Q3 2023 Olin Corp Earnings Call
Good morning, and welcome to Olin Corporation's third quarter 2023 earnings conference call.
All participants will be in listen only mode should you need assistance. Please signal conference specialist by pressing the star key followed by zero.
After following today's brief opening comments, there will be an opportunity to ask questions to ask a question. You May Press Star then one on your Touchtone phone to withdraw your question. Please press Star then two please note. This event is being recorded I would now like to turn the conference over to Steve Keenan Olin's Director of Investor Relations. Please go ahead Steve.
Thank you Jason Good morning, everyone and thank you for joining us today.
Before we begin let me remind you this discussion along with the associated slides and the question and answer session that follows.
Well include statements regarding estimates or expectations of future performance.
Please note that these are forward looking statements and that actual results could differ materially from those projected.
Some of the factors that could cause actual results differ from our projections are described without limitations in the risk factors section of our most recent Form 10-K and in yesterday's third quarter earnings press release.
A copy of today's transcript and slides will be available on our website in the investors section under past events.
Our earnings press release, and other financial data and information are available under press releases.
With me. This morning are Scott Sutton, CEO, and Todd Slater Olin's CFO I'll now turn the call over to Scott Sutton to make some brief remarks, after which we will be happy to take your questions.
Thanks, Steve and good morning to all in the third quarter. The one team delivered what we promised which was $315 million of adjusted EBITDA No sequential reduction in chlorine pricing.
<unk> on the share repurchases.
Additionally, we complement it does confirm deliveries with the acquisition of the White Flyer clay targets business.
Forecasted return substantially better than share repurchase returns.
Looking forward Olin strategy continues to be champion by our teammates and our board of directors.
As such in the fourth quarter and potentially beyond the fourth quarter, we are taking a dramatic but necessary step to change the direction of declining <unk> values.
It is a challenging market and we've already action. This initiative to force a rebound of our <unk> values, which involves idling significant chunks of our assets and slashing our participation in weak markets.
<unk> value accelerator initiative results in $100 million incremental penalty to adjusted EBITDA in the fourth quarter relative to our previous expectation, but delivers an anticipated improvement in 2024, adjusted EBITDA relative to 2023.
We are confident of that improvement.
Even though we operate in an environment, where bad news creates a negative recency bias. Please never forget that in Chlor alkali we be.
Please future demand growth exceeds future supply growth and that growth may also be unbalanced across B C. You all favorable for all what we are.
We're confident in that favorable outlook.
So Jason that concludes my opening remarks, and we can now proceed to questions.
Thank you.
We will now begin the question and answer session to ask a question you May Press Star then one on your Touchstone film if youre using a speakerphone. Please pick up your handset before pressing the keys.
Withdraw your question. Please press Star then two.
At this time, we'll pause momentarily to assemble our roster.
Our first question comes from Olesky, you from off from Keybanc capital markets. Please go ahead.
Thank you Scott.
This is the first earnings call since the news came out.
You address.
Some of the concerns that are out there about all in strategy, whether or what the board and decided.
Well reflects how successful or not the strategy is and any other parcels over here into it.
Yeah, Okay, Yeah, Hi, Alexia I think I I think I understood.
The question, but look I mean, there there's absolutely no change in the momentum that you know Olin has going forward. We absolutely all are pulling the same way in terms of our model. Our strategy you know how we live how we.
Lift people and our shareholder value allocation scheme as well. So there's absolutely you know no dispute and any of that and we're running a process there.
Thanks, Scott and turning to your fourth quarter Chloro Vinyls segment earned about 280 million EBITDA.
Thank you and you were estimating about 100 million EBITDA impact from the idling actions in the fourth quarter. It seems like a very large number relative to what the segment earned in total so could you maybe talk about how you came up with a 100 million and whether you use that number is something with it simply.
Add back and assume that the real run rate is something like 300.
In Q1 of next year or two.
Well, what I would say is yes.
It's certainly a big number but you know this is a very big activation as well and you know we've said probably through the previous you know six quarterly earnings calls that there could very well be a quarter, where we have to take a significant action.
To make sure that you know our cash delivery over any longer period say four to six quarters is maximized and that's what this is intended to do right. It consist of significant actions we are idling major assets.
Not participating in a lot of weak markets and additionally, going out there and parlaying that bid and managing some of that liquidity to a more favorable place for Olin. So yeah, it's significant.
Thanks Scott.
Hi.
The next question comes from Kevin Mccarthy from vertical Research partners. Please go ahead.
Yes, good morning, Scott, having shut down St Gabriel and I think at least a large unit at Freeport.
What are you looking for or what should we look for as outsiders to gauge whether or not you.
They restart those assets and do you have a preliminary idea of how long the outage my take yeah, Yeah, I mean, hi, Hi, Kevin look I mean, this is our fourth quarter activation, but it doesn't mean that it absolutely finishes in the fourth quarter, if we need to.
10, you to get the desired result that we need to deliver the most shareholder value. Then we're gonna continuous right I think it's going to be challenging for the outside world to see when we we might you know change or reduce this you know value acceleration.
<unk> initiative, but we have many internal signs that you know we can see and we know when it's effective because we we watch excess liquidity out there in the world We watch.
You know the strong side of it he see you as being chased by others at the detriment of both sides of the E C U.
We watch very carefully how much material is entering trade flows out of China, and there's already less material entering trade flows we watch that increasing price that you see in caustic any attempts to increase price in Europe, and China and.
Those things are happening, but maybe fluttery already there are some request for a merchant chlorine volumes that we can't supply already there are some request for EDC volumes that we can't supply already H C. L price is increasing in there.
Request for volumes that we can't supply. So those are the kind of things that we'll watch harder for the outside world to see that.
Those indications will be more apparent in the first quarter and they will appear in our results more than likely in the second quarter.
That's very helpful and then secondly I'm.
Scott I'd welcome your.
Your view on the Epocrates market heading into the fourth quarter part of the reason I ask is one of your competitors is reportedly.
Implemented some sales control related to a shell force majeure declaration on snow fall in acetone as I understand it.
Or are you seeing any encouraging signs that our E. Pox. He may begin to firm up at this juncture.
Well I'll, just say that we have already announced price increase in both North America, and Europe, and we did that over the last week or so additional easy other good sign that we see there is that you know the contribution from our system.
Business exceeds the contribution from our resins business and really that's the first time that has happened you know I'll just caution you a little bit it's still really sloppy and in those markets. No you know no doubt about it and we still have some inventory to clean up.
And those impacts are still going to order is a little bit in the fourth quarter and even into the first quarter as well.
Thanks, very much sure.
The next question comes from Jeff Zekauskas from J P. Morgan. Please go ahead.
Hi, Thanks very much.
Can you talk about the state of domestic chlorine demand.
And at what rate did it grow Sagan.
2022, what what rate is it growing today and why.
Yeah Yeah.
Hey, Jeff Yeah, I mean look it's not good I mean, it's this is why we're running this you know you know value acceleration initiative, because the chlorine side of the E. C. U has return to be on the weaker side you know those markets are very very.
A week and so we're not we're just not going to participate in those weak markets. Because you know, it's a chase down into the mud and that's not where we're going to play and you can see that in our results in the third quarter as our merchant chlorine price did not decline like you know may have been published in some of the trade you know trade.
Publications. So no. It's it's it's not good but it's not getting worse.
What I would say so you know we're timing this activation at a point, where we can see a future inflection point the inflection point that we saw was probably three quarters out at least and this whole activation is about Halloween that inflection point for.
Our word in terms of E C you values.
