70% of our energy cost comes from natural gas.
Generally how we are hedged is about a quarter out we are very heavily hedged and that we have a rolling hedge program.
Insulate us from.
Price spikes.
We we would think we've taken advantage of some of the low prices in the low futures that you saw.
Late in the first quarter and so we are hedger and Thats MF processes renewed.
Very helpful. Thanks, so much guys.
The next question comes from Kevin Mccarthy with vertical research partners.
Please go ahead.
Percent.
You know to extent that you have glean some market intelligence or your competitors on similar levels of order control at this point for caustic.
Kevin would you repeat the question, we Didnt hear the first part of it.
Yes apologies the question related to your order control level for caustic soda in the range of 70% to 80% wondering if your competitors are similarly in a position where they have to.
Adopt similar programs and restrict.
Supply of caustic at this point on similar levels.
Kevin This is Jim.
Yes, I think that everybody's in some restrictive some level of restriction that switch RCC the pullback on on the chlorine side of things obviously on PVC.
Extreme pullbacks, there and that that imbalance that was.
You know favorable to the chlorine side of things some months ago is now shifting to the other side of that so very low chlorine demand vials demand and so forth is pulling everything back so everybody's on some degree of limitation.
On a going forward basis.
Okay. That's helpful. And then I had a second question for Todd on the liquidity side.
On slide 11, I didn't see any mention of a $1.2 billion delayed draw term loan facility is that facility still available to all and then in this so perhaps you could address what it degrees of freedom you might have.
Eligible to you in terms of how to tell to deploy in the proceeds from that.
Kevin the delayed draw term loan is available to Olin.
The as the current agreement stands is available only to call the Dow bonds.
But as you made the as you heard us comment.
And our we're evaluating everything including alternate alternatives available under our senior credit facility.
Okay. Thank you for that clarification.
The next question comes from Mike Sison with Wells Fargo. Please go ahead.
Yes. Good question on the on slide five in terms of that you are caustic demand by any of the.
Yeah. The areas that you have flat urethanes Otto alumina inorganic.
Seems to me that a lot of other coming to thank those are those are down to make can you get a little color why.
That that could be flattish into Q.
Sure.
Mike This is Jim.
I think what worked what we're trying to do here you get the that momentum or the change that's taking place and so you might talk about alumina or so forth. It's been pinned down thats why we havent yellow here its its remaining relatively steady from where it has been.
So what you should take away from this really I mean, the whole takeaway from this slide is simply that on the left hand side.
All of that the chlorine demand theres theres, a lot of rather significant pullback and so forth, whereas on the caustic side of things.
There is if theres a lot less concern it doesn't mean that demand hasn't dropped but on a relative basis.
The caustic side of the equation is increasing so it's more of a momentum chart than anything.
And again.
The Mac the Max taken away is.
Or read more yellow on the left hand side, which says.
Having pullback as opposed to the caustic side, where you've got some resiliency.
Understood and then.
It's it's probably difficult to answer on that at this time, but when you think about the longer term view for caustic in Chlor alkali and.
Hopefully we get out of this.
These belgium's pretty quickly.
How do you how do you sort of rebuild some the chlor alkali EBITDA tower and I don't know if theres sort of a normalized.
Level, you think you should be at at some point in time and.
Obviously, I'm not asking for exactly when but.
How do you see.
Thats segment sort of rebuilding the EBITDA over overtime.
I would go back to what we presented in February of 2019 in our investors day, where we talked about the long term structural situation within the industry, where when you get into whatever normal environment whenever that might be youre going to get demand growth on both sides of the molecule.
Will that are not going to be supported by supply I actually think and event like we're undergoing right now where you've got a significant pullback in.
Demand is going to lower the probability of additional core alkali capacity getting built in the near term.
Thank you.
The next question it's from.
Neel Kumar with Morgan Stanley. Please go ahead.
Okay.
Hi, good morning, Thanks for taking my question.
I was wondering if you can just help frame for us significant moving pieces for the second quarter.
