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spk06: Operations third quarter 2023 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal conference specialists by pressing the star key followed by zero. Following today's brief opening comments, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touchtone phone. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Steve Keenan, Olin's Director of Investor Relations. Please go ahead, Steve.
spk10: Thank you, Jason. Good morning, everyone, and thank you for joining us today. Before we begin, let me remind you this discussion, along with the associated slides and the question and answer session that follows, will include statements regarding estimates or expectations of future performance. Please note that these are forward-looking statements and that actual results could differ materially from those projected. Some of the factors that could cause actual results to differ from our projections are described without limitations in the risk factors section of our most recent Form 10-K and in yesterday's third quarter earnings press release. A copy of today's transcript and slides will be available on our website in the investors section under past events. Our earnings press release and other financial data and information are available under press releases. With me this morning are Scott Sutton, Olin CEO, and Todd Slater, Olin CFO. I'll now turn the call over to Scott Sutton to make some brief remarks, after which we will be happy to take your questions.
spk15: Thanks, Steve, and good morning to all. In the third quarter, the Olin team delivered what we promised, which was $315 million of adjusted EBITDA, no sequential reduction in chlorine pricing, and a prioritization on share repurchases. Additionally, we complemented those confirmed deliveries with the acquisition of the White Flyer Clay Targets business at forecasted returns substantially better than share repurchase returns. Looking forward, Olin's strategy continues to be championed by our teammates and our board of directors. As such, in the fourth quarter and potentially beyond the fourth quarter, We are taking a dramatic but necessary step to change the direction of declining ECU values. It is a challenging market, and we've already actioned this initiative to force a rebound of our ECU values, which involves idling significant chunks of our assets and slashing our participation in wheat markets. This value accelerator initiative results in a $100 million incremental penalty to adjusted EBITDA in the fourth quarter relative to our previous expectation, but delivers an anticipated improvement in 2024 adjusted EBITDA relative to 2023. We are confident of that improvement. Even though we operate in an environment where bad news creates a negative recency bias, please never forget that in chloralkali, we believe future demand growth exceeds future supply growth. And that growth may also be unbalanced across the ECU. All favorable for Olin. We are confident in that favorable outlook. So, Jason, that concludes my opening remarks, and we can now proceed to questions.
spk06: Thank you. We will now begin the question and answer session. To ask a question, you may press star then 1 on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. And to withdraw your questions, please press star then 2. At this time, we'll pause momentarily to assemble our roster. Our first question comes from Aleski Yefremov. from KeyBank Capital Markets. Please go ahead.
spk12: Thank you. Scott, I believe this is the first earnings call since the news came out. Could you address some of the concerns that are out there about Olin's strategy, whether what the board and you decided reflects how successful or not the strategy is, and any other questions from you to it?
spk15: Okay. Yeah. Hi, Alexa. I think I understood the question. But look, I mean, there's absolutely no change in the momentum that, you know, Olin has going forward. We absolutely all are pulling the same way in terms of our model, our strategy. you know, how we lift people and our shareholder, you know, value allocation scheme as well. So there's absolutely, you know, no dispute in any of that. And we're running a process there.
spk12: Thanks, Scott. And turning to your fourth quarter, you know, chloro-vinyl segment earned about $280 million EBITDA. you know, in 3Q, and you're estimating about 100 million EBITDA impacts from your idling actions in the fourth quarter, just seems like a very large number relative to what the segment earns in total. So could you maybe talk about how you came up with 100 million and whether you view that number as something we could simply add back and assume that the real run rate is something like 300, maybe in Q1 of next year or Q2?
spk15: Well, what I would say is, yeah, it's certainly a big number, but this is a very big activation as well. And we've said probably through the previous six quarterly earnings calls that there could very well be a quarter where we have to take a significant action to make sure that our cash delivery over any longer period, say four to six quarters, is maximized. And that's what this is intended to do, right? It consists of significant actions. We are idling major assets, not participating in a lot of weak markets, and additionally going out there and parlaying a bit and managing some of that liquidity to a more favorable place for Olin. So, yeah, it's significant.
spk06: Thanks, Scott. The next question comes from Kevin McCarthy from Vertical Research Partners. Please go ahead.
