Olin Corporation (OLN)

Investor Day 2019

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Feb 12, 2019

No. No worries. Good afternoon. Welcome to Olin's 2019 investor day. I'm Larry Cremetas. And I'm Logan Bonacorsi. We have a great lineup for you this afternoon, but before we begin the presentations, we should like to cover a few housekeeping items. We encourage you to review our forward looking statements on slide 3 of the investor day slide deck. Risk factors are described without limitation in the risk factor section most recent Form 10 K and in last week's 4th quarter earnings press release. A copy of today's presentation is available in the Investors section of our website, olin.com. And just other, a few other housekeeping items before we begin? Please turn your cell phones to silent if you haven't already. In the unlikely event that we need to evacuate Freedom Hall, The emergency or exits are located in the doorway you just came in, and there's a couple on the side here as well, to your left. Please take a moment to locate those. Finally, we will have a question and answer session after the presentations. All of the speakers that you will hear from today will be available to answer questions then. We ask that you please hold your questions until then. As Larry mentioned, today's event is being webcast as well as recorded for future playback. With that, we would now like to turn it over to Olin's chairman, president and CEO, John Fisher. Good afternoon. It's real pleasure to be here today, and we're all very excited to host you. And hopefully you'll enjoy our story for the day. First, I'd like to just introduce the various speakers we have today. First, from IHS, we have, John Mulholland, who's a vice president in their strategic consulting group, Then we have Jim Varalek, who runs our chlor alkali business. We have Damien Guimple, who is in charge of caustic soda for us. Pat Dawson, who runs the epoxy business, John Sampson, who's in charge of business operations, and, importantly, from your perspective, capital spending, and then we're gonna end up with Todd Slater, who's our chief financial officer. So you'll be hearing from all of them very shortly. I think just as a reminder about Olin, we are the largest chlor alkali producer by capacity in the world today. And as we stand up here today, we think it's a very opportune time to be talking to you because we just concluded what we think was a very successful 2018. We generated adjusted EBITDA of $1,265,000,000, which represents a 34% increase over 2000 17 levels and a 50% increase over 2016 levels. In addition to that, we generated free cash flow of $587,000,000, which is a very strong year for us from that perspective. There's a general broad theme that you're gonna hear about today. And that is we believe that the from a supply and demand perspective in the global chlor alkali industry, there's we're on is undergoing structural change. And what we're gonna talk to you about at first is what that change is and what the genesis of it is and John Mulholland from IHS will do that. And then you're gonna hear a whole series of speakers talk about what that means for Owen and and how Olin benefits from that. And we believe very strongly that we will benefit and that over the next several years, it's going to lead to a very significant increase in our adjusted EBITDA as we move through time. And we'll give you those numbers, and we'll walk through how we get that. So to start the presentation today, I'd like to call up Mr. John Mulholland from IHS, and he will talk about their views of the global chlor alkali industry and also their views of reinvestment economics within that industry. John? Thank you, John. Good afternoon. I'm John Mulholland, head of Chemical Strategy Consulting at IHS Markit. Was also the executive in charge of a recent project we conducted for Olin. Today, I'll share with you our view of the chlor alkali and vinyls market as well as provide an investment outlook for the industry. During the time I have today, I'll focus on key findings from my work and discuss what we think is a real dynamic period ahead. With that let's get started. It's our disclaimer. And the first section, I'll provide some industry context, which includes some history and some forecast from IHS Markit as well as sing selected analyses from our work. You'll see 3 of these charts. One each for chlorine, caustic, and PVC. So I'll take a moment and describe them. This is a time series of global chlorine supply and demand. The green bars are demand and the black line is nameplate capacity, which includes existing capacity, as well as announcements to date. It's not operating capacity, which at maximum production would be about 88 to 90% the height of the black line. I'm showing history from 1998 to 2017 and a forecast period from 2018. To, 2030. We have forecast growth for chlorine 2018 to 2030 to be 21,000,000 metric tons. We're also predicting gross slowing from an annual average growth rate of approximately 3%. To 2% in the forecast. Given histories, some may say this is a bit conservative. On the next page, I'll describe some background for this projection. And even though growth is slower demand requirement is substantial. This is a summary of applications of global chlorine demand for 2017 2030. Chlorine has many applications adhesives, sealants as well as medicines, insecticides, and other applications. The largest application by far is vinyls, the common name for PVC, which will drive half approximately half the growth of chlorine in the forecast period. For those of you less familiar with PVC, it's used in pipe and profile applications for construction as a replacement for traditional materials, such as copper, and wood. On the prior page, I noted that I'd provide some background on our growth projection 2%. Areas growing above 3% include vinyls, epichlorohydrin, MDI, and TDI. Those that are flat include propylene oxide from the chlorohydrate process, chlorinated intermediate, and the others category. And finally, pulp and paper and polycarbonates are declining. Next, we'll look at caustic supply and demand. Caustic is a co product of chlorine using the typical electrochemical process to convert salt into chlorine and caustic yield 1.1 ton of caustic for every ton of chlorine produced. Similar to the chlorine time series, We see a slowing of growth from about 3% over history from 98 2017. To about 2% in the forecast period. We also forecast demand of 23,000,000 dry metric tons. Now a dry metric ton, it just means 50 percent, solution, caustic solution product. Caustic is ubiquitous product used in a wide variety of applications. Even the applications noted here are relatively broad categories, consume caustic in multiple ways. For example, soaps and detergents, organic chemicals, and inorganic chemicals. As chlorine is tied to construction, caustic is tied to consumption, which is highly correlated with GDP. The largest application for caustic is the extraction of alumina from bauxite, which is the first of 2 processes to make aluminum. Excuse me. Did I I went backwards. Excuse me. It's my glasses here. It's caustic, the 23,000,000 metric tons. And then I'm sorry. Going back to the the global caustic. My glass is here. You can see Illumina as the largest application and the many app the many uses, pardon me. The final product we'll look at is PVC. PVC is the 3rd most widely produced plastic. After polyethylene and polypropylene. Over the forecast period, PVC demand is expected to grow by 21,000,000 metric tons. At an annual average growth rate of 3%. As I mentioned earlier, PBC is the largest application for chlorine, driving half the growth over the forecast period. It's for this reason we chose to model PVC as the primary derivative of the chlor alkali facility. I'll talk a little bit more about this in the next section. Let's compare supply and demand growth for chlorine over time. Now, again, I'm gonna show you the same three segments of time, 98 to 2007, 2008 to 20172018 through 2030. And I've split the second section into 2 5 year segments to highlight what happened in the market. You'll see from 1998 through 2030, there's been a transition from the industry from being balanced to being oversupplied and then to one that now requires additional capacity. From 1998 through 27, the global chlorine market was essentially balanced. With capacity growth matching out of demand. From 2008 to 2012, new capacity additions were 19,000,000 metric tons, creating an overhang of more than 13,000,000 metric tons relative to demand. While the recession hadn't impact during this time, much of this supply demand disparity was overbuilding in China. Given the global nature of the business, this overbuilding of affected the entire industry. From 2013 to 2017, capacity growth This capacity growth slowed and the industry consumed about 6,000,000 metric tons of excess capacity. As a point of reference, China added about 3,000,000 metric tons every year from 2008 to 2012, whereas it added less than 1,000,000 metric tons per year from 2013 to 27 Looking over the forecast period, we see demand growth outstripping capacity growth. Given limited announcements of new capacity, We believe the current oversupply will be consumed over the next 4 to 5 years. We also don't anticipate a return of overbuilding in China, In the mid 2000s, China encouraged investment to enable the country to move to self sufficiency. It's essentially achieved that, and we believe China will be more tempered in the upcoming period aiming to maintain a balanced chlor alkali supply and demand while minimizing environmental impact. Examining operating rates not only provides insight into the impact of annual changes of supply and demand, also provides an understanding of industry profitability. In the 1st period, global operating rates were in the mid eighties. A sign of a balanced industry. In the 2nd period, operating rates dropped to a low of 75% in 2009 and 2012. Following the recession from 2008 to 2017 reduced capacity utilization approximately 2% per year for the whole global market. With most of this impact being felt in those early 5 years. Global operating rates have climbed steadily since 2012 due to continued demand and limited new capacity. We're projecting the industry will hit 90% operating rates around 2023 something we haven't seen going all the way back to 1998. Now we can debate whether sold out is 88% or 90%. But we often agree that without more capacity, things are going to get tight. By the way, it's also worth noting that historically, North America has run about 2% ahead of global operating rates, meaning that it will it will likely reach sold out conditions even sooner. So 2023 globally, it could be as early as 2021 in North America. I'll summarize to this point. First of all, it's pretty positive message. Ploring, caustic, and PVC are growing. In fact, each has projected demand growth over the forecast period in excess of 20,000,000 metric tons. Since 2013, global demand growth has outpaced that of capacity and has consumed a significant portion of the overhang of global capacity. However, if capacity is not added, We expect to reach sold out conditions within the next 4 to 5 years. In the next section, I'll discuss how the industry can meet these requirements. The primary objective of the project was to assess the viability of a world scale chlor alkali investment. We focus our efforts in 5 major areas. 1st, assess the demand requirements for to sell out a world scale facility. 