Earnings Call: Q1 2019

May 1, 2019

And welcome to the Olin Corporation First Quarter 2019 Earnings Conference Call. All participants will be in listen only mode. After today's presentation, there will be an opportunity To withdraw your question, please press star then 2. Please note this event is being recorded. I would now like to turn the conference over to Logan Bonacorsi, Olin's Director of Investor Relations. Please go ahead. Good morning, everyone, and thank you for joining us today. Before we begin, let me remind you that this presentation, along with the associated slides and the question and answer session, following our prepared remarks, will include statements regarding estimates of future performance. Please note that these are forward looking statements that ask results could differ materially from those projected. Some of the factors that could cause actual results to differ from our projections are described about limitations in the Risk Factor section of our most recent Form 10 K and in yesterday's 1st quarter earnings press release. A copy of today's transcript and slides will be available on our website in the Investors section under tax 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, Approximate International Jim Barlett, 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. During this morning's call, I will begin by discussing the key highlights from Owens first quarter followed by a detailed review each of our business segments. Owen's view on 3. During the first quarter, Olin recorded adjusted EBITDA of $270,100,000 overcoming several challenges during the period. This level of adjusted EBITDA represents a more than 12% improvement over the first quarter of 2018 period where caustic soda pricing was much stronger and represents the highest first quarter level of adjusted EBITDA since the acquisition of Dow's chlorine products businesses. The year over year decline in caustic soda pricing negatively impacted first quarter 2019 adjusted EBITDA by approximately 70,000,000 prices during the first quarter. We experienced lower than expected demand for merchant chlorine, coordinator organics, and epoxy resins. Later in the quarter, we also experienced shipment delays predominantly for ethylene dichloride and caustic soda due to the Houston Ship Channel issues. On the positive side, the contribution from the chlorine and chlorine derivative portfolio on year over year. Doing a simple roll forward from the first quarter 2018 adjusted EBITDA of $240,000,000 to the first quarter of 2019 adjusted EBITDA of $270,000,000. Caustic soda pricing was lower and reduced adjusted EBITDA by approximately $70,000,000. Partially offsetting this was lower turnaround expenses of approximately $60,000,000, suggests a first quarter 2019 adjusted EBITDA of $230,000,000. The $40,000,000 difference between the roll forward and the actual is the additional contribution from the chlorine and chlorine derivative portfolio and improved cost performance. This is encouraging for the long which puts us on dollars. In addition, we repurchased 600,000 shares of Owens common stock for $13,200,000. Looking ahead to the balance of the year, we expect I plan to discuss our outlook for the second quarter and the balance of the year in more detail in just a few minutes. Now moving to our business segments, starting with chor alkali products and vinyls on Slide 4. First quarter 2019 adjusted EBITDA for the chor alkali products and vinyls segment was $240 reflect the impact of significantly lower caustic soda pricing in Olin's system. Caustic soda demand was weaker than we expected. Offsetting the pressure from caustic soda markets, Olin achieved improved pricing for chlorine and most chlorine derivatives during the period. Ethylene by chloride was a particular bright spot in the quarter as pricing doubled year over year. Lower maintenance turnaround cost year over year favorably impacted adjusted EBITDA for the chlor alkali products and vinyls segment. Now let's take a closer look at caustic soda pricing on Slide During the first quarter, caustic soda pricing continued to decline with prices in Olin system declining 9% sequentially from the fourth quarter of 2018. The largest part of this decline was in the export market. We feel that caustic soda price appears to be nearing and we also expect further recovery of caustic soda pricing during the second half of the year. In the second half of the year, we expect short term lingering demand dislocations ease and demand to be seasonally stronger. At the same time, we expect significant planned maintenance outages across the globe to limit available supply over the next several months. Together, these factors should result in price improvement in the second half of the year. We also expect a positive pricing trends experienced in the first quarter in our chlorine derivative portfolio, including merchant chlorine bleach, hydrochloric acid ethylene dichloride and chlorinated organics to continue through the balance of 20.19. Let's now move on to adjusted EBITDA of $37,000,000, representing a significant improvement over the first quarter of 2018. Driving this improvement were lower maintenance turnaround costs, along with more favorable costs for raw materials, benzene and propylene, which declined in the United States by 38% 28%, respectively. These positive drivers during the quarter lower than worked to more than offset weaker than anticipated