spk02: Yes, good morning. Scott, having shut down St. Gabriel and I think at least a large unit at Freeport, What are you looking for? What should we look for as outsiders to gauge whether or not you may restart those assets? And do you have a preliminary idea of how long the outage might take?
spk15: Yeah. Yeah. I mean, hi, Kevin. Look, I mean, this is a fourth quarter activation, but it doesn't mean that it absolutely finishes in the fourth quarter. If we need to continue to get the desired result that we need to deliver the most shareholder value, then we're going to continue it. I think it's going to be challenging for the outside world to see when we might change or reduce this value acceleration initiative, but we have many internal signs that you know, we can see and we know when it's effective because we watch excess liquidity out there in the world. We watch if, you know, the strong side of the ECU is being chased by others at the detriment of both sides of the ECU. We watch very carefully how much material is entering trade flows out of China, and there's already less material entering trade flows. We watch that increasing price that you see in Caustic and the attempts to increase price in Europe and China, and those things are happening but may be fluttering. Already there are some requests for merchant chlorine volume that we can't supply. Already there are some requests for EDC volumes that we can't supply. Already HCL price is increasing and there are requests for volumes that we can't supply. So those are the kind of things that we'll watch. Harder for the outside world to see that. Those indications will be more apparent in the first quarter and they'll appear in our results more than likely in the second quarter.
spk02: That's very helpful. And then secondly, Scott, I'd welcome your view on the epoxy market heading into the fourth quarter. Part of the reason I ask is one of your competitors has reportedly said, implemented some sales control related to a shell force majeure declaration on phenol and acetone, as I understand it. Are you seeing any encouraging signs that epoxy may begin to firm up at this juncture?
spk15: Well, I'll just say that we have already announced price increase in both North America and Europe, and we did that over the last week or so. Additionally, the other good sign that we see there is that, you know, the contribution from our systems business exceeds the contribution from our resins business. And really, that's the first time that has happened. You know, I'll just caution you a little bit. It's still really sloppy in those markets, no doubt about it. And we still have some inventory to clean up. And those impacts are still going to haunt us a little bit in the fourth quarter and even into the first quarter as well.
spk02: Thanks very much. Sure.
spk06: The next question comes from Jeff Zakakis from J.P. Morgan. Please go ahead.
spk03: Thanks very much. Can you talk about the state of domestic chlorine demand? At what rate did it grow, say in 2022, at what rate is it growing today and why?
spk15: Yeah. Yeah. Hey, Jeff. Yeah. I mean, look, it's not good. I mean, this is why we're running this, you know, value acceleration initiative, because the chlorine side of the ECU has returned to be in the weaker side. You know, those markets are very, very weak. And so we're just not going to participate in those weak markets because, you know, it's a chase down into the mud, and that's not where we're going to play. And you can see that in our results in the third quarter as our merchant chlorine price did not decline like, you know, may have been published in some of the trade publications. So, no, it's not good, but it's not getting worse is what I would say. So we're timing this activation at a point where we can see a future inflection point. The inflection point that we saw was probably three quarters out at least. And this whole activation is about pulling that inflection point forward in terms of ECU values.
spk03: Okay. And of the $100 million penalty in the fourth quarter, Is it best to understand that penalty as all volume, or is there a certain component of a certain amount of money which has to do with the actual shutdown of the assets?
spk15: Yeah, no, it's not associated with the asset shutdown. I mean, it is 100% nearly just not participating in poor markets. That's it. So those volumes are out. out of our system for that quarter.
spk03: Okay, great. Thank you.
spk15: Yep.
spk06: The next question comes from Josh Spector from UBS. Please go ahead.
spk01: Yeah, hi, thanks. Just curious, as you take down your volumes more, have you guys been hedged on gas costs for most of this year? Does this extend the roll-through of some of that higher costs? I guess, is that more of a volume-related hedge or time-related? And just any early thoughts on how that impacts 24? Thanks.
spk14: Thanks for the question, Josh. This is Todd.
spk13: We are hedged for the fourth quarter. We do expect to see sequential improvement in our cost structure, just like we saw that in the third quarter, sequentially from the second quarter, because of our hedge positions.
spk01: Okay, thanks. And just as your volumes have pulled back, I mean, obviously you're deselecting from a lot of different markets. How do you think about what you're selling into your epoxy business? I guess, are you taking volumes down there in tandem, or are you parlaying that kind of purchase to other regions?
