Welcome to the Chemtrade Logistics Income Fund Q2 2023 conference and webcast. For the first part of this call, all participants will be in listen-only mode, so there's no need to mute your own individual lines, and afterwards, there'll be a question-and-answer session. I'll now please present Rohit Bhardwaj. Please begin your meeting.
Thank you, Mark. Good morning, and thank you for attending Chemtrade Logistics Income Fund's earnings conference call for the second quarter of 2023. With me on today's call is Scott Rook, President and CEO of Chemtrade. I will begin this morning's call by discussing our second quarter results and the current 2023 guidance. I will then hand the call over to Scott to provide more color on our outlook for the balance of this year and beyond. We will open the call for analyst Q&A. Please note that this call has an accompanying presentation available on our website, chemtradelogistics.com. Before proceeding, please note that our presentation contains certain forward-looking statements that are based on current expectations and are subject to a number of risks and uncertainties. Actual results may differ materially.
Further information identifying risks, uncertainties, and assumptions, and additional information on certain non-IFRS and other financial measures referred to in this call can be found in the disclosure documents filed by Chemtrade with the securities regulatory authorities available on sedarplus.ca. One of the measures that we refer to in this call is adjusted EBITDA, which is EBITDA modified to exclude non-cash items such as unrealized foreign exchange gains and losses. Although our accompanying presentation will refer to adjusted EBITDA, we will refer to it as simply EBITDA in our remarks. Non-IFRS and other financial measures are fully defined in our MD&A. The second quarter of 2023 continued to build on our recent track record of strong performance. EBITDA for the period was CAD 144.2 million, which is our best quarter ever.
The strong results reflect ongoing strength across many of our key products, as well as the increased focus we have placed on the operational reliability and productivity in recent years. Some areas of particular strength this quarter included sodium chlorate, water solutions products, and Regen acid, each of which we will provide more commentary on shortly. In Q2 2023, our consolidated revenue increased by 5%, whereas EBITDA increased by 76%, and distributable cash increased by 268% compared to the prior year period. However, when comparing our Q2 results year-over-year, it is important to note that the prior year period was affected by two unique items. First, we had our biennial maintenance turnaround at North Vancouver, which we previously quantified as having a negative impact on EBITDA of approximately CAD 17.1 million.
Second, we also had approximately CAD 3.9 million of costs in Q2 2022 related to the decision to close our Beauharnois sodium chlorate facility. Results for Q2 2023 benefited from a weaker Canadian dollar relative to the U.S. dollar, resulting in a CAD 8.6 million benefit to EBITDA. More than half of the improvement in EBITDA was due to significantly better performance across a few product lines, and the balance due to the items I just mentioned. Net of these items I just mentioned, revenue for the quarter was CAD 12.6 million lower than Q2 2022.
Higher pricing for water solutions products and sodium chlorate, as well as higher sales volumes for Regen acid in the SWC segment, were not enough to fully offset lower selling prices for merchant acid in the SWC segment and lower sales volumes of sodium chlorate in the EC segment. Again, net of the above-mentioned items, EBITDA for the period was CAD 32.9 million higher than Q2 2022. This was attributed to higher gross profit for sodium chlorate, solutions products, and Regen acid. In addition, while caustic soda pricing has come down from its 2022 highs, as previously communicated, this impact has been more than offset by continued strength in chlorine and hydrochloric acid. We believe this is noteworthy as some investors continue to view Chemtrade as a caustic-driven story, even though we are delivering record results while realizing softer caustic soda pricing.
On a year-over-year basis, realized MECU netbacks are up $45, while realized caustic soda pricing has declined during that period. In what is a challenging market for many chemical companies, the strength of our diversified portfolio is coming through. Given our record first half results and improved visibility for the second half of the year in June, we announced an increase to our full year 23 guidance to have EBITDA greater than $450 million, another record for Chemtrade. We remain confident in this outlook, which takes into account recent declines in the Northeast Asia spot prices for caustic soda. We'll speak more to this guidance momentarily. At the conclusion of the second quarter, our balance sheet remains strong. The net debt to EBITDA ratio stood at 1.8 times compared to 2.2 at the end of 22.
Our distribution of $0.05 per month provides a very attractive return for unitholders, representing a distribution yield of approximately 7% based on yesterday's closing unit price. The distribution remains well covered by our cash flows, with a payout ratio on the last 12-month basis of only 22%. In our future capital allocation plans, we remain dedicated to the three essential pillars: maintaining the strength of our balance sheet, providing returns to our unitholders, and investing in growth to generate long-term value for our unitholders. We expect our unit leverage to be below 2.2x. Moving to our segmented performance. In Q2 2023, the Sulphur and Water Chemicals, or SWC segment, generated revenue of $280.3 million, an increase of 4% over Q2 2022.
EBITDA for the quarter was CAD 73.2 million, an increase of 34% over the 2Q 2022. The weaker Canadian dollar had a positive impact of CAD 12 million on revenues and CAD 3 million on EBITDA. Adjusting for foreign exchange, revenue declined by less than 1%, and EBITDA increased by 29%. Revenue benefited from higher pricing for water solutions products and higher volumes of Regen acid, but was offset by lower merchant acid selling prices, primarily due to lower sulphur costs. However, the lower merchant acid pricing had a limited impact on EBITDA. The increase in EBITDA was driven by higher selling prices and improved margins for our water solutions products. Pricing for these products has caught up with raw material costs, as we previously discussed.
We also realized higher Regen acid sales volumes, reflecting strong refinery demand following our customers' turnaround activity in Q1. Our Electrochemicals or EC segment generated revenue of CAD 189.7 million in Q2, an increase of 7% year-over-year. EBITDA was also up 84% year-over-year to CAD 93.3 million. As I previously noted, the biennial maintenance turnaround at North Vancouver last year and the expense related to the Beauharnois plant closure, had a combined negative impact of CAD 21 million on EBITDA in Q2 2022. The EC segment benefited from a weaker Canadian dollar that improved EBITDA by CAD 6.3 million in Q2 2023. After adjusting for these items, EBITDA for the EC segment still increased by 21% year-over-year. The strong results for the quarter were achieved even though caustic soda prices were lower.
In fact, despite the lower prices of caustic soda, our realized MECU netbacks were still up by $45 year-over-year. Realized netbacks for these two products were significantly above the prior year quarter and more than offset weaker caustic soda prices. Chlorine continued to benefit from favorable market dynamics compared to recent years, including reduced industrial supply, while HCl continued to benefit from improved North American fracking activity. The EC segment has also benefited from significantly higher selling prices for sodium chlorate compared to the prior year period. This was due to price increases implemented earlier in the year, reflecting tighter North American industry supply and a global shift in operating rates caused by the higher overseas energy costs.
Improved margins for sodium chlorate accounted for approximately 80% of the improvement in gross profit for the second quarter of 2023 relative to the second quarter of 2022. Our Brazil business also continued to perform well in Q2, supported by strong results from chlorate, chlorine, and HCl. As a result, the Brazil business is on track for a record year in 2023. Looking now at our corporate costs. Our corporate costs for Q2 2023 were CAD 22.3 million, CAD 1.5 million more than the prior year period. The decline is attributed to lower Long-Term Incentive Plan costs of CAD 2 million year-over-year, and CAD 1.4 million of higher realized foreign exchange gains year-over-year. This was partially offset by higher short-term incentive compensation costs of CAD 500,000 year-over-year.