volumes, driven primarily by lower end use demand from automotive related customers and Asian customers as well as lower epoxy resin prices, which declined in conjunction with the lower raw material costs. Looking ahead to the second quarter of 2019 in the epoxy business, we expect results to be roughly in line with the first quarter. Higher planned turnaround costs and ongoing sales volume risk associated with the ITC terminal storage fire in Houston, likely offset the expected positive impact of increases in product pricing and a seasonal uplift in demand. Finally, we continue to believe we will see improved full year performance, driven by lower turnaround costs from the epoxy segment in 2019. Looking now at the epoxy resin prices, which are shown on Slide 7. During the first quarter, pricing for liquid epoxy resins retraced modestly as a result of declines in raw material input costs, primarily benzene and propylene. Global resin prices have shown recent signs of improvement modest increases during March of 2019. We believe that expected global maintenance turnarounds during the second quarter should tighten Ethicore Hydrant supply resulting in an improvement in global liquid epoxy resin pricing. Our view of the chlor alkali and epoxy markets is on and is consistent with the outlook that we presented at our Investor Day in mid February. Olin remains positive about the long term prospects for In the chlor alkali sector, demand growth is occurring on both sides of the ECU. 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, supply and demand balances will continue to tighten, creating upward pressure excuse me, upward pricing momentum folium's caustic soda and chlorine and chlorine derivative products. Similarly, in the epoxy business, we see steady global demand growth and minimal announced capacity additions. This positive landscape provides a solid platform and favorable business outlook for Olin's chemical businesses. Moving on to our Winchester business on Slide 9. The Winchester segment experienced an 8% decline in sales when compared to the same quarter last year, which contributed to an 18% decline in adjusted EBITDA for the quarter. This decline reflects a lower level of military sales due to contract timing Lower commercial pricing and a less favorable product mix were also factors in the first quarter decline. These were partially offset by more favorable commodity costs. As the year progresses, we expect to see an improvement in both commercial and military sales volumes which should lead to a stronger overall performance during the balance of the year. We expect Winchester's results for this full year to approximate those achievements full year 2018. Looking ahead in Winchester, we believe that individual consumer inventory levels remain elevated which could patient fundamentals appear to be solid, which should translate into an improving demand picture over time. In addition, end of note, The large majority of Winchester's 2019 expected military and other government sales are already under contract. Turning now to our second quarter 2019 outlook, our second quarter 2019 adjusted EBITDA to be lower than that achieved in the first quarter of 2019. First, we expect 2nd quarter caustic soda prices to be sequentially lower than the first quarter. The forecasted year over year decline in caustic soda pricing is expected to negatively impact second quarter 2019 adjusted EBITDA by approximately quarter of 2018. 2nd, we expect sequentially higher costs of the turnaround costs of approximately $40,000,000 in the chlor alkali and epoxy segments combined in the second quarter of 2019. The second quarter of 20 is forecast to have the heaviest turnaround schedule of the year. The turnaround schedule will also serve to reduce second quarter production. Finally, the lingering impacts of the ITC storage terminal fire in the Houston Ship Channel could impact epoxy volumes in the quarter. Looking now to our full year outlook on Slide 11. Before I turn the call over to Todd, I would like to say that while pressures in the caustic soda markets have persisted, for longer than we anticipated, we believe that an inflection point is approaching. As a point of reference, Olin's first full year 2019 outlook for adjusted EBITDA assumes taking into account another a number of other variables caustic soda prices in the second half of the year to average between $50 $70 per ton more than our current second quarter caustic go to price forecast. The other variables include full year volumes for all chemical products, continued positive pricing for chlorine and chlorine derivatives, including epoxy and overall cost performance. We remain confident in the long term supply and demand fundamentals for caustic soda coring derivatives and epoxy products, which will provide Olin with meaningful growth opportunities and enable us to generate substantial value for our shareholders over the long term. Now, we'd like to turn the call over to Todd Slater, Olin CFO. Thanks, Sean. Before turning to our 2019 cash flow outlook, we have increased our forecast for full year 2019 expenses for environmental, investigatory and remedial activities by $20,000,000. Ola now expects agency action in 2019 regarding environmental, investigatory and remedial activities and a legacy manufacturing site which will cause us to increase our environmental reserves this year. Now let's turn to our 2019 cash flow forecast, which