What's head to head when you expect them any see with patients point off quite a bit over the last month or so and you said that as well as lower chlor alkali app in weight largely offset the benefit from the 20 dollar classic case continue in April I guess important sintering any potential may or June increased.
What I would say about AIDC Neal is that the majority of the AIDC that Olin cells is sold under contract.
So the prices that you've seen published.
We're going to experience on a lag basis.
We really only sell in the spot market Opportunistically and obviously at the prices we've seen recently that wouldn't qualify as an opportunity.
So I think the the negative from EGPC for Us in Q2 is not going to be quite as dramatic as it might look like.
There is obviously a demand question and we talked about lower demand pretty much across the portfolio I would say at the end of the day I think worst case PTC and the other negatives on on chlorine side will be offs will offset the better caustic and.
The first tranche of caustic.
Okay. Thanks, that's helpful and then basin the previous downturns, how long you expected demand imbalance between chlorine and caustic. The last I mean is there anything different with this downturn respect how in market demand is evolving and may allow can persist beyond that typical duration.
What I would say about this downturn past compared to the prior ones is this was very abrupt.
And I I don't think anybody has ever experienced and a quote global stop on a on the economy.
Im usually there was we experience cyclical wind down of chlorine demand where housing starts to weaken before the broader economy that takes place over 12 to 18 months and we ended up in a 12 to 18 month period were caustic was tight and then the broader economy rolled over and then typically.
This didn't happen in 2000, the post 2008 chlorine recovers first.
Im not sure what how any of this.
Necessarily comes back.
And then what sequence.
I would just say caustic demand at its core is more resilient thing chlorine demand at its core.
Okay. Thank you.
The next question comes from Frank Mitsch Smith Fermium Research. Please go ahead.
Yes, good morning and a.
I really appreciated the heat map on slide five.
John I want to come back to the comment about 70% to 80% order control on caustic is that was that just an april comment or was that for the entirety of to Q.
And when can we assume that.
That you don't have any spot availability on caustic right now.
I think based on the outlook that we have for Q2.
We will we remain on orders control for the entire period and your comment on spot is absolutely accurate, we have no spot to sell.
Alright. Thank you thank you and Todd.
I wanted to come back to the to the to the comment about perhaps not.
Prepaying the the the notes that are due or that are callable.
Total I understand that everybody is visibility is is very poor right now.
But given the fact that there is some financing in place.
To take those al I mean more is it more likely.
That come year end, those will be retired or or how do we think about the probabilities and I understand it's kind of difficult given the visibility, but I just I just wanted to if you could offer a little more color that'd be great.
Frank This is John I think the other thing we need to keep in mind here as we look forward is theres, a pretty significant bond call premium that goes with that which is an immediate use of cash versus long term.
You know it takes us over year to get the benefit of the bonds on it on a net cash basis. So thats. The other element that we have to look at is where are we from a cash perspective.
And.
Previous questioner asked about the Dow payment, which is obviously due at the end of the year, which is a big number.
Thank you.
The Dow bonds or not at all or nothing call you can call any portion of that 1.2 foot.
And you can call it at any time right after October 15th.
Got you very helpful. Thank you.
The next question comes from Eric Petrie with Citi.
Please go ahead.
The interesting that in the U.S. in Europe caustic prices are going up but I was taking a look at China caustic soda export prices and they've actually trended lower to below 200 dollar per ton range.
So do you see any export arbitrage from China, and the rest of world and taking share and potentially putting a cap on.
Potential price realizations.
Eric This is Jim.
I spoke earlier about the dynamics that are taking place in China, and China did start up and they had some they ran some of the chlorine coring derivatives and the caustic market.
It's not there initially so they did do some some exports.
Now what you've seen over the last month is that the export market in Asia in general started off low and it moved up about $70 over the course of the month of April. So I think what you're seeing is that little bit of excess caustic that there wasn't trying to work itself off.
China is a relatively small exporter in the whole scheme of things relative to what they used to be they reduced their exports by about 60% over the last three to four years. So.
Normally the only the the plants on the coast can actually export so.