Okay.
The $100 million penalty in the fourth quarter.
Okay.
Is it best to understand that penalty is all volume.
Or is there a certain component of a certain amount of money, which has to do with the actual shutdown of the asset yeah. Yeah. No. It's not it's not associated with that that asset shut down I mean, it is 100% nearly just not participating.
And in poor markets. That's it so it's those volumes are out out of our system for that quarter.
Okay, great. Thank you.
The next question comes from Josh Spector from UBS. Please go ahead.
Yeah.
Yeah, Hi, Thanks, I'm just curious as you take down your volumes more have you guys been hedged on gas spots, where most of this year does it extend the roll through some of that higher cost I guess is that more of a volume related head your time related and just any early thoughts on how that impacts 24.
Yeah. Thanks for the question Josh This is Todd.
We are hedged.
For the fourth quarter, we do expect to see sequential improvement in our cost structure, just like we saw that in the third quarter sequentially from the second quarter because of our hedge positions.
Okay. Thanks, and just as your volumes have pulled back I mean, obviously you deselected from a lot of different market. How do you think about like you're selling into your a proxy.
Is this I guess, how you're taking volumes down there in tandem or are you parlaying that kind of purchase to other regions.
Well I would say our volumes in the epoxy business are already quite quite well I'll say the good again the good news there is that sequentially in third quarter relative to second quarter, our volumes actually increased in and that bad business, but look.
Unknown Executive: Good morning, and welcome to Olin Corporation's third quarter, 2023 earnings conference call. All participants will be in listen only mode. Should you need assistance? Please signal conference specials by pressing the star key followed by zero. After following today's brief opening comments, there will be an opportunity to ask questions to ask a question. You may press star than one on your touchstone phone to a draw your question. Please press star than two. Please note, this event is being recorded.
Our volumes are so low in a park fee, that's not where the major adjustment is a major adjustments are in merchant chlorine EDC and caustic.
Yes.
Got it thanks sure.
The next question comes from Hassan Ahmed from Olympic Global. Please go ahead.
One of them has gotten Tod Scott I wanted to dig a bit deeper into you know your comfort level around the implications of the value accelerating initiatives. I mean, you guys have been very specific in saying that you feel theres going to be a positive inflection.
Steve Keenan: I would now like to turn the conference over to Steve Keenan, Olin's Director of Investor Relations. Please go ahead, Steve. Thank you, Jason.
Steve Keenan: Good morning, everyone, and thank you for joining us today. Before we begin, let me remind you this discussion along with the associated slides and the question and answer session that follows will include statements regarding estimates or expectations of future performance. Please note that these are forward looking statements and that actual results could differ materially from those projected. Some of the facts are that factors that could cause actual results differ from our projections are described without limitations in the risk factors section of our most recent form 10k and in yesterday's third quarter earnings press release.
In the second quarter of 2024, I mean, you know I'm just trying to understand I mean, clearly, it's an uncertain world industrial production seems to be all over the place yeah. So obviously that has an impact on caustic demand.
You know and obviously you know there's there's you know housing weakness yeah out in China and the like I mean of course, you guys are controlling supply, but I'm just trying to understand what gives you that level of comfort.
Steve Keenan: A copy of today's transcript and slides will be available on our website in the investor section under past events. Our earnings press release and other financial data and information are available under press releases.
You know that that you will indeed with this uncertain macro environment see that Q2, a positive inflection.
Yeah, well you know.
His son.
Things arent necessarily getting worse right Asia has been slow for a while and it stayed there Europe's been slow for a while and has stayed there right I mean, new homes in the U S. Yeah, Theres some slowdown, but you know that still continues granted.
Unknown Executive: With me this morning, our Scott Sutton, Olin CEO and Todd Slater, Olin CFO.
Scott Sutton: I'll now turn the call over to Scott Sutton to make some brief remarks after which we will be happy to take your questions. Thanks, Steve, and good morning to all. In the third quarter, the Olin team delivered what we promised, which was $315 million of adjusted EBITDA. No sequential reduction in pouring pricing and a prioritization on share repurchases. Additionally, we complemented those confirmed deliveries with the acquisition of the white flyer clay targets business at forecasted returns substantially better than share repurchase returns. Looking forward, Olin strategy continues to be champion by our teammates and our board of directors.
We all know that you know new mortgage applications and sales of existing homes are really low maybe the lowest in many years, but the reason that we have a lot of confidence in this is number one you know we've been running this model for three.
The years and we've been through other mini cycles running that model over the course of those three years and we've always been able to be successful at turning the value equation around when we need to turn it around and number two we have a really.
Scott Sutton: As such, in the fourth quarter and potentially beyond the fourth quarter, we are taking a dramatic but necessary step to change the direction of declining ECU values. It is a challenging market and we've already action this initiative to force a rebound of our ECU values which involves idling significant chunks of our assets and slashing our participation in wheat markets. This value accelerator initiative results in a $100 million incremental penalty to adjusted EBITDA in the fourth quarter relative to our previous expectation but delivers an anticipated improvement in 2024 adjusted EBITDA relative to 2023.
Season, and broad Olin team who's completely United on this and you know I'd just ask you to remember that we're the absolute leader in these businesses right. So when you pair those two things together, there's a lot of momentum to get this done and then I'll refer back to maybe it was the first question.
As well there's already some signs that you know this has a good chance to succeed right when request for EDC and merchant chlorine come in that maybe can't be fulfilled via another path at least that's an indicator.
But look it's really early right. We just implemented this or started this at the very first of the fourth quarter right. So we still have a lot of the quarter to go clearly and if necessary.
Scott Sutton: We are confident of that improvement. Even though we operate in an environment where bad news creates a negative recency bias, please never forget that in core alkali. We believe future demand growth exceeds future supply growth, and that growth may also be unbalanced across the ECU. All favorable for Olin, we are confident in that favorable outlook.
We have time in the first quarter as well. So you know I don't want to mislead you. We got a long way to go but there's a lot of a lot of positive momentum to get this done.
Understood understood and as a follow up again, you know not to sort of keep harping on this but.
And in your prepared remarks, you guys talked about how 'twenty 'twenty four from an earnings perspective would be better than 2023 now are exit run rate you know coming out of Q4, you know based off of your guidance is 200 million in quarterly EBITDA you annualize that that's that's 800 million.
Unknown Executive: So Jason, that concludes my opening remarks, and we can now proceed to questions. Thank you.
Unknown Executive: We'll now begin the question and answer session, to ask a question. You may press star than one on your touchstone phone. If you're using a speaker phone, please pick up your handset before pressing the keys. And to withdraw your questions, please press star then two. At this time, we'll pause momentarily to assemble a roster.
And you know you will you obviously talked about how.
You know in terms of our you know the facilities that you guys are shutting down.
Aleksey Yefremov: Our first question comes from Aleksey Yefremov, from Keybank Capital Markets. Please go ahead. Thank you. Scott, I believe this is the first earnings call since the news came out.
D D D, whether you'll start restart them imminently or not right. So I'm just trying to understand are you know indeed.
If that guidance that you gave of 24 earnings being better than 23, keeping in mind the exit run rate in Q4.
Scott Sutton: Could you address some of the concerns that are out there about own strategy, whether, you know, with the board and you decided, to reflect how successful an office strategy is, and any other questions from you to it? Yeah. Okay. Yeah. Hi, Aleksey. I think I understood the question. But look, I mean, there's absolutely no change in the momentum that, you know, Olin has going forward. We absolutely all are pulling the same way in terms of our model, our strategy, you know, how we lift, how we lift people, and our shareholder, you know, value allocation scheme as well. So there's absolutely, you know, no dispute in any of that. And we're running a process there.