2nd, estimate capital costs of an integrated chlor alkali to PVC complex in 5 major regions, assess production costs in each region, at the best potential sites for chlor alkali and derivative production. And 4th, determine the preferred location and timing. And finally, evaluate the economic viability based on project cash flow. So what's a world scale facility? Based on our analysis, a world scale chlor alkali integrated facility built in North America would produce 1,000,000 metric tons of PVC per year, take 4 to 5 years to build and require $5,000,000,000 to $6,000,000,000 of capital. Now there's an awful lot there. Only in the topic sentence, but also in the diagram itself. So I'll take some time to go through it. But even before doing so, I wanna point out What we have here is a depiction of a facility that could be in North America. We're not only using the North American metrics, but also using ethane for the cracker as feedstock and natural gas. You'll see in other areas, they'll use naphtha and and or coal. The primary driver of the facility is PVC. To determine this, we assess the PVC market and its demand and determine what put would not disrupt the market as well as examine those facilities that were being constructed. Based on our analysis, 1,000,000 metric tons per year of PVC, is the appropriate size for a world scale facility. The preceding units are then sized to produce the required volume of PVC, This facility will include a chlor alkali unit that will produce 580,000 metric tons of chlorine and 600 35,000 metric tons of caustic per year. Just to be clear, the numbers I gave you, the 1,000,000 for PVC, 5.80 for chlorine and 6.35 for caustic, that's production. Of those units. You just divide by 90% the operating rate that we used. The facility also requires an ethylene cracker, one that's about a third to half the size of those typically designed for polyethylene facilities. That said, This would most likely be a condo cracker where the unit is optimally sized and has multiple owners. We looked at a smaller wholly owned facility and one that is jointly owned and found them to be relatively close in in economics. We also estimated a startup of 2024, allowing 1 year for planning and 4 years for production. And for building a suit and construction. Finally, to build the complex, we'll require $5,000,000,000 to $6,000,000,000 for a world scale facility. Now that's 5000 to $6000 per metric ton of PVC produced for a facility that's producing a 1,000,000 metric tons per year. Before leaving this page, I'd like to share with you some of our assumptions and provide some comments on the level of assessment we conducted. First, the assumptions. And actually, I have a number of these here, but the model actually was a pretty significant of of our analysis. So I just do wanna make sure I share a little bit more of this. First, it's a chlor alkali facility with derivative units for vinyl chloride monomer and PVC. It's a world it's world scale, so it's in the top 5% globally for production. It purchases natural gas, ethane, cataly and oxygen. The cogeneration unit has been designed for the entire complex, and the brine investment is sized for a 100% on-site consumption. Also, our cap capital cost estimates include owners costs, such as project development costs, and contingencies to account for potential risks that could increase the cost of the project such as delays or scope changes. And finally, want to point out that our estimates are typically used for strategic planning, business development, and project feasibility. And they have an expected accuracy of minus 30% to plus 50%. So while we're proud of the analysis we did, we will point out that if you're gonna make an individual investment decision, this will require a deeper look at deeper analysis. Now we'll bring together the capacity and industry level capital requirements. In the first section, I told you PVC demand growth was going to be about 21,000,000 metric tons. That means will require 21 world scale facilities at a 1,000,000 tons per year. At $5,000,000,000 to $6,000,000,000 per world scale facility, This would create a required expenditure for the industry of a 105 to a $126,000,000,000. Please note that these facilities will also consume the the 50 percent of the caustic forecast as well as 50 percent of the chlorine forecast. But this also means that we need additional investments more than PVC. And if you assume a similar amount of capital for additional investments and we did some, you know, some analysis in that error, but again, this is more, estimates You're gonna get about some of the same numbers. So this is gonna almost double it. You're gonna bring it up to about $200,000,000, $200,000,000,000 for the industry, and again, with a B. To put this in perspective, the world needs 21 chlor alkali PVC facilities me another 20 facilities for the other derivatives. So now you've got 41, 42 facilities. The forecast period's 13 years. That's about 3 facilities, world scale facilities every year. And given that it takes 4 to 5 years to plan, and build a facility, we're not likely to see any new capacity that hasn't been announced until 2024. What that does is our forecast was 2018 to 2030, 2018. It's already passed. The work we started was at the end of last year, but so this This is one of the years yet another, 4 to 5 years. You've now taken 13 down to almost 7 years. So again, this will be very compressed Will it be that bad? It's it's just a way to look at this and make sure it's a big number. It's a lot to do in a short period of time. And by the way, it does not include, replacement capacity of or re for retirement may be of older facilities or some of those that might be closed for health, safety, and environmental reason reasons such those receiving chlorine by truck or rail, which is happening still in a fair amount in China. 5 we recognize that some of this capacity will be consumed by debottlenecking an incremental investment. But even accounting for this, The number of required facilities is significant. So where do you build the next World Scale facility. This bar chart compares capital costs of regional of individual regions relative to those of North America. This bar chart compares the capital cost of individual regions specifically to the US Gulf Coast. Based on our analysis, capital costs relative to that of building in the US Gulf Coast range from a low of 75 for China into a high of a 125 percent for Europe. Now different plant configurations and location factors affect these estimates. And we we talk about the plant configuration. In each one, you're making PVC, the same amount you're in China, you're gonna use naphtha. And if you're in United States, you're gonna use that thing. So we want to make sure, or are you gonna buy salt or are you gonna have a brine investment? So with that, that's those are actually some of the things that the the way we'll configure those to make like like output if you would. And then there's also regional location factors such as the purchase of equipment, materials, labor rate, exchange rates, political risks, and even the weather that affect these things. So at IHS, we'd actually do a fair a comprehensive analysis on an ongoing basis of these location factors. We also examine cash costs for key products produced in each of the 5 regions. Here are the relative cash costs for ECU and PVC by region. As you can see, the Middle East and North America are the most advantaged re locations. Both locations have low cost ethane feedstock for their crackers and take advantage of low priced natural gas for cogeneration facilities. That provide lower electricity costs that are important for chlor alkali. Now although China had the lowest capital cost, this advantage is eclipsed by the operating cash cost advantages of the Middle East And North America, making the Middle East And North America the most attractive locations to build a chlor alkali PVC facility. For reference, I've noted the difference between China's and North America's cash costs. China's cash costs in in 2018 are a $165 per metric ton higher in e ECU and $2.33 per metric ton differential in PVC. So given all that, how do we pay for all of these world scale chlor alkali facilities? This chart shows product pricings impact on a project's internal rate of return. The 3 diagonal lines or ISO quants were specific internal rates of return. For example, points on the gray line are combinations of caustic and PVC product prices that yield a 15% internal rate of return. In our analysis, we found the IRR for a US Gulf Coast investment to be less than 10%. For illustration on this chart, I've used the basis of $500 for caustic and $800 per metric ton for PVC. So while the demand outlook is healthy, prices close to the to those of today, don't justify investments. In order to achieve more attractive returns, either or both product prices must increase. A 15% IRR is achievable by maintaining the PVC price that say $800, but you'll have to raise caustic from 500 to 1050. Similarly, maintaining caustic prices of $500 would require You'd have raised PVC prices to $11.50 per metric ton. So we're at a crossroads. On one hand, the world needs more capacity. And on the other, the prices today won't pay for the investment. So this is a real challenge. For management in this industry. That said, we believe prices will increase However, they may not take the make the transition in an orderly fashion. They will not only continue to be competition among existing suppliers but also regional dislocations as well as inter material competition. So for example, as PVC prices begin to to raise, you can see high to be polyethylene and maybe some other products vying for some of the applications that PVC has today. To wrap this up, I'll summarize our findings. In the first section, I talked about the markets for chlorine, caustic, and PVC their promising outlook. We examined the impact of chlorine supply and demand growth on the industry, how it moved from balance to oversupplied and now to the point where we projected to be sold out globally by 2023. In the second section, I shared IHS's view of what a world scale chlor alkali facility is. Again, here it is by the numbers. Product of 1,000,000 metric tons of PVC,000 metric tons of chlorine, 635 metric tons. Of caustic. Takes 4 to 5 years to build and cost 5 to $6,000,000,000 of capital investment. In aggregate, the industry needs over 40 of these world scale facilities. With an industry price tag of a $200,000,000,000. And recall that since it's unlikely we'll see new capacity before 2024, again, that's going to be compressed. When it comes to a cost advantage, China has the capital cost advantage over the other regions. However, North America and the Middle East are ultimately the most attractive locations to build given their cash cost advantages. Finally, While the demand is relatively strong and capacity is required, current prices just won't justify the investment in these facilities. That said, Whether orderly or disorderly, we feel prices will ultimately move to pay for the required facilities. We also anticipate pretty interesting times. For the chlor alkali and vinyls industry. Thank you very much. Thanks, John. I'd like to just come back to what I said before right before I sat down, which was to say that the broad theme today is the structural change that John just talked about. And the rest of this presentation is gonna delve into why does Olin think it is in a good position