is on Slide 12. We expect to generate approximately $475,000,000 of cash flow in 2019. Debt to EBITDA leverage ratio was 2.4 times. As John mentioned, during the first quarter of the year, We prepaid approximately $50,000,000 of debt and we are targeting $250,000,000 to $300,000,000 of total debt prepayments in 2019. Starting with our full year adjusted EBITDA forecast, which is on the far left of the waterfall chart. We deduct $90,000,000 in estimated cash tax payments. We are forecasting our cash cash rate will be in the 25% range for the year. Cash taxes in 2019 are expected to be higher in 2018 by approximately $40,000,000 as Olin has exhausted the tax credit carryforwards that were created with the 2015 acquisition. Column 3 reflects the midpoint of our current forecast for capital spending of $400,000,000, which includes annual maintenance capital spending of between $225,000,000 $275,000,000 and the investment associated with our multi year information technology integration project of approximately 80,000,000 As we've previously discussed, in 2017, we began a multiyear project to implement a new enterprise resource planning manufacturing and engineering systems across the heritage Olin and the acquired Dow chlorine products businesses. This project includes the required information technology infrastructure. Now turning to the 4th column. We are expecting a $20,000,000 increase in working capital in 2019 as we expect a lower level of receivables sold under our technology integration costs and cash restructuring costs of approximately $80,000,000. This includes $40,000,000 for the IT integration project that I just spoke about and approximately $25,000,000 of duplicate IT costs being incurred during the transition. These costs were partially offset by $20,000,000 of pre tax proceeds from the sale of an investment in a non consolidated affiliate during the first quarter. The next column represents an estimate of cash interest expense. We currently have approximately 30% of our debt at variable interest rates, and we are forecasting 2019 interest rates will be slightly higher than those we experienced in 2018. In the far right column, we are forecasting $475,000,000 of cash flow. In our businesses, deleveraging the balance sheet and returning cash to our shareholders through dividends and share repurchases. Finally, on Thursday, April 25th, Ola's Board of Directors declared a dividend of $0.20 on each shareholder and common stock. The dividend is payable on June 10, 2019 to shareholders of record at the close of business on May 10, 2019. This is a 370th consecutive quarterly dividend to be paid by the company. Operator, we are now ready to take questions. We will now Our first question comes from Don Carson with Susquehanna Financial. Please go ahead. Okay. John, in the past on your guidance, you used to put some, you know, percentage ranges around it in terms of what you saw as the percentage upside and downside opportunities. How would you characterize that currently? Well, I think we said more downside than upside. I would say that the downside is probably in the 5% to 7% range. And your caustic price assumption, you said you're assuming $50 to $70 per ton increase in the second half. Is that what you average pricing to be in the second half versus the first half, or is that just the increases in the index you're seeing at some point in time? I know IHS doesn't have any increases in their forecast till the October time frame? That is what we would expect to average in the second half of above our second quarter level. Okay. And finally, you talked about some of the just constraints around ITC outage both in terms of delayed shipments out of the Ship Channel and raw material availability can you quantify what the impact of that overall was in the, in the first quarter, what you expect to do in the second quarter? It was approximately $6,000,000 in the first quarter. I don't think we have an idea yet what it might be in the second quarter. Thank you. Our next question comes from Neil Kumar with Morgan Stanley. Please go ahead. Hi, good morning. Good morning. The 9% sequential drop in Olin's realized cost the price in the first quarter seems a little bit of closer to the decline in the spot market versus the contract market. So I was just curious if you can help me understand that a little bit more. And is the business more oriented to the spot market over the last few years? Neal, this is Jim. No, there's not any more orientation towards the spot market. As you know, the spot market relatively. And we had some carryover the 4th quarter, the 4th quarter reductions in the indexes and so forth that carried through the first quarter. And I wouldn't say that there's any more than directionally consistent between the export and the contract side of things. Thanks. That's helpful. And I noticed that you had a $11,000,000 negative cash flow impact in the first quarter from inventory build. Was that driven by the closure of Houston Ship Channel and should that set the correct in the second quarter? No. It was mostly driven by Winchester, which typically builds inventory early in the year in advance of a midyear sales to support a hunt fall hunting season. Our next question comes from Frank Mitsch with Fermium Research. Please go ahead. Hey, good morning, folks. And appreciate the color and the assumptions on caustic. One of the things we saw in the first quarter is we saw