You may see something a parcel here or there show up but I don't think it's going to impact the shortness and the dramatic pullback that we've seen on operating rate rates over the next few months. So that's that's the view, it's a bit a bit mix, but it's important that you look at the trend over the course of the month of April.
Okay helpful. Secondly, a competitor announced the plant shutdowns for three weeks due to weak core alkaline market conditions.
Good only consider doing the same or fast track and your closures at Freeport, Texas.
I think that.
What we're going to do is basically take a look at the demand I mean, we're already I mean, we're already we already said that we're on order control and so forth.
Where we look at their assets all the timing.
What we're going to do is that take a look to see how demand materializes were really only.
A month or so into this severe downturn and so we'll assess.
Assess what we need to do over the next several months.
Thank you.
The next question comes from Mike Lighten with Barclays.
Please go ahead.
Thanks, guys and good morning.
All right I just wanted to Richard just wanted to return to slide five maybe ask Mike Sison question in another way on the caustic soda side, I guess I understand the resilience for packaging or detergent applications, but I'm struggling to see how that bottoms, 40% in the chart, that's going into autos aircrafts or construction is not meaning.
Equally falling off in Twoq you when us GDP is minus 30. So can you just give us more color on what you're seeing.
In your order book for caustic and some of those more cyclical end markets.
Well I'll, specifically address the alumina and aluminum markets and quite quite honestly those markets have been relatively soft for the last year to year and a half and so we're not seeing any trend change from where they have been in fact, they've been relatively consistent.
And I think I think you'll hear that is that that and whether it's in Latin America, whether it's in China.
Wherever the the alumina plants are there actually running consistently so that's what we're that's what we're saying if theres not a change relative to where they have been over the last few quarters.
Clearly automotive has been down for some period of time as well so although it certainly it's certainly yellow.
It's not a major change from where they have been operating so that's the way to read the chart.
Got it Okay. That's helpful. And then question for Todd you, obviously highlighted a number of different levers you're pulling to free up liquidity, but you haven't talked about the dividends at all so I guess, how sacrosanct do you consider paying the quarterly dividends.
This is John and I'll answer that question I'd start by saying that dividend decision is a board decision, it's not a management decision.
I would.
Say also that if you look at Olin over a long span of time the dividend has been a key component of our shareholder value proposition and obviously, we pay we paid a quarterly dividend for something in excess of 90 consecutive years.
So I would never say never but I would say it is a key component of our shareholder value proposition management and the board are aligned on that and we obviously just declared.
Then the normal course dividend that will be payable in June.
Thank you.
The next question comes from John Roberts with you'd be at please go ahead.
Great. Thank you and I'm glad you're all though.
It's been a wild since Winchester was the largest operating earnings.
Item in our model.
The social distancing impede your ability to interact with the current Lake City people.
And our you reimburse for any additional costs there.
If it slows you down and I couldn't couldn't remember is lake city highly automated like your new plant or as you very people intensive like your old plan.
The Lake City plant was built by the Army a 1945 it looks much more like the old plant and the new plant.
The.
Social distancing within the plant is not as big an issue as you might think because it's it's the pieces of equipment, a relatively well space to start with and that plant plus all of our plants yet are undergoing temperature monitoring on the way in.
So.
There has not being a big issue there and we have not been.
Constrained in terms our ability in Iraq, we had most of that people signed up that we need to go forward on October Onest, well before we actually entered into the restrictions were living under today.
Okay, and then the $75 million for the VCM can track how has that impacted by lower oil. So ethane is obviously much less advantage it might be disadvantage temporarily here.
But.
That is shintech degradation to earnings or an all in degradation to earnings if ethane is less advantaged.
Im not going to discuss the details of the contract other than to say.
The biggest piece of the contract is that Theres, a pretty significant contract minimum for Olin and as we look at the contract over the span of time.
10 years, which is what the contract is four we think at an average return on that contract is $75 million.
Thank you.
The next question comes from Travis and work with Goldman Sachs. Please go ahead.
Yes.
Hi, good morning, and thanks for the time.