to benefit from this? What are we gonna do? The how and the why? That's going to lead to ultimately to significant growth in adjusted EBITDA. I I will start out by saying, we firmly believe that we will we'll benefit. We have the assets in place to do so. John Samson will talk about that. We have the market position, and you'll hear about that from Jim and Pat and Damien. We have the resources. You'll hear about that from from Todd, and we also have the cost position. On this slide, I'll I'll talk about the cost position. But first, I just want to say from perspective, there are growth opportunities, both on the chlorine side of the molecule here and on the caustic side of the molecule here. And we're talking about not just price as John referenced, but we're also talking about volume opportunities. From the cost perspective, The majority of our chlor alkali capacity is located in the US Gulf Coast, and we have access to low cost electricity and low cost ethylene. And as John Sampson would tell you, that ethylene mobilizes our vinyls assets. Also, that same Gulf Coast locations make puts us in an advantage position to be an export of both chlorine derivatives and caustic soda pretty much globally, a great strength for us. Many of you have seen this slide before, our market position, we think, is unparalleled in the industry. We've got the world's leading position from a chlor alkali perspective. I opened the conversation with that. But on top of that, we're the number one producer of membrane grade caustic soda with the number one producer globally of epoxy materials, We're the number one producer globally of Coronator Organics products. And in North America, we're the number one producer of industrial bleach, and Jim will talk you through that. And the number one producer of hydrochloric acid. So we've got a number of market leading positions that we can lever. We've also got the broadest chlorine derivative portfolio of anybody in the world. We have 19 specific outlets for chlorine ranging from some of the things I mentioned bleach and hydrochloric acid up through the entire chlorinated organic chain in the court and the epoxy chain. And we think this gives us one huge advantage over everybody else. We're able to work on a daily basis to maximize the value of chlorine in our system. When we we were talking at lunch, we can turn a bleach plant and off every hour. We can turn HCL on and off every hour. We make decisions on the epoxy chain every 2 or 3 hours. So we have an absolute advantage of moving to the highest value for chlorine on regular and recurring basis. And that same advantage that we have there is what we have affords us the opportunities to grow. We can look at these different markets and gym and pack and Damien will take you through those markets in some detail and make decisions on where the best place to grow we have significant opportunities to grow. And here here you can see it. We're essentially saying we have volume opportunities and price opportunities across the breadth of our, both the chlorine derivative portfolio, but also the caustic soda portfolio. And this is really the story you're gonna hear for the rest of the day. Where do we think that's gonna lead us? We're gonna get price. We're gonna get We're gonna get margin improvement, and it's gonna lead us over the next several years to a place where we think we can generate adjusted EBITDA on an annual basis of over $2,000,000,000. So that's the the broad theme is we've got growth and it's gonna lead to significant EBITDA growth. And from now on, we're gonna hear about the details of the chlorine derivative portfolio first from Jim, then you'll hear from the others after that. So, Jim, talk to you about the chlorine derivative portfolio. Thanks, John. I appreciate it, and, good afternoon, everybody. Thanks for coming this afternoon. I'm Jim Barlick, and I lead the chlor alkali products and vinyls division. I'm gonna build on what John Fisher said and especially what John Mulholland said earlier about the structural change this taking place in the industry and specifically how well Olin is positioned to capture that value from the structural change. I'm also going to provide a good bit of visibility into the chlorine envelope that I think many of you haven't seen before. So my while most of the time we talk about our lead in chlor alkali position, We also hold a number of other leading positions in the marketplace. We're the number one merchant EDC supplier in the world. And I'll talk to that a little bit later. As John mentioned, we have the leading for our our coordinator organics position in the world and we're the only company with assets in both Europe and in North America. Pat will talk about our leading epoxy position a little bit later. As John mentioned also, we're the number one bleach producer in North America, and we sell more merchant chlorine to the US market. Than anyone else. We have a broad broad array of, portfolio, 19 different outlets for chlorine. And the reason that's important is it allows us to place our chlorine into the highest value applications, not just move it, but to place it. We have 7 plants across North America, 4 regional plants, which are very well positioned to meet the needs of the regional markets and our regional customers, and 3 world scale plants on the US Gulf Coast that gives us access and capability to ship our products anywhere in the world. Now some basics. This is the basic chemistry at its simplest form in this industry. We take salt water or brine, and we electrocute it. And when we do that, we get what we call an ECU. We get one ton of chlorine, 1.1 tons of caustic soda, and a little bit of hydrogen. And as simple as this sounds, this creates a huge challenge as well for this industry as we're constantly in the battle to balance the supply and demand on the chlorine side versus the supply and demand on the caustic side. And that's why having the 19 different outlets that we do for chlorine is so important as that we're uniquely positioned to be able to strike that balance and balance both sides of the ECU. Size and scale. Size and scale is very important. On this chart, you see on the left hand side that Olin is the largest qualified producer in the world. Relative to our peers and by a pretty significant margin. And that scale is very important. In that, on the right hand side, you see the cash cost estimate provided by IHS that shows Olin as the lowest cost producer among all of our peers and in the world. We have some very well situated plants. We're in North America where we have low power costs, and then you combine the that we have to the world markets, the size and scale that we have, and it provides a very significant advantage and what that allows us to do is to take full advantage of that situation, produce product and chlorinated derivatives here in the US, and we can ship them anywhere in the world and we can compete very profitably. So this gives you maybe some information that you haven't seen before. Look inside the chlorine envelope and actually how the and is consumed across the envelope. As John mentioned earlier, the benefits that we have because of this envelope is that operationally, we can dial up one plant, dial down another plant if we have issues or if we have an upset, we can immediately transfer that capacity onto another chlorine derivative and we can keep our chlorine assets running at very high utilization rates. And also, we're not exposed from any single market or customer issue, because we can move product from the bleach market into the the chlorinated organics market, or we can build some inventory and epoxy. But again, we're able to adjust and and and, while basically adjust across any market demand or customer offset that we might have. So very, very valuable chlorine envelope that we have, again, to place the chlorine. So now just starting on the left hand side, 48 organics you can see is about 7% of our chlorine consumption across a variety of different products. HCL, hydrochloric acid, and bleach is another 8% of our chlorine. Epoxy is about 10 and Pat will speak to the integration there later on. The vinyls business is about 20% or 1 5th of our overall capacity. And it's EDC and vinyl chloride monomer. That's our access to the vinyls market. Now, a very important customer and a very important relationship that we have accounts for 1 third of our chlorine consumption, And as I mentioned before, we have the leading chlorine, merchant chlorine position in the United States, and that requires another 20 to 20, 2% of our, chlorine usage. So again, this portfolio provides us a very, very good value optimization capability, being able to place the chlorine and importantly, replacing the chlorine and we're very consistently supplying cost to the market, which has a significant value to our customer base. So now let's take a few minutes and I'll step you through each of the product areas. Like to start off with the merchant chlorine market. The biggest takeaway here, the main takeaway on chlorine is simply bad it's going to continue to tighten and I say continue to tighten because it has been tightening over the last two and a half years. The chart on the left, you can see the the yellow bars are the demand, and the demand's been relatively constant for the last 4 or 5 years. Roughly 2,000,000 tons of of requirement for merchant rail, chlorine in the US, and it's been very consistent, and steady. But what has changed is the actual supply available to service this market. And what's happening is the producers are choosing to derivatize the chlorine and move it downstream into higher value applications than selling merchant chlorine and and also the cost with rail and freight and so forth is adding to that choice that producers are making. And as a result of that, over the last several years, we've seen a significant decline in the availability of chlorine into the merchant chlorine market. And what that is doing is it's uplifting the pricing that we're seeing in chlorine, and we have been seeing that consistently over the last couple of years, and we expect that to continue into the future. Now let's move on to Hcl. H the HCL market really doesn't get a lot of attention very often, but it really does have an important role for Olin's regional plants. Is primarily a regional market. And if you take a look at the pie chart on the left hand side, you can see the variety of markets that it does serve. Oil and gas, brine, calcium chloride, steel markets, and, the food market as well. And it's, a wide variety of markets, and these are regional markets in, in, in general. If you take a look at the bar charts, on the right hand side, you can see that this has been a growth story for Olin going all the way back to to year 2000 when we sold less than 50,000 tons of HCL to the marketplace and you can see in 2018, we sold about 200,000 tons and in 2020, with the additional capacity of 70,000 tons that we're adding to the marketplace, we're gonna grow to in excess of 220,000 tons to service this market. Now, I'd like to shift over to bleach. Bleach is another growth story for Olin. And if you take a look at the right hand side, we'll start with the growth, and that is Olin was about 100,000 tons of bleach sales to the marketplace in 2008. And in 2018, we sold over 250,000 tons of bleach into the market for about 11% compounded growth rate over that period of time. And you can see also that we intend to sell over 300,000 tons of bleach in the 2021, 