Europe, export a bit caustic to the East Coast. And, you know, obviously, they had shut down our mercury cell capacity a while ago. I was just curious how surprising that might have been to you guys and you know, do you think that might be a factor in the future? How are you thinking about that, particularly as it may impact your ability to, to raise prices on caustic? Frank, this is Jim. I think it's really representative of kind of the demand situation that's going on in Europe. Obviously, they've had, they've had weak economies and so forth and it frees up a little bit of products. We would not expect that to be, that we would not expect that to be a long term plan. In fact, we expect Europe over time to be a net importer and that's what we've seen. So we've got a temporary dislocation. I think if they get through the construction season early in the year that they had some additional product and they moved it. But I would not expect that to be a long term trend. So, Jim, you anticipate in the back half of this year that that we would not be seeing, you know, any anywhere near those levels of, of exports out of Europe? That's correct. Alright. Terrific. And Yeah. I I'd seen, you know, obviously, in the first quarter, there was a press action suit filed. I don't know any of the 5 plaintiff companies that were, that were part of that lawsuit. How do you guys think about, you know, how much of an overhang this might be in terms of timing and, any other comments that you can offer on that? We're not going off for very much. I would just say that we're generally very committed to compliance with all laws including the important area of antitrust. And we strongly disagree with the assertions. That's very helpful. And lastly, you mentioned that, pricing was down 9% sequentially on caustic. Did you provide a year over year number in terms of what what your caustic realizations were down? We just said that the pricing itself was down $70,000,000 year over year. Alright. Awesome. Thank you. Our next question comes from Jeff Zekauskas with JP Morgan. Please go ahead. Thanks very much. In the second quarter, have you seen any upward movement in caustic prices in any key areas? Jeff, this is Jim again. We, we actually have seen some movement on the export pricing which gives us encouragement that we're going to see an inflection point here. The S4 pricing did move, both on the high and the low side of things. And, so the, we're also seeing improvement in demand as well. And not not in the United States, but in Latin America, the market's turned very tight for a number of reasons. Demand is strong. In Latin America and pricing is moving for the upside in Latin America. And then for my follow-up, How large is the gap between, domestic caustic contract pricing and the export price now? I think that, we're not going to we don't give any specific context. On track pricing? Or could the industry? Yeah. What I would say, I think the easiest way to say that is that the export pricing is still a downward it's still downward to the contract pricing. And I think we've got the slide to a slide in there showing the the the contract. And export pricing. So the dynamics have changed earlier or all through last year. The export pricing was above. Now export pricing is below. We are seeing that bit of an inflection point. So we would expect to start to see upward movement frankly on both sides. Our next question comes from Kevin McCarthy with Vertical Research Partners. Good morning. Question on EDC. On on slide 16, you indicate that EDC pricing was flat in the first quarter versus the fourth quarter of 2018. And it surprised me a little bit, some of the external vendors seem to indicate steady upward progress as the first quarter progressed and your commentary seemed constructive. So I was wondering if you could kind of talk through that. Not sure if, the slide is meant to reference your own pricing or perception of market pricing. What is your your assessment of the outlook as well for EDC? Well, I think you kinda have we have to step back on the on the EDC market and just say that in general, that's it's been very positive. I mean, year over year over year basis prices have more than doubled. The fact that they stayed at the level that they were, which was 4th quarter, 1st quarter is a positive. As you know, PVC has been under a bit of pressure, and I think it's indicative of the fact that there's broader requirements on the ADC around the world as demand and is coming from many different areas now. And it's that's indicative of the fact that EDC pricing is held at the high levels that are there. Okay. But you don't lock in prices in advance that that would cause that, arrow to be flat? No. Okay. And then second question, if I may, on Hoxy, for Mr. Dawson. I was wondering if you could just kind of talk through the explosion in Jiangsu, China. An opine as to whether or not, you know, that has any effect on epichlorohydrin either regionally. I know you don't do a ton of business in epoxy in Asia, but I was just wondering if there's any lasting impact, on other regions or or rather just a transitory effect in the market? Yes, Kevin, that was that explosion occurred back in, I think it was March and, it was significant. We think that, you know, it took out close to 30, 40 of the capacity in China. I think the other thing you may recall from our Investors Day is that, there's really no material quantity to