Earnings Call: Q2 2019

Aug 1, 2019

Good day, and welcome to the Olin Corporation Second Quarter 2019 Earnings Conference Call. All participants will be After today's presentation, there will be an opportunity Please note this event is being recorded. I would now like to turn the conference over to Ms. Logan Relations. Ms. Bonacorsi, the floor is yours, ma'am. Good morning, everyone, and thank you for joining us today. The before we begin, let me remind you that this presentation, along with the associated slides, and the question and answer session, follow our prepared remarks will include statements regarding estimates 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 results to differ from section of our most recent Form 10 K and in yesterday's second 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. The earnings press release and other financial data and information are available under Press Releases. With me this morning are John Fisher, Olin's Chairman, President and Chief Executive Officer Pat Dawson, Executive Vice President and President, Epoxy And International Jim Barlick, Executive Vice President And Chief Operating Officer John McIntosh, Executive Vice President, Synergies And Systems, and Todd Slater, vice president and chief financial officer. We will begin with our prepared remarks, and thereafter, we will be happy to take your questions. I will now turn the call over to John Fisher. John? Thank you, Logan, and good morning, everyone. Today, we'll begin my remarks by discussing the key points from the quarter just ended followed by the outlook for the second half of twenty nineteen. A detailed review of each of Owens business segments and conclude with our view on market dynamics for chlor alkali and epoxy. With that, let's turn to slide 3. During the second quarter and consistent with our early July update, Olin reported adjusted EBITDA of $204,600,000. Second quarter results were challenged by several factors across anticipated demand for merchant chlorine and certain chlorine derivatives, predominantly from titanium dioxide and refrigeration customers and agro cultural customers impacted by flooding. Dollars. These included customer issues resulting from the intercontinental terminals company storage fire in the Houston, Texas area and reduced production in Europe resulting from an unplanned outage a expense for remedial activities related to an 2019 outlook, which is on Slide 4. We expect our 3rd quarter adjusted EBITDA to be higher than that achieved in the second quarter of 2019. First, we expect improved $40,000,000 quarter should benefit 3rd quarter adjusted EBITDA. Finally, while the 2nd quarter declines in caustic soda indices will continue to affect the price in Olin system during the third quarter, the anticipated improvement in caustic soda pricing should provide positive momentum moving forward. Now looking at the second half of twenty nineteen outlook, we expect full year adjusted EBITDA At the this forecast are higher volume levels in chlor alkali and epoxy increased operating rates in the chemicals business lower turnaround costs, stronger contribution from the Winchester segment and improved cost performance. Although pricing is expected to improve, we are assuming that approximately $15,000,000 of the adjusted EBITDA improvement in the second half compared to the first half will come from higher prices. Now I would like to take a more detailed look at each of the business segments starting with chlor alkali products and vinyls on Slide 6. Second quarter 2019 adjusted EBITDA for the chlor alkali products in Vinyls segment was $189,500,000, representing a 35 percent year over year decline and reflecting the significant impact of lower caustic soda pricing. In fact, caustic soda pricing in Olin system was approximately 25 2018. In addition, lower overall volumes, which were down approximately 4% year over year, negatively impacted the 2nd quarter segment results. Offsetting some of the year over year pressure from caustic soda prices and lower overall volume levels was a larger contribution from Owens ethylene dichloride business. At the lien dichloride pricing improved approximately 40% over second quarter 2018 levels. Now let's discuss caustic soda pricing, which is on Slide 7. Domestic caustic soda pricing declined at a slower rate in second quarter of 2019, with the 3rd party indices moving down an additional $20 from first quarter 2019 levels. This price reduction coupled with the first quarter decline still being recognized in our system led to a 3% sequential decline in Olin's system. An upward turn in caustic soda price has occurred later than we had anticipated, but we are now seeing positive developments. During the second quarter, the caustic soda demand locations that plagued the market for more than a year were largely resolved. In addition, global restraint on the supply side, particularly in Latin America, have emerged resulting in the need for additional caustic soda exports from the United States. The tightening through