2020, 2021 time period. We're adding an additional 60,000 tons of bleach capacity in the next year or 2 in order to meet the demands of the market that are that are dramatically shifting. And I'd like to take a second to go through how the market market is changing and why we foresee the growth in bleach. First of all, water treatment today, most of the municipalities use chlorine to purify the water. And that is shifting. Again, for reasons, people don't wanna handle the chlorine. The freight costs are going up, and so there's a shift that's taking place with the municipalities where they're using bleach to purify water instead of chlorine to purify water. And as a result of that, there's a shift in demand and you're seeing bleach grow. For the same reasons that the municipalities don't want to handle the chlorine or or deal with it, availability and and, tightness of supply. Some of the non integrated bleach producers who were buying chlorine, buying caustic, putting them together to make bleach in a regional marketplace, they're now shifting to one of buy bleach instead of make bleach. So you've got a transformation of an intermediate step in the industry as well, and that's adding to the demand for bleach. And Olin is extremely well positioned to be able to capitalize on this because we have two and a half times the of the next largest player in the marketplace and we're adding an additional 60,000 tons to meet the needs of the marketplace. So with our 9 different plants across various ge geographies in North America, we're very well situated to take on this additional growth. Now I'd like to shift to EDC which is another area where we hold a unique position in the marketplace. But let's first start with the fundamentals. On the left hand side, the pie chart, you can see that 94% of all the EDC produced in the world actually is used in integrated sites to make PVC. Only 6% of the EDC made in worldwide makes it to the merchant market. And important to note that of that 6%, the vast majority of the EDC is actually in Asia. The demand is in with a small amount in Europe as well. So the the merchant market, small, and it's in Asia, and it's it's certainly not in the United States. The other thing to note about the merchant market is that Olin holds the largest market merchant market position in the world. We're the majority supplier into the EDC market. A lot of shifting and changing taking place in EDC as if you look on the right hand side, you can see that the blue bars, there's a slight decrease in the supply available to the marketplace And that's primarily because swing players that would make some EDC. They make PVC, but they make some excess EDC and offer it to the market. The swing players are now placing that EDC to grow their PVC business. And so that mar that market or that product is being pulled off the market. But what's important here is that we see about 2,000,000 metric tons of EDC growth from non integrated PVC players. Because of the cost that you heard John Mohawk and talk about before, integrating into PVC or all the way back into chlorine ethylene is a significant investment. So people in the PVC market in in Asia primarily are adding capacity or want to add capacity without integrating all the way back. The natural stopping point is with EDC to be able to get the ethylene and the chlorine in order to meet that requirement. And again, Olin is extremely well situated to be able to capitalize on that growth. We have the integration into chlorine and ethylene, and we have the ability to ship anywhere in the world from our low cost positions. And I guess I should make one further note here that we do have the ability to meet the demand because we have low low cost debottlenecking opportunities as well. Now, I'll shift to the last product area that I'm going to cover, reformated organics, And the, the Corneganics, I'll I'll start with the, the chart on the right hand side and introduce maybe a new subject here, which is the, hydrofloral olefins or HFOs. HFOs are newer refrigerants that are taking place or that are are taking on them and into the are being introduced into the marketplace. The coordinate organics business is really a solvents market and a refrigerants market. The solvents market is regional and and steady. The the refrigerants market, which is automotive air conditioning, stationary air conditioning, and refrigeration is actually a global market and quite dynamic. The the dynamics that are taking place are really around creating environmentally friendly or low global warming, refrigerants, and that's where HFOs come in. HFOs are being reduced into the marketplace as an environmentally friendly low global warming alternative to the existing refrigerants that exist today. And they're, anticipated to grow quite significantly, as you see, by the red bars on the right hand side, very significant growth from all wrote from almost nothing in 2015 to an estimated 300,000 tons by the end of 2030. And what's interesting as far as Olin is concerned is not so much the red bars, but the blue line above that because for every pound of HFO that's produced, it requires £2 of carbon tetra chloride. And what's why that's important is that Olin has the largest capacity to produce carbon tetra chloride in the world, and we have sites in both Europe and in North America that can produce carbon tech and they have the ability to meet the demands that will be required on on either continent. So again, we're very well positioned and uniquely positioned in the marketplace to capture this growth. So at the outset, I said that that, our relationship with Dow utilizes about 1 third of our overall chlorine, consumption, And this is a very important strategic relationship that we have with Dow. The it's primarily 2 large contracts that that drive our relationship. 1 is on the chlorine caustic, and the other is in vinyl chloride, monomer, BCM. The chlorine and caustic contract is a long term contract. It's about a 1,500,000 a half tons, per year. It's cost based And it really does a a very good job of providing integration for Dow into their downstream polyurethanes business. And also for Olin on a site basis is it provides us some benefits from an integration standpoint. It's a good base load on our, on our business, and it provides a steady stream of EBITDA over the the duration. The VCM contract is a very different contract in that it runs through 2020, but it's an ethylene toll agreement where Dow supplies Olin with the with the ethylene, we convert that into VCM by adding the chlorine, and then we supply that VCM to a fence lined Dow customer on their be on Dow's behalf, to provide the VCM to them for for PVC usage. The contract runs through contract. In 2021, Olin takes over a direct relationship that we have with the customer, with the that's already been negotiated and that's in place that will carry us through to, well into the next decade. So we already have that lined out with a new contract. And that contract is expected to give us an uplift of EBITDA of between $5075,000,000 per year. So now you've seen the the product positions that we have, how we're uniquely advantaged in many of the markets that we play in and the products that we produce. Our balanced portfolio that gives us a good access, both to the chlorine side and also to the caustic side. John spoke earlier about the need for additional capacity and the need to grow, and we do have the ability at all and to be able to to grow and grow significantly. We have low capital, high value, expansion opportunities, across multiple sites that allow us to grow our chlor alkali capacity by as much as 20%. But without one big major step change. It's not a world scale plant and it's not at a single site or at a single time. It's a number of smaller steps across multiple sites that allow us to grow as the market requires us to grow. And in fact, we have 200,000 tons of expansions already in process that we expect to be online within the next 1 to 2 years. So we're very excited about the growth opportunities, both that are stemming from the marketplace and the structural change to taking place, but how we're uniquely qualified to be able to supply that. So at the end of the day, we can, we will, and we are providing the growth needs of our customers and our product lines. So as I wrap up, I'd like to leave you with 3 key messages First of all, there is a structural change that's taking place in the global chlor alkali industry. Olin is uniquely positioned to cap of the value from that structural change, and we have the ability to grow across our portfolio and to continue to add value to the chlorine side of the, of the ECU and also to provide a steady stream of caustic soda to the marketplace. And with that, I'd like to turn it over to Damian Gommel who will cover the other side of the ECU caustic soda. Diane? Thank you, Jim, and good afternoon. I wanna thank you again for taking the time to spend part of your day with us to learn about these exciting opportunities. As Jim said, my name is Damian Gumpel. I'm the vice president of our global caustic KOH and vinyls business. And it's my pleasure to spend a few minutes with you today to tell you about how the structural change we see unfolding creates an exciting opportunity for olin and caustic soda. Now our vision in caustic soda is to be the provide the most secure supply to our customers and through that create differentiated value to our shareholders. Now this vision is based on 4 principles you see outlined here, that I'll explore a little further for you in my time today. First, as our guest speaker, John Mahal uncovered, The supply demand balances are poised to tighten to sold out conditions over the next several years and that also in more importantly, current prices are nowhere near reinvestment economics. 