Quickly we can appreciate the benefits of ticking over that WGN contract and it's just as we're looking at EBITDA sensitivity and liquidity for our estimates for 2020. Just wondering is there any scenario in which you would or could delay that payment maybe pushing out further and just ticket over later or.
Is that for sure happening and 2020.
I would say I think.
For any number of reasons, we would prefer that that payment happen.
Got it Okay. That's helpful and then.
And also can appreciate that theres a lot of uncertainty around market conditions over the next couple of months.
You mentioned, a few factors that you're considering to improve liquidity, but maybe just hoping to get a bit more color on how you're thinking about nail those various levers in the context of.
The financial Covenant that you have the main it's going to do you have.
Just as you're thinking about upcoming cash outflows I guess, maybe word it another way what gives you confidence in your ability to fund some of these larger outflows just.
While remaining compliance.
Any color there would be it really appreciate it thank you.
I guess I would say very broadly that the financial or the agreements that are in place with our bank group. We are we have.
Work with our bank group on a regular basis and they are aware of the situation, where and were aware of the situation. We're in and Theres a great deal of cooperation to ensure that the payments that need to get made you have made.
Awesome got it thanks for the color appreciate the time.
The next question is from Patrick fits with Bank of America. Please go ahead.
Thank you on just the 2020 working capital reduction of high and 50 million include the one time Lake City working capital build of 80 million I.E. and other words I would've been.
Negative to 13 reduction without the Lake city filled.
No. It does not include that.
Okay.
And.
Secondly, can you comment on that drive up the significant increase in.
Other current liabilities in March versus December please.
Yes.
Roger Roger This is Todd.
That is.
That is the.
The current portion of the from moving up from long term to current.
The Dow ethylene payment.
Understood. Thank you very much.
Your next question comes from Brian loudly with Barclays. Please go ahead.
Hey, good morning, guys how are you.
Maybe just a a quick follow up I know, it's been asked a couple of times, but on the existing 2 billion facility with the 1.2 billion delayed draw even if I could just taking a little bit he is it fair to say that.
The maintenance covenant at this point might be an issue in that you did guess October do you do you expect you'd be able to draw down another or maybe or would you assume that there might be.
Some tightness in that we would need to essentially seen amendment cleaner banking groups, maybe allows for some ratio headwind versus smaller facility size with with no direct plans on that refine no. It's been asked a few different ways, but I just want to halt.
The way the facility is structured today it would not have an effect on the covenant because we would draw that down in its specifically designed to be used to call. The Dow Bob the bonds that were issued with the Dow transaction. So you it'd be neutral on that.
I think the question, but I guess.
A follow up on that I mean, if you were to use those proceeds would be you're saying it wouldn't impact the ratio and I guess, if that's the case is there. Some reason why you wouldn't do it I do appreciate the cash outlay for redemptions, but obviously those are expensive and the name is much cheaper from an interest expense standpoint, I just want to kind of get your.
I thought process around potentially delaying.
Some of that again appreciating the conservative messaging around you know uses of cash.
I guess I'd come back to what we've said several times and we said it in the remarks the outlook that we have today is very unclear and we don't know what things are going to look like in October.
Okay.
Got it and then maybe just one quick follow up you mentioned that the high yield bond market data accessible gamma generally agree with that I guess, how might we think about your interest level in coming to the high yield market and to that end is would you maybe be open to talking about how much secured capacity you might have if you chose to.
Is that as an avenue, obviously, but those deals that have been fairly topic over the last night as you'd imagine come with lower interest expense is that something you're thinking about and how much would you have in terms of William onto your various agreements.
You think about liability management moving forward. Thanks, so much.
I would say we listed all of the things were looking at as options to enhance.
And ensure liquidity over both the near term and the longer term.
Okay understood. Thanks much.
The next question comes from Alex Yefremov with Keybanc. Please go ahead.
Thank you good good morning, everyone.
Thank you for providing the 70% to 80% caustic soda allocation number.
If we assume that you know the typical allocation would be 100% or a little higher is can we then assume that your volumes in the second quarter could be down roughly 25% or or if not how should we think about a sequential volumes chlor alkali segment.
Well, we said that.