the back half of the year. In fact we are already seeing indications of upward pricing momentum. For example, U. S. Spot export pricing reversed its downward trend in the second quarter with indices of increasing approximately $40 per ton over the first quarter. Brazilian domestic pricing has increased approximately $200 per ton since the end of the first quarter, and most recently, the domestic caustic price indices broke its streak of declines in July by increasing $5 per ton. Now let us move to the performance 2019 Olin's epoxy business generated adjusted EBITDA of $29,700,000. This level of adjusted EBITDA coupled with our first quarter 2019 results, represents the and operating this business. Looking ahead to the third quarter of 2019, we expect epoxy segment results to increase compared to the resumption of normal customer operations at the ITC terminal storage facility and the resolution of the unplanned utility outage at started Germany plant will supplement the expected seasonal uplift in volumes. However, we continue to believe we will see improved year over year performance from the epoxy segment in 2019. Looking now at global epoxy resin prices, which are shown on the chart on Slide 9. During the second quarter, liquid epoxy resin pricing in all regions declined from the pricing levels experienced during the prior year quarter. Sequentially, pricing in Asia resin pricing appears to have stabilized. However, ongoing supply disruptions in China have tightened epichlorohydrin supply In fact, epichlorohydrin prices in China increased approximately 30% over the past 2 months. This has resulted in upward pricing momentum for liquid epoxy resins in China. We believe this development could tighten global markets resulting in an Now turning to our Winchester segment, which is summarized on Slide 10. Winchester experienced a 9% decline in adjusted EBITDA for the 2nd quarter 2019 compared to the second quarter last year. This decline was a result of lower commercial volumes and lower product pricing. Favorable commodity and operating costs partially offset the impact of the lower volumes and pricing. We are forecasting sequential improvement in adjusted EBITDA during sales and volumes across all product categories and in military and law enforcement sales volumes. This should lead to a stronger overall performance during year second half. We continue to expect Winchester's results for the full year of 2019 to be comparable to the full year levels achieved in 2018. Now turning to our long term view of the market. In mid July, Olin completed $750,000,000 bond offering and new $2,000,000,000 bank credit facility. Todd will discuss this transaction in more detail in a minute, But overall, we were able to establish a low risk pathway to refinance the high cost bonds, assuming assumed despite the recent weakness in caustic soda pricing and lackluster demand for certain of our products, our positive long term view of the Echlor alkali and epoxy markets is unchanged. This positive outlook reflects the following. In the chlor alkali sector, demand growth is occurring on both sides of the East you. To date, there have been minimal global capacity additions and announcements of additions to meet this growing demand. Current industry economics do not support world scale chlor alkali capital investments. As a result, over time, supply and demand balances will continue to tighten, creating upward pricing momentum for Olin's caustic soda chlorine and chlorine derivative products. So similarly in the epoxy business, we see steady global demand growth at minimal announced capacity additions. Now I would like to turn the call over to Todd Slater, Olin's CFO. Todd? Thanks, John. Before turning to our 2019 cash flow outlook, I'd like to discuss the recent capital market transactions in more detail on Slide 12. In mid July, we completed an opportunistic bond offering, which extended our debt maturity profile and enhanced our current liquidity position. We issued secured term loan A facility and the outstanding borrowings under the accounts receivable securitization facility. As a result, we have effectively no pre payable debt outstanding concurrently, we put in place a new $2,000,000 $200,000,000 delayed draw term loan. We expect to use the proceeds from the delayed draw term loan to pay the existing high cost bonds that were assumed in the acquisition of Dow chlorine products businesses when the bonds become callable in late 2020. By addressing this future need now, when the credit markets are favorable, we have positioned Olin to enhance our balance sheet and 2020 refinancing will reduce annual interest expense by $50,000,000 to $70,000,000. Now let's turn to Assuming the midpoint of our full year adjusted EBITDA guidance, we expect to generate approximately $310,000,000 of cash flow in 2019. Starting with the midpoint of our adjusted EBITDA forecast, which is in the far left of the waterfall chart. We deduct $60,000,000 in estimated cash tax payments. We are forecasting our cash tax rate