2nd, As caustic soda titans as forecasted, we see customers who align with secure suppliers being able to give them security of supply will actually gain an advantage over their peers who won't have that security of supply. This competitive advantage we feel is worth a premium above and beyond the prevailing price of caustic soda. We at Olin seek these customers. Next, Olin's position as the leading caustic soda supplier offers a compelling value proposition. Now I want to key in on a word I used. I said supplier, not producer. We say that for a reason, A producer manufactures the product and then moves it or allows someone to come pick it up at their dot or at their plant and take it onwards. We have a different view. We market caustic soda. We make it. We market it. What that means is we wanna be aligned and be as close to our customers as possible because we want to be their supplier of caustic soda. And finally, We not only see the value of caustic soda rising, but of Olin's caustic rising even higher, giving our position and focus to be the most strategic supplier to the customers and markets we serve. Now, I wanna start with some basic about caustic soda because it is a rather unique molecule for several reasons and obviously one that's near and dear to my heart. And I'll highlight 3 of these reasons today for you. 1st, caustic soda has 2 different types of fuses. Somebody for alkalinity or the 08 side. It's the side you see on the the right, the oxygen, hydrogen, making a hydroxide or the base heart of caustic soda, if you remember your high school chemistry on acids and bases. See a few knots. The base side is used in certain production processes to in the facilitation of them. As an example, caustic soda is used to dissolve things when making alumina or pulp and paper. The other use on the highlighted on the center side of raw materials is to actually consume it in the manufacturing of products. Think things like soap, super absorbent polymers for disposable diapers. Sodium based food preservatives. Mining products, and a whole variety of other uses. Another interesting feature of caustic is that it has a wide range of applications, wider than chlorine, and that its demand is not as dependent on a single end use sector like chlorine is into vinyls and construction. I'll just ask you to recall the slides that JAMA Holland showed around the the chlorine pie, if you will, and the caustic pie. This diversity of demand for caustic tends to make caustic demand less volatile and less tied to a single factor locations is less than 1. So the cost of caustic soda is a fraction of the overall production cost of the end use. Take for example, alumina, aluminum, caustic caustic soda. Because of these usage factors, every $10 change or ton of caustic soda price means roughly a $2 per ton change in the cost of aluminum. Now that's based on average consumption ratios. Now, knowing these basics, we can now turn our attention and take a look at demand. Now, as IHS Markit and John very nicely covered, There are very favorable caustic soda demand fundamentals through now in 2030, but I wanna peel back the onion just a little bit more for you today. First, caustic soda is tied to consumables, things that people use in everyday lives. As we highlight here on the right side, So generally speaking, we like to say that as population growth goes caustic soda demand follows. However, there is a factor above and beyond that that can drive caustic soda growth higher, and that is increase in things like income and per capita consumption of caustic soda. Think developing countries where people in India, Southeast Asia, Brazil, China are using things like toilet paper, tissue, napkins, paper towels, disposable diapers, for the very first time, and going forward. And economies like the US, It means something more like this. Now, for those of you on the phone, can't see me. I apologize. I'm holding a box. Cardboard box that I got delivered to my house just last week, one of several boxes I got delivered to my house. Last week, and the week before and the week before that. This is a box from a famous global online retailer. Oh, you've heard of them too. Now, this box is emblematic of what I'm gonna talk about here about the per capita growth. Now I got this box. Sure enough, I opened this box, this this cardboard box, and I was greeted with yet another box, more carton. Now why is this important? Well, caustic soda is used to make these boxes. You take the wood. The wood is made of wood fibers, held together by a naturally produced glue called a ligand in order to isolate the wood fiber and make things like cardboard and paper and tissues, you have to dissolve away that ligand. That's what caustic soda is used for. So now, with that said, and as I've told you, I get many of these in my house. Wanna get a quick show of hands for you. How many of you guys get stuff delivered to your house in boxes? Quick show. I okay. I'd see a lot of hands. Keep keep them up because I'm gonna ask 2 more questions. How many of you guys do more boxes today delivered into your house than say 5 years ago. Okay. Pretty much every hand. How many of you guys think you're gonna get more of these boxes in your house over the next 5 years than today. Okay. That's a lot of hands. Unscientific pull, you just demonstrated per cap a consumption of caustic soda is going up in this room. Thank you. Now I I I will highlight one of the things again, near and dear to me. In the bottom of these boxes, there's a stamp. And there's a stamp that says who produced it? Where was produced? And some properties about the strength of these two people in growing quantities, and we just renewed long term contracts that are very favorable to both parties. Going back to the story. So when you put all this together, we do see that caustic soda demand can go higher demand growth has with a 2% growth rate equal to chlorine. However, if you subscribe to the notion that pop population growth is growing at a healthy rate and per capita consumption of caustic is also growing, then one must subscribe to the notion that caustic soda could actually grow at a higher rate than chlorine. If we take the more historical 3% growth rate, that John showed for caustic soda and see that going through 2030. That doesn't mean 23,000,000 tons of new caustic soda demand. That means closer to 30,000,000 tons of new caustic soda demand required. And if you think about that, That means that in top of the required investments that John spoke about, an additional roughly 14 additional on top of those would be required just to meet this additional caustic soda demand if caustic soda grows at 3%. Now, keep in mind this equates using John's numbers to about $75,000,000,000 of additional investment on top of the $200,000,000,000. And this delta would just be needed for the caustic soda side not to address any chlorine demand growth. So now if you recall then John's slide 24 in the presentation with the ISO quants of PBC and caustic prices. If one believes that caustic soda demand will be soda prices are the ones that would need to move more than the PVC line to incentivize reinvestment for additional capacity. And I'll just refresh you on those figures. Holding PVC prices, caustic soda prices will need to reach $1050 a ton If you just move straight along the horizontal, as an example, to reach 15% IRR, and prices would have to reach $1500 to reach a more acceptable 20% caustic soda is produced in North America, but we supply caustic to the global market. So when you think about what I just covered of on the economics and security of supply, we think that's gonna be a strong key priority for customers going forward. And we see that as a strength for us in being able to supply our markets in the regions we serve. We are the largest membrane producer in the world. 50% larger than the next. In the Americas region, membrane cost that carries a price premium over diaphragm into certain segments. Two thirds of our 50 percent caustic soda sales are in North America, where we have the largest network to not just supply customers but reduced the logistical chain and increased the reliability of our shipments. About a quarter of our sales are in Latin America. Where we have built the largest supply network. I'll cover more in these two regions shortly. Lastly, our large membrane and diaphragm for in the US gulf give us an make us an attractive supplier, a flexible supplier to the overall global market. So indeed, a global portfolio, but as you will see, one that is focused on marketing to customer needs at the local level, and our local supply capabilities start with North America. Our North America network consists of 7 sites that you see here in blue. Combined with the 34 terminals in red, we're very well poised positioned to serve a variety of customers via truck, rail, barge, and marine modes. 1 key region is the southeast. Which is predominantly pulp and paper. These customers take their product via truck and railcar. The ability to be a strategic supplier to serve multiple mills respond to sudden demand changes and have redundancy across shipping point our key differentiators in this segment. We see demand growing in this region with new mill investments in the future. In the Midwest And Mid Atlantic Regions, our terminal locations allow us to be within close truck range of the manufacturing base there. And lastly, we are the largest supplier in Eastern Canada, which we supply from our both our plant and back in core also supplemented with caustic soda, both membrane and diaphragm that we ship out of the US gulf. This is important because this area, this region is one that relied partly on European imports for their caustic soda needs, but with things like mercury and a trend that's been unfolding for about 10 years. Exports from Europe into Eastern Canada have declined by over 50% in 10 years. In total, we have a robust network, built to provide multiple shipping points, shipping modes, product grades, reduced transit time and freight costs to our customers. And these are all elements of the OLED value proposition when it comes time to negotiate supply contracts. Now turning to Latin America, this is a region with a of opportunity for Olin. So I'll spend a little bit of time, here with you. First, generally speaking, imports supply half of the demand today, and almost all of that comes from the US gulf. Going forward, imports will be needed to supply the lion's share you go by IHS Markit's forecast. Imports were poised to grow from 2,000,000 dry metric tons a year. Today, to over 3a half 1000000 dry metric tons a year by 2030, a significant step change increase. Most of the import volume is, if you will, moved to the market. Think about the big alumina, refineries in the northern part of Brazil that just take product via large vessels from a loading port and the US Gulf down to their port of receipt. However, there is a growing segment that is truck based, that is very different, and where logistics and supply capabilities are just as important as just having the caustic soda. These two sectors that I'll highlight for you are best represented here in Mexico, and I highlight in Southern Brazil. In order to meet customer requirements here, imported caustic must arrive via first a vessel. Then it's put into a shore tank, and then it out to a customer one truck at a time, anywhere from 5, 10 miles to in excess of 100 miles. Now think about that for a moment. Because when I tell you some of these numbers, you'll get an appreciation of the supply chain and the importance of supply that's needed here. When you think about the average size customer that consumes caustic soda in this region, the average size customer needs about 5 trucks a day for what I call a medium sized, customer. 5 trucks a day means one truck of cost soda has to arrive at their location. 