Can you just help me sort of understand the quantification behind that.
Absolutely and I'll just start with the you know the two smaller businesses right. So you know what epocrates ending the year adjusting its inventory setting a bottom in announcing price increase and we have our two main.
Or initiatives that are going to help us much more than 24 relative to 'twenty. Three we're gonna have a full year of benefits from the restructuring work that we've done since our systems business has a lot of momentum and like I said before this this recent quarter.
It was the first one where the contribution profit you know in systems exceeded the contribution profit in resins. So those things are working we're going to work to and you know this unfair trade that exist coming out of Asia as well. So that's why a pox you'll step up.
Scott Sutton: Thanks, Scott. And then I'm turning to your fourth quarter, you know, chloral vinyl, certain segments, earns about 280 million in the dot, you know, in 3Q. And you're estimating about 100 million either dying packs from your idling actions in the fourth quarter just seems like a very large number relative to the segment earns in total. So could you need to talk about how you came up with 100 million and whether you use that number as something we could simply add back and assume that the real run rate is something like 300, maybe in Q1 of next year or Q2?
When you get to two Winchester, there's tremendous momentum in the military piece of that business and again. This most recent quarter for the first time ever military ammunition sales exceeded commercial sales and we have a very long runway on mill.
Terry improvements selling you know selling international ammunition NATO based type countries and then also the next generation squad weapon program, which is a lift over the next 10 years. We've said, we'll double that business in two years and we are well on our way to doing that on top of that.
Scott Sutton: Well, what I would say is, yeah, it's certainly a big number, but, you know, this is a very big activation as well. And, you know, we've said probably through the previous, you know, six quarterly earnings calls that there could very well be a quarter where we have to take a significant action to make sure that, you know, our cash delivery over any longer periods say four to six quarters is maximized. And that's what this is intended to do, right?
The the you know focus on and momentum and target shooting.
Looks favorable we just made the white flyer acquisition and while not a major a major one from a revenue standpoint, it's highly profitable and we merged that up with our sports shooting ammunition and then finally, you know you get to our Chlor alkali powerhouse business I mean, we have.
Scott Sutton: It consists of significant actions. We are idling major assets, not participating in a lot of wheat markets and additionally going out there and parlaying a bit and managing some of that liquidity to a more favorable rate. So, yeah, it's significant.
This value accelerator initiative that we're running that is gonna be favorable for you know next year and again the fundamentals underlying that business are good every product.
Scott Sutton: Thanks, Scott.
Man grows bigger than supply growth.
Perfect. Thank you so much Scott.
Kevin Mccarthy: The next question comes from Kevin McCarthy, from Vertical Research Partners. Please go ahead. Yes, good morning. Scott, having shut down St. Gabriel and I think at least a large unit at Freeport, what are you looking for?
The next question comes from Arun Viswanathan from RBC capital markets. Please go ahead.
Great. Thanks for taking my question.
Yeah, I think for all the comments I think it was quite helpful. So just wanted to zero in on a couple of those comments on slide four.
Scott Sutton: What should we look for as outsiders to gauge whether or not you may restart those assets and do you have a preliminary idea of how long the outage might take? Yeah, I mean, hi, Kevin. Look, I mean, this is a fourth quarter activation, but it doesn't mean that it absolutely finishes in the fourth quarter. If we need to continue to get the desired result that we need to deliver the most shareholder value, then we're going to continue it.
You know that you were taking some decisive action here in and I think it's maybe 100 million dollar impact.
And then you've also commented on a better 2024.
So when I think about the numbers and how that was a little ball you know it sounds like Q1 should be seasonally better than Q4.
Also maybe less of 100 million dollar impact.
And then Q2, you see the real inflection point from the actions you've taken.
Scott Sutton: Right. I think it's going to be challenging for the outside world to see when we might, you know, change or reduce this, you know, value acceleration initiative. But we have many internal signs that, you know, we can see and we know what it's effective because we watch excess liquidity out there in the world. We watch if, you know, the strong side of the ECU is being chased by others at the detriment of both sides of the ECU.
So maybe that's you know.
In the in the <unk>.
$350 million to $400 million range, and then you see maybe a little bit more improvement as well in Q3, and then seasonally softer in Q4.
Is that right and maybe you can just relate that to PCI, which I guess dropped to 11 in Q3. So maybe you go down into the mid one hundreds or a high one hundreds in Q2 for a 'twenty three but then you really see that rebound into the you know maybe $2 50 level or above in Q2 is that how youre thinking about.
Oh the value accelerator initiative.
Scott Sutton: We watch very carefully how much material is entering trade flows out of China. And there's already less material entering trade flows. We watch that increasing price that you see in caustic and the attempts to increase price in Europe and China. And those things are happening, but maybe fluttering already. There are some requests for emerging chlorine volume that we can supply already. There are some requests for EDC volumes that we can't supply already.
It plays out.
Well I I would just say that yes later quarters. In 2024, you know maybe are better than earlier ones, but just keep in mind in Q1, we may still be running you know this this initiative for part a part of the time.
But no doubt in order to make 'twenty 'twenty four better than 2023, right. We have to have some quarters in the back you know in the middle to back half of the year that are substantially better than where we are right now so you'll see an improvement in those.
Scott Sutton: HCL price is increasing and the request for volumes that we can't supply. So those are the kind of things that we'll watch harder for the outside world to see that those indications will be more apparent in the first quarter and they'll appear in our results more than likely in the second quarter.
Unknown Executive: That's very helpful.
And then just on capital allocation as a quick follow up you are doing with the 600 million or so levered free cash flow. This year. So next year I assume that that should be higher as well would that also be put mainly towards share repurchases or other activities. We can expect.
Scott Sutton: And then secondly, Scott, I'd welcome your view on the epoxy market heading into the fourth quarter. Part of the reason I ask is one of your competitors has reportedly implemented some sales control related to a shell force measure declaration on final and as soon as I understand it. Are you seeing any encouraging signs that epoxy may begin to firm up at this juncture? Well, I'll just say that we have already announced price increase in both North America and Europe.
Todd do you want to add to that yeah. Thanks Scott.
Clearly, we will continue to target share repurchases.
But as you saw this year, we're willing to deploy some of that cash towards the fire acquisition, but only any type of acquisition will have to demonstrate the ability to be much better.
Buying shares and you know today, it's an easy decision you know we're targeting.
10% of our outstanding shares this year.
Thanks.
Scott Sutton: And we did that over the last week or so. Additionally, the other good sign that we see there is that the contribution from our systems business exceeds the contribution from our resins business and really that's the first time that has happened. I'll just caution you a little bit. It's still really sloppy in those markets. No doubt about it. And we still have some inventory to clean up. And those impacts are still going to haunt us a little bit in the fourth quarter and even into the first quarter as well. Thanks very much.
The next question comes from Mike Sison from Wells Fargo. Please go ahead.
Hey, guys good morning.
So you're running your operating rate of 50% or so for Chlor alkali, where do you think the industry or the other major players were running in the fourth quarter and just curious if you ran at that level, what would your impact be more than $100 million that you're going to take for lowering your operating rates.
Hey, Hey, Mike Yeah, you know I don't I don't know what everybody else is doing but I can say that yeah. I mean, our whole system is running around that you know, 50% number and you know you may recall that we had predicted a certain trough level.