will be in the 25% range for the year. Column 3 reflects the midpoint of our current forecast for capital spending of $375,000,000, which includes annual maintenance capital spending of between 225 and $275,000,000 the planning, manufacturing and engineering systems across the heritage Olin and the acquired Dow chlorine products businesses. The project includes the required information, technology infrastructure. Now turning to the 4th column. We expect a $100,000,000 increase to discontinue the sale of receivables integration costs and dollars for the IT integration project that I just spoke about and approximately $25,000,000 of duplicate IT costs that are being incurred during tax proceeds from the sale of an The next column represents an estimate 30% of variable rates. We are forecasting that 2019 interest rates will be slightly higher than those we experienced in 20 In the far right column, we are forecasting $310,000,000 of cash flow. Given the recent capital market transactions and the debt repayment progress to date. Our top priority for free cash flow is to return to our shareholders dividends and share repurchases and build our cash position in advance of the ethylene payment, which will be no more than $493,000,000 and that is due in late 2020. On each share of Olin common stock. The dividend is payable on September 10, 2019 to shareholders of record in the close of business on August 9, 2019. This is the 3 71st consecutive quarterly dividend to be paid by the company. Operator, We will now begin questions. First question will come from Don Carson of Susquehanna. Please go ahead. Thank you. John, in your pre release, you talked about some weakness in chlorine volumes as well. Obviously, eggs continued weak, but What are you seeing in some of these other markets like refrigerants and TiO2? Any uptick? And maybe just talk about EDC demand and price outlook for the second half? Okay. In terms of if you look at our chlorine demand historically, it has always been the strongest in Q3 3. And I would say as it relates to both TiO2 and refrigerants, which we saw fairly weak in the first half, we have seen some seasonal uptick in both those. I'll let Jim just comment on EDC. Yes, Don, this is Jim. From EDC standpoint, I think the demand actually been pretty solid, throughout the first half. And we expect that to continue into the second half. What we're seeing in the marketplace actually is there's a broadened, demand for EDC, a long time ago 18 months, 2 years ago. It used to be predominantly Asia. But in the last year and a half, we've seen demand increase in Southern Europe. We've seen it also increase in Middle East, North Africa as well. And then of course most recently in Latin America. So demand is solid. We remain constructive on EDC. And then as a follow-up, on slide 20, you show significant leverage to lower nat gas and ethane costs and prices have both been coming down. What benefit did you see from that, if any, in the first half given your hedging position and how do you see that contributing to earnings growth in the second half? I would say generally we are a hedger as it relates to gas predominantly and that some of the benefit was tempered but it'll just be delayed in our system. And we have been benefiting and you see that in terms of the profitability of our EDC. From the lower ethane prices, although a lot of that has occurred just very fairly recently. Next, we have Kevin McCarthy of Vertical Research. Yes, good morning. Just to follow-up on EDC. I was wondering if you could comment on the level of EDC prices that is baked into your financial guidance for 2019, We've noticed some weakness, over the last 2 months or so and just, would like to understand kind of what you're assuming in terms of the sequential pattern there. Yes. From an EDC standpoint, there has been some movement that we've seen in Asia, and I think that's a big of low ethylene pricing that's taking place. So you probably are hearing and seeing some of the spot volumes that moving to Asia, better at reduced numbers. What I would say is that as I mentioned earlier on the breadth, that we're seeing in the marketplace, Olin doesn't have to participate specifically in Asia. We a broad based participation and a significant amount of our, volume, for the 3rd quarter and into 4th quarter has already been preplaced at contractual pricing. So we're going to be somewhat, we'll see somewhat muted, muted effect relative to spread. Okay. And then as a second question, I think you indicated in your press release that your average realized pricing for caustic soda declined 3% in 2Q versus 1Q. Just wondering if it's possible to provide a similar number for, the chlorine side of the molecule, including derivatives, what was your average price experience there? I would tell you that on the chlorine side itself chlorine is actually up year over year. So, the derivatives get very messy because mix gets into the play, gets into play, but I think you can look at the big derivatives, which are which would be