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Chlor-alkali producer Olin previews net loss in Q2 on Houston infrastructure

Houston — Olin, the world's largest chlor-alkali producer, expects a net loss of up to $22 million in the second quarter, the Missouri-based company said in a statement late Tuesday.

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The loss would be due to lower-than-expected chlorine and caustic soda prices as well as epoxy results negatively impacted by a major tank farm fire and chemical spill on the Houston Ship Channel last March that disrupted and delayed ship traffic for a month.

The company said in a statement late Tuesday that prices for caustic soda, a byproduct of chlorine production and key feedstock for alumina and pulp and paper industries, have fallen about 3% from first-quarter levels.

In addition, chlorine and chlorine derivative sales were lower than anticipated, and the Intercontinental Terminals Company's fire and chemical spill in the ship channel in March and reduced production in Europe hit epoxy results as well.

The ITC incident was expected to be mentioned in multiple Q2 earnings results of companies with operations on the ship channel, with domino effects of disruptions lasting into June. A fire ignited on a naphtha tank in a 15-tank section of the Mitsui subsidiary's tank farm on March 17, which burned for four days, sending a massive plume of black smoke over the Houston area. The fire ultimately affected 11 tanks containing gasoline blendstocks, base oils and benzene-rich pyrolosis gas, or pygas, before it was extinguished.

Then on March 22, a dike surrounding that tank section gave way, spilling pygas into the ship channel, which forced a multi-day shutdown and several weeks of slowed traffic to ensure ships passing through the spill area were decontaminated before exiting into open water. Consistent two-way traffic was not fully restored until April 24, and Olin was among many companies whose ship channel operations were affected by shelter-in-place orders during the fire and vessel traffic disruptions after the spill.

Global petrochemical producer BASF in a statement Monday also warned of lower profits late Monday, cutting its 2019 earnings forecast by 30% and citing fallout from the US-China trade tensions and industrial production that was "significantly weaker than expected" in the first half of the year, particularly in the vehicle industry.

Olin said the company expects stronger results across its business segments in the second half of 2019 "despite a challenging first half of 2019," with improved caustic soda pricing.

Since June 4, 2019, US export caustic soda prices have risen more than 9% to $350/mt FOB USG on two events in May that increased Brazilian demand.

First, Brazilian petrochemical producer Braskem shut its largest chlor-alkali facility and ceased salt mining in the state of Alagoas after a government report linked the company's salt extraction to geological damage in the area. Then a federal court lifted a production embargo that had limited output to 50% at Norsk Hydro's Alunorte alumina refinery, the world's largest, allowing the facility to resume normal rates after more than a year.

US producers began raising chlor-alkali rates to capture higher caustic soda prices, with rates rising to 86% in May from 83% in March and April. However, export prices have not risen as much as expected. Market sources said the increased Brazilian demand has not overcome caustic soda weakness elsewhere. The FOB Northeast Asia and CFR Southeast Asia markers have fallen 10% and 7.7%, respectively, since June 18, to be assessed Tuesday at at $310/mt and $360/mt amid weaker downstream alumina demand, S&P Global Platts data showed. In Europe, the FOB Rotterdam marker fell $5/mt this week to be assessed at $305/mt as Q3 contract discussions gained attention amid a wide gap between current contract and spot pricing.

-- Kristen Hays, kristen.hays@spglobal.com

-- Edited by Jennifer Pedrick, newsdesk@spglobal.com