Jeff Zekauskas: The next question comes from Jeff Zekauskas from JP Morgan, please go ahead. Thanks very much. Can you talk about the state of domestic chlorine demand? What rate did it grow, say in 2022, what rate is it growing today and why? Yeah, hey Jeff. Yeah, I mean, look, it's not good.
And we said that trough level.
You know assume that we could get our whole system down to 50% range. If we needed to the reality is we can run lower than that if we had to to have a beggar activation, but that would come at a you know a bigger penalty than that $100 million. If if if we were doing that we think this is the.
Scott Sutton: I mean, this is why we're running this, you know, you know, value acceleration initiative because the chlorine side of the ECU has returned to be in the weaker side, you know, those markets are very, very weak. And so we're not, we're just not going to participate in those weak markets because, you know, it's a chase down into the mud, and that's not where we're going to play. And you can see that in our results in the third quarter, as our merchant chlorine price did not decline, like, you know, may have been published in some of the trade, you know, trade publications.
Right place to go down too.
Users with one low number in the fourth quarter of roughly $200 million of EBITDAR, which by the way at that level, we still have positive levered free cash flow. So yeah look we have some room I don't think we need to use it but we have some room.
Okay, and then I guess it sounds like in Q1, you may have to run at this level in order for you to have EBITDA above.
23, 24, where would your operating rate need to improve to you know overtime to Q3, Q4, Q and can you remind us in your prior one five to 2 billion EBITDA sort of a recession case, what your chlor alkali operating rates would need to be to sort of get back there.
Scott Sutton: So no, it's not good, but it's not getting worse is what I would say. So, you know, we're timing this activation at a point where we can see a future inflection point. The inflection point that we saw was probably three quarters out, at least, and this whole activation is about pulling that inflection point forward in terms of ECU values.
Yeah, well I would just say, we may or may not need to do this in Q1 just to be just to be clear right, but if if we did need to do this in Q1s in the later parts of the year, we need to bring rates up yeah, we can't run the whole year at 50% right.
Scott Sutton: Okay. And of the $100 million penalty in the fourth quarter, is it best to understand that penalty as all volume, or is there a certain component of a certain amount of money, which has to do with the actual shutdown of the assets? Yeah. No, it's not associated with the asset shutdown. I mean, it is 100% nearly just not participating in poor markets. That's it. So it's those volumes are out out of our system for that quarter.
Right and that's not our plan to do that in our previous you know recession case or trough case guidance right, which if you go back four quarters ago. It was 1.5, you know billions of dollars of EBITDA as the low point that number assumed roughly.
Unknown Executive: Okay. Great. Thank you. Yep.
<unk>, 50% right at that same pricing level.
Hope I answered your question on that.
Yeah.
Okay. Thank you.
Sure.
The next question comes from Matthew Blair from T. P. H. Please go ahead.
Hey, good morning, Thanks for taking my questions is it fair to think that the shutdowns at Freeport and thank Gabriel are going to take about a million tons of capacity out of the U S market, it's around 14 million tonnes and if those numbers are correct.
Josh Spector: The next question comes from Josh Specter from UBS. Please go ahead. Yeah. Hi. Thanks.
Todd Slater: Just curious, as you take down your volumes more, if you guys have been hedged on gas costs for most of this year, does this extend the roll through with some of that higher costs? I guess is that more of a volume related head? Your time related and just any early thoughts on how that impacts 24. Thanks. Yeah. Thanks for the question.
Is that enough to materially tighten up the market or would you count on other producers also shutting in some capacity too.
Well I mean this is this isn't over and activation right I I can't comment on anybody else and it does not count on anybody else, taking any kind of action that is that is similar to that you know and and also wont comment on exactly what the capacity reduction is I will just say it.
Todd Slater: Josh, this is tied. We are hedged for the fourth quarter. We do expect to see sequential improvement in our cost structure, just like we saw that in the third quarter sequentially from the second quarter, because of our hedge positions.
It's significant and it's significant enough to take our whole system, which we operate the largest system in the U S and the world by a long shot all the way down to a utilization of 50% or below so it's a big number.
Scott Sutton: Okay. Thanks. And just as your volumes have pulled back, I mean, obviously you're deselected from a lot of different markets. How do you think about what you're selling into your pops? and I see business. I guess are you taking volumes down there in tandem or are you parlaying that kind of purchase to other regions? Well, I would say our volumes in the epoxy business are already quite, quite low. I'll say the good, again, the good news there is that sequentially in third quarter, relative to second quarter, our volumes actually increased in that business. But look, our volumes are so low. So in epoxy, that's not where the major adjustment is. The major adjustments are in merchant chlorine, EDC, and caustic. Thanks.
Hassan Ahmed: The next question comes from Hassan Ahmed from Olympic Global. Please go ahead.
Yeah.
Sounds good and then Scott I think you mentioned that Corrine has now flipped to the weak side you see you.
Is that is that just a seasonal dynamic.
Or is that something structural in what are the factors driving that yeah.
Yeah, no. It's it's it's not.
A seasonal dynamic right I mean, there are some small seasonal things that play just like there's not as much demand going into water treatment. You know as you head into the winter season relative to heading into the summer season, but no. It's just the fact that that business is.
That are supported by merchant chlorine the supply demand situation around those relative to the supply demand situation around the caustic world.
Scott Sutton: One in Scott and Todd, Scott, I wanted to dig a bit deeper into your comfort level around the implications of the value accelerated initiative. I mean, you guys have been very specific in saying that you feel there's going to be a positive inflection in the second quarter of 2024. I mean, you know, I'm just trying to understand, I mean, clearly it's an uncertain world. Industrial production seems to be all over the place.
Or worse off.
It's a relative issue.
Got it thank you.
The next question comes from Steve Byrne from Bank of America. Please go ahead.
Scott Sutton: You know, so obviously that has an impact on caustic demand. You know, and obviously, you know, there's, you know, housing weakness here out in China and the like. I mean, of course you guys are controlling supply, but I'm just trying to understand what gives you that level of comfort. You know, that you will indeed with this uncertain sort of macro environment, see that Q2 positive inflection. Yeah. Well, you know, Hassan, things aren't necessarily getting worse, right?
So just following on your come your your your answer there Scott.
Chlorine demand being worse off and do you have a view as to.
How much of the lower demand that you're seeing now for chlorine and chlorine derivatives versus.
Two years ago is due to just less than.
And you know end market demand versus Destocking do you do you have the ability to split that and potentially is there a third bucket that's driving this and that is.
End markets in shifting to different products just product substitution, that's not not of chlorinated products do you do you have a view on those three buckets.
Scott Sutton: Asia's been slow for a while and stay there. Europe's been slow for a while and has stayed there, right? I mean, new homes in the U.S. Yeah, there's some slowdown, but you know, that still continues. Granted, we all know that, you know, new mortgage applications and sales of existing homes are, you know, really low, maybe the lowest in many years. But the reason that we have a lot of confidence in this is number one, you know, we've been running this model for three years.
Yeah sure sure. Thanks for the question, Yeah, I mean products substitution is pretty much zero you know I would say that there's no structural issue here. So you know the then you get back to the other buckets right.
Inventory out of the channel that's a non issue today I mean that that was done some time ago and from month to month that varies but as of now.
Scott Sutton: And we've been through other mini cycles, running that model over the course of those three years. And we've always been able to be successful at turning the value equation around when we need to turn it around. Number two, we have a really seasoned and broad, old team who's completely united on this. And you know, I just asked you to remember that we are the absolute leader in these businesses, right? So when you pair those two things together, there's a lot of momentum to get this done.
<unk>. This is all a temporary or a transient issue around very weak demand.
And that's what it is.