bleach, that just takes chlorine and moves it through and chlorinated organics and chlorine moves through. So those would have had a positive trend. I would say the other derivative is HCL, which is much more market driven. And that has tended to be lower year over year at this point. But still if you look at HCL, it's from our perspective, it's still a value add compared to selling merchant chlorine. Just to clarify, John, were prices stable on a sequential basis versus 1Q? Kevin, this is Todd. If you go back to Slide 19, you'll see virtually all prices were similar Q1 versus Q2, except for caustic and HCL. Next, we have Eric Petrie of Citi. Hi, good morning. Good morning. Good morning. You noted that in your second half over first half guidance that pricing would contribute roughly to $18,000,000 of that, how much does caustic soda represent versus, you know, chlorine derivatives or any pricing uptick that you think you'll, realize an epoxy? We have not broken that out. I would just say as with most of our portfolio, caustic is roughly half our volume. So it probably represents half the price. Okay, helpful. And then by region, could you talk about your customer caustic soda inventories, at least in Europe, it seems that remained elevated year over year on a on a historical basis. So, you know, with prices, you know, seemingly crossing and bottoming out at these levels, I wonder if you could talk about potential restocking in second half? I guess I would say from the standpoint of inventories, we don't pay that much attention to Europe other than I could tell you that for the year 2019 exports from Europe to North America are down I would also tell you that exports out of China are also down. So we think we're going to continue to see benefit and continue to see benefit over time from a tightening market. Thank you. Next we have Michael Leithead of Barclays. Hey, Fellas. Good morning. Following on the last question, so if I sort of build a half over half EBITDA bridge, pricing is going to give us $15,000,000 turnarounds are going to give us another $25,000,000. And I think in your pre announcement, you called out $20,000,000 in epoxy items. So if my math's right, that leaves us around $115,000,000 gap that we need in terms of hitting the guidance I'm assuming is that mostly volume that's going to get us there? That's correct. 4 years ago, what has historically been the seasonal volume split between the first half and the second half? At EBITDA between first half and second half for the 3 year average of 2016, 20172018, We've averaged about 45% of our EBITDA in the first half, 55% in the second half. But it's been as low as 41 42%. So I would say what we're forecasting is not way out of line with what we've seen historically. But I guess just one last one. You've seen a massive caustic upcycle over the past 3 or 4 years. So the second half has just benefited from higher price over the past 3 years versus that first half this year. So I'm assuming pricing skews some of the EBITDA benefit I guess that's why I was asking on the volume side, what has that split in? Well, let me give you I'll give you 3 statistics because the biggest the three biggest things that benefit, for us in terms of first half versus second half, the first is bleach, which is seasonal. And it's not the biggest of the businesses. Historically, that has been it's been up somewhere in the 15% to 20% range, 1st half to second half. And that's not cyclicals. And in fact, as hot as it was in July, that's actually positive in terms of the comparison. The second has been our vinyls business and that over the prior 3 years has averaged about a 5% to 7% improvement first half versus second half. And then we have some large pipeline customers who are predominantly, related to the polyurethanes path and that has historically been up about 15% in the second half versus the first half. And a lot of that just has to do with the timing and turnarounds we typically take our turnaround when our customers do. So there's 3 big pieces. And next we have Jim Sheehan of SunTrust. Good morning. Thanks for taking my question. Can you address your chlor alkali vinyls demand declines in the quarter? You said down 4% seems to be well below GDP or industrial production rates. Is this an impact of trade and tariffs or something else? Jim, this is Jim. No, it's not a result of trade tariffs or anything. We mentioned some of the weakness on the chlorine side of things, the chlorinated organics, refrigerants, and the agricultural market that impacts us. And obviously that when you have that demand, on the foreign side, you lose both sides of the ECU. So that's primarily what we're talking about in terms of the volume declines. Okay. And then in epoxy, you talked about type epichlorohydrin conditions, supply demand may be resulting in upward pricing momentum for epoxy and liquid epoxy resin pricing. Do you think that tightness is enough to offset some of the demand weakness we're seeing in electronics and from automotive end markets? Yes, Jim, this