Overall, these corporate costs were broadly in line with our expectations. Switching over now to our balance sheet. We continued to reduce our financial leverage and strengthen our balance sheet in Q2. Our net debt to EBITDA ratio at the end of the period decreased to 1.8x from 2.2 at the end of 2022. This improvement reflects the strong EBITDA growth and related cash flow generation we have realized. Reflecting our updated assumptions capital expenditure guidance for 2023, we now expect net debt to EBITDA to remain below 2.2x for the balance of the year. During the second quarter, we redeemed the full principal amount of the debentures that were set to mature in May 2024. This reflects our strategy to reduce debentures as a proportion of our capital structure moving forward.
We have reduced the outstanding principal amount of debentures on our balance sheet by 18% since 2022 year end. We funded this recent redemption through a combination of our debenture issuance we completed in Q1, our revolving credit facilities, and cash on hand. Chemtrade entered the period with U.S. $358.1 million undrawn on our revolving credit facilities. In addition to CAD 34.3 million of cash on hand. Our next debt maturity is not until September 2025. The company remains well positioned with significant financial flexibility moving forward. Turning now to our guidance. Yesterday, we reiterated the 2023 guidance that we provided in June, which calls for 2023 EBITDA of greater than $450 million.
If we are able to achieve this result, Chemtrade's 2023 EBITDA would surpass the previous record earnings set in 2022 by more than CAD 19 million. The biggest factors that have led to this guidance increase are the robust results we generated through the first half of 2023, and improved visibility for our performance for the balance of the year. We have updated the assumptions that underlie the updated 2023 guidance in our disclosure documents, including for MECU and sodium chlorate sales volumes, MECU pricing, and caustic soda pricing. I would like to reinforce once again that we expect to generate record EBITDA this year, despite lower caustic soda pricing, which is reflected in our updated assumptions. Overall, 2023 is shaping up to be another great year for Chemtrade. Our portfolio has remained resilient, and we continue to generate strong results.
We believe the defensive nature of our portfolio positions us well for any potential upcoming economic weakness, and we have a strong balance sheet in place that positions us with significant financial flexibility moving forward. Meanwhile, we continue to return capital to our unit holders through our CAD 0.05 per month distribution, which we believe is very sustainable, as highlighted by an implied payout ratio in 2023 of over 30% or lower based on our updated assumptions. I will now turn the call over to Scott, who will provide more commentary on our outlook. Scott?
Thank you, Rohit. Good morning, everyone. It's great to be with you all today. As Rohit just highlighted, we had another very strong quarter. I'm really pleased with how this year is looking. I want to take a minute to thank all Chemtrade employees. I'm extremely proud of the Chemtrade team. Their focus and execution have helped drive the impressive results we've generated in the first half of this year. Across all levels of the organization, our employees have been executing at a very high level. Thank you for all the hard work. Our results have also been supported by several favorable global macro trends that we expect to continue for the coming years. We have spoken to these dynamics before. I'd like to spend a couple of minutes discussing Chemtrade's advantaged position in three areas of our business.
First, our Electrochemicals business is benefiting from elevated energy costs overseas. Chemtrade's access to regulated, renewable hydroelectric energy puts us in an enviable position relative to competitors in higher energy cost regions. We've seen improving pricing across chlorate, chlorine, and hydrochloric acid, as well as improved North American demand for chlorate and HCl because of this dynamic. Second, as the top North American supplier of UltraPure acid to the semiconductor industry, we are well positioned to capitalize on the incredible demand growth for UltraPure acid anticipated over the next 5 years. The semiconductor industry is focused on building production in North America, and this will result in a 2-3x growth in UltraPure demand, and an upgrading of UltraPure quality in North America.
We have previously announced two projects to further strengthen our market position in North America and capitalize on this opportunity, which I will provide an update on shortly. Third, Chemtrade is the top supplier of water chemicals to municipal drinking water plants in North America. Increasing regulations and population growth are supporting increased demand for the coagulants we produce. We also continue to evaluate and pursue opportunities to capitalize on higher growth areas of the water chemicals market as well, such as PAC and ACH. None of these market trends are short term in nature. Rather, we believe they'll support organic growth at Chemtrade over the medium and long term, and we, as an organization, are ensuring that we take the necessary actions to take advantage of these trends in a capital responsive manner. Turning now to the outlook for our SWC products, specifically.
In sulphuric acid, Regen acid demand remains strong, supported by high refinery utilization rates and driving activity. We do not anticipate any material changes to this dynamic during the remainder of this year. In addition, refinery utilization rates tend to remain high in a typical recession, we would therefore expect regen demand to see limited impact if a recession were to occur. Merchant acid demand is down slightly. Pricing for merchant acid has begun to weaken, tracking lower sulphur prices. We expect any softening to be mitigated by the risk-sharing agreements we have in place for our merchant acid, lower input costs for merchant acid that we manufacture. Recently, the strength we've seen in regen has more than offset any weakness in the merchant acid market, we expect this will remain true through the end of the year.
I have already spoken to the favorable tailwinds we are seeing in UltraPure acid over the medium and long term. It will admittedly take time for the additional semiconductor production to come online in North America. This is a significant opportunity over the coming years that we will be well positioned to take advantage of. For our water solutions products, as Rohit noted, Chemtrade is now seeing the impact of pricing catching up to the higher raw, raw material costs we incurred last year. This is one of the key drivers of the strong SWC EBITDA results in Q2. We will continue to benefit from this trend in the second half of this year. If a recession occurs, we believe we'll see further improvements in water solution margins if raw material costs continue to fall.
Water solution products are essential for clean, potable water and are therefore largely non-discretionary. If an economic recession were to take hold, we expect demand would not be impacted. Over the medium term, we anticipate continued organic growth in water chemicals, given the macro trends I highlighted earlier. Overall, given the strength we've seen in regen demand, the margin improvements we've realized in water chemicals, the organic growth outlook for the segment, we believe the outlook for our SWC segment remains positive for the second half of this year and beyond. Moving now to the outlook for our Electrochemicals segment. We continue to benefit from favorable market conditions in our EC segment, supported in part by our advantaged energy position relative to competitors in higher energy cost regions.
We are extremely pleased with our results in the first half of this year, and we're confident in the long-term prospects of our business in general and this segment in particular. However, as you would no doubt infer from our 2023 EBITDA guidance, we are anticipating a softer second half of 2023 relative to the record results achieved in the first half. This is due to market softness for the pulp mill market in Western Canada, which has led to curtailments and thus reduced demand for sodium chlorate. We are assuming that there's no recovery in Northeast Asia Spot Index price for caustic soda in the third quarter, which will set our fourth quarter pricing.