spk15: Well, I would say our volumes in the epoxy business are already quite low. I'll say, again, the good news there is is that sequentially in third quarter relative to second quarter, our volumes actually increased in that business. But look, our volumes are so low in epoxy, that's not where the major adjustment is. The major adjustments are in merchant chlorine, EDC, and caustic.
spk01: Got it.
spk06: Thanks. The next question comes from Hassan Ahmed from Olympic Global. Please go ahead.
spk00: Morning, Scott and Todd. Scott, I wanted to dig a bit deeper into your comfort level around the implications of the Value Accelerator Initiative. You guys have been very specific in saying that you feel there's going to be a positive inflection in the second quarter of 2024. I'm just trying to understand. I mean, clearly it's an uncertain world. Industrial production seems to be all over the place. You know, so obviously that has an impact on caustic demand. You know, and obviously, you know, there's this, you know, housing weakness here, out in China and the like. I mean, of course, you guys are controlling supply. But I'm just trying to understand what gives you that level of comfort that you know, that you will indeed, with this uncertain sort of macro environment, see that Q2 positive inflection?
spk15: Yeah. Well, you know, Hassan, things aren't necessarily getting worse, right? Asia's been slow for a while and has stayed there. Europe's been slow for a while and has stayed there, right? I mean, new... Homes in the U.S., yeah, there's some slowdown, but that still continues. Granted, we all know that new mortgage applications and sales of existing homes are really low, maybe the lowest in many years. But the reason that we have a lot of confidence in this is, number one, we've been running this model for three years. And we've been through other mini cycles running that model over the course of those three years. And we've always been able to be successful at turning the value equation around when we need to turn it around. Number two, we have a really seasoned and broad Olin team who's completely united on this. And, you know, I just ask you to remember that we are the absolute leader in these businesses. So when you pair those two things together, there's a lot of momentum to get this done. And then I'll refer back to maybe it was the first question as well. There's already some signs that this has a good chance to succeed. When requests for EDC and merchant pouring come in that maybe can't be fulfilled via another path, At least that's an indicator. But look, it's really early, right? We just implemented this or started this at the very first of the fourth quarter, right? So we still have a lot of the quarter to go, clearly. And if necessary, you know, we have time in the first quarter as well. So, you know, I don't want to mislead you. We've got a long way to go. But there's a lot of positive momentum to get this done.
spk00: Understood, understood. And as a follow up, again, you know, not to sort of keep harping on this, but, you know, in your prepared remarks, you guys talked about how 2024 from an earnings perspective will be better than 2023. Now our exit run rate, you know, coming out of Q4, you know, based off of your guidance is 200 million in quarterly EBITDA. You annualize that and that's 800 million. And you earlier obviously talked about how in terms of the facilities that you guys are shutting down, it's TBD whether you'll restart them imminently or not, right? So I'm just trying to understand in terms of that guidance that you gave of 24 earnings being better than 23, keeping in mind the exit run rate in Q4 is I mean, can you just help me sort of understand the quantification behind that?
spk15: Yeah, absolutely. And I'll just start with the, you know, the two smaller businesses, right? So, you know, epoxy's ending the year, adjusting its inventory, setting a bottom end, announcing price increase. And we have our two major initiatives that are going to help us much more in 24 relative to 23. We're going to have a full year of benefits from the restructuring work that we've done. Our systems business has a lot of momentum. And like I said before, this recent quarter was the first one where the contribution profit in systems exceeded the contribution profit in resins. So those things are working. We're going to work to end this unfair trade that exists coming out of Asia as well. So that's why epoxy will step up. When you get to Winchester, there's tremendous momentum in the military piece of that business. And again, this most recent quarter, for the first time ever, military ammunition sales exceeded commercial sales. And we have a very long runway on military improvements, selling international ammunition, NATO-based type countries. and then also the Next Generation Squad Weapon Program, which is a lift over the next 10 years. We've said we'll double that business in two years, and we are well on our way to doing that. On top of that, the focus on and momentum in target shooting looks favorable. We just made the White Flyer acquisition, and while not a major success, a major one from a revenue standpoint, it's highly profitable and we merge that up with our sport shooting ammunition. And then finally, you know, you get to our core alkali powerhouse business. I mean, we have this value accelerator initiative that we're running that is going to be favorable for, you know, next year. And again, the fundamentals underlying that business are good. Every product Demand growth bigger than supply growth.