5, 10, 100 miles from that tank that supplies the caustic. One truck every 5 hour Every day, 3 65 days a year to maintain operations. Larger locations, like one of some of the largest pulp mills in Brazil, need three times that amount. Every day like clockwork 365 days a year to me to maintain operations. So, hence, my theme of you're you you get value, not from just being a producer of caustic soda, but being a supplier of caustic soda. And given that reliance of imports and logistics needed to serve the customers that security of supply commands a premium, especially in Latin America over other regions and this is a region that we are very well positioned for. In this segment is conservative conservatively 2 to 300,000 dry metric tons a year. Over the next 5 years, just 5 years, and that's based on public known announcements of expansions and new investments In this region, think all of the pulp and paper investments that are underway and announced in Brazil and Uruguay and Chile significant world scale investments in pulp and paper, all requiring caustic soda. And the majority of those acquiring membrane grade caustic soda, for which there is no new capacity in South America and Latin America 4, for which it is all being exported out of the US gulf, and the US Gulf will be required even more to meet that apply in the future. So to serve this market, Olin has a strong position. We have local sales, commercial, logistics, supply chain people on the ground across Latin America. We actually recognized this opportunity in the 1st days after Olin completed the acquisition of the Dow chlorine products in October 2015. And we have aggressively grown our position and focus in this region. Since that time, since the early 2016, we've more than doubled the number terminals that we ship out of. We've introduced membrane supply. We've increased truck trailer shipments by almost 50% about a 130 truck trailers per day today in this region out of these terminals and that volume continues to grow each day. In terms of what that means for pricing, we see it moving upward in the region with security of supply commanding that premium. And just as a data point of what is actually is achievable, because this is these data points have transpired. There were two two cases that I wanna, bring to your attention. Back in October of 2015, I was actually in Brazil. And, some of you that covered, the industry may recall. There was a significant disruption to a local producer there that had an issue with an with an ethylene cracker. Ethylene cracker, as John mentioned, important for the PVC manufacturer. If you don't have your raw materials, you can't run a chlor alkali unit. And caustic soda got very tight in October 2015. It got so tight that we all in were selling trucks for $1500 a ton out of our tanks, and we couldn't keep up with demand. I'll give you a second data point. Occurred actually less than 12 months ago. Again, another disruption in the region there. Caustic soda got tight. We we sold trucks for a $1000 a ton. So these numbers that we talk about and look at the ISO bands that John alluded to are numbers that are that are that under under the certain supply demand circumstances, have have been, achieved. But we believe under the structural period of change, Security of supply is gonna command a premium in the market and own in is well positioned to be that supplier. So in summary, caustic soda fundamentals are strong. We agree with IHS Markets assessment that chlorine and caustic demand will outpace supply, and that will happen here in the medium term 3, 4, 5 years. But on top of that, we all in believe that we see signs that caustic soda demand will actually outpace demand growth of chlorine. With these trends, we see a favorable appreciating price outlook for caustic soda for Olin's caustic soda through 2030. We see that coming from not just the market, but the value add from our capabilities to supply customers who require security of supply in this period of structural change. So as you think of old and in caustic soda, I'm gonna leave you with just five thoughts. Just if you take away anything from my time with you, five things. First, we're the largest caustic soda membrane producer in the world. We have the largest supply network in North America. We are committed to growing our supply capabilities to meet the customer needs. We will place and increasing value on that security of supply we offer versus the next best producer alternative. And lastly, every box that arrives at your doorstep, think caustic soda. Thank you. Thank you, Damien. Why don't we take a 20 minute break now? There are refreshments right out the main door that you came in through. And, but I'm gonna return to our seats at 2:40. Thank you. It. Please find your seats. We'd now like to begin the second half of our afternoon with Pat Dawson, who is responsible for Olin's epoxy business. Pat? Thank you, Logan. Welcome back. My name is Pat Dawson. I'm the president of Epoxy Division in Olin International. And what I'd like to do is build on what you've heard from John, Jim, Damien, and, really build on this theme of of our leadership position and how we are extending, enhancing, and growing our lowering portfolio. And, of course, I'll talk to you about how we're doing that through our epoxy value chain. First of all, upon c consumes 10% of the chlorine we produce, and we liberate a significant amount of caustic, which Domian then takes to the market. 2nd, we are the lowest cost largest, most integrated producer with a global reach. Our strategic intent and focus is on growing our leadership position across the epoxy value chain as we continue to experience improving supply and demand fundamentals. Let's take a quick look at the kind of integration we have in epoxy and also take a look at some of the barriers to entry. Into what we do. It starts with our low cost position in caustic and chlorine to make all which we then convert to epichlorohydrin, which I will refer to as epi. We also have world scale low cost phenol that is converted to Nala BPA that has reacted with EPI to make liquid epoxy resin. Keep in mind that 90% of the world's EPI molecules are used to produce epoxy resin. Ola's unique competitive advantage is in our integration. And constantly finding ways to be more productive with our assets and our integrated supply chain. The barriers to entry into this value chain are sizable. It's very complex in corrosive chemistry to operate complex forward and backward integration, and it requires a high investment cost to build a greenfield site with the SSUC outlined here in the red and the I'll call that bluish greenish color to rebuild those assets on a greenfield site would be about 1 and a half $1,000,000,000. If you wanna replicate the Olin assets that we have in place globally, we have 2 of these chains, 1 in Freeport, Texas, and 1 in Stana, Germany. To replicate that would require approximately $3,000,000,000 to $4,500,000,000 in capital. That's not including Leclore alphali investment. Olin is the only epichlorohydrin producer in North America, and it's for a good reason. Our integrated facility in Freeport, Texas has the lowest cost epi and LAR in the world. We also have the leading low cost and capacity share position in Europe. And we have low cost opportunities to expand our capacity of epi and LAR on existing infrastructure at a fraction of the cost versus what I mentioned on the previous slide. I'm not showing the epi capacity that was overbuilt in China simply because there are no material quantities of epi that leave China. Just a little bit of color to our global reach. And what I have is our assets you see here, our flag ship assets in Freeport, Texas where we have the full integration that I spoke to along with having that full integration in Stada, Germany, So we've talked about those sites. And then what you also see here are some of our smaller plants, which we call our CER, I our converted epoxy resin plants, and I'll talk to that in a minute of how we further advance liquid epoxy resin into converted epoxy res. And we do that at these assets in places like Guarajah, places like Pistichi in Italy, and Gumi, and Korea, and John Jagan, in China. And these converted resin plants are very important to our downstream growth and very important to giving us more as to how we make money in the epoxy value chain. Let me walk you through a, a slide here. This is kind of like following the chlorine molecule and give you more detail on how a epoxy extends and adds value to the chlorine envelope for Olin. First, we take chlorine and we make allyl chloride, and then we can sell that to the water treatment market as allyl chloride or further advance and convert that allyl chloride to make epichlorohydrin. With that, we can sell it again to water treatment customers or to epoxy resin manufacturers where that makes sense. We then take the epi, react it with Visthenol a to make liquid epoxy resin, and we sell up or we improve our margins by 3a half x as we go from selling epi into the merchant market to selling it as a liquid epoxy resin. So there's an increase of 3a half x on our margin versus selling that epi. We can then either sell the LAR. We can sell it direct to the big coatings houses like PPG, SW Valspar, Axo, or we can take that LEL LAR and advance it to convert it epoxy resin which I showed you on the previous slides at some of our plants, and we can take it one more step forward. And instead of making a liquid epoxy, make it a solid epoxy resin that goes into a lot of powder coating markets, or we can take the liquid epoxy resin and invert it advance it on downstream into making applications like a brominated epoxy resin, which fits into the downstream, And when we advance epoxy into the downstream, that's another 5 to 6 x improvement in margin versus simply selling it as epichlorohydrin. So let's be clear here. Our first strategic objective is to sell out our upstream and midstream assets which upgrades the value of our chlorine envelope and liberates large amounts of caustic soda, which enables our entire chlorine envelope to run at high operating rates. The second objective is to grow the midstream and downstream portions of the value chain serve as a great vehicle to capture higher returns to the ECU and the epi molecule. This is what selling up means to us. If you look at the applications that goes into it's quite diverse. There's many applications where epoxy does not have a substitute. Customers use epoxy because they have to in order to get the properties they value, such as corrosion protection and a variety a performance coatings application such as oil and gas pipelines or chemical resistance properties required in industrial coatings for things like sea containers or sea going ships, or you can go to Home Depot, and you can buy an epoxy kit and coat your garage floor. With epoxy. Over 50 percent of epoxy is consumed in coatings applications. Of course, you find epoxy in your cell phones, your tablets, your computers, in your cars where epoxy is a critical component of the electro laminate in the printed circuit boards in your electronic gadgetry. Epoxy provides thermal stability and electrical insulation properties to help your phone be more durable and reliable after you drop them or maybe occasionally throw them. It's worth the lab on our plans to grow our downstream applications in electrophlaminates, wind energy, and formulated products. This is a segment of our business that customers will pay us for cost competitive innovations. And that's why we have R And D And Technical Development Capabilities that you saw in the the global map there. We have R And D capabilities in the US, Germany, and China. And keep in mind that our downstream does consume 15% of the chlorine that I take from Jim. Our d our downstream businesses have the highest margins, the best growth rates of any part of our value chain, and our development priorities are highly customer driven as opposed to being R and D driven. We continue to be encouraged by the amount of new electrical laminate being demanded in the automotive industry due to more electronics in our cars and by the growing electric vehicle market, it's estimated that the demand for laminate will grow from a half square meter to four square meters during the 5 years, and that will require more epoxy resin with excellent thermal stability and structural integrity properties. Just as a fun wind energy factoid, about 36% of the wind blade is comprised of epoxy. The rest of it is fiberglass and balsa wood. So each wind blade has about 11,000 pounds of epoxy per blade. About 1 and 3 blades in the world is made from Olin epoxy. The levelized cost of energy will continue to be more competitive as blades get longer. And the metrics I just gave you is based on a 64 meter blade, which fundamentally goes from