While we expect strong market conditions for chlorine and HCl, we expect that they will not be quite as strong as they were in the first half of this year. For sodium chlorate, higher energy costs have led to the idling of some European producers' supply and generally higher cost to produce sodium chlorate. This has led to significantly higher pricing for sodium chlorate in North America. We expect to continue to benefit from the higher pricing and margins through the remainder of this year, despite some lower sales volumes. Should a recession occur, we may see some industrial end market softening for sodium chlorate. However, we anticipate that our favorable energy position will help to mitigate that downside. Our Brandon, Manitoba sodium chlorate plant is among the largest and lowest cost sodium chlorate plants globally, positioning Chemtrade very well into the future.
For chlor-alkali, I would first like to begin noting that we were pleased to see a resolution of the labor strike at the BC port. While the strike itself was not prolonged, the threat of a looming strike can cause disruptions. This can happen as various parties prepare for the potential impact and put curtailments in place. Fortunately, they were able to resolve the labor dispute quickly, and we expect any impact on our results in Q3 to be minor. Looking at the outlook for chlor-alkali markets, as highlighted by the price improvements on a MECU basis that we realized in the second quarter, the improved pricing we have seen in chlorine and HCl will more than offset the softer pricing in caustic soda.
For merchant chlorine, the North American market remains tight following capacity rationalizations that have larger domestic chlor-alkali producers have implemented over the past few years. As a result, merchant chlorine demand has remained relatively solid. In HCl, increased natural gas export demand resulting from higher overseas energy costs has further bolstered the North American industry, while also contributing to higher prices. Rig counts have remained relatively stable on a year-over-year basis and well above 2020 and 2021 levels, signaling continued strong demand for HCl entering the second half of this year. In our updated guidance assumptions, you'll see that we expect 2023 MECU sales volumes to be slightly lower than in 2022. On the other side of the chlor-alkali chain, caustic soda pricing has weakened in 2023 from historically high levels we saw last year.
Industry experts have attributed this dynamic to buyers overstocking inventory last year and destocking through the first half of this year. Encouragingly, industry experts believe that cost of caustic soda pricing has now reached a trough and will increase during the remainder of this year, with additional pricing improvements over the next several years. Taiwan contract prices for caustic soda, which are an indicator for the Northeast Asia Spot Index, tell a similar story of stabilization and improvement from current levels. I would like to reiterate Rohit's point that our 2023 guidance reflects the lower caustic soda pricing we have seen in the market. With our sales prices for caustic in Q3 based on Northeast Asia during Q2, we already have visibility into our pricing for caustic in the third quarter.
Our updated guidance assumptions for caustic soda pricing in 2023 implies a Northeast Asia Spot Index of U.S. $340 per ton for Q2 and Q3. This will influence our realized pricing for the second half of this year. As a reminder, every $50 per ton change has a roughly $13 million impact to our annual EBITDA. If a recession were to occur, the ultimate impact on our chlor-alkali business would be determined by the relative impact on demand between caustic and chlorine, which could prove to be a net benefit to Chemtrade. In addition, should Northeast Asia caustic soda prices increase as expected in the coming years, Chemtrade would stand to benefit significantly.
However, as we have shown with our results today, Chemtrade can deliver strong consolidated, consolidated results irrespective of caustic soda pricing, given our strategic and diversified business model and the varied macro trends across our business. Moving along, I would now like to provide you with a brief update on our organic growth projects. As part of the updated guidance assumptions we disclosed yesterday, Chemtrade now plans to allocate CAD 70 million-CAD 100 million for growth capital In 2023. These funds will be primarily directed towards our Cairo expansion, number one. Second, quality upgrades in UltraPure sulphuric acid at our other plants, and also some water, water organic growth projects.
This is below our previously communicated growth CapEx of $110 million-$140 million and reflects the delay to our Casa Grande UltraPure acid project that we announced in June. To provide a little more detail on the Casa Grande project, Based on our Front-End Engineering Design or FEED study that we completed in the first quarter, we determined that the updated capital cost for our joint venture is U.S. $300 million-$380 million. That updated estimate is approximately 50% higher than the initial estimate of $175 million-$250 million. About half of this increase is due to higher estimated labor costs to build the plant, with the remaining increase attributable to higher costs related to equipment and changes in scope to ensure regulatory compliance.
After reevaluating the economics of this project with our joint venture partner, we made the decision to put this project on hold temporarily. This will allow us time to make sure that commercial agreements negotiated with our UltraPure customers will ensure the project will generate an acceptable level of return. We expect to have additional information to share on this project in the months to come. Our Cairo, Ohio, UltraPure expansion and quality upgrade project continues to move forward on schedule and on budget. As a reminder, this project is estimated to cost $50 million-$55 million and will generate an IRR of over 25%. Construction is expected to be completed in the first quarter 2024, with startup of the plant later in the year, with commercial ramp-up expected in 2025.
The Cairo facility will be the first in North America to meet the new higher quality standards required for the smaller node chips, which the fabs are currently being constructed will demand. We have limited updates to provide on our other organic growth opportunities at this time, including those for water chemicals and hydrogen. We will provide an update on those projects when we have something more material to share. We continue to be prudent with respect to our investments in organic growth to ensure that any capital invested will generate an adequate return on investment. Before opening the call to questions and answers, I would like to conclude by highlighting some of the characteristics that make us different from many other chemical manufacturers and instills with confidence moving forward. Our product portfolio remains a key significant strength.
We have a diversified product portfolio with significant regional market share across most of our key products, and many of these products exhibit some resistance to economic downturns. Chemtrade has unique opportunities for organic growth. The combination of defensiveness and growth puts us in an advantaged position, we believe. If a recession were to take hold, we anticipate that many of our key products would see a limited impact on demand. This includes water solutions, as well as Regen acid that are typically less sensitive to consumer discretionary spending. From a macro perspective, our electrochemical products and UltraPure acid are benefiting from the global trends that we expect will continue and could mitigate the impact of a recession. These are tailwinds that we anticipate will, will last years, not months, and we're investing to capitalize on these opportunities where economic returns justify doing so.
To position Chemtrade to take advantage of attractive investment opportunities while also positioning the company for a potential economic downturn and an environment of higher interest rates, we have materially strengthened our balance sheet. Our leverage ratio of 1.8 and our financial flexibility give Chemtrade significant optionality moving forward. We also continue to return capital to unitholders. Chemtrade remains or maintains our CAD 0.05 per unit monthly distribution, which equates to a 7% distribution yield. This distribution remains very well covered by our cash flows, with a payout ratio for the last 12 months of only 22%. We'll continue balancing our capital allocation priorities of investing in growth, returning capital to unitholders, and maintaining balance sheet strength moving forward. Finally, we strive to be a leader in the industry on ESG.
I would point you to our recently released sustainability report, available on our website for our latest progress on this front. To recap, we have established a culture of operational excellence. We have a diversified portfolio with significant regional market share that's benefiting from multiple long-term tailwinds. Our portfolio offers a compelling combination of defensiveness and growth. We have a strong balance sheet, we have an attractive distribution, and we are taking a leadership position in ESG, and we're generating record earnings. We believe that despite all these positive attributes, Chemtrade or we believe we are undervalued with investors, as evidenced by our, our valuation. As an organization, we're focused on continuing to build the track record of strong performance and reliability that we have established in recent years. As we continue to do so, we believe the value we have established will be increasingly appreciated.