spk00: Perfect. Thank you so much, Scott.
spk15: Yep.
spk06: The next question comes from Arun Viswanathan from RBC Capital Markets. Please go ahead.
spk11: Great. Thanks for taking my question. Yeah, thanks for all your comments. I think it is quite helpful. So just wanted to zero in on a couple of those comments on slide four. You know that you're taking some decisive action here, and I think that you've laid it out as maybe a $100 million impact. And then you've also commented on a better 2024. So when I think about the numbers and how those will evolve, you know, it sounds like Q1 should be seasonally better than Q4, and also maybe less of that $100 million impact. And then Q2, you see the real inflection point from the actions you've taken. And so maybe that's, you know, in the $350 to $400 million range. And then you see maybe a little bit more improvement as well in Q3 and then seasonally softer in Q4. Is that right? And maybe you can just relate that to the PCI, which I guess dropped to $211 in Q3. So maybe you go down into the mid $100s or high $100s in Q3. Q4 of 23, but then you really see that rebound into the, you know, maybe 250 level or above in Q2. Is that how you're thinking about how the Value Accelerator Initiative kind of plays out? Thanks.
spk15: Well, I would just say that, yes, later quarters in 2024, you know, maybe are better than earlier ones, but just keep in mind in Q1, we may still be running you know, this initiative for part of the time, right? But no doubt, in order to make 2024 better than 2023, right, we have to have some quarters in the back, you know, in the middle to back half of the year that are substantially better than where we are right now. So you'll see an improvement in those.
spk11: And then just on capital allocation, as a quick follow-up, you are doing the $600 million or so leverage-free cash flow this year. So next year, I assume that that should be higher as well. Would that also be put mainly towards share repurchases, or are there activities we can expect?
spk15: Yeah. Todd, you want to catch that? Yeah.
spk13: Thanks, guys. You know, clearly we will continue to target share repurchases. But as you saw this year, we're willing to deploy some of that cash toward the white flyer acquisition. But only any type of acquisition will have to demonstrate the ability to be much better than buy-in shares. And, you know, today is an easy decision. You know, we're targeting buy-in 10% of our outstanding shares this year.
spk06: Thanks. The next question comes from Mike Sison from Wells Fargo. Please go ahead.
spk07: Hey, guys. Good morning. So you're running your operating rates below 50% or so for chloralkali. Where do you think the industry or the other major players will run in the fourth quarter? And just curious, if you ran at that level, would your impact be more than the $100 million that you're going to take for lowering your operating rates?
spk15: Hey Mike, I don't know what everybody else is doing, but I can say that our whole system is running around that 50% number. You may recall that we had predicted a certain trough level and we said that trough level assume that we could get our whole system down to 50% rates if we needed to. The reality is we could run lower than that if we had to, to have a bigger activation. But that would come at a bigger penalty than that $100 million if we were doing that. We think this is the right place to go down to. You know, it leaves us with one low number in the fourth quarter of roughly $200 million of EBITDA, which, by the way, at that level, we still have positive levered free cash flow. So, yeah, look, we have some room. I don't think we need to use it, but we have some room.
spk07: Okay. And then I guess it sounds like in Q1 you may have to run at this level. In order for you to have EBITDA above... 23 for 24, where would your operating rate need to improve to, you know, over time, 2Q, 3Q, 4Q? And can you remind us in your prior 1.5 to 2 billion EBITDA sort of recession case, what your chloralkali operating rates would need to be to sort of get back there?
spk15: Yeah. Well, I would just say we may or may not need to do this in Q1, just to be clear, right? But if we... did need to do this in Q1. In the later parts of the year, we need to bring rates up. Yeah, we can't run the whole year at 50% rates, right? And that's not our plan to do that. In our previous, you know, recession case or trough case guidance, right, which if you go back four quarters ago, it was $1.5 billion of EBITDA as the low point. that number assumed roughly 50% rates at that same pricing level. So I hope I answered your question on that.
spk06: Okay, thank you.
spk15: Okay, sure.
spk06: The next question comes from Matthew Blair from TPH. Please go ahead.