is Pat. We will see because the real issue there with Effi price is going up 30% in the last two months as that puts pressure, margin pressure on the non integrated epoxy resin producers in China. And so we've seen that price of LAR in China go up, to levels where we were in late 17 early 2018. And what that does is you get the price of LAR in China higher than the price of LAR out of China. So producers in Asia, where we see a lot of the competitive activity coming into Europe and North America, they'll send that LAR into China because they can make better returns and that takes product off the market in Europe and North America. You can get a tightening from that kind of arbitrage dynamic. So that's really what we see could happen here in the second half of the year. Thank you. The next question we have will come from Matthew Blair of Tudor, Pickering and Holt. Hey, good morning, everyone. I just want to clarify on the use of cash proceeds. I think previously you were talking about paying down $250,000,000 to $300,000,000 of debt. Is that still intact or is the general idea to build cash in advance of this 3rd ethylene traunch payment? Matthew, this is Todd. That debt repayment was in effect lowering debt in advance of the ethylene payment that was going to be due at the end of 2020. And so we are going to build CAG over the next year and a half to be in position to pay that. Okay. Sounds good. And then it looks like epoxy contracts in the U. S. Settled down a little bit in July. I'm just wondering, are you expecting margin compression in epoxy in the third quarter, or do you think you'll make that up with a cheaper raws? Yes, this is Pat again. I think, we had price increases out there in May and we got modest in improvement of traction on that pricing, that you saw in the chart there from the from the Isis Index, in in that May, June timeframe. No question, with the lackluster demand in in Asia and in Europe, we're seeing pressure on the margins, but we're also not seeing any major increases in raw material costs. So we think margin should be pretty stable. Here as we go into the second half of the year in North America. Sounds good. Thanks. Next we have Hassan Ahmed of Alembic Global. You guys talked about, a recovery in caustic pricing in the back half of the year. Now there's some industry consultants out there talking about, the restart of a costed facility in the back half of the year in the U. S. Not a huge capacity, but restart all the same. So as you guys think about your forecast looking for higher caustic prices in the back half, are you factoring in that capacity coming on stream? I guess what I would say that, you know, it is a small facility that that's a restart, in this, the whole scheme of things in terms of the capacity that's, you know, 13,000,000 tons plus in North America. It's very small. So I would say that we're very constructive on what we're seeing. The demand on caustic is strong in the domestic market. And, obviously with the pickup in the export market that we're seeing we're constructive on it. And that plant restart, we wouldn't expect to have any impact on the overall supply demand outlook Understood. Understood. And since you brought up the export demand side of it, would love to hear what you guys are seeing specifically on the Brazilian side. It seems Alunorte is sort of ramping up production, the Braskem facility, continues to be offline, at the very least through the end of the year. So what are you guys seeing on the Brazilian export demand side? We continue to see relatively strong demand in Brazil, a by some supply outages down there. We talked in the prepared remarks that we have seen the price of caustic in Brazil, the domestic price go up about $200 a ton over the last quarter. And I'll make one other comment about our caustic soda pricing. Our caustic soda pricing outside of ton from the end of the first quarter to the end of the second quarter. So the export market is improving. Very helpful. Thanks so much, guys. Next we have Steve Byrne of Bank of America. Yes, thank you. Are your higher margin chlorine derivative products running at capacity Or could you shift more chlorine molecules into the into those end markets and away from, say, spot EDC? This is Jim. We do have the ability to move some product around. Our assets hard. And I think we talked in our Investor Day about adding additional capacity down the road to support the derivative demand in bleach and HCL and so forth. And we are, in fact, doing that. So, I would say the assets downstream are, are, are running well, running hard. And we do have, we do still have some capability to optimize across product portfolios based on operational things and, and seasonal demands. And this environmental remediation charge that you have, what size is this associated with? What's the source of the contamination and how significant could this be longer term? We're not going to this is John McIntosh. We're not going to respond, specifically about the site This is just part of