US Olin blames low caustic prices, oversupply for weak results

Bill Bowen

25-Jul-2014

US Olin blames low caustic prices, oversupply for weak resultsHOUSTON (ICIS)–Olin executives on Friday morning blamed weak demand for caustic soda and oversupply in the domestic market for disappointing financial results in the producer’s second quarter.

The company had only achieved about $10/dry short ton (dst) for caustic soda during Q2 contract negotiations out of the $60/dst the company had sought, executives said during a conference call with analysts.

Additionally, a proposed $60/dst price increase for the third quarter is not taking in the market, said Frank Chirumbole, Olin’s vice president and head of the chlor-alkali division.

Spot prices and export prices for caustic have declined in recent weeks, according to ICIS.

Chlorine and caustic soda prices are lower now than they were 10 quarters ago despite attempts in most of those quarters to increase prices, Chirumbole said.

In addition to the market’s resistance to price increases, US exports are down 5% so far this year and imports are up 26%, leaving 104,131 dst of additional material in the market, he said. Higher operating rates at US chlor-alkali plants in the first six months of 2014 has likewise put an additional 164,614 dst more material in the domestic market, he added.

Olin executives also said that the producer had also lost market share in its chemical distribution business on competitive cost-cutting from a major distributor, which company officials did not name. Financial returns in the chemical distribution business were down 29% for the quarter compared with Q2 2013.

Company results for its chlor-alkali division were down almost 19% year over year during the quarter, as net income fell to $40.8m from $50.2m in Q2 2013. Chirumbole said sales volumes were down 3% and that lower prices meant that netbacks had declined 11%.

Several of the analysts on the conference call seemed sceptical that demand was not growing when many economic indicators show improvement. But Chirumbole said that across the sectors the company served, demand was flat or off.

Company officials said that a recovery of demand and pricing was not likely during for the foreseeable quarters and that the company would focus on hydrochloric acid (HCl) and potassium hydroxide, chemicals with rising demand for oilfield and bleach purposes.

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