spk16: Hey, good morning. Thanks for taking my questions. Is it fair to think that the shutdowns at Freeport and St. Gabriel are going to take about a million tons of capacity out of a U.S. market that's around 14 million tons. And if those numbers are correct, is that enough to materially tighten up the market, or would you count on other producers also shutting in some capacity too?
spk15: Well, I mean, this is an Olin activation, right? I can't comment on anybody else, and it doesn't count on anybody else taking any kind of action that is similar to that. And I also won't comment on exactly what the capacity reduction is. I will just say it's significant. And it's significant enough to take our whole system, which we operate the largest system in the U.S. and the world by a long shot, all the way down to a utilization of 50% or below. So it's a big number.
spk16: Sounds good. And then, Scott, I think you mentioned that chlorine has now flipped to the weak side of the ECU. Is that just a seasonal dynamic, or is that something structural, and what are the factors driving that?
spk15: Yeah. No, it's not a seasonal dynamic, right? I mean, there are some small seasonal things at play, just like there's not as much demand going into water treatment you know, as you head into the winter season relative to heading into the summer season. But no, it's just the fact that businesses that are supported by merchant chlorine, the supply-demand situation around those relative to the supply-demand situation around the caustic world are worse off.
spk14: It's a relative issue.
spk16: Got it. Thank you. Okay.
spk06: The next question comes from Steve Byrne from Bank of America. Please go ahead.
spk17: So just following on your answer there, Scott, chlorine demand being worse off and do you have a view as to how much of the lower demand that you're seeing now for chlorine and chlorine derivatives versus, you know, two years ago, is due to just less end market demand versus destocking. Do you have the ability to split that? And potentially, is there a third bucket that's driving this, and that is end markets that are shifting to different products, just product substitution that's not a chlorinated product? Do you have a view on those three buckets? Yes.
spk15: Yeah, sure. Thanks for the question. Yeah, I mean, product substitution is pretty much a zero, you know, I would say. There's no structural issue here. So, you know, then you get back to the other buckets, right? Taking inventory out of the channel, that's a non-issue today. I mean, that was done some time ago and from month to month. That varies. That's a non-issue. This is all a temporary or transient issue around very weak demand. And that's what it is.
spk17: And is that also true for the epoxy side? Can you comment on how much of this lower demand is at least in part to low inventory levels in the channel? Is that an additional source of upside for you in 2024?
spk15: No, epoxy is totally different than that. Epoxy, there's a structural issue, right? Over the last 18 to 24 months, you know, China added about 20% to the world's productive capability for epoxy. At the same time, their demand, along with Europe's, together they constitute 75% of the world's demand, has really diminished. So you have both aspects going on in epoxy. And that's why we've had to make some structural changes to our epoxy business to be able to combat that for the long term. And we're doing some things in the short term as well. is going to have a much longer road to recovery, but it's going to be a steady methodical recovery.
spk06: Thank you.
spk14: Sure.
spk06: The next question comes from Vincent Andrews from Morgan Stanley. Please go ahead.
spk05: Thank you, and good morning, everyone. You know, just as I've been digesting this latest initiative and listening to all the Q&A on the call this morning, I guess a conclusion I'm coming to, and please correct me if this is just completely wrong, is that for you to really be successful with this initiative, you will need to see an inflection in demand at some point in the middle of next year. And I just want to hear more about that and where you think it's going to come from. And I ask it this way. You know, we're kind of halfway through earnings season maybe, and most of the companies that I'm listening to aren't really talking about an inflection in demand that next year so much as it just seems like there's a rebase in demand that's taken place versus, you know, what we saw over the last couple of years. And maybe we're back to 2019 levels or lower, but it doesn't sound like there's going to be some big, you know, snapback coming. So any comments you have on that? And, again, you know, happy to be wrong.