the ongoing remediation activity at the site. This is not executive of a trend or a harbinger of things to come. This is just a normal course of events as we, work cooperatively with the agencies to remediate sites that markets or orphan sites for us from years ago. Can you just comment on what the contamination is? Steve, this is Todd. If you look over the last 15 years, as environmental is a long term item for Olin, our average has been just under $20,000,000 a year and it ranges anywhere from $38,000,000 in a year to $8. So this $20,000,000 item happens is not unusual. It happens periodically over a 15 year period. Yes. And at the end of the day, I think that we have over 77 sites, that Olin is dealing with in the environmental its environmental portfolio. And remember, this is a Heritage Dolan site as we didn't take any legacy Dow environmental liabilities. Okay. Thank you. The next question we have will come from Frank Mitsch of Fermium Research. Hey, good morning and congrats on the bond offering. I wanted to follow-up on caustic pricing. I believe you indicated that indices had it down $20 per ton second quarter versus the first quarter. And I thought you mentioned that industry was in July also down $5 as we look at, if we think about where the indices index will end the 3rd quarter, you know, what are your expectations in terms of it being higher than where it ended June? Is that is is that how we should be thinking about it that we we should be getting more than that $5 down in the index by the end of this quarter? Hi, Frank. This is Jim. Just for clarity, the July index was, actually moved up 5 at the use IHS. There's a number of different indexes in range anywhere from up 5 to up 30 on the indexes. So we do expect that we've reached an inflection point here. And with demand continuing to be strong, as we go through the summertime that we would expect, continued movement, upward movement on the prices. I think, from an expectation standpoint, if you think about third quarter, caustic pricing being at or slightly better than second quarter would be a good assumption. That makes a lot more sense which is why I asked the question, because I obviously I've misheard that. So my apologies there. On the ITC incident, negatively impacting epoxies by $10. Is that demand gone forever or is that merely delayed and you'll be making that up as we progress through the year. Frank, this is Pat. No, that demand is not gone forever. It was a temporary situation. And so we're seeing that come back strong here. As we go into the second half of the year. And actually, we started to see it come back in the month of June. The next question we have will come from Jeff Zekauskas of JP Morgan. Thanks very much. Your maintenance expenses have come down nicely from 2017. Maybe from about $220,000,000 then to about $136,019. I I was wondering, are are these elevated or is the 136 that you think you're going to pay this year? Is this still an elevated level of maintenance? Or is this now a more normal level of maintenance? What's the trajectory of maintenance spending as a base case over the next several years? Jeff, there's a couple of things that drive the level of maintenance spending. 1, there's a large outage that occurs every 3 years in the BCM plant, which is obviously the biggest most complicated plant we have. And that will drive it up. In the year that that occurs. That last occurred in 2017. So we will see that again in 2020. We also had once every 6 year maintenance at both of the epoxy plants, part of that occurred late in 2017. Part of that occurred in 2018. So both that again drove 2017 up above what I would call the normal line I would say 2019 is probably a little bit below the normal line. But as we go into 2020, I would tell you we would expect that to be elevated because of the BCM. Okay. And then if you could just briefly summarize why, caustic soda prices for probably were lower than you expected. And why the, and why do you think that the stabilization and growth in caustic, which is about to come, it is probably coming at a slower rate. What were the primary levers in your mind behind the toughness in the caustic market and why have they altered? I think there was one discrete event, which was the whole issue of Alunorte, which was has been discussed here for about a year. And I think all at least, the restart of half of that plant, which consumes 15,000 tons of caustic a month was much was delayed much longer than we might have anticipated a year ago. The other thing I think if you look at some industry data and some consumption data. I think caustic soda demand in North America was just a little bit weaker in the first half of the year than we have expected. Now there's probably impossible to specify where that came from, but that's why. We've turned we sort of believe we've turned the corner as we said in our remarks around the demand disruption from Alunorte. On top of that, we've seen the supply in Latin America around Braskem. And we've seen in our system of improving