Thank you. Rohit and I would now be happy to take any questions you may have.
Thank you. If you'd like to ask a question, please dial zero. Sorry, star one on your telephone keypads now to enter the queue. Once your name is announced, you can ask your question. If you find your question is answered before it's your turn to speak, you can dial star two to cancel. Once again, that's star one to ask a question, or star two if you'd like to cancel. Our first question comes from the line of Ben Isaacson of Scotiabank. Please go ahead. one second. Please go ahead. Your line is open.
Thank you very much, and good morning, everyone. Congratulations on the quarter.... 3 questions, if I may. They're brief. The first one is on caustic. Rohit, you mentioned that investors have a view that Chemtrade has been a caustic-driven story, and that's not the case today. Can you just give us some numbers around that? How much of EBITDA, however you want to define it, on a run rate basis, Q2, whatever it may be, is caustic soda, and where has that come from? Thank you.
Okay. I, I don't think we're gonna do exactly that, but I'll tell you what we have said in our public disclosure that will help you. We disclose, you know, where we think the Northeast Asia Spot Index is, and what we're using for, you know, the current quarter versus previous quarters. If you look at the difference there, you will see that that index has moved by, you know, about $300 per ton. We also disclose our MECU volume. If you look at what MECU volume we disclose, if you multiply that by 1.12, it gives you your caustic volume. When you do those two things together, it'll tell you just how much of a negative delta there was in 2023 versus 2022.
Given that our earnings are up, that tells you that the balance is coming from, you know, the other two sides of the molecule disclosure in HCl. The other disclosure we gave you this time, which is the first time we've done this, is that if you look at Q2 of this year versus Q2 of last year, and you look at the gross profit generated by the EC segment, the entire segment, 80% of that came from sodium chlorate. While I won't dissect, you know, exactly how much EBITDA is from each, each molecule, this will, I think, give you enough data that you can kind of figure out the, the, you know, the, the, the importance of the, of the, the chemicals in the segment.
That's perfect. That's helpful. Next question is, Scott, you mentioned, or actually both of you mentioned that capital allocation, you're focused on preserving the balance sheet, investing in growth and returns to unit holders. Scott, you also mentioned that you believe the valuation of the stock is low. Given both comments about returns to unit holders, I think you said that the trailing 12 months payout ratio is 22%, and the midpoint of guide is around 30%. Considering that you're pulling back on CapEx on one of your big growth projects, is now the time to start considering increasing distributions or potentially a buyback? How should unit holders think about enhanced returns going forward?
Yeah. so Ben, thanks. Those are discussions that Rohit and I have with, with the board, so we are focused on, on creating or maximizing value as we go forward. and those the ideas that we consider are, are investments in organic growth. Then we'll also look at we'll look at the distribution, we'll look at the number of units and consider all of those, then have that discussion with, with the board, and our board gets to make the, the, the final call on that based on, on our recommendations.
I think one piece I can add is, while we have put the Arizona project on hold, you know, we have put it on hold, so in the sense that we're not, we are saying we want to make sure we get a adequate return. We have a number of growth opportunities in front of us. That was definitely one that we're excited about. So, so it's not like we are saying that if that doesn't happen for some reason, we aren't going to grow the business. At this stage, you know, we think that we provide a decent return to shareholders, but as Scott said, it's something that's looked at.
That's fair. That actually is a good segue into my final question, which is, Can you... I mean, other than looking at commodity prices, fluctuating every day, can you talk about what investors should expect as the key catalysts over the next 12 months? What should we expect that's gonna move the stock forward beyond looking at commodity prices?
Moving the stock forward is a different, you know, is kind of not in our control. What we can tell you, what are the catalysts for our business. We think that, you know, the global energy, you know, complex is important for our business. We think that some of the easing that took place in Europe, in energy of recently is transient in nature. I think Europe overstocked on natural gas last year. They had a mild winter, then liquidated that inventory, but when they replace that inventory, it has to be at a higher cost. We think that that's a change that, you know, will start to get reflected some more.
In terms of our own, you know, what's the catalyst for our stock, all we can say is that, you know, we would like to get back into the index. I think we are not that far away from, from getting back in the index, and that should be positive for the stock. Finally, we are trying to, you know, reinforce our messaging to institutional holders that we hope will find us, you know, more attractive because since our payout ratio is so low, if we have investors who are focused just on the yield, they're missing out on the big story here, which is that more than 70%-80% of our cash is being withheld by us to grow the business. To just value us on the basis of our dividend is probably not the right thing to do.
I think those are some of the things that, you know, we're trying to communicate to investors and prospective investors.
We'll, you know, let's, the, the performance at Chemtrade has, is significantly different now than, than it was three years or so ago. I think and I would refer back to, to the macro trends that, that we talked about. The, the improved performance, in addition to being our, our focus on reliability and productivity, is really the improved energy position that we have, and that, that will continue. That will enable our business to, to remain strong. That's very important. The growth in UltraPure and our UltraPure business is significant. If you think about, well, well, the next 12 months, but also the, you know, the, the next three years, the demand for UltraPure acid should triple during that time, that's gonna be very significant for Chemtrade.
Then finally, the water, our water solutions business is growing nicely. We're very pleased with the results. We talked about the, you know, the improvement in the water business, and I think that's going to remain as well. I, you know, I think our results that we have shared are strong results, and those macro trends will remain in, in place, you know, certainly for, for the next several years.
If I can just add one thing. If people who are worried about the short term and thinking there might be an economic slowdown or recession, we do like to reinforce two things. One is we have a lot of defensive attributes to our portfolio, and we are, if we are entering a uncertain time, we're entering it with a very strong balance sheet. You know, if people are concerned about... Because we know a lot of our chemical industry players have been taking down earnings while we are, you know, announcing a record year. We are trying to also differentiate ourselves from the industry because there are attributes to our business that are pretty unique to us.
That's a great color. Thanks so much. Appreciate it.
Welcome.
Thank you. Our next question comes from the line of Jacob Bout at CIBC. Please go ahead. Your line is open.
Good morning.
Morning.
Good morning.
You're maintaining your EBITDA guidance of greater than CAD 450 million. You know, it implies the second half could be, you know, let's call it approximately CAD 100 million less in EBITDA. You know, what are some of the - what are the buckets here that we should be looking at to account for that CAD 100 million? I mean, it can't all be caustic, right?
That, that's right. Jacob, three things that we would call your, your attention to. The first, and this is pretty easy to calculate, is the, the drop that we've all seen in Northeast Asia, caustic soda spot prices. Pretty easy to calculate, looking at that index and seeing, and seeing that. As we look at the second half of, of this year, there's already, you know, Well, there's already, insight into what Q3 is going to be because of our Q3 is, is decided based on Q2. We'd call your attention to caustic soda. Next, the number two on that list, is sodium chlorate, and that's coming from, you know, I, I talked about the weakness in the, in the Canadian, pulp industry.