And as that's also true for the Epocrates side.
None of this well what can you comment on how much of this lower demand is is at least in part to low inventory levels. In the channel is that is that an additional source of upside for you in 2024.
No no what our policy is totally different than that at park C. There's a structural issue right over the last 18 to 24 months, you know China added about 20% to the world's productive capability for our policy at the same time.
Scott Sutton: And then I'll refer back to maybe it was the first question as well. There's already some signs that, you know, this has a good chance to succeed, right? When request for EDC and merchant pouring come in that maybe can't be fulfilled via another path, at least that's an indicator. But look, it's really early, right? We just implemented this or started this at the very first of the fourth quarter, right? So we still have a lot of the quarter to go clearly.
Time their demand along with Europe's together they constitute 75% of the world's demand has really diminished. So you have both aspects going on in our pocket and that's why we've had to make some structural changes to our AR.
Foxy business to be able to come back that for the long term and we're doing some things in the short term as well at park C is going to have a much longer road to recovery, but it's gonna be a steady methodical recovery.
Scott Sutton: And it's necessary, you know, we have time in the first quarter as well. So the time, you know, I don't want to mislead you, we've got a long way to go. But there's a lot of positive momentum to get this done. Understood, understood.
Thank you.
Sure.
Scott Sutton: And as a follow-up, again, not to keep harping on this, but in your prepared remarks, you guys talked about how 2024, from an earnings perspective, will be better than 2023. Now our exit run rate, coming out of Q4, based off of your guidance, is 200 million in quote Yebeda. You annualize that, and that's 800 million. And you know, you earlier obviously talked about how, you know, in terms of, you know, the facilities that you guys are shutting down, it's TBD, whether you'll restart them imminently or not, right?
The next question comes from Vincent Andrews from Morgan Stanley. Please go ahead.
Thank you and good luck.
Morning, everyone.
They've been digesting this latest initiative and listening to all the Q&A on the call. This morning, I guess, a conclusion I'm coming to and please correct me. If this is just completely wrong.
For you to really be successful with this initiative you will need to see an inflection in demand.
At some point in the middle of next year and I, just want to hear more about that and where you think it's going to come from it and I ask it. This way you know, we're kind of halfway through earning season maybe in.
And most of the companies that I'm listening to aren't really talking about an inflection in demand next year. So much as it just seems like theres a rebase in demand that's taken place versus what we saw over the last couple of years and where maybe we're back to 2019 levels are lower but it doesn't sound like there's going to be some big snapback.
Scott Sutton: So I'm just trying to understand, you know, in terms of that guidance that you gave, of 24 earnings being better than 23, keeping in mind the exit run rate in Q4. I mean, can you just help me sort of understand the quantification behind that? Yeah, absolutely.
So any comments you have on that and again, you know happy to be happy to be wrong. Yeah. Yeah. No I mean, what this does not count on a major inflection in demand right. I mean, clearly we're not assuming that things are as bad.
Scott Sutton: And I'll just start with the, you know, the two smaller businesses, right? So, you know, a poxies ending the year, adjusting its inventory, setting a bottom end, announcing price increase. And we have our two major initiatives that are going to help us much more in 24 relative to 20. 23, we're going to have a full year of benefits from the restructuring work that we've done system, our systems business has a lot of momentum.
It is they've been the last two or three quarters for the next six quarters, that's not the assumption.
Either but what is your you know you got to remember again this is a co production world.
And what has happened over the last four quarters is so many companies and people have chased the strong side a big E. C. You bet the value and the strong side, certainly got minimized and it was caustic for some peer.
Scott Sutton: And like I said before, this, this recent quarter was the first one where the contribution profit, you know, in systems exceeded the contribution profit in, in resin. So those things are working, we're going to work to end, you know, this unfair trade that exists coming out of Asia as well. So that's why a poxie will step up when you get to Winchester, there's tremendous momentum in the military piece of that business.
Reid of uptime, but at the same time.
The values on the weak side, we're absolutely destroyed because you're actually shopping more product into weaker and weaker markets. So all of a sudden the economics to run that game of chasing a strong side in other words chasing caustic even if you.
Scott Sutton: And again, this most recent quarter for the first time ever, military ammunition sales exceeded commercial sales. And we have a very long runway on military improvements, selling, you know, selling international ammunition, NATO-based type countries. And then also the next generation squad weapon program, which is a lift over the next 10 years. We said, we'll double that business in two years. And we are well on our way to doing that. On top of that, the, you know, focus on and momentum and target shooting looks favorable. We just made the white flyer acquisition. And while not a major, a major one from a revenue standpoint, it's highly profitable. And we merged that up with our sports shooting ammunition.
You have to pay customers to takeaway coring, which is what happened in China for quarters and quarters.
Are you seeing caustic, even if you have to start dumping PVC into the export markets and diminishing price and value there, which is what happened for multiple quarters. Those economics don't exist anymore. So that desire to go chase the strong side.
Has disappeared regardless of demand out there so that attribute is happening at the same time, we're overlaying our value accelerator initiative, just those two things together will lift values.
Scott Sutton: And then finally, you know, you get to our core alkali powerhouse business. I mean, we have this value accelerator initiative that we're running that is going to be favorable for, you know, next year. And again, the fundamentals underlying that business are good. Every product. Mangrove, bigger than supply growth. Perfect, thank you so much.
There is inflection in demand that's going to be a nice upside.
Okay, and if I could just ask on the CEO succession could you talk a little bit about you know the candidate Youre looking for and presumably you want someone that can can run the existing playbook, but what what other attributes might that person bring to the role that might be newer additive for olin.
Arun Viswanathan: The next question comes from Arun Viswanathan, from RBC Capital Markets. Please go ahead. Great, thanks for taking my question. Yeah, thanks for all your comments. I think it is quite helpful.
Oh.
I think that the that that candidate is going to be somebody who can take over and to the next level in other words their focus is going to be to take what the team has done here and build on it so they'll endorsed the value model do a lot better with it and there'll be.
Scott Sutton: So just wanted to zero in on a couple of those comments on slide four. You know that you're taking some decisive action here, and I think it's played out as maybe a hundred million dollar impact. And then you've also commented on a better 2024. So when I think about the numbers and how those will evolve, you know, it sounds like you know, Q one should be seasonally better than Q four and also maybe less of that a hundred million dollar impact.
Very clever capital allocation. So that's what we're looking for.
And if I could just add and clever on capital allocation means what beyond just doing share repurchases.
Well it means finding opportunities to deliver even more value to shareholders than just share repurchases. Those may come through alliances. It may come through ventures, it's possible it could come through acquisitions, just like the white.
Scott Sutton: And then Q two, you see the real inflection point from the actions you've taken. And so maybe that's, you know, in the 350 to $4 million range. And then you see maybe a little bit more improvement as well and Q three and then seasonally softer and Q four. Is that right? And maybe you can just relate that to the PCI, which I guess dropped to 211 in Q three. So maybe you go down into the mid 100s or high 100s in Q four or 23. But then you really see that rebound into the, you know, maybe 250 level or above in Q two. Is that how you're thinking about how the value accelerator initiative kind of plays out?
Flyer acquisition that we did it's all of those things.
Okay. Thanks for all the detail I really appreciate it you bet.
The next question comes from Frank Mitsch from Birmingham Research Company. Please go ahead.
Thanks, so much.
Grants on a successful tenure at on and looking forward to.
So the next time your next opportunity I wanted to come back with comments that you are that you said early on in the call where you went through a few products that are your customers or you know getting are requesting chlorine EDC Hcl and you mentioned that you know you can't supply them.
