Olin targets $2bn in EBITDA on improving chlor-alkali dynamics

Olin expects to significantly boost profits in coming years as chlor-alkali and derivatives dynamics turn more favourable, and as it adds low-cost incremental capacity.

Olin expects “robust earnings expansion” on industry leading position, advantaged cost structure and structural changes in the industry. The company is targeting adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) growth from $1.265bn in 2018, to about $1.5bn in the near term and $2bn in the long term, said John Fischer, chairman, president and CEO of Olin, at the company’s investor day.

Olin put a timeframe of one-to-two years for “near term” and after three years for “long term”.

“From a management perspective… that [target] is not aspirational – that’s a commitment on our part to get to $2bn,” said Fischer.

Olin is the largest chlor-alkali producer globally and the largest North American bleach producer.

Fischer sees growth opportunities on both chlorine and caustic soda – not just on price but volumes. With the majority of Olin’s capacity on the US Gulf Coast, it has access to low cost electricity and ethylene, and is able to export globally, the CEO noted.

On a worldwide basis, even with modest annual growth expectations of around 2%/year for both chlorine and caustic soda from 2018-2030, the minimal amount of capacity additions and announcements will not be enough to keep pace with demand, said Fischer.

With the broadest chlor-alkali derivatives portfolio, Olin has 19 chlorine outlets where it can maximise value daily, sometimes being able to switch production on and off on an hourly basis, in the cases of hydrochloric acid (HCL) and bleach, and every two hours in the epoxy chain, he added.

DOWNSTREAM GROWTH

Certain chlor-alkali downstream markets such as HCL, bleach, merchant EDC and chlorinated organics are growing much faster, and Olin is well positioned to capitalise, said James Varilek, executive vice president and president of Chlor Alkali Products and Vinyls and Services.

Olin boosted HCL volumes at a compounded annual growth rate (CAGR) of around 9% from 2000-2018 to over 150,000 dry short tons (dst) in 2018. It is adding about 70,000 dst of capacity in the next one-to-two years to capture growth, which is driven by the oil and gas, and steel end markets.

Olin has grown bleach sales volumes at a CAGR of about 11% from 2008-2018 to over 250,000 short tons. It is adding another 60,000 short tons of capacity at several locations over the next one-to-two years. A key growth driver is municipalities switching from using chlorine to purify water, to using bleach.

“That is shifting as people don’t want to handle the chlorine [and] the freight costs are going up,” said Varilek. For the same reasons, non-integrated bleach producers who were buying chlorine and caustic soda to make bleach in a regional market are now shifting to buying bleach instead, he noted.

“We have two-and-a-half times the capacity than the next largest player in the marketplace… With our nine plants across various geographies in North America, we’re very well situated to take on this additional growth,” said Varilek.

Olin sees growing opportunity in merchant EDC as the largest global supplier where new 
polyvinyl chloride (PVC) projects planned in Asia are largely non-integrated and need to 
import EDC.

Varilek estimates about 2m tonnes of additional demand potential by 2022-2024 from non-integrated PVC players. Only about 6% of global EDC production is sold on the merchant market, with the vast majority used by integrated producers to make PVC.

Global supply of available EDC is projected to fall by about 500,000 tonnes as swing suppliers expand their PVC capacity, he noted.

CHLORINATED ORGANICS

Another opportunity is in chlorinated organics, where demand is driven by the next generation of refrigerants.

The next generation of hydrofluoroolefins (HFOs) refrigerants require carbon tetrachloride feedstock. Olin has the largest amount of such feedstock capacity in the world, said Varilek.

HFO demand is expected to grow from less than 50,000 tonnes in 2018, to an estimated 300,000 tonnes by 2030.