A couple of months ago, there was an announcement, that 1, 1 pulp mill was closing. That, so that's, that has already happened. Last week, there was an announcement that from another pulp mill that they were going to close, and then our team, I think we feel that it's, that it's possible what we have built in is that there, there could be another pulp mill closure, in the second half of this year. That's how, that's how we've, we've built that in. Third, we have, we have more turnaround activity in Q3 than we did in Q2. Our first half of this year results, we, we know are exceptionally strong. It, it's the, the best performance that we've had in Chemtrade ever.
As we look at the 2nd half, we do see things being a little softer in the 2nd half, and that's primarily due to those 3 things. It's caustic, the weaker, weaker pulp market, as well as some more turnaround activity in Q3.
On the, on the chlorate side, this lower production, that you're, you're forecasting and the likelihood of another shutdown, that means that these volumes are gonna be, you know.
I-
Is how we should be thinking about that longer term, lower volume?
No, let me, let me jump in there. I think, if you look at our modified assumptions, and you-
Mm-hmm.
We disclose, we disclose our volume for chlorate that we've actually achieved. You will see that the half-on-half volume is not that different. What's happened is there has been a shift in customer mix. As we've lost or as there's been, you know, some higher priced or higher margin customers that have taken shutdowns, et cetera, we're able to re-replace that volume, but not at the same attractive margins because they're freight, we got to take into account, et cetera. It's not. Volume, I think, is probably not going to go lower. I think it's, it's just a question of, you know, as we leave... Because, because chlorate is not a spot business, so it takes time to, you know, kind of rebalance out the portfolio.
In the short term, you, you are able to find some business, but maybe not as, as nice a margin as you would like.
Gotcha. Then the putting the Arizona UltraPure project on, on hold, you know, what discussions are, are going on now? You know, is there a risk of, of losing market leadership for UltraPure as a result of this decision?
Yes. I'll let me start with the, with your, your second question first. The, the risk that we'll lose our market position is very, very low. We are committed, Chemtrade's committed to being the, the market leader, and I see I don't see the risk of losing that at all. I will say that as the.
Sorry, what... Sorry, why don't, why don't you see that? I mean, is there no one else on the horizon or, or?
Yeah, that, that, that's correct. We, we are, as we look at, at, at the market, so we have our expansions, we have the joint venture expansions, there are some other minor expansions taking place. As we see the, the, the market, we're, I believe, I believe firmly that we'll maintain our leadership position in this market. I'll talk about the delay. What we've seen as, as the large fabs are, are being built in the U.S. right now, every one of those fabs are experiencing delays, and most of them are experiencing cost overruns. The delays, TSMC has been public with their expansion in Arizona is a year behind their, well, a year behind schedule.
We also think that, that many of the other fabs are going to be late as well. Again, the, the delays are coming to some of our, our, as we understand from what we, what we read, are due to the same reasons that we have experienced with building the joint venture: labor. Labor is tight, it's expensive, and it's hard to come by. When we looked at building the plant in Arizona, coming up with labor to build the plant was actually a significant issue. If you, if you read public reports, reports from TSMC, I think TSMC have found the same thing, and I think that's happening at other places.
That, that doesn't mean that they're, you know, they're not gonna build it. TSMC are moving forward for sure. They're, they'll be finishing their first plant, and I think, and they've already made public that they've, they've already broken ground and started production on their second fab. You have Intel as well. The fabs are, the fabs are getting built, but it's, it's a reality in the U.S. that, that labor is an issue, it's expensive, and it's hard to come by, and so that's causing delays. Again, that's public. I think that. We have delayed the project. We're working through, and we're having the, the discussions. We have a joint venture. We're having the, the discussions with the joint venture partner that, that these costs are real.
It's labor as well as materials, and those costs need to be passed through. At the end of the day, the fabs will have to agree to those higher prices. I believe that they will. We are the only company that has-- the only joint venture that has announced expansions like this. I believe the market needs it. I think the market has to have it, so I do think that the plant's gonna get built. We're working to, I'll say, to finalize the commercial agreement so that we can get started.
Jacob, I just want to finish. I, I, I want to just add one comment on the chlorate, because I think we went down a path of trying to look at volume, and while that's interesting, we're really focused on, you know, on optimizing margin here. If you look at quarter-over-quarter, you know, our volume in chlorate of the year-over-year is projected to be down by over 20%, and yet we are generating a lot more margin. Really, I don't think this is a business where we necessarily will chase, chase volume. We are really looking at optimizing margin in this business.
That's helpful. Thank you.
Thank you. Our next question comes from the line of Joel Jackson at BMO Capital Markets. Please go ahead, you're on now.
Hi, good morning. Just looking at 2024, can you talk about, one, what would growth capital look like in 2024, assuming that, you know, Arizona project doesn't come back? You kind of addressed kind of the chlorate question for 2024 going forward, Jacob. On the chlor-alkali side, even with the turnaround in North Van, I mean, you did quite well in 2022. You had pretty good volumes at North Van and chlor-alkali. Like, what could we expect in 2024 with a turnaround at North Van?
Okay, let me first, you know, talk about the growth CapEx. If Arizona doesn't go through, then, you know, we will probably not have a lot of growth CapEx in 2024, although we'll be telling you what we are planning to do. We may not necessarily spend that money, you know, early in the year, but we'll definitely have some, you know, some, we'll have some thoughts as to what else we could do. We'll, we'll give you an update, you know, at the right time. We're still hopeful that we will be, we will execute on Arizona, but if not, we have some other thoughts. You know, we wouldn't rule out kind of a, an acquisition that might make sense too, but those are all things for down the road.
In terms of the North Van turnaround, you know, we will have the normal turnaround. Last time we quantified it at $17 million. A big chunk of that is lost sales or marginal lost sales. It really depend on where, where caustic is. We would, we would love it to be a big number, frankly, because that means caustic is back up to being pretty high, and so are the other two sides of the molecule. You know, it'll, it'll be hard to, at this stage for us to quantify what the financial impact might be. We don't, you know, we don't expect the duration of the turnaround to be any different from last time. We did a good job last time. We expect to do the same this time around.
I mean, you can't even tell from the results that you even had a turnaround at North Van in 2022. Would you expect the same thing in 2024 from a volume perspective?
Yeah. I mean, the volumes we're running at right now, we could. You know, what we did in 2022 was, yes, we, we took the, you know, the few weeks outage, but we were able to run at high rates. It'll depend, it depends a little bit on, you know, seasonality and what's happening in chlorine demand and. It is, it is conceivable that with the turnaround, we could still have the same volume as 2022.
Okay. Thinking a little bit longer term staying with North Van, can you give me an idea, or give us an idea of, you know, what is kind of the EBITDA ranges that North Van is earning? You know, like good years, bad years, average years.
You know, as you start facing some of the restrictions, coming into Vancouver in about 6 years, 6.5 years, you know, what are some of the strategies you can do to try to retain some of that earnings? What are you thinking about now? Even, you know, it's not that far away, but it's a bit far away, but it's not that far away.