Todd Slater: Thanks. Well, I would just say that, yes, later quarters in 2024, you know, maybe are better than earlier ones, but just keep in mind in Q one, we may still be running, you know, this initiative for part of part of the time. But no doubt in order to make 2024 better than 2023, right, we have to have some quarters in the back, you know, in the middle to back half of the year that are substantially better than where we are right now.
I mean, obviously, you're you're you're you're saying that the prices are the prices that they're not they're willing to pay Oh unattractive are is that what is that what's causing that disconnect.
Between you know Oh, your inability to supply the product satisfy these requests from customers.
Well.
It's it's it's not an inability to supply right. We're running an initiative that where we have you know cut.
Cut back operations significantly.
Todd Slater: So you'll see an improvement in those. And then just on capital allocation is a quick follow up, you are doing the 600 million or so leverage recast of this year. So next year, I assume that that should be higher as well. Will that also be put mainly towards share purchases or are there activities we can expect?
Not participating in those markets. So if we're not participating in a market we're not participating.
So the choices to not participate.
Understood and and and and so that the logical follow on is that because the prices that they are willing to pay right now.
Or are not attractive for Olin and when you reflect that back to the customers. What sort of response are you getting or is it or is it simply a matter of waiting al you know a few weeks a month or a quarter and then they'll they'll come back and offer you know the prices that you do find attractive.
Todd Slater: Yeah, Todd, you want to catch that? Yeah. Thanks, guys. You know, clearly we will continue to target share repurchases.
Todd Slater: But as you saw this year, we're willing to deploy some of that cash toward the white fire acquisition, but only any type of acquisition will have to demonstrate the ability to be much better than buying shares. And, you know, today is an easy decision. You know, we're targeting by in 10% of our outstanding shares this year. Next.
Well I can't speak for every customer, but what I can say is we're not participating so our responses were not participating.
Okay.
Thank you and among the our third quarter highlights was your ability to hold chlorine.
Price flat despite the broader indices are.
Mike Sison: The next question comes from Mike Sison from Wells Fargo. Please go ahead. Hey guys, good morning. So you're running your operating rates below 50% or so for a Chloroclyde. Where do you think the industry or the other major players will run in the fourth quarter? And just curious if you ran at that level, would your impact be more than the hundred million dollars that you're going to take for lowering your operating rates?
Going lower you know what are what's your outlook on on Poland.
Olin's chlorine price.
Yeah, Yeah sure I think in this fourth quarter period, right because you know we.
Shuttered some assets and we're not participating.
Possible, but our mix generates a lower chlorine price in the fourth quarter relative to the third quarter, but that's strictly a mix issue because going back to the prior line of questioning we're choosing not to participate and.
Mike Sison: Hey Mike, I don't know what everybody else is. I'm just doing but I can say that yeah, I mean our whole system is running around that you know 50% number. And you know you may recall that you know we had predicted a certain trough level and we said that trough level, you know assume that we could get our whole system down to 50% rates if we needed to the reality is we could run lower than that if we had to to have a bigger activation.
Where we may have to choose not to participate maybe at higher pricing because it's more spot business than some committed contract business. So I think you'll see a mix issue appear in the fourth quarter, but in the first quarter I'm quite sure that chlorine price will incur.
Mike Sison: But that would come in a you know a bigger penalty than that hundred million dollars if we were doing that. We think this is the right place to go down to you know it leaves us with one low number in the fourth quarter of roughly two hundred million dollars a bit of which by the way at that level we still have positive lever free cash flow. So yeah look we have some room.
Kris again.
Very helpful. Thank you.
Yeah.
The next question comes from Roger Spitz from Bank of America. Please go ahead.
Thank you very much maybe I've been asked this in a different way but.
Typically when I'm, calling price demand.
It's Paul.
Classic we're just typically are a lagging indicator.
Scott Sutton: I don't think we need to use it but we have some room. Okay, and then I guess it sounds like in Q1 you may have to run at this level in order for you to have EBITDA above 23 for 24 where would your operator need to improve to you know over time two Q3 Q4 Q and can you remind us in your prior one five to two billion EBITDA sort of recession case.
Indicator of demand.
When it becomes tight and prices spike when.
You know as you turned down your Chlor alkali plants.
Why hasn't that happened this.
At this time.
And can you can you repeat that I'm, sorry, I just don't understand the question.
Sure.
Recession.
During the great recession.
Seven eight.
Scott Sutton: What your core operating rates would need to be to sort of get back there. Yeah well I would just say we may or may not need to do this in Q1 just to be just to be clear right but if we did need to do this in Q1 in the later parts of the year we need to bring rates up. Yeah we can't run the whole year at 50% rates right and that's not our plan to do that.
Demand for housing are collapsed, everyone had to turn down there.
Alkali process flooring demand was was poor.
And because classic demand at least in.
My view last borrowing demand by two or three quarters chlorine chlorine got extremely tight as everyone turned down their chlor alkali plant and U S. Caustic soda prices were extremely high.
And you know classic is counter cyclical chlorine is pro cyclical.
Scott Sutton: In our previous you know recession case or trough case guidance right which if you go back four quarters ago it was one point five you know billion dollars of EBITDA as the low point that number assumed roughly 50% rates at that same pricing level. So I hope I answered your question on that.
Typically hasn't happened and you have a couple of quarters, where things are great and then after a while I think everything goes bad, but that's what the first few quarters everything. Okay. Now here. We are we're coming off a period, where caustic soda prices have been falling pretty hard.
<unk>, you're saying.
Boy is now the weak side. So it sounds like you are clearly coming down your chlor alkali plants why hasn't classic demand tightened as chlorine has become very weak.
Unknown Executive: Thank you.
Matthew Blair: The next question comes from Matthew Blair from TPH. Please go ahead. Hey good morning. Thanks for taking my questions. Is it fair to think that the shutdowns at Freepore and think Abriel are going to take about a million tons of capacity out of a US market that's around 14 million tons and if those numbers are correct. Is that enough to materially tighten up the market or would you count on other producers also shutting in some capacity too.
Giving some you know caustic pricing flexibility yeah. Okay.
Okay got it yeah. Thanks for clarifying that lets look at we just started this value accelerator initiative right at it.
You're not going to see an instantaneous result in the trade publications, which is what you know most people look at in a public format. It takes some time to generate that impact but that impact could happen.
Matthew Blair: Well I mean this is this is an old inactivation right I can't comment on anybody else and it doesn't count on anybody else taking any kind of action that is that is similar to that. You know and also won't comment on exactly what the capacity reduction is. I will just say it's significant and it's significant enough to take our whole system which we operate the largest system in the US and the world by a long shot all the way down to a utilization of 50% or below. So it's a big number.
You know the other thing to remember is that you know it depends on a big way what the PVC producers do as well and at least P. V C hasn't come off yet near as much as things like the polyurethane.
<unk> segment like the AG chemicals segment, even some things like titanium dioxide and bromine are likely a little bit weaker than P. B C. So there's some work to do to get that impact to happen.
Scott Sutton: Sounds good, and then Scott, I think you mentioned that chlorine has now flipped to the weak side of the ECU. Is that just a seasonal dynamic, or is that something structural, and where are the factors driving that? No, it's not a seasonal dynamic, right? I mean, there are some small seasonal things at play, just like there's not as much demand. And going into water treatment, as you head into the winter season, relative to heading into the summer season. But no, it's just the fact that businesses that are supported by merchant chlorine, the supply-demand situation around those relative to the supply-demand situation around the caustic world are worse off. It's a relative issue.