demand as we've started to move the summer months, which are typically the strongest months from a manufacturing perspective. And next with Mike Sison of KeyBanc. Just a question on the July realization of the $5 and for caustic. I think you guys and several others announced 60. Why can you maybe talk about what the why the realization was was so low? Was it more supply? Was it more demand? In terms of the pricing realization? Mike, this is Jim. Yes, the price realization, it's always hard to turn things when you're going from a market that has been moving down to a lot of individual, negotiations take place. And you should think about this also a, as a range, in terms of the criteria. Some of the different indexes, there's from, like I said, from 5 to 30, range on that. And so that would indicate kind of a spread of what type of price realization took place in the across the industry. And some of that will continue to be pushed into the latter parts of the third quarter. Got it. And then in terms of demand, where do you need that demand to improve just on a geographic basis? I mean, is it more the US that needs to improve to sort of to see that improvement in demand, or do you need some demand overseas as well? This is John. I would say to you that caustic for us is a global market. So we really need it to where it's indifferent where demand improves. Got it. Thank you. Next we have Neil Kumar of Morgan Stanley. Hi, good morning. 1 of the trade sources mentioned that recent U. S. Export offers have come in at about 20 dollars per metric ton lower versus July. I was just wondering if that's indifferent than what you're seeing in the market, and what are the drivers of the lower offers And then is there anticipated price improvements in the second half of the year expected to come from higher domestic or export pricing? Well, I'll go back to the answer I gave to a question a few minutes ago, went up approximately $50 a ton between the end of the first quarter and the end of the second quarter. So and we don't we do not expect that to go down as we move forward. So it's our expectation that for us in our system, export pricing non North American pricing will be improved in the second half versus the first half. And I think that's consistent with what you see in the index. Which is up $40 a ton. I can't comment on what one shipment that might be at a slightly different price might mean. From our perspective, this is what we're getting under our contracts. We as we've said in the past, we sell virtually nothing in the spot market. So we're at least constructive on the direction. And we've seen some commentary about producer inventories and costs that have been a bit elevated over the last couple of months. Had those levels begun to get drawn down with the higher export demand? Or how would you characterize inventories for their industry currently? I would say I can't talk about the industry. I can tell you our inventories are at normal to slightly below normal levels right now. And the next question we have will come from John Roberts of UBS. Thank you. I, I may have misheard at the beginning, but I think you talked about some Chinese supply disruptions in epoxy. Is that the glycerin, based Chinese industry, or was that chemical based epi where there were disruption, or were these some of the older explosion happened a while ago, just still rick went through the system. Hi, John. This is Pat. This was a chlorohydrin based epichlorohydrin. It was not glycerin to epi based. And it was really this is out in the press, primarily around highly of having some environmental issues. And that's the capacity that has really gone down. Is there a fair amount of excess glycerin based production that can still come back to the market here to kind of fill in if the pricing continues up? I'd say it's I'd say the honest answer right now is hard to tell. There's a lot of different sizes of that glycerin epi out there in terms of scale. There's a lot of different costs involved in those small assets. Most there's very little epichlorohydrin that ever comes out of China, John, as you know. So I think most this is around chlorohydrin based and that is of course most of the capacity in China is chlorohydrin based. Okay. And then a follow-up on Winchester, it's we kind of completed all the destock at both end consumers in the supply chain now. And until the next kind of disruption comes along, this is a new normal, and we'll have normal seasonal patterns off of the current level of results at Winchester. John, this is, this is Todd. I think what we've seen at the distributors and retailers, I think inventories are in line. It's still unknowable what the consumer has in their safety stock. So we aren't it's not clear that they're buying what they're technically consuming today. So what we've seen in the first half of the year Winchester's sort of even though commercial sales have been down and pricing has been down with commodity costs and improved military volumes, year over year results are are