The Urethane Blog

Epoxy Comments from Olin Investors’ Call

Olin Corporation (OLN) CEO John Fischer on Q2 2020 Results – Earnings Call Transcript

John Fischer

Thank you, Steve, and good morning, everyone. I hope you and your families are keeping safe and healthy during these challenging times. Olin shared our second quarter results last night. We’ll keep our remarks this morning to a minimum in favor of addressing your specific questions. And I’ll start on slide three. COVID-19 related demand losses were first seen in our chemical portfolio in March. The demand impact continued through early June before showing signs of recovery. During the second quarter of 2020, Olin experienced significantly lower customer demand, partially driven by inventory reductions. Consequently, second quarter sales for the combined Chlor Alkali Products and Vinyls and Epoxy businesses declined by approximately 27% year-over-year.

Weakness in demand was compounded by two large planned maintenance turnarounds that took place early in the quarter. These included a one in every three-year vinyl chloride monomer turnaround and one in every five-year Freeport at the chlor-alkali turnaround. As a result, April and May were Olin’s weakest volume months in the Chlor Alkali Products and Vinyls business. Overall, Olin’s Chemical business’s sales increased each month during the quarter from the April low point. Olin’s July sales levels have continued the improvement trend by exceeding June levels. As a further point of reference, the majority of our second quarter adjusted EBITDA was generated in June as maintenance turnarounds were completed and volumes improved.

Olin has addressed the lower customer demand by extending maintenance outages where practical and temporarily idling Chlor Alkali and Epoxy assets. Today, we have one Chlor Alkali plant undergoing an extended maintenance turnaround, and we plan to continue to temporarily idle plants to minimize operating costs. Third quarter 2020 will benefit from improved volumes, lower maintenance turnaround costs and higher product prices compared to the second quarter. We are forecasting third quarter 2020 adjusted EBITDA that is more than double second quarter 2020 levels. Let’s now turn to slide four. The most significantly impacted end uses for our products include automotive, aerospace, construction and oil and gas.

Chlorine demand from urethane and isocyanates customers represented our largest volume decline during the second quarter, and that demand outlook still remains challenged. Chlorine sold into titanium dioxide, which helped strong through the first quarter, began to weaken during April and is now below historic trends. Hydrochloric acid demand and pricing is well below typical levels, also reflecting the weakness in the oil and gas sector. Weakness in global vinyls demand contributed to Olin’s second quarter ethylene dichloride pricing decline of approximately 50% from first quarter levels. We have seen Olin’s chloride ethylene dichloride pricing improved during the third quarter.

Our second quarter Epoxy resin volumes decreased by approximately 30%, both sequentially and year-over-year across both in Europe and North America impacted by weak customer demand for automotive, Industrial coatings, and oil and gas. We’re now one month into the third quarter and have seen an increase in vinyls and isocyanate demand and a slower paced recovery in resins and urethanes. On the caustic side, inorganic end uses are recovering, while several grades of pulp and paper demand are still showing signs of weakness. Now let’s take a closer look at caustic soda pricing, which is on slide five. As chlorine operating rates slowed in the second quarter, caustic soda availability tightened and domestic caustic soda price indices rose $70 per ton.

Kevin McCarthy

I see. That’s helpful. And then I had a second question on the Epoxy business. Benzene and propylene, I suppose, have been quite volatile in recent months. So if you take into account the inventory flow through effects of those important raw materials. How do you think your margins might trend moving forward into the third quarter versus the second quarter?

Pat Dawson

Kevin, this is Pat. You’re right. They have been very volatile. We saw the big fall off here in the second quarter. And I would say that, that’s benefiting us here late. It benefited us a little bit late in the second quarter, and it will benefit us in the first half of the third quarter. However, you’ve seen hydrocarbons now start to kick up, both benzene and propylene. And that’s the reason why we’ve got price increases out there right now in the third quarter. So it’s kind of where we see it, there’s a lot of volatility.