I think, you know, firstly, I don't think we're going to give you the chlor-alkali, you know, range. What we will do is, you know, in the next little while, we'll probably give an indication of what our aggregate range of EBITDA could be, you know, mid-cycle, high, top cycle, bottom cycle. We'll probably do it at an aggregate level. In terms of your question on North Vancouver, there are many options we are considering. I mean, there are many things we can be, that can be done in that business longer term, but at this stage, I don't know if we want to get into the options. I'll let Scott, you know, see if he wants to add some comments on North Vancouver.
Yeah. Joel, you know, we are, we're actually spending quite a bit of time thinking about the options at North Vancouver and having discussions along those. I, I will point out and say what, what we are, what we are sharing is that the chlorine, chlorine that we produce in North Vancouver is used to treat, whether either directly or through bleach, but it's used to treat 70% of the drinking water in Western Canada. We think that's a very important data point, that it's important for government, for government representatives as well as the district to know and realize.
So we don't think that there, that Western Canada would have very good options for chlorine, let's say, if, if there were other options for, for that site.
Okay. Thank you for that. Finally, in water treatment, can you talk about any progress, any anecdotes you've made in pushing some of the higher margin, higher value water treatment products you're working on for years, but I think of the process better understood?
Yeah, better understood. We're very happy with, with the, with, the results in water chemicals. The results have been improving, really nicely over the past three years. It's really there's several things going on. Number one is, is pricing. We're happy with, with, with, with pricing. The team has pushed prices. We have, for the past two years, we have been, we've always been, let's say, a third of a step behind in a, in rising raw material market. You know, our, our Water business, as we communicate frequently, sells to city municipalities under annual, fixed price contracts. That's the way that this, this market works. When...
We take the raw material risk, so as raw materials go, go up, we'll, we're always playing catch up with that. That's, that has been going on. We've seen raw materials drop, as well as our team has been very aggressive with pushing price. Number two, we have been focused on improving reliability and getting greater output from our assets, and that's happening. We have a productivity initiative that's going on. Thirdly, we have been adding capacity with our PAC and ACH business. When we see, let's say, we talk about market growth of city municipalities or the alum business, that's typically 1%-2% volume growth a year.
With our more specialty products, PAC and ACH, that goes into also to, to cities, but also industrial users, and that market growth has been 10% or, or more. At Chemtrade, we have been, I'll say we have, we have been working hard to keep up with growing demand for the past couple of years. We've improved the performance of our plants. We've added to our capacity, and as we add, add to our capacity, we're, we're seeing volume growth there. We're continuing, continuing to aggressively run our PAC and ACH plants better, as well as make debottleneck improvements to our existing plants, and we think that's gonna continue to happen.
We, we, we like the space, and I think there's we've, we've had we've had nice improvements in this business over the past three years, and we're spending more time thinking about what we want this business to be look like two to three years from now.
Thank you.
Thank you. Our next question comes from the line of Steven Hansen at Raymond James. Please go ahead. Your line is open.
Yeah. Hi, guys. Thanks for the time. Scott, question for you. Appreciate your earlier comments on TSMC and the challenges the other semis are having in their fab construction. If we just take a step back for a moment, if your JV project does not go ahead, how feasible do you think it is for those parties to import international volumes? I'm just trying to get an understand here how important it is for your expansion to go ahead. You, of course, already have some domestic production, but I presume that's not enough to feed all these new fabs, even with your expansion.
You're absolutely right. And that's something that we're looking at, that we're, we're looking at very closely. How easy is it for them to bring in material? Here, here's what they'd have to do. First of all, there, there would have to be enough capacity available in Asia. And we think that that is, that's kind of questionable. As we, as we talk with the fabs themselves, and then we also, we're working with industry experts, we understand that expansions are planned in Asia to meet local demand. We have a good feeling for what's going on in Taiwan and Korea, somewhat Japan. There are, there are expansions that are planned in those regions for the demand growth that's gonna happen in Asia.
Those expansions are seeing similar increases, I think, certainly in raw materials. They, they're, they're not experiencing the same labor issues that we are here. If there's acid that's going to be available there, next, what would have to happen is it would have to be put on, let's say, on a shipping container, then it's gonna take at least 35 days for just one container to travel here, and then that would have to be emptied. There'd be inland freight, and then it would have to go back. The capital cost for putting that in place, when we look at it, is not too far from building a plant here.
The other way to think about it is if you're TSMC or you're Intel, and you're going to spend $20 billion to put in a fab, and the main reason that you want to do that is because of geopolitical risk in the market, you know, from countries in Asia. Would you really put your $20 billion investment at risk on a supply chain for acid coming out of Taiwan or coming from Korea? I find it hard to believe that long term, that's the solution, that why would you spend $100 billion in the U.S. and put that entire thing at risk on one component coming in from Asia? Anyhow, all of that, I think that the plants here are gonna be built.
So I, I firmly believe that the plants here are, are going to, to get built.
That's a, that's a point to underscore that when chips are being made in the U.S., they are not being made based on cost considerations. There have been public statements by the big fabs, saying it's gonna cost between 30% and 50% more to make chips in the U.S. than it does in Asia. This has got nothing to do with cost. It, it is, you know, definitely strategic for the national security of, of the U.S. That's why what Scott is saying, you know, we usually scratch our heads and say it doesn't make sense to us, but, you know, time will tell.
Understood. Okay, that's, that's really helpful color. The second question is: Is it too early to contemplate what next year might look like for chlorate pricing? It sounds like there's been a number of puts and takes here, a little bit on the demand side, given some of the pulp facilities you described. I'm just trying to understand what has happened to the supply base overseas at the same time with some of the shutdowns and energy costs. Is there, is there, is there movements on that front? Can you expect to get similar pricing next year, because it's been such a outstanding source of margin gains this year? I'm trying to get a bit of a window into next year.
Yes. Yeah, I mean, we're, we're not, we're not ready to say, you know, obviously issue any guidance on next year, but here's what, here's what I'll say: As we look at the cost of energy in Europe, we, we believe, and the industry experts are telling us, that the cost of energy is going to be higher, it's gonna be higher as we go into next year. What, what we saw a year ago, we saw, you know, after the Russia-Ukraine incidents, we saw electricity prices in Europe go up by 500%. Significant increases. The cost of energy has come down, but when you can look at, at our slides, you'll see that the cost of energy is forecasted to go up.
We, we, we think that's going-- that will, that will likely happen. So we think that the cost of producing chlorate in Europe is definitely going to be higher, significantly higher priced than what we see in Canada. That's number one. So I, I won't speculate on whether the, the chlorate facilities that have closed will, will restart. You know, I, I'm not in a position, let's say, to, to comment on that. You know, I will say that it, it is true that pulp demand in Western Canada, in particular, will be impacted by pulp mills closing. That, that is, that's a factor. I think I'm, you know, reiterating what you're asking.
All that, there's, there's a lot of puts and takes going on, possible, you know. Will the demand or in terms of volume could be? I would say it's not likely to be strong, but pricing is likely to remain strong.