spk15: Yeah, yeah. No, I mean, look, this does not count. on a major inflection in demand, right? I mean, clearly we're not assuming that things are as bad as they've been the last two or three quarters for the next six quarters. That's not the assumption, you know, either. But what is, you know, you've got to remember, again, this is a co-production world. And what has happened over the last four quarters is so many companies and people have chased the strong side of the ECU that the value and the strong side certainly got minimized and it was caustic for some period of time. But at the same time, the values on the weak side were absolutely destroyed because you're actually shoving more product into weaker and weaker markets. So all of a sudden, the economics to run that game of chasing the strong side, in other words, chasing caustic, even if you have to pay customers to take away chlorine, which is what happened in China for quarters and quarters, chasing caustic, even if you have to start dumping PVC into the export markets and diminishing price and value there, which is what happened for multiple quarters, those economics don't exist anymore. So that desire to go chase the strong side has disappeared regardless of demand out there. So that attribute is happening. At the same time, we're overlaying our value accelerator initiative. Just those two things together will lift values. If there is inflection in demand, that's going to be a nice upside.
spk05: Okay. And if I could just ask on the CEO succession, could you talk a little bit about the candidate you're looking for and presumably you want someone that can run the existing playbooks But what other attributes might that person bring to the role that might be new or additive for Olin?
spk15: I think that that candidate is going to be somebody who can take Olin to the next level. In other words, their focus is going to be to take what the team has done here and build on it. So they'll endorse the value model, do a lot better with it, and they'll be very clever at capital allocations. So that's what we're looking for.
spk05: And if I can just add, clever on capital allocation means what beyond just doing share repurchases?
spk15: Well, it means finding opportunities that deliver even more value to shareholders than just share repurchases. Those may come through alliances. It may come through ventures. It's possible it could come through acquisitions just like the white flyer acquisition that we did. It's all of those things. Okay.
spk06: Thanks for all the detail. I really appreciate it. Yep.
spk15: You bet.
spk06: The next question comes from Frank Mitch from Ferrumium Research Company. Please go ahead.
spk04: Thanks so much, Scott. Congrats on a successful tenure at Olin and looking forward to to your next opportunity. I wanted to come back with comments that you said early on in the call where you went through a few products that customers are requesting chlorine, EDC, HCL, and you mentioned that you can't supply. I mean, obviously, you're showing that capacity. Are the prices that they're that they're willing to pay unattractive, is that what's causing the disconnect between your inability to satisfy these requests from customers?
spk15: Well, it's not an inability to supply, right? We are running an initiative where we have cut back operations significantly and are not participating in those markets. So if we're not participating in a market, we're not participating. So the choice is to not participate.
spk04: Understood. And so the logical follow-on is that because the prices that they're willing to pay right now are not attractive for Olin. And when you reflect that back to the customers, what sort of response are you getting? Is it simply a matter of waiting out a few weeks, a month, or a quarter, and then they'll come back and offer the prices that you do find attractive?
spk15: Look, I can't speak for every customer. But what I can say is we're not participating. So our response is we're not participating.
spk04: Okay. Okay. Thank you. And among the third quarter highlights was your ability to hold chlorine price flat despite the broader indices going lower. What's your outlook on Olin's chlorine price?
spk15: Yeah, sure. I think in this fourth quarter period, right, because we shuttered some assets and we're not participating it's very possible that our mix generates a lower chlorine price in the fourth quarter relative to the third quarter. But that's strictly a mix issue, because going back to the prior line of questioning, we're choosing not to participate. And where we may have to choose not to participate may be at higher pricing because it's more spot business than some committed contract business. So I think you'll see a mixed issue appear in the fourth quarter. But in the first quarter, I'm quite sure that chlorine price will increase again.
spk06: Very helpful. Thank you.
spk15: Okay.
spk06: The next question comes from Roger Spitz from Bank of America. Please go ahead.
spk08: Thank you very much. Maybe you've been asked this in a different way, but typically when chlorine price demand is false, then closet, which is typically a lagging indicator or demand, would become tight as prices spike when, you know, as you turn down your chloride plants. Why hasn't that happened this time?
spk15: Can you repeat that? I'm sorry, I just don't understand the question.
spk08: Sure. In the Great Recession, as we went into the Great Recession in 2007-8, demand for housing collapsed. Everyone had to turn down their chloralkalite plans because chlorine demand was poor. And because caustic demand, at least in my view, lags chlorine demand by two or three-quarters, Chlorine got extremely tight as everyone turned down their chloralkalite plants. And U.S. caustic soda prices were extremely high. And, you know, caustic is counter-cyclical. Chlorine is post-cyclical. That's typically how it happens. And you have a couple of quarters where things are great. And then after a while, I think everything goes bad. But for those first few quarters, everything is okay. Now, here we are. We're coming up a period where caustic soda prices have been falling pretty hard. But suddenly you're saying chlorine is now the weak side. So it sounds like, and you are clearly turning down your chloralkali plants. Why hasn't caustic demand tightened as chlorine has become very weak, giving some caustic pricing flexibility?