Scott Sutton: Got it, thank you.
Got it. Thank you for my second question is just to be clear I don't understand how you run your chlor alkali.
At or slightly below 50% right now.
Is that the way you do that that that you've shut down coal trains or plants and then Ryan what you have now.
Hi, or near full or do you actually run trains within plants and you know far less than you know near full capacity.
Well, it's all of the above right, but this time because its so significant right we've shut down completely sites and we've shut down complete units at larger sites.
Got it thank you very much good okay sure.
The next question is a follow up from Jeff Zekauskas from J P. Morgan. Please go ahead.
Steve Bern: The next question comes from Steve Bern from Bank of America, please go ahead. So just following on your answer there, Scott, chlorine demand being worse off. And do you have a view as to how much of the lower demand that you're seeing now for chlorine and chlorine derivative versus, you know, two years ago, is due to just less end, you know, end market demand versus destocking. Do you have the ability to split that?
Thanks very much.
You talk about that.
The shutdown of capacity adds.
I do too.
I think attempt to tighten up the market.
But you also have a.
Sort of a new trough.
EBITDA.
On an annual basis.
Looks to me like it maybe $1 3 billion.
Something like that.
Does that new trough employ.
That your initiative will be successful or unsuccessful or where does that crawl estimation stand relative to the initiatives that you're trying to.
Steve Bern: And potentially is there a third bucket that's driving this, and that is in markets that are shifting to different products, just product substitution, that's not not a chlorinated product. Do you have a view on those three buckets? Yeah, sure, thanks for the question. I mean, products substitution is pretty much a zero, you know, I would say there's no structural issue here. So, you know, then you get back to the other buckets, right?
Yes, Yeah, I mean, just I mean, yeah, I mean, I think you've got it right. There that yes, we're going to do roughly $1.3 billion.
This year and.
No that result that that resolved incorporates you know a couple of quarters, where conditions have been you know quite challenging and we've had to pay the price to run a very deep.
Steve Bern: The taking inventory out of the channel, that's a non-issue today. I mean, that was done some time ago, and for months, months, that varies. That's a non-issue. This is all a temporary or transient issue around very weak demand. And that's what it is. And is that also true for the epoxy side that it's none of this, well, what can you come on on how much of this lower demand is at least in part to low inventory levels in the channel?
Initiative, so yeah, you're right I mean, that's that's a trough at $1.3 billion and you know that trough of course, just happens to be higher than the highest peak of any prior cycle before we started running this model.
Just FYI.
Yeah.
Okay.
Then for my follow up.
I think in the third quarter.
Costs of ECM plant not running.
Steve Bern: Is that, is that an additional source of upside for you in 2024? Yeah, no, no, epoxy is totally different than that. If epoxy, there's a structural issue, right? Over the last 18 to 24 months, you know, China added about 20% to the world's productive capability for epoxy. At the same time, their demand, along with Europe, together they constitute 75% of the world's demand, has really diminished. So, you have both aspects going on in epoxy. And that's why we've had to make some structural changes to our epoxy business to be able to combat that for the long term, and we're doing some things in the short term as well.
We're maybe about $50 million.
Scott Sutton: Well, epoxy is going to have a much longer road to recovery, but it's going to be a steady, methodical recovery.
And so in the fourth quarter, we're gonna go well from the third or fourth we're gonna go from call it 300 million to $200 million, but.
Unknown Executive: Thank you.
With the D C unplanned.
Wouldn't that be on the margin sort of a 50 million dollar benefit.
So where is the extra margin pressure coming from in the fourth quarter that is why isn't the fourth quarter EBIT D. A.
More like 250, rather than to us.
Yeah, Yeah, I mean, you got it you know, Jeff you're right I mean, we had an extra penalty.
During the third quarter of that $50 million that we don't have it in the fourth quarter right there.
There's there's quite a number of other things you know at play across the business and for example, because a big chunk of our caustic business. You know is still priced on public you know trade indices.
Vincent Andrews: The next question comes from Vincent Andrews from Morgan Stanley, please go ahead. Thank you and good morning, everyone.
Yes.
Public trade indices have dropped.
Scott Sutton: You know, just as I've been digesting this latest initiative and listening to all the Q&A on the call this morning, I guess a conclusion I'm coming to and please correct me if this was just completely wrong is that for you to really be successful with this initiative, you will need to see an inflection in demand at some point in the middle of next year. And I just want to hear more about that and where you think it's going to come from, and I ask it this way, you know, we're kind of halfway through earnings season maybe.
In fourth quarter relative to third quarter, So you've got that impact going on on top of everything that we're doing as one example.
Okay, great. Thank you so much sure.
And our next question is a follow up from Alexia <unk> from off from Keybanc capital markets. Please go ahead.
Thanks for taking my follow up Scott.
I appreciate that you don't want to comment on the actions of your competitors, but I guess your strategy kind of.
Scott Sutton: And most of the companies that I'm listening to aren't really talking about an inflection in demand next year, so much as it just seems like there's a rebase in demand that's taking place versus, you know, what we saw over the last couple of years. And when maybe we're back to 2019 levels or lower, but it doesn't sound like there's going to be some big, you know, snap ass coming. So any comments you have on that and again, you know, happy to be happy to be wrong?
Hands on them not filling the the.
The supply deficit or supply balance.
Trying to create because just trying to think why wouldn't your competitors just.
Now ill fill the rooms and creating for them.
Luke.
You know I can't comment.
And don't need to comment on what competitors might do or strategy is totally not dependent on their actions. So I just cant I really just can't comment on that of course, when we pulled back.
Scott Sutton: Yeah, yeah. No, I mean, what this does not count on a major inflection in demand, right? I mean, clearly we're not assuming that things are as bad as they've been the last two or three quarters for the next six quarters. That's not the assumption, you know, either. But what is, you know, you got to remember again, this is a co-production world. And what has happened over the last four quarters is so many companies and people have chased the strong side of the ECU, that the value in the strong side certainly got minimized and it was costing for some period of time.
Those volumes might be filled in for a temporary period of time, but as they're still then it's a tightening of supply demand.
Scott Sutton: But at the same time, the values on the weak side were absolutely destroyed. But you're actually showing more product into weaker and weaker markets. So all of a sudden the economics to run that game of chasing the strong side. In other words, chasing costs, even if you have to pay customers to take away chlorine, which is what happened in China for quarters and quarters. Chasing costs, even if you have to start dumping PVC into the export markets and, you know, diminishing price and value there, which is what happened for multiple workers.
Which gives us benefit package.
Okay. Thanks, Scott.
Got it.
As there are no further questions. This concludes our question and answer session.
Like to turn the conference back over to Scott Sutton for closing comments.
Yeah, No I'd, just say, thanks, a lot Jason and thanks to everyone for joining US today, we appreciate your questions.
Thank you for attending today's presentation you may now disconnect.
Yeah.
[music].
Scott Sutton: Those economics don't exist anymore. So that desire to go chase the strong side has disappeared regardless of demand out there. So that attribute is happening. At the same time, we're overlaying our value accelerator initiative. Just those two things together will lift values. If there is inflection in demand, that's going to be a nice upside. Okay.
Scott Sutton: And if I could just ask on the CEO's succession, could you talk a little bit about, you know, the candidate you're looking for and presumably you want someone that can run the existing playbook. But what other attributes might that person bring to the role that might be newer additive for role? Well, I think that that candidate is going to be somebody who can take hold into the next level. In other words, their focus is going to be to take what the team has done here and build on it.