come outside of China into other parts of the world. So, you know, I think will have a big impact. On the other hand, I think the bigger impact here on epoxy is the fact that demand in China has been very sluggish and automotive demand globally has been very sluggish. So I think that has probably put a little bit more of a damper on pricing here in the first quarter. Although, the operating rates of EPI outside of China, have also tightened due to turnarounds and various events. So we think that, the tightening of EPI outside of China the fact that EPI, has been reported to go up, been up about a 100, $150 a ton here in the last few weeks reported by Isis and Teknon. That probably, is what bodes best for these, price increases that are out there for the second quarter That's very helpful. Thanks. Thanks a lot. Our next question comes from Matthew Blair with Tudor Pickering Holt. Please go ahead. Hey, good morning. John, you mentioned that you're seeing weaker caustic demand than expected and just hoping you could provide any more color here. Is this primarily due to, Alunorte, impacts rolling through, or are there other areas like open paper or textiles where things seem pretty weak as well? Matthew, this is Jim. I think the comment was relative to the first quarter. And I think in general, there's a kind of an economic pullback, if you will, and it affected demand during the first quarter. There were a lot of also a lot of one off events that took place, I'll say river system flooding and things of that nature that has a tendency to causing customer problems and so forth. So that's really where the weaker demand came from. And since that time, we are seeing an improvement in demand. We're seeing a pickup here as we head into the second quarter on demand. So that was a first quarter comment. Got it. And then, I guess circling back to epoxy, I think your net long in areas like BPA in EPI, and I believe there's a force majeure in BPA right now. So would that do you see that as a tailwind for your epoxy business or would you need to see, the liquid resin prices move up before you realize any benefit there? Yes, I think the main benefit here on DPA is going to come from China picking up while the BP and Polycarbonate capacity, of course, is in China. So I think that'll be a better indicator of seeing some momentum BPA. Most of our BTA is captively consumed to make liquid epoxy resin. So, we're not a merchant market player in BBA. Thank you. Our next question comes from Jim Sheehan with SunTrust. Please go ahead. Thanks. Good morning. On your $50 to $70 per ton price realization in the second half, how much of that will be coming from the elimination of contractual price discounts? None of that, Jim. Though, are you expecting to have any benefit from eliminating those discounts? Well, we said at the end of the at the end of the fourth quarter in our call that we expected to realize $40,000,000 in contractual change benefits from both borrowing and cost 6soda throughout the year. Terrific. And on the Houston Ship Channel impacts, Did you see any shift of sales out of the first quarter into the second quarter due to the traffic congestion? Just wondering why you were still expecting a negative impact in the second quarter from from the Ship Channel traffic? We saw shipment delays that were had a value of EBITDA impact of about $6,000,000 The reason that we see potential impacts is that we make use of some of those terminals to supply some of our customers in the Deer Park area. And those terminals, if they can't be used, we don't have a way to get product to the customer. Got it. And on the Jiangsu issues in China, did that explosion result in more safety inspection activity that might help tighten up the chlor alkali chain in China? I would say we are not aware that it has done anything to tighten up the chlor alkali chain itself. I would tell you from It has created a significant amount of inspections. I mean, we have an epoxy resin formulation plant there that has been inspected three times just this month or just in the month of April. Our next question comes from Steve Byrne with the Bank of America. Please go ahead. Yes, thank you. There's a recent EDC in caustic tender out of Brazil that has led to speculation of a of a a large chlor alkali, outage down there. Do you have any comments on that and or think that that could drive some strength in pricing? Well, we have seen strength. First of all, there's general demand improvement in Latin America because it's ethanol season and so forth. And pulp and paper is strong in, in Latin America in general. We have heard, of issues and whether it's temporary or long term, we don't know just yet. But we've seen the same thing that you're seeing in terms of of request for both caustic and EDC. And you mentioned just a few moments ago about you know, river flooding, leading to, presumably, delayed shipments? Is that just simply a a referral from first quarter into 2nd quarter? I think it's just a it's really more of a complication of doing business. For example, barges that shift from one of our plants to a terminal location that would normally take 3 weeks took over 2 months to get there. So, it's just congestion. So, yeah, there'll be some carryover, but I don't think that it's a, I'm material amount of product. Okay. And just one more on this $50 to $70 net realized price increase second half versus second quarter to to achieve that