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Urethane and Epoxy Comments from Olin’s Investors Call

Olin Corporation (OLN) CEO John Fischer on Q1 2020 Results – Earnings Call Transcript

John Fischer

Thank you, Steve, and good morning, everyone. The response to the coronavirus did not have a significant impact on Olin’s results in the first quarter of 2020. Epoxy business did have mandatory manufacturing plant closures and operating reductions in Asia, which reduced first quarter 2020 Epoxy segment earnings by approximately $3 million. These epoxy resin manufacturing plants had resumed operations by the end of the first quarter of 2020.

All Olin manufacturing facilities worldwide are currently operating with the exception of those undergoing planned maintenance turnarounds. Our operations are among businesses that have been considered essential by government and public health authorities.

I will begin today’s presentation with Olin’s view on near-term market dynamics, followed by a discussion of the key highlights from Olin’s first quarter, then close with a detailed review of each business segment.

During the second half of March and into April Olin began to experience reduced demand across our chemical portfolio. Chlorine demand from urethane and isocyanates customers has declined. And there have been discussions of extended outages later in the year, especially in the isocyanates space. Hydrochloric acid has experienced a significant decline in demand tied to weakness in the oil and gas sector. Ethylene dichloride, which is an export product for Olin has also declined. And we expect epoxy resin demands to decline in May and June from first quarter levels.

The lower demand levels and major planned maintenance outages in the first and second quarters for chlorinated organics, vinyls and epichlorohydrin have caused chlor alkali operating rates in our system to decline from 2019 levels. While sales of bleach and chlorine into disinfectants have been strong and are expected to remain so, the near-term demand outlook for our chlorine portfolio is unclear.

We expect chlorine demand into vinyls, urethanes and isocyanates to decline significantly, reducing North American and global chlor alkali industry operating rates.

Now, let’s move to the performance of our Epoxy segment which is on Slide 7. During the first quarter of 2020, Olin’s Epoxy business generated adjusted EBITDA of $33.2 million. Our European Epoxy business experienced a force majeure declaration by a phenol supplier during the first quarter, which reduced epoxy resin and epoxy resin precursor production at our Stade, Germany facility.

The Epoxy business also faced the manufacturing plant closures and operating reductions in Asia due to the COVID-19 virus. These issues reduced our 2020 Epoxy segment earnings by approximately $10 million. The Epoxy business was able to partially offset these first quarter challenges through sequentially higher Epoxy volumes, higher product pricing and lower raw material and operating costs.

In the second quarter, the Epoxy 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 Epoxy 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 epoxy resin prices which are shown on Slide 8. During the first quarter European and North American liquid epoxy 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 an expected weaker resin demand environment in Europe and North America are expected to pressure epoxy resin pricing during the second quarter.

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