Okay, helpful. That's, that's good in the context of a lot of uncertainty out there. Then just lastly, it's just a clarification question. I think, I think in your discussion or comments on chlorate, margins being so strong and the 80% comments you mentioned earlier on incremental gross profit, what were the other factors involved in the, in the chlorate margins? Is there, is there some production benefits that you have had on the operating cost side, or is it just should we just think about it as all being price?
2, 2 things. It's mainly price, but we did, you know, close 1 of the high-cost plants last year. That has some benefits to us because we shed some, some costs, so there's some benefit coming from that. The, the big 1 is pricing.
Okay. Very good, guys. Appreciate your time.
We, we were just along those lines. You know, last year, we, we closed the Beauharnois site, and we basically consolidated that volume into our Brandon site, and we, we were able to do that without issue. So that certainly helped us on the operations side.
That makes sense. Appreciate it.
Thank you. Our next question comes from the line of Gary Ho at Desjardins. Please go ahead. Your line is open.
Thanks. Good morning. Maybe just going back to the previous lines of questions on kind of the run rate that's implied in the second half and kind of read-throughs for 2024. Maybe I'll tackle it maybe this way. It, it sounds like, you know, you know, the pricing could, could be firm, looking out to 2024, et cetera. But what is the risk that, you know, the CAD 174 million six-month run rate could, could carry through into 2024? Is that, is that a risk, or, or do, or do you think that's, that's not likely, given what, what you're seeing in the pricing side?
I don't think we will start previewing 2024, you know, we, we, it, it's unlikely that the CAD 174 is a, is a new run rate for us, just like we don't think the CAD 275 for the first half is a, is a, is a run rate. I mean, that's probably towards the top of the cycle. Anyways, yes, so I, so I think, we, we don't believe that the CAD 175 is a, is a new run rate for us, which is the back half of the year.
Hey, Gary, I will say, you know, with Chemtrade, Chemtrade had, you know, years ago talked about a range of CAD 300-CAD 350. That CAD 175 would be a run rate of CAD 350, which a few years ago would have been at the top of the cycle. I think the good discussion that we're having is looking at that and saying, "Well, is that the bottom of the cycle?" We don't think so. Neither is CAD 275 the top of the cycle. As we're looking at it, I think you can look at numbers in between there.
Okay. That's, that's helpful. Then, Rohit, just going back to the Cairo project, you mentioned $50 million-$55 million. Can you remind me how much will be spent in 2023 versus 2024? Then, it sounds like you guys can push through higher pricing, just given the UltraPure asset demand. Maybe just, maybe elaborate on that a little bit, too.
So mostly all the money will be spent in 2023. We expect, you know, concluding construction of, of Cairo, Ohio in 2023, with the ramp-up and start-ups in 2024. I predominantly, the spending would, would happen in this year. Your next question was in terms of pricing. I think that's just something we have to see, you know, what I mean, when we, when we announced our IRRs for this project, it was based on kind of close to market pricing, but you're right. Maybe things, things would have changed now, and perhaps we can get, you know, increased, increased pricing there.
Yeah, I'll say this. Gary, we're absolutely looking at, at that, I think we, we feel confident with, with the returns. This, this will be the first plant, you know, we, we've said that repeatedly, so this will be the first line in the U.S., in North America, capable of meeting the new quality demands. I think, I think there'll be significant value associated with this new line.
Okay. Just my last question, just wanna go back to the Arizona project. Since you provided the last update, I think it was in June, have you noticed a change in tone from the fabs and chipmakers from their end?
Yes. Yes. I, I will say, I, you know, I wanna, I wanna tread a little, little lightly here, but the, the short answer is yes. Yeah, I, I think I'll just stop at that, but I would say, with, with our, with our announcement, the, the discussion changed. Yeah, I'll, I'll, I will leave it at that. I, I, I won't get into specific comments. I, I don't think I should share specific comments coming from the fabs. There are ongoing discussions, but, but the, the tone changed. The outlook in terms of, of whereas maybe previously, I think the fabs just assumed that this plant was gonna get built. Our announcement made them...
I'll say now they're now they are encouraging and, the tone has switched to, "Well, you know, we, we really think this plant should be built." I'll leave it at that.
Okay, great. That's constructive. Appreciate your comments. That's it for me.
Thank you.
Thank you. Our next question comes from the line of Nelson Ng of RBC Capital Markets. Please go ahead. Your line is open.
Great. Thanks, and congrats on a record quarter.
Thank you.
Just a follow-up on the Casa Grande project. You mentioned TSMC is about one year delayed on their fab, and they, and they started construction or, or broke ground on the second one. Can you just remind me when their two fabs will be completed, and also when Intel's facility will be completed? I was just trying to get a rough idea of when the additional asset is actually needed.
Okay, I believe this is public. I'm going off of what I've what TSMC has said publicly. Their first fab will start up, first fab will start up second half of next year, but will not reach full production. I don't think they have said when they will reach full production. Second fab, they, I'm trying to think. I'm gonna go off of memory, which I'm not gonna do. The second fab will take 1 to 2 years to get built, then it'll go through a start-up, so it's probably gonna come online end of 2025, 2026.
Intel's Intel's expansion in Chandler, Arizona, is up and running now, but I do not believe that they're at full capacity. They have Intel has broken ground. They have cranes in place, and they they've broken ground in Columbus, Ohio. I do not think that they have said that they've said publicly when they'll start production.
Okay. Like, for the Cairo project, like, you started construction late last year, and it won't be fully kind of ramped up until 2025.
Correct.
If you start on this project, would it be an, like, a 2-3, like, 2+ year? It would take over 2 years to build and ramp up, right?
For Arizona?
Yeah, for the Casa Grande project-
Yes.
For your asset project.
That's, that's exactly right. Yes. We think it, it would take about 2 years, about 2 years to build and, and, and have initial startup.
Okay. It'll be, like, 2 to 3 years before it's fully wrapped up.
Correct.
Okay. It sounds like for you to hit, like, 2026 or early 2026, you'd probably have to start early next year, right?
Correct. Yeah.
Okay.
I think that's, that's fair.
Okay. Then from a, I guess, cost or structure perspective, like, are, like, are you looking at options to also build in, let's say, phase one and maybe like a phase two expansion? Is that one way to reduce costs now and to defer some costs later on, or-
Yeah.
How are you looking at this project?
Yeah, so, it, we could do that. There's with an UltraPure plant, there's what we call the back end and the front end. The back end is oleum production, and the front end would be multiple UltraPure lines. With the back end, with the oleum, you kind of have to do it all at one shot. That's not something. You put your reactors in at the, you know, the it's basically one set of reactors that you would put in, built in size to what your final output would be. With the UltraPure lines, you can stage those in, over time to meet demand, but you can't. With the front end, you can stage it in, but the back end, you can't.
Okay, it's only the front end that you can expand, or is the back end, you have to size it correctly?
Yeah, yeah.
for the end volume?
Exactly right.
Okay. Then moving to chlorate, you mentioned that obviously you're, you're seeing really high prices and that you don't really sell on the spot market. It's mostly through contracts. Is that right, for chlorate?
Yeah.