that net realization benefit, would you expect that that spot export price to to rally above North American contract pricing in order to achieve such a a net realized price increase? I think what we would expect is we would expect improvements in all elements of the caustic other price, domestic, X and export. Our next question comes from Mike Sison with KeyBanc. Please go ahead. In terms of a downside scenario of 5 to 7%. Does that assume no improvement in caustic pricing in the second half? From 2Q levels? No. I don't I don't think we see a scenario where there will be 0 plastic soda improvement from where we are forecasting the 2nd quarter to be. Okay. And then when you think about the price increase you're looking for, how much of that do you think will be driven by you know, the sequential improvement demand or or versus kind of supply coming coming down a little bit or outages or whatever? Yes, I think there'll be a confluence as most of the time and inflection points of price changes that there'll be a confluence of events. I think that As I mentioned earlier, we are seeing improved demand domestically. We're also seeing, demand improving on the export side of things. Latin America in particular is strong. So I think you've got an improving demand scenario. You also are still in the midst of turnaround season. There's a significant amount of capacity that has been offline. Some is still offline and will continue to be offline. And that's a global phenomenon. There's a number of turnarounds around the world in Asia and the Middle East. And in North America, it was just talked about the situation in Latin America. So, it'll be a combination demand, and the supply limitations that we have that will trigger, probably trigger an inflection point. Great. Thank you. Our next question comes from Mike Leedhead with Barclays. Please go ahead. Hey, guys. Good morning. So a bit of a technical question on the full year guidance. If I look at it, it seems to imply second half is about 200,000,000 or so better than the first half in EBITDA. And if I look at your embedded assumptions, $60 caustic is call it 90,000,000 in EBITDA. I'm assuming ethane is a second half headwind based on industry prices and environmental should be up in 2 half. So Can you help me bridge to that $200,000,000 better second half? Because I'm kind of coming up way short there. Thanks. If you look at the performance of Olin over the last 3 years, which is the period of time was under that assets. We typically generated roughly 41 42% of our EBITDA in the 1st half and the balance in the 2nd half. There is a significant difference volume wise between first half and second half every year. And that is a big contributor to how we could generate the kind of half step up first half to second half. So it's mostly volume driven. Well, I guess, evenly driven between volume and price or mix or how do you think about that? I would say it's a combination of volume and price. Just don't underestimate the volume impact. Got it. And then just bigger picture for alkali Hold on one second, Mike. Price isn't just caustic soda. Remember, epoxy pricing is moving up. We would expect chlorine and the chlorine derivatives pricing to continue to improve. So I know caustic soda is a big number out there that we've talked about, but there's a lot of other the chlorine and chlorine derivatives, we would expect to continue to improve as well. Okay. And then maybe just a bigger picture of chlor alkali question. I think a lot of smart people have been expecting caustic prices to rise over the past 6 to 9 months. And they've been wrong, myself included. So when you triangulate the supply demand balances over the past few quarters, A, what do you think they've been wrong on? And B, what gives you conviction that 2Q is now the correct turning point? This is this is Jim. I I think it's, it's not a matter of smart people. I mean, picking the timing of any, any particular movement is a is a difficult thing to do. And you have economic backdrop that are in worldwide demand and so forth. But then you also have what I'll call some of these lingering one time events how quickly was the Bureau of Industry Standards going to do recertifications to reinstill the trade flows that are in throughout Asia and supplying India and how quickly the government in Brazil was going to move, to move the process forward relative to Alunorte. Those are difficult things to call. And with some additional events that took place in Latin markets to weigh those things out. So I think it's a combination of those factors, and I don't think it's a fact that anybody missed the mark. I think it's a matter of, it's hard to predict some of these events that have subsequently taken effect. Things have moved forward with the Bureau of Industry Standards, and there are positive steps on Alunorte and demand is improving. So we've got those things moving forward and gives us a much better indication of when, the inflection point might occur. We expect prices to be moving in second quarter. Okay. Thank you. Our next question comes from Eric Petrie with Citi. Please go ahead. Hi, good morning. Good morning, Eric. Hey, a question for Jim, what's your latest market intelligence on outages because I believe it's supposed to be a little lighter than the past couple of years. So what demand drivers or supply interruptions do you see for a turnaround in spot price in the caustic soda market? Yes, I