about this stage to, as far as you can walk into the other room, or from home plate to second base and then go another 90 feet beyond that. That's about sixty four meters, and the technology is moving to seventy five meters as blades get longer, you're more efficient, more efficient with your turbine, and the levelized cost of energy comes down. We also sell into the formulated product area, which is really a a formula specific driven application in areas like, floors, where you're looking for good chemical resistance, or you want to be able to clean these floors like in a food food processing plant, an epoxy, we formulate a system for customers to give them those kind of properties, or we do light weighting for like pressure vessels propane vessels instead of steel making those out of a composite fiber where epoxy is used to bind that together. From a consumption standpoint, you can see that China is the largest market followed by EMEA, North America, and Latin America. Demand growth ranges from 5 to 6% in China, and emerging margins, emerging geographies grow around 2 to 3%. Emerging geographies grow more in the 5 to 6 percent whereas, emerging geographies in China, I meant to say, are in more of the 5 to 6% range or the more mature geographies around 2 to 3%. While our overall epoxy participation exposure to China is minimal, our assets in Asia are vital for these downstream growth opportunities in wind Energy And Electric Alaminates where we have leading market positions, both locally, and globally. More critical is our participation in utilizing our North American assets to grow of our value chain, not just in North America, but globally as well. Our primary focus with our European assets are to grow ability and scale to be utilized globally as well. Shifting to industry supply demand fundamentals you can see that EPI and LAR operating rates outside of China are in the high eighties, which is the highest level we've seen in 10 years. As mentioned earlier, China does not export resin, so this is why the supply demand numbers do not include China. We certainly saw proof of these higher operating rates starting in late 18 and first half of 'eighteen with the increase in EPI and LAR prices and expansion of our margins. Looking forward, higher cost epi and higher cost BPA give much less incentive for capacity additions from non integrated producers of LAR in Asia and in Europe. Short term, we have the opportunity to grow Epi and LAR through low cost debottlenecking. And longer term, we are fortunate to have much of the infrastructure in place for a potential brownfield investment in both epi and LAR when conditions are right. So All in epoxy will continue to accelerate EBITDA growth, both near and longer term. Quite frankly, there was only one way to go from where we were 2014, and that of course was up. And I also have to note that in 'seventeen, our EBITDA would have shown growth over teen, if not for Hurricane Harvey, we demonstrated that we can run epoxy at $200,000,000 EBITDA run rate which we did in the back half of 18. We can reach these future EBITDA segment earnings with our existing asset structure. APoxy's value of liberating more caustic soda in the future will also continue to grow and move upwards. As the industry supply demand fundamentals continue to improve this dynamic plays to our strength of our advantaged position and our strength in upstream and midstream segments of our value chain. This is truly what sets us apart from our epoxy competitors. So to wrap up, in summary, we will take our leading epoxy position to enhance and drive the growth of Olin's chlorine portfolio. Here's what I want you to remember. 3 points Number 1, all in this largest, lowest cost, most integrated producer with global reach, our wheelhouse is in the upstream and the midstream. Point number 2, we are getting closer to the tipping point of supply demand balances, and this is a critical driver to our future improved margins. And point 3, Olin is in an excellent position to grow volume, increase operating rates, and to keep liberating more caustic soda. All of this drives the growth of Olin's integrated chlorine portfolio. Thank you. I'd like next next to have, John Sampson come up. So, John, over to you. I'll give you the clicker today. Thanks, Pat. My name is John Sampson, and I lead business operations for Olin. Which means I have accountability for around 75 chemical plants, 22 sites, around the world, and we have 3000 very enthusiastic operations employees who look forward to making more and more of the chlorine caustic HCL bleach or pie the coordinator again that you've heard about today. This afternoon, you've heard how Olin has positioned itself for success, both in chlor alkali, and the epoxy business. Our leading position across chlor alkali and epoxy industries set up Olin for success both in the near term and for many years to come. Now thanks to a disciplined approach towards capital investment, We are positioned to capture value across the industry industry cycle and through the structural changes that was spoken to earlier. Thereby expanding our reach into key markets while expanding our margin. To make all this happen, we have to deliver on low cost, heard about low cost a lot today and reliable operations. So let's talk specifically about strategy we're using to invest in our assets and ensure they are primed and ready to deliver. In operations, our daily task is simple, ensure safe, efficient, and reliable operations across Olin's asset base. It's what we live for in operations, and we recognize that we're the stewards of the largest portfolio of assets capable of producing more chlorine, caustic, bleach, HCL, epoxy chlorinated organics, you know the list than any other company in the world. But the fun part of this job being in operations is really about growth. And I will address that in a later slide. Our plants are comprised of a network of flexible technologies that are advantage in scale, location, and cost. Furthermore, we benefit from an exceptional feedstock position, which supports our ability to leverage operational costs across the chlorine envelope. These enablers help ensure our success today, and they will support our growth ambitions as we deliver value in the future. Let's take a quick look at how we manage capital. Olin again has the largest coin franchise in the world. To maintain this asset base, we are strategically dividing our capital investments into 2 main categories: value preservation and value generation. On the value preservation side, quite simply we're we're there and focused on optimizing our current asset base. We further subdivide that category into 2 buckets, building blocks, and maintenance and reliability. I'll take a minute to talk about building blocks because that may not be a term you've you're you're used to. But we we'd look at building blocks a unique subset of value preservation and that we wanna carve out the fundamental investments that are required if you're going to be in the chlorine chemistry franchise. Our building block capital projects are investments in 3 critical areas: energy, brine, and electrolytic sales. Getting the getting the building block investments right means we have the lowest cost electrochemical unit from which we can make the lowest cost chlorine caustic, EDC, vinyl epoxy, bleach, HCL. So Olin ensures low cost. By making timely and appropriate building block investments. The maintenance and reliability section can round out our value preservation investments. And they really are the blocking and tackling. You have to go through each and every day to make sure those at the assets are well maintained and can run and deliver the products when you need them and where you need them. On the value generation side or growth, really focused on expanding our assets, whether it be brownfield or simple expansions of assets that we have in place. Just to speak to strategically grow our low cost positions across the chlorine envelope. So let's take a quick look at how we manage these investments on the next slide. A lot of colors here, but I wanna draw your attention first to the right side of the chart and talk about that blue bar on top. The message here is post 2020, we have a large part of our capital investment that will be targeted towards growth. We haven't ignored growth in the 1st 3 years we've been together. You can see the blue bar exists in the three bars on the left, but Post 2020 after we finished some basic fundamental housekeeping, we have a large percentage of our capital that we targeted at growth. Jen mentioned earlier, we've got chlor alkali and bleach and HCL that's coming online here in the next year or 2. Those are brought on by the, 2016 through 2019 investments you see there in blue. And just real quickly on the red, that really is more of a integration, project that's hooking together all 75 chlorine plants and the ERP system we've spoken to that before. That will be done in 2020, which again provides more capital available for growth going forward. The yellow and the teal at the bottom are really, again, back to building block and maintenance and reliability. What you see there is a little bit of heavier investment early on. Because we had to reinvest in the asset base. Some of the acquired assets that came as part of the acquisition need to be refreshed. They've been under invested in. But that will start to attenuate in the out years. We'll have a lot of those building block investments made. We'll have a lot of the blocking and tackling in place. And so, again, It's back to the bar on the right where you see a large blue component targeted at growing the asset base. But we're not just making capital investments. We've also made some strategic investments to drive low cost. We'll take a quick look at those. Here's a quick example on 2 critical investment scores, electricity, and, and, and, ethylene. In the red bar, you can see that we've got, strategic investment in ethylene via a 20 year agreement with Dow to provide ethylene via a new world scale cracker. This ensures we'll have producer economics on a critical raw material for making EDC. And Jim told you earlier we're the largest merchant a supplier of EDC. If you remember, Jim talked about our vinyl business and the way it would change come 20, 21, Here you can see in 2020, we have our last payment to access that low cost ethylene as part of that changeover in that DCM contract. This ethylene investment is really critical for us because ethylene is the only real efficient way to globalize the chlorine side of the ECU. Caustic is easy. You put it in a ship, you put it in a barge, you can move it around the world. Chlorine, okay, you can liquefy it, put it in a rail car and roll it around, but that's about all you can do with unless you have ethylene you can pair it with and make EDC. So this investment is critical because we are, again, the largest merchant supplier of EDC. And with that low cost ethylene and low cost chlorine, guess what? We've got the lowest cost e c EDC in the world. This investment has already produced a $180,000,000 of value versus market based ethylene in the last 3 years. Blue bar you see in 2016 is a power investment targeted our at our Louisiana and Texas assets that help deliver reliable low cost power. For our Olin assets as we ran those assets really hard over the last few years, and we want to ensure that we could run at high rates consistently with limited risk. These investments pair with our capital plan and drive