So is the chlorate you're selling, like in the past quarter, reflective of power prices that were last, that were in place last year? That if you sign new contracts today, obviously, power prices are lower today, they would... Can you just talk about, like, whether there, we should be expecting some roll-off-
Yeah.
of chlorate prices and how that roll-off looks like? Like, should we just assume there's, if we look at European power prices, we assume, like, a 9-month lag or a 1-year lag, and, and?
So the-
That's when we should see chlorate prices kind of come back down, or like, any color would be great.
Sure. Firstly, there is, there isn't that direct linkage because we don't have any contracts that are going to say that's priced off a certain index or whatever. Really, when we had the really big spikes last year in energy, we did not price, you know, we were not able to price our, our volume based on that because it's really a question of what the expectations are. Last year, the expectation was that, that those, you know, 500% higher energy costs are not going to last, so we didn't get the benefit of those massive spikes. Similarly or conversely, you know, if, if energy has come down in Europe, the question really is, is that temporary? Is that reflective of what the rates are going to be next year?
This is not a business where there's kind of immediate reactions to, you know, but I think so I think it's more what the outlook for energy would be for next year, and also the risks involved with, you know, with, with having a supply chain that's dependent upon those, that those, that energy market. To answer your question, it's not, there's no direct linkage. There's a, you know, there's a, an influence there, but it really is on what the expectations are as opposed to what the current rates might be.
Okay. Is it fair to say that if you're -- like, obviously, you're constantly renewing contracts on a rolling basis, I presume. Like, I presume the, like, new contract prices are, would, would you say it's materially lower than what you've realized in Q2?
Firstly, this is not like our water business, where we have bids coming every day. This is, you know, there's a more concentration of contracts here. It's not like we have got contracts coming every week, for example. They come up less frequently, and at this stage, we are not seeing, you know, we're not seeing any significant movement in pricing.
Okay. That's, that's great to hear. Then, one last question on chlorate is: you talked about how volume is kind of not that big of a driver. You're like, you're obviously, obviously selling more volume at kind of lower margins to kind of maintain your, your volume. You flagged that, I think, like, chlorate volumes were down, like, over 20% compared to, I think, from Q1 and also from last year. Do you expect the Q2 volumes to be the new run rate, or, or for it to drop a bit further as more volumes shut down?
When you look at this year, we're guiding towards 285,000 tons for sodium chlorate. We think that's in the ballpark. We don't necessarily think that that's, you know, that's, that's going to go any lower.
Okay. Got it. All right, thanks. I'll leave it there.
Okay. Thank you.
Thank you. We have one further question in the queue. That's from the line of Endri Leno at National Bank. Please go ahead. Your line is open.
Hey, good morning. Thanks for your question. Most, most of my questions have been answered, but I just wanted to talk a few more on UltraPure. We've seen some reports of manufacturers coming or wanting to come to North America as well. I was just wondering if you can clarify whether, at least from what you see, those are attached to other fabs, or those are just kind of, you know, freestanding UltraPure manufacturers?
In, in terms of, yeah, ul- UltraPure coming to, coming to North America, there's only one fairly small operation that we, that we are aware of, that's coming in. It, it is, it's not, let's say, attached, although it, it, it, it's gonna be, it's gonna be in Texas from what, I think I can say that. That's, that's public information. It's a Korean company, but relatively small in size, and so that's the only one. There are numerous reports of other chemicals from, from other larger Asian companies, coming here, to make other products for the semiconductor industry, other, other chemicals. We- we're seeing those.
In terms of UltraPure, you know, we, so we have obviously the joint venture, anyone that comes here, I think is going to, is face similar will see similar costs that, that we have seen. You, you have to have the, the, the know-how. You're gonna. The costs are going to be similar, to what we would see, and you need to be. It would help to be in the vicinity of the fab.
And for-
you wouldn't have to ship it, you know, halfway across the country.
What-- from what we know of this one plant that's in Texas, it will not be enough to satisfy all of even Samsung's demand in Texas. It's a small, it's a small. That's what we can tell, it's a small plant.
Yeah.
Yeah. No, that- that's great. Thank you. That, that's what I was referring to, the, the Samsung plant in Texas.
Yeah.
The other question, and you touched a little bit upon it, Scott, but is there an opportunity to... I mean, this, this stuff gets shipped across the Pacific. Would it be, if costs continue to maintain high and the, your negotiations drag, could you build it somewhere else in the U.S., where, sure, it's a bit further, but with rail or trucking access, you can still bring it to, to where it needs to, to be used?
Endri, the thing is, the costs. To answer that, I mean, we are, we continue to look at options, and, and to look through. I, I've shared that the, you know, half of the overrun was due to, to labor in Arizona, and so there's not a, there's not a large labor pool in Arizona, and that's what TSMC has found as well. I believe Intel found the same thing, too. Labor has to come in from other places. Labor could come in from, let's say, from the West Coast, California, or labor could come in from the U.S. Gulf Coast. To answer your question, are we, you know, have, have we looked at the U.S. Gulf Coast? The answer is certainly, we, we have.
We continue to, to look at that and to think, if we moved much farther away from demand, let's say, where TSMC and Intel are, but, but we, but we put that site in the U.S. Gulf Coast, yeah, we're, we're looking at that analysis. We, we have continued to, to look at that and, and see the, the total at the end of the day, it's gonna be the total cost with material delivered to the customer, along with the expectations on delivery from the customer. With that in mind, where it sits now, we, we continue to believe that, that, that this site in Arizona, is the right place for it. I, I, I do believe personally, that it's going to, to get built there.
I think because the one issue is you cannot just put this in a rail car, like we do with the rest of our assets. You need special containers to move this because of its high purity. Whether you're getting from Asia or getting from North America, you have to invest in those isotainers. Obviously, investment is lower in the U.S. because the transit time is shorter, but there is a pretty significant capital investment in these specialized containers.
Just to comment on that, when you make UltraPure acid, it would typically go in an isotainer. That isotainer, if we're in Arizona and we're delivering it 30 miles away, those isotainers are going to be, you know, fully utilized. Isotainers are expensive. If we put a plant, hypothetically, in Texas, now you're, now you're going to put that acid, you'll put it on a rail car, and let's say it's going to take 1-2 weeks for it to get there. Maybe not 2 weeks, but less than that. That rail car's gotta go there. It's gotta get emptied, and then it's gotta go on rail and come back. There's a certain cost that we'll look at that.
Now to take that isotainer and then bring it over from Asia, you know, so it's gotta go to the port. It's gotta sit, it's gotta sit on a ship, come over the, the round, the, the, let's say, the round-trip timeline. Coming over from Asia is well more than 60 days. We're talking probably closer to 70 days, just for 1 isotainer that's gonna be full for a while, then it's gonna go back empty. That is a significant cost. It is significant investment that's close to the cost of building a plant. That's how we see it. That's, yeah.
No, that's great, color. No, thank you. Congrats on a good quarter. That's it for me.
Thank you.
Thank you. As there are no further questions, I'll hand the floor back to our speakers.
All right. Again, I'd like to thank our Chemtrade employees for a great quarter. Thanks for everyone on the call, and have a great rest of the day.
Thank you. This now concludes the conference. Thank you all very much for attending. You may now disconnect your lines.