don't think that it's that, that's significantly different than any other period of time, in terms of the outages, whether it's no matter of which month they're there, therein. So I don't see any difference in terms of the dramatic difference in terms of the turnarounds that are taking place. Okay. And then secondly, I calculate about a $10,000,000 headwind in the first quarter from higher ethane prices. Make sure it's lower to below 20¢ per gallon range. So do you try to quantify or or forecast what the net impact will be in 2019? Hi, this is Todd. We would expect ethane to be volatile as we move forward. I think last year ethane in our system probably averaged in the $0.32, $0.33 range. We would expect this year, to probably be in that range. If it stays low, obviously that would be positive for cost. I think that we are hedging ethane, so we won't necessarily trend exactly with the spot numbers that you see. But we would expect ethane to be relatively flat year over year now, maybe a slight positive as we look for the full year. Our next question comes from Arun Viswanathan with RBC Capital Markets. Please go ahead. Good morning, guys. Just a question on guidance. So, Could you remind us what you're assuming, I guess, as far as year on year benefits from, improvements in the chlorine envelope? We didn't say specifically chlorine envelope. We said that the contract rollover impact was $40,000,000, which comes from both caustic and chlorine. We haven't given any guidance on what we expect the benefits from better chlorine pricing and chlorine and chlorine derivative pricing in the market is other than we gave the illustration in the remarks of that it's significant. Okay. And then, you know, assuming that Q2 is is below Q1, you know, it seems that you would need, you know, maybe $650,000,000 or $700,000,000 of EBITDA in, in the second half. Yeah, the reason I asked the chlorine question, I guess, just to to better understand the caustic assumption as well. You know, it looks like there there could be, you know, the the opportunity for some pricing of 50 bucks or more in Q3, you know, if you get that late in the quarter, you know, just under wanted to understand how quickly you think that would impact your results and would it help you kind of bridge to that, level of second half EBITDA in that $650,000,000 to $700,000,000 Thanks. If we got $50 late in the second quarter, we would be in a position to have that help us bridge to the full year guidance. Okay. Great. Thanks. And and lastly on epoxy, I guess you know, it looks like the, how would you characterize volume and margin there? I mean, is volume kind of still the weak spot and margins have improved, and then, you know, how do you see that, I guess, progressing through the year, you know, given pricing and rods? Thanks. Yes, Arun, this is Pat. Listen, the big issue is really the volume and the demand as I indicated earlier around, China and Asia in general being very sluggish. Europe is fundamentally kind of sideways on epoxy demand. Probably the brightest spot is here in, in the US. And being driven by oil and gas. So as we said in our comments, you know, our prices in raw materials came down in lockstep So our margins actually are stable. And, and, the item is going to really help us in the second half here is the seasonality kicking in for the coatings market demand improving. And then as mentioned earlier, getting some pricing tractions which we're seeing here as we are well into the second quarter. Our next question comes from John Roberts with UBS. Please go ahead. Hey, guys. This is Josh Spector on for John. Apologize if you've said this earlier in the call, but in terms of 2Q caustic price realization, Have you explicitly said what you expect the price realization to be on a Delta basis sequentially into 2Q? We have not. All we said was that the impact of caustic soda pricing on adjusted EBITDA year over year from the second quarter last year to the second quarter this year is about $100,000,000. We expected caustic to be down in Q2 from Q1. Yeah. I guess what I'm curious of is that, so obviously with your contract structure in the lag, you have a pretty good view on that. I guess I should do the calculation myself in terms of what it's going to be 2Q. You're not able to provide present percent or dollar amount decline sequentially? No, we didn't do that and we're not going to do that. Okay. One more then. Just on the turnaround costs, between the CAS segment and epoxy, can you provide a rough split between the segments? Yes, that's in the appendix slide 22. Okay, got it. Thanks guys. Our next question comes from Hassan Ahmed with Olympic Global. Please go ahead. Morning guys. You guys paid down $50,000,000 in debt in Q1. And, you know, in one of the charts, you talked about, you know, reiterating your commitment to pay down too 300,000,000 in 2019. My question is that if the downside risk to guidance you talked about, does transpire? Call it to get, like, a $90,000,000 EBITDA rate. Even in that scenario, it seems that you'll have ample free cash you know, call it roughly around 400,000,000 bucks. So is it fair to assume that if that downside scenario does transpire you'd still go ahead and pay down $250,000,000 to $300,000,000 in debt? That is a very good assumption. Yes. Okay. Fair enough. Now, you know, going, onto the turnaround side of things, on Chlor Alkali products, you know, the chart you provided was very helpful. 