Scott Sutton: So they'll endorse the value model, do a lot better with it, and they'll be very clever, capital allocation. So that's what we're looking for. Well, it means finding opportunities that deliver even more value to shareholders than just sharey purchases. Those may come through alliances. It may come through ventures. It's possible. It could come through acquisitions, just like the white flyer acquisition that we did. It's all of those things.
Unknown Executive: Thanks for all the detail. I really appreciate it.
Frank Mitsch: The next question comes from Frank Mitsch from Furmerium Research Company. Please go ahead. Thanks so much.
Scott Sutton: Congrats on a successful tenure at Olin and looking forward to your next opportunity. I wanted to come back with comments that you said early on in the call where you went through a few products that your customers are, you know, getting requesting chlorine, you see, HCL, and you mentioned that you can't supply. I mean, obviously you're sharing that capacity. Are the prices that they're willing to pay unattractive? Is that what's causing the disconnect between, you know, your inability to supply the product, satisfy these requests from customers?
Scott Sutton: Well, it's not an inability to supply, right? We are running an initiative that where we have, you know, cutback operations significantly and are not participating in those markets. So if we're not participating in a market, we're not participating. So the choices to not participate.
Scott Sutton: Understood. And so the logical follow on is that because the prices that they're willing to pay right now are not attractive for Olin. And when you reflect that back to the customers, what sort of response are you getting? Is it simply a matter of waiting out, you know, a few weeks a month or a quarter, and then they'll come back and offer, you know, the prices that you do find attractive? Look, I can't speak for every customer, but what I can say is we're not participating. So our response is we're not participating.
Scott Sutton: Okay.
Unknown Executive: Thank you.
Scott Sutton: And among the third quarter highlights was your ability to hold chlorine, price, flat, despite the broader indices going lower. You know, what's your outlook on Olin's chlorine price? Yeah, yeah, sure. I think in this fourth quarter period, right? Because, you know, we shuttered some assets and we're not participating. It's very possible that our mix generates a lower chlorine price in the fourth quarter relative to the third quarter. But that's strictly a mix issue, because going back to the prior line of quest and we're choosing not to participate and where we may have to choose not to participate may be at higher pricing because it's more spot business than some committed contract business. So I think you'll see a mix issue appear in the fourth quarter. But in the first quarter, I'm quite sure that chlorine price will increase again. Very helpful.
Roger Spitz: Thank you.
Roger Spitz: The next question comes from Roger Spitz from Bank of America. Please go ahead. Thank you very much. Maybe you've been asked this in a different way, but typically when chlorine price demand is falls, then closet for just typically a lagging indicator demand would become tight as tight as prices. Like when, you know, as you turn down your chloride plants, why hasn't that happened this time? Can you can you repeat that? I'm sorry. I just don't understand the question. Sure.
Scott Sutton: In the great recession, everyone did great recession in 2007, eight demand for housing collapsed. Everyone had to turn down their chloride plants because chlorine demand was poor and because classic demand, at least in my view, lacks chlorine demand by two or three quarters. Cloring, chlorine got extremely tight as everyone turned down their chloride plants. And US cross-excelerate prices were extremely high. And you know, classic is counter cyclical, chlorine is cyclical. That's typically how it happens and you have a couple of quarters where things are great.
Scott Sutton: And then after a while, I think everything goes bad, but for those first few quarters, everything OK. Now, here we are. We're coming up a period where cost short of prices hasn't fallen pretty hard, but suddenly you're saying chlorine is now the weak side. So it sounds like and you are clearly turned down the chloride plant. Why hasn't classic demand tighten as chlorine has become very weak, giving some, you know, classic pricing flexibility. OK. Got it. Yeah. Thanks for clarifying that.
Scott Sutton: Look, we just started this value accelerator initiative. Right. You're not going to see an instantaneous result in the trade publications, which is what, you know, most people look at in a public format. It takes some time to generate that impact, but that impact could happen. You know, the other thing to remember is that, you know, it depends on a big way what the PVC producers do as well, and at least PVC hasn't come off yet. So there's some work to do to get that impact to happen. Thank you, Rick.
Scott Sutton: My second question is just to be clear on understanding how you run your claw alkali, running at or slightly below 50% right now. The way you do that, is that you sit down, pull trains or plants and then run what you have, you know, very high or near full, or do you actually run trains within plants at, you know, far less than. You know, near full capacity. Well, it's all of the above, right, but this time because it's so significant, right, we've shut down complete sites and we've shut down complete units at larger sites. Got it. Thank you very much.
Jeff Zekauskas: The next question is a follow-up from Jeff Sikakis from JP Morgan, please go ahead. Thanks very much. You talk about the shutdown of capacity as an initiative to, I think, attempt to tighten up the markets. But you also have a sort of a new trough EBITDA on an annual basis, which looks to me like it's maybe 1.3 billion, something like that. But does that new trough imply that your initiative will be successful or unsuccessful?
Jeff Zekauskas: Where does that trough estimation stand relative to the initiative that you're trying to execute? Yeah, I mean, Jeff, I mean, yeah, I mean, I think you've got it right there that, yes, we're going to do roughly 1.3 billion dollars this year. And, you know, that results, that that result incorporates, you know, a couple quarters where conditions have been, you know, quite challenging. And we've had to pay the price to run a very deep initiative.
Jeff Zekauskas: So, yeah, you're right. I mean, that's a trough, that 1.3 billion dollars. And, you know, that trough, of course, just happens to be higher than the highest peak of any prior cycle before we started running this model, just FYI. Yeah. And then, and then for my follow-up, the, I think in the third quarter, or the cost of the VCM plant, not running, or maybe about $50 million. And so in the fourth quarter, we're going to go, well, from the third to the fourth, we're going to go from, call it, $300 million to $200 million.
Jeff Zekauskas: But, with the VCM plant, wouldn't that be on the margin, sort of a $50 million benefit? So where is the extra margin pressure coming from in the fourth quarter? That is, why isn't the fourth quarter EPA more like $250, rather than $200? Yeah, I mean, you got it, Jeff, you're right. We had an extra penalty during the third quarter of that $50 million that we don't have in the fourth quarter. But there's quite a number of other things at play across the business.
Jeff Zekauskas: And, for example, because a big chunk of our cost of business is still priced on public trade indices, those public trade indices have dropped in fourth quarter, relative to third quarter. So you've got that impact going on on top of everything that we're doing as one example.
Unknown Executive: Okay, great. Thank you so much. Sure.
Aleksey Yefremov: The next question is a follow-up from Alexi Yafremov from Keybank Capital Markets. Please go ahead. Thanks for taking my follow-up.
Scott Sutton: Scott, I appreciate that you don't want to comment on actions of your competitors, but I guess your strategy kind of depends on them, not filling the supply deficit or supply balance that you're trying to create as just strategy. Why wouldn't you, your competitors just, you know, fill the room that you're creating for them? Look, you know, I can't comment and don't need to comment on what competitors might do. Our strategy is totally not dependent on their actions. So I just can't, I really just can't comment on that.
Scott Sutton: Of course, when we pull back, those volumes might be filled in for a temporary period of time, but as they're filled in, it's a tightening of supply demand. Which gives us benefit. Okay. Thanks, Scott.
Unknown Executive: As there are no further questions, this concludes our question and answer session.
Scott Sutton: I would like to turn the conference back over to Scott Sutton for closing comments. Yeah, no, I just say thanks a lot Jason. Thanks to everyone for joining us today. We appreciate the questions. Thanks.
Unknown Executive: Thank you for attending today's presentation.
Unknown Executive: You may now disconnect. .