Volumes were going to be down, but we also talked about the fact that we've had we have more turnarounds in Q2 that anything else. So volumes were going to be down anyway.
But just is there anyway to quantify that maybe including or excluding the effect of the turnarounds is that 25% math that I just went through.
You know, you're 70% to 80% allocation compared to a typical one congrats theres that is that reasonable logic to apply here or are not for some reason.
I don't think as it relates to Q2, it's reasonable because of the magnitude of the turnarounds that we have.
Okay understood and then is there any way you could quantify your policy volumes in the second quarter, maybe if you look at your April order book compare to Q on or right.
From in any other way.
What we said was and that's the best quantification. We can give is we expect we started to see volumes for May and June decline.
And I would say prior to that the volumes were relatively similar across January through April.
Understood. Thanks, a lot.
The next question is from Matthew deal with Bank of America. Please go ahead.
Good morning, or in the spirit of assessing avenues to boost liquidity I wanted to asking about Winchester.
And that business recovers and you start booking profits again Lake City would you look at monetizing that maybe later this year or next year as a way to generate cash I know in the past you considered not core.
What I would say is everybody in Olin would admit that there is no synergy between a commodity chemical company and the Winchester business as its configure today I would tell you that it is vitally important to the long term success of Winchester to effect.
Orderly transition and startup of the Lake City contract and that is what we're focused on right now.
Okay fair enough and if I look at slide 12.
You asked a number of Ah.
Kind of discrete Tailwinds for next year's cash flow and 200 million, but those numbers add up to a number much higher than 200 million. So I'm. Just wondering if there's some kind of offsetting headwind to cash flow that were not not lifted or.
Understanding that there maybe on.
As mentioned something.
This is Todd.
The numbers listed there include pre tax items as well as capital. So you just have the incremental cash flow generation of $200 million is an after tax number of real cash in our pocket to be able to utilize.
Thanks, Yeah. Thank you Nicholas.
The next question comes from Arren does want to time with RBC capital markets. Please go ahead.
Great. Thanks, Good morning parallel I guess I just wanted to ask about caustic soda pricing you know you noted some recent momentum.
Due to lower operating rates, which could continue in the near term I guess I just wanted to understand the that dynamic between domestic contract pricing and export pricing. So.
You know in response in earlier question, we noted that Asian prices were in the.
Two to 300 dollar level and we can we know that contract prices here are.
Yeah considerably above that in the five to 600 dollar per ton level.
Could you just remind us why that is and what supports the the domestic contract price. So high I guess included in that maybe if you could just we then your thoughts on why that would continue to be the case and potentially a new lower cost environment.
With the reduction in oil and potentially reduction in coal that's coming.
The export price in Asia is not a delivered price to the United States or delivered cost to the United States.
You are probably looking at depending on where you're shipping from.
$150 of Ocean freight you that would deliver it to you as poured. The then you'd have to put it into a terminal you'd have to get it added the terminal in that and incur another shipment to get it too that the majority of the customers who are you know when the Mississippi River Valley et cetera.
So that is why.
You know the arbitrage from China is not is evident.
As you might think and that is very similar to the reason we always believed that the export price in general from the U.S. Gulf Coast is can be lower and not tear down the U.S. domestic price because the export prices put it on a boat incented someplace, where it gets on loaded versus delivering to a customer.
Who takes 10 railcars of caustic.
Somewhere in land in the United States every day.
And that's a different logistics trail with a different cost structure.
Okay. That's helpful and hang on just the just to understand this have you seen any change in the cost curve you know with the reduction in oil prices that we've observed over the last month or two [noise].
No I think your last comment was last month or two so I don't think that theres, a dramatic change and cost curves or anything that take place in very short period of time so.
We have to see whether anything has sustained or not but.
Not in a short term.
Okay. Thanks.
This concludes the question and answer session.
I'd like to now turn the conference over to John Fischer for closing remarks.
Yes, I'd like thank everybody for joining us today, and we look forward to talking to you in about three months about our second quarter. Thank you.
The conference has now concluded thank you for it to Dan attending today's presentation you may now disconnect.