176,000,000 of sort of, you know, peak cash turnaround costs going down to 125,000,000 this year. On epoxy, 66,000,000 going down to 30,000,000. Just wanted to get a sense of you know, what these run rate sort of turnaround costs would look like for 2019 in a normalized environment? I would say that 2018 was on I would say 2019 is probably a little bit below average because next year into 2020, we have a large outage on our VCM plan. So I would say if you wanted a steady run rate, I would be somewhere between what you saw in 'eighteen is what you're going to see in 'nineteen. Our next question comes from Alezky Yefremov with Nomura Instinet. Please go ahead. Thank you. Good morning, everyone. I'm trying to bridge, chlor alkali segment in the second quarter and thinking of providing year over year. Caustic soda impact of negative $100,000,000. So if we start with $290,000,000 last year minus $100,000,000, there are some positive offsets as well, right, lower maintenance about $20,000,000 in in in higher EDC, prices, lower ethane prices. Can you think about maybe 50,000,000, year over year negative EBITDA variance. But at the same time, it feels like Clorall Clyde should be down sequentially. So I'm I'm just trying to reconcile those 2 views. How do you think we should think about that? We we haven't provided specific guidance, Alexis, by by the each of the divisions, but I think at a very high level this year versus last year, you had $3.25 and then you take $100,000,000 off for caustic soda. Turnarounds overall are slightly favorable and that gets $10,000,000 to $15,000,000. Does that put you in the to 40 ish range, maybe plus or minus a little bit. And you talked about improvement. Now remember, year over year improvement for In particular, EDC will not be nearly as beneficial as it was in Q1 because EDC was improving throughout 2018. So I think one of the bridge comments you made probably were overstating some of the benefits associated with the year over year change in chlorine and chlorine derivatives. Understood. Is there a freight impact or are the fixed costs year over year that we should think about? Freight continues to rise. We've seen freight cost rate increases in that still in that 10% range. Thank you. And the lower receivables sold this year, the working capital that you talked out, is it a deliberate action to reduce interest costs or something else is driving this? It's intentionally buying ways to reduce, cash interest expense. Our next question comes from Carl Blunden with Goldman Sachs. Please go ahead. Hi. Good morning, guys. On the epoxy side, you mentioned optimism there on seasonal demand picking up as you get through the rest of the year. I think I may have missed it, but did you discuss your views on channel inventories and the extent to which a a destock were stock cycle might help as well, like what we're seeing in TiO too with that destocking there, starting to cost. Yeah. Carl, this is Pat. We we thought a lot of the destocking occurred at the end of last year and beginning of this year. I don't know if there's a big destock opportunity in front of us unless it could be in China. We don't have any indicators of that right now. Anything positive coming out of that part of the world. But I I would say bottom line is seasonality is definitely helping as we go into Q2. And the other thing that's helping, of course, is this tight, tight epichlorohydrin market that we see outside offering, any changes to the market environment you'd anticipate, as that plays for clears clears out? I think it's too early to tell. Right now, we'd assume, no change. Thanks. Our next question comes from Roger Spitz with Bank of America. Please go ahead. Thank you and good morning. What percent of your caustic are you or did you export in Q1? Is it, I know, the last time I think I saw in the notes, it was around 24% of sales, I think you once said. And has it changed material over the past, couple of quarters? 20% to 25% is what we said in the past is the normal range for our, export volume and it's not material to change. Okay. What are the main regions, or countries that you export to? Well, what I would say is that there's a lot of product that moves from North America to Latin America. That becomes a that's a very important trade lane, from an industry standpoint, also from an oil and standpoint. But we're not limited in where we export product, but that would be a significant one for Olin. I I I one last one on this one, and that's it. Is we've heard some, others that, the the US has been importing into, Europe have you have you seen that or know of that? Yes. You know, there is movement. And, you know, the earlier question there is on export out of Europe, but there's a lot of import out of Europe. And I think I would say that over the last 8 to 12 months or so, that's been more of the primary movement, has been out of the U. S. Into Europe as opposed to, out of Europe. Into the U. S. So that's been the primary channel, yes. As there are no further questions, this concludes our question and answer session. I would like to turn the conference back over to John Fisher for any closing remarks. Yes, I'd like to thank everybody for participating today. And we look forward to talking to you about our second quarter results in the few months. Thank you. The conference has now concluded. Thank you for attending today's presentation, and you may now disconnect.