Olin aims to exit low-value chlorine markets: CEO

Olin will slow supplying chlorine for titanium dioxide producers in 2023 as part of a company strategy to exit low-margin contracts and sell into higher paying markets, CEO Scott Sutton said July 28.

"We won't be supplying large parts of that industry in 2023 as we move that chlorine volume into higher-margin end users or completely take it out of our system," he said during the world's largest chlor-alkali producer's 2Q 2021 earnings call.

Olin already has sold less caustic soda, a byproduct of chlorine production and a key feedstock for alumina and pulp and paper industries, when demand for it was weaker than that for chlorine. However, caustic soda demand has increased since a deep freeze hit the US Gulf Coast in mid-February, forcing widespread petrochemical production shutdowns including chlor-alkali.

Buyers who had kept low inventories amid sluggish demand sought to rebuild stocks after the freeze, according to market sources.

In addition, growth in COVID-19 vaccination rates prompted more economic activity such as large gatherings at sports events and concerts as well as travel, increasing demand for paper products, soaps and detergents made with caustic soda.

Chlorine demand remains stronger of the two products, and Olin's strategy of minimizing product sales into weaker markets includes chlorine as well. Titanium dioxide, which is used to make personal care products such as sunscreen, powder makeup and lotions, is among many uses of chlorine. Others include construction staple polyvinyl chloride, polyurethane foam, refrigerants, crop protection sprays, paint and water treatment.

The company has a 10-year chlorine supply contract with Dow Chemical that lasts through 2025 and accounts for about 30% of the company's chlorine supply. Damien Gumpel, president of Olin's chlor-alkali and vinyls business, said the company has worked to exit other such contracts as they conclude and to exit third-party indices to take control of its own pricing and sales negotiations. Those efforts will continue.

"We still have a ways to go, but even within this quarter, we achieved moving another significant chunk of this volume off to the rearview mirror," Gumpel said.

Industry participants refer to chlorine and caustic soda as elements on each side of the electrochemical unit. An ECU is a unit of measure that reflects the chemical reaction in the chlor-alkali process in a fixed ratio of 1 unit of chlorine 1.1 units of caustic soda and 0.03 units of hydrogen.

Olin in 2020 decided to sell less caustic soda amid weak demand while focusing on stronger demand for chlorine and its derivatives, and has continued that strategy. The company can adjust along with demand dynamics, Sutton said.

"Fundamentals are good," he said. "We started off the third quarter with our model positioned to participate less in the weaker side of the ECU – caustic. As we move through the rest of the third quarter, we will adjust our configuration depending on which side of the ECU is weaker relative to the other side."

Olin reported 2Q 2021 net income $355.8 million, up from a $160.1 million loss a year ago when petrochemical demand plunged amid the height of COVID-19 restrictions and shutdowns.

The company attributed the turnaround to strong demand for chlor-alkali, epoxy and its ammunition segment, bolstered by higher product prices.