US Axiall explores MLP for chlor-alkali business

HOUSTON (ICIS)–Axiall is considering a master limited partnership (MLP) for its chlor-alkali business so it can gain access to low-cost capital, the CEO said on Thursday. 

Axiall had been exploring that option for some time, said CEO Paul Carrico, during an earnings conference call.

The company has asked the US taxing agency, the Internal Revenue Service (IRS), for a private letter ruling (PLR) to determine whether the company’s chlor-alkali operations would qualify for the ownership restructuring and the resulting tax benefit. Later in the call, Carrico did not correct an analyst who suggested it might be mid-year before the IRS would rule.

Publicly-traded MLPs typically provide higher income yields than publicly-traded stocks because of their advantaged tax structure.

Whatever earnings MLPs do not need for current operations or plant maintenance are paid out to unit holds through quarterly cash distributions.

Other chemical producers have expressed interest in creating MLPs, including Methanex and Huntsman.

Axiall has three major chlor-alkali plants with more than 1.9m tonnes of annual production capacity: in Lake Charles, Louisiana, with annual production capacity of 1.27m tonnes; a plant in Natrium, West Virginia, with 250,000 tonnes/year capacity: and a plant in Plaquemine, Louisiana, with a 410,000 tonne/year capacity.

In its vinyls division, Axiall also produces ethylene dichloride (EDC) and vinyl chloride monomer (VCM), both upstream precursors to its polyvinyl chloride (PVC) production. It also has a vinyls products divisions that produces siding, window treatments and profiles, fencing and other products.  

Axiall has four salt mines in Louisiana from which it gets the chlorine that ultimately goes into construction and other products made from polyvinyl chloride. The process also produces caustic soda, which enjoys stable demand, but volatile pricing as production can ramp ahead of demand when demand for chlorine is strong.

Chlor-alkali has been a poor performer over the past couple of years. Dow Chemical is in the midst of spinning off its chlor-alkali plants. But over the course of a year since the announcement, it has not announced a buyer.

Producers have struggled to raise prices for caustic soda and chlorine with little success over the past two years. Carrico said during the conference call that the company will continue to seek price increases for both products in 2015.

Prices for vinyls products, the division which would remain within the current Axiall structure, have improved somewhat during the past 18 months.

Since it began the exploration of an MLP, ethylene prices have declined from their September peaks. Carrico said the company has reconfigured its supply contracts to expose 50% of its supply to the spot market where prices are now lower than contract prices. The company exposed 25% of its supply last year to spot prices that rose above 74 cents/lb in September before plummeting 35.13 cents/lb this week.

The volatility of feedstock costs brought by diving crude oil prices means that a rebalancing of the market may not shake out before the end of the year, complicating any decision regarding the MLP, Carrico said.

Other major US chlor-alkali producers include Bayer, Dow Chemical, Erco Worldwide, Formosa Plastics, OxyChem, a division of Occidental Petroleum, Olin, Shintech and Westlake Chemical.