very similar. Next we have Arun Viswanathan of RBC Capital Markets. Great. Thanks. Good morning, guys. Just a question on going back to the bridge. So, you highlighted, kind of comparable Winchester earnings. So that's minimal H2 improvement. Lower turnaround of 25 price is only 15. And then you said that leaves 100 or so for volumes. Could you break that out as well? I mean, that seems like quite a big jump to me. It, you know, was that, you know, just, you know, weakness in H1 that that was more pronounced and you see all that coming back? And what gives you that confidence especially given, the demand weakness that you saw in the first half? We just we provided some information specific to products a few minutes ago where we talked about bleach, which I think everybody knows is a seasonal business. And if you look the weather pattern in the United States, the early part of the year, especially the April, May was a lot cooler and a lot wetter. July was a lot hotter than normal and that has continued in August. That represents a big uptick. Historically, we've seen 15 to percent uptick first half to second half. I talked about, the vinyls business, which has a seasonal component to it in terms of how we run, how our customers run, And that has historically had a 5% to 7% uptick second half to first half. The epoxy business has always been seasonally strong in the second half versus the first half, which really goes to a lot of a lot of the businesses in Europe, a lot of it is construction related. And that is predominantly a summer activity June, July, August, September. So we were confident in that. And I also talked about our large pipeline accounts who primarily are in the urethanes business. And we have typically seen somewhere in the 15% improvement first half to second half in them. So all we're really looking for here is the normal demand pattern over the first half to second half. And a lot of that gives you and that plays into the fact that second half turnaround costs are going to be lower because some of this is in by turnarounds that occur in the first half. And the first half turnarounds reflect lower demand in the first half versus the second half. So I would say in as we could be about the long the pattern that we're seeing, this is not that unusual. And then just so we can put that in context, yeah, I have those numbers as far as bleach up 15% to 20%, 5% to 7% in vinyls, pipeline up 15%. Given those typical movements, I guess, in the past, has that typically resulted in a $100,000,000 improvement second half versus first half, or is that, you know, because of changes in your system that you could realize that that larger level of of improvement? I would say that typically creates a significant change from first half to second half. We said earlier that over the 3 years that we've owned the Dow businesses, we've seen about 40% to 5% of our EBITDA be generated in the first half, 55% and then second half. Now pricing can skew that all over the place. We're looking at this and the number we're giving you is based on or obviously based on assumptions on price. And there's not a lot of price skewing that this time. And then just to understand the lower end of the guidance, then. So, assuming the midpoint, you get that $100,000,000 or so in volume. So the lower end, is it mainly just that the the volume doesn't come through, or or what are the the other factors that go into to the lower end of guidance? Well, I would say the 2 big variables around the guidance are do you realize the $15,000,000 in price and the rest is the volume? Okay. Thanks. Next with Aleksey Yazramov of Nomura. Thank you. Good morning. Apologies, another question on first half versus second half. If I take the $650,000,000, you expect point in the second half and divided by 2. That's about $325,000,000 per quarter. Should I think about the seasonality as 3Q is going to be higher than that average and 4Q below that? No, I think with the product that we have today and some of the changes in the customer, I would say Q3 and Q4 should look similar to each other. About 3.25 per quarter is roughly. Alright. Thanks. And then the $20,000,000 environmental charge, should that benefit, the corporate line in the 3rd quarter compared to the 2nd quarter because of absence of it? All other things being equal yet. And last quick one, if I may, could you quantify the negative impact of ITC fire in the first half? And how much it would benefit the second? All we've said is that was $10,000,000 Well, as there are no further questions, this concludes our question and answer session. I would now like to turn the conference call back over to Mr. John Fisher the closing remarks. Sir? I'd like to thank you all for joining us today and we look forward to speaking with you about our third quarter. Right. And we thank you, sir, and to the rest of management team for your time also. Again, the conference call is now concluded. At this time, you may disconnect your lines. Thank you. Take care and have a great day, everyone.