spk15: Okay, got it. Yeah, thanks for clarifying that. Look, we just started this value accelerator initiative, right? You're not going to see an instantaneous result in the trade publications, which is what most people look at in a public format. It takes some time to generate that impact. But that impact could happen. You know, the other thing to remember is that, you know, it depends on a big way what the PVC producers do as well. And at least PVC hasn't come off yet, near as much as things like the polyurethanes segment, like the ag chemicals segment, even some things like titanium dioxide, and bromine are likely a little bit weaker than PVC. So there's some work to do to get that impact to happen.
spk08: Got it. Thank you. My second question is, just to be clear on understanding how you run your chloralkali, you're running at or slightly below 50% right now. The way you do that, is that that you shut down whole trains or plants and then run what you have? you know, very high or near full? Or do you actually run trains within plants at, you know, far less than, you know, near full capacity?
spk15: Well, it's all of the above, right? But this time, because it's so significant, right, we've shut down complete sites and we've shut down complete units at larger sites.
spk08: Got it. Thank you very much for your time. Okay. Sure.
spk06: The next question is a follow-up from Jeff Sakakis from JP Morgan. Please go ahead.
spk03: Thanks very much. You talk about the shutdown of capacity as an initiative to, I think, attempt to tighten up the markets. But you also have a sort of a new trough EBITDA on an annual basis, which looks to me like it's maybe $1.3 billion, something like that. Does that new trough imply that your initiative will be successful or unsuccessful? Where does that trough estimation stand relative to the initiative that you're trying to execute?
spk15: Yeah, I mean, Jeff, I mean, yeah, I mean, I think you've got it right there that, yes, we're going to do roughly $1.3 billion this year. And, you know, that result incorporates, you know, a couple quarters where conditions have been, you know, quite challenging and we've had to pay the price to run a very deep initiative so yeah you're right i mean that's that's a trough that 1.3 billion dollars and you know that trough of course just happens to be higher than the highest peak of any prior cycle before we started running this model just fyi yeah and then and then for my follow-up the um i i think in the third quarter
spk03: the costs of the VCM plant not running were maybe about $50 million. And so in the fourth quarter, we're gonna go, well, from the third to the fourth, we're gonna go from call it 300 million to 200 million. But with the VCM plant, wouldn't that be on the margin sort of a $50 million benefit? So where is the extra margin pressure coming from in the fourth quarter? That is, why isn't the fourth quarter EBITDA more like 250 rather than 200? Yeah.
spk15: Yeah. I mean, you got it, you know, Jeff, you're right. I mean, we had an extra penalty, you know, during the third quarter of that $50 million that we don't have in the fourth quarter, right? But there's quite a number of other things you know, at play across the business. And for example, because a big chunk of our caustic business, you know, is still priced on public, you know, trade indices, those public trade indices have dropped in fourth quarter relative to third quarter. So you've got that impact going on on top of everything that we're doing as one example.
spk03: Okay, great. Thank you so much. Sure.
spk06: And our next question is a follow-up from Alexey Yefremov from KeyBank Capital Markets. Please go ahead.
spk12: Thanks for taking my follow-up. Scott, I appreciate that you don't want to comment on actions of your competitors, but I guess your strategy kind of depends on them not filling the supply deficit or supply balance that you're trying to create as your strategy. Why wouldn't your competitors just fill the room that you're creating for them?
spk15: Look, I can't comment and don't need to comment on what competitors might do. Our strategy is... totally not dependent on their actions. So I really just can't comment on that. Of course, when we pull back, those volumes might be filled in for a temporary period of time. But as they're filled in, it's a tightening of supply and demand, which gives us benefit.
spk06: Okay, thanks, Scott. Okay. As there are no further questions, this concludes our question and answer session. I would like to turn the conference back over to Scott Sutton for closing comments.
spk15: Yeah, no, I'd just say thanks a lot, Jason. Thanks to everyone for joining us today. We appreciate the questions. Thanks.
spk06: Thank you for attending today's presentation. You may now disconnect.
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