low cost. Just a real quick aside on what I'm talking about when I talk about growth on the next slide. We've got a 50,000 ton chlor alkali expansion that's coming online, here in the next year or so. At $200 a ton. So when I talk about investing for growth, I'm talking about low cost investments, incremental expansions, that are much, much lower than the previously announced multiple $1000 per ton, investments. So let's take a quick look at our growth plans. We have a series of growth opportunities that are in various stages of completion. At the very top, we've got near term 1 to 2 years where we have projects that are in process that will be RTO ing returning operations starting up here in the next 12 to 24 months. These projects are in direct support of that structural change that we growth that will take place. Over 200,002,501,000 tons coming soon to a theater near you, Near term, we have expansion plans in place for chlorine, caustic, HCL and bleach. And again, at a very low cost at a very easy increment. In the in the 3 to 4 year time frame, we have an additional several 100,000 tons of capacity that we can bring online via incremental expansion. These are easy to do low complexity projects. And lastly, a little further out with a little more complexity, a little more effort and additional half 1,000,000 ton plus additional capacity added to what we're doing already today. Add it all up and over 1,000,000 tons of growth that will expand Owens low cost, highly reliable, ability to deliver quality products and in operations, we look forward to doing all of this at the right time. So I'll move to wrap up in summary by saying that Olin really has 4 key advantages. We've got high quality assets in the right locations around the globe. We've got a strategic approach to capital that ensures our asset will be ready to run when we needed them to run. We're taking advantage of the low cost incremental expansions. Think about bringing on ECUs $200 a ton. I dare you to find someone else who can do that. We've got low cost raw materials and low cost operations. And we've got a cost efficient growth action plan in place. Or said another way, Olin has an ability to make manager move molecules in this chlorine portfolio better than the competition. And that truly is a sustainable advantage. Now I ask Kyle Slater to come forward and speak to you about Olin's financial strategy. Thank you. Thank you, John. You heard from a number of our boo business leaders this afternoon. On Olin's ability to capitalize on the structural supply and demand opportunities These opportunities result in a very strong outlook for Olin with opportunities to improve earnings and expand cash flow going forward. We will continue a balanced and disciplined approach to our capital allocation by investing in our businesses, deleveraging the balance sheet, and returning cash to our shareholders. You can see our significant financial improvement over the last 3 years here on this net on the next chart. On the far left hand side, our revenue has increased by 1,400,000,000 dollars over the last 3 years. This is the re this growth was driven by a 33% improvement in chlor alkali products and vinyls as well as a 20% improvement in the in epoxy revenues. Over that same 3 year period, Adjusted EBITDA increased by $425,000,000 or 50 percent reaching 1.265 $1,000,000,000 in 2018. 5% improvement in chlor alkali products and vinyls. And chlor alkali products and vinyls improvement was a result of improved pricing. Caustic soda price improved over 50% over the last 3 years. Chlorine, EDC, HCL, Coronado Organics, they all improved by anywhere from 15 to over a 100% in the last 3 years. Beyond just chlor alkali, epoxy improved 50% in their EBITDA from 2016 to 2018, driven by improved volumes and improved margins. These improved earnings resulted in additional free cash flow, as you can see on the far right hand chart. The primary difference between the increased improved EBITDA and cash flow was about a $100,000,000 of increased capital spending that John Sampson talked to you a few moments ago. Now let's focus on our 2018 cash flow. Reviewing our 2018 capital allocation will demonstrate our balanced and disciplined approach to investing in the business, de leveraging the balance sheet, and returning cash to the shareholders. We invested $385,000,000 in capital in the businesses in 2018. Approximately 10% of that was value generation. The next two slides will go into more detail about our optimization of the balance sheet but Olin Management has historically and will continue to maintain a prudent capital structure that is comm and we are committed to a conservative financial policy. This ensures that we can handle economic uncertainty and enables us to invest opportunistically in our businesses. The our financial strength has enabled stable shareholder returns in the form of dividends. We have an unbroken record of 369 can consecutive quarterly dividends, more than 92 years of dividends. Now let's talk about our accomplishments in optimizing the balance sheet. Over the last three years, Olin has reshaped its debt profile by creating manageable staggered towers of maturity by repaying debt and issuing bonds for 2027 2030 within rates ranging anywhere from 5 to 5 in an 8th. Since the acquisition, we have repaid $440,000,000 of debt. And we expect to prepay another $250,000,000 to $300,000,000 of debt in 2019. With a combination of debt reduction and EBITDA growth over the last 3 years, our net debt EBITDA ratio has been reduced to 2.4 times with additional improvement in expected in 2019. We are committed to operating with investment grade metrics over the long term. We do have a significant interest expense savings opportunity in 2020. One question that I've been asked repeatedly over the last 3 plus years is why don't you repay those are called those Dow acquisition bonds. Well, the answer is because of the reverse morris trust, that we did in October of 2015. We are unable to call them until October 15 2020. Assuming all the appropriate legal caveats, when those bonds get called in 2020, Olin expects to save between $50,070,000,000 of interest. The payback on the call premium is 1 year or less. You should see in 2021 lower interest expense and improved cash flow from this opportunity. Let's talk about Olin's free cash flow yield over the last 3 years. We reviewed the improvement in our free cash flow over the last 3 years. As you can see over that same time frame, Olin has consistently outperformed of broad based chemical peer companies and generating a higher free cash flow yield. Overall, we've averaged a 150 points better yield than these peer companies. Now switching gears, let's talk about the next several years. Oh, this slide's familiar. John showed it earlier. Olin has experienced a 50% improvement in EBITDA over the 1st 3 years. And to achieve $2,000,000,000, we need to only approve another 60% from where we are today. We've discussed our 2019 outlook on the call last week on our conference call. As we look forward within the next 2 to 3 years, we see a clear pathway to $1,500,000,000 of adjusted EBITDA with the assets we have in place today. The factors that you heard you heard from everyone today support our confidence that $2,000,000,000 of adjusted adjusted EBITDA should be achievable. Again, driven by volume growth, improved pricing, and improved margins. Now let's unpack that a little bit. You start with the 2018 2019 outlook for adjusted EBITDA of $1,265,000,000 is the base. First, we have to sign VCM contract that becomes effective in 2021. That's worth approximately $75,000,000 in additional EBITDA. When caustic soda recovers to just the just the prices we saw last summer. That's worth 225,000,000 dollars of adjusted EBITDA to Olin. You've heard from Pat the opportunities that are are there for in volume and margins, and that's our next building block, and it's worth a $150,000,000 of adjusted EBITDA. The next series relates to growth and volume in chlor alkali products and vinyls. Oops. There you go. The 1st block is improved operating rates. If we just go back to up improved operating rates and a little bit volumes than we experienced in 2018. We saw these volumes in 20162017, That's worth another $100,000,000 of adjusted EBITDA to Olin. Capacity expansions that are in process and will come online in the next 1 to 2 years. For HCL, bleach, chlorine, caustic soda, that's worth at least $75,000,000. And the the last bar there is worth a $120,000,000, and those are, again, low cost incremental chlor alkali expansions that are available in 3 to 4 years. All told, these opportunities are within our control or at pricing and margins. Frankly, we've seen within the last year. That gets us to the $2,000,000,000. That's all before the benefits in pricing. From the structural supply and demand that changes that are occurring in the chlor alkali products and vinyl spacing. That you heard from John Mohala earlier. If you assume conservatively, you add $100 a ton for chlorine, chlorinated organics, EDC, that's worth another $250,000,000 to Olin annually. Again, if you assume conservatively a $100 a ton on caustic soda, that's worth $300,000,000 a ton. That's worth $300,000,000 to Olin. All these metrics are in the back in the appendix. Again, I'll just remind you, those changes still don't get you to the pricing that would be required. To build a new greenfield facility that John Mahalin talked about earlier. I think this bridge demonstrates to you the wide and varied opportunities that we see to achieve $2 plus 1,000,000,000 of adjusted EBITDA. And now I would like to turn the meeting over to Larry Carmides as we get ready to begin our question and answer session. Larry? Thank you, Todd. While we assemble the, Q and A panel, just some final logistics on the Q and A session, Logan and I will have microphones. The ask that you please wait until we get to you, so that everyone here and everybody on the, webcast can hear your question. Prior to ask you a question, we ask that you please state your name and the firm you represent. Finally, please limit yourself to one follow-up question so that we may allow as many attendees as possible to ask a question. Well, with that, I turn the program over to John Fisher. Done. Okay. So we're ready to take Q And A. Let me go to Frank. Haven Firm? Frank Mitch, Fermium Research. I guess, I guess my first question is, did, did Larry and Logan coordinate, you know, his tie with her dress. I think that's I think it's very sharply done. And, and and kudos too, Larry, on your pending retirement. We're gonna miss your brother. Thanks, Frank. You know, as I looked at the, the near term and the long term targets, typically, you, you give a, you give a metric, but not a time frame or a time frame with the data metrics. I'm just gonna try and marry the 2. I thought I heard that $1,500,000,000 of EBITDA you believe is imminently achievable or achievable in 2 to 3 years. Did I hear that correctly? You did. Yes. And then secondly, when, you know, when, when would you think that you could get to that longer term, that $2,000,000,000 metric given, given the the, the outlook for chlor alkali. After 3 years. Okay. Alright. And then, one, one more granular, question. And Pat, you know, you you you talked about epi and, liquid epoxy resin, going into, supply demand charts, you excluded China, and I know you you you quickly went as to why you excluded China. I'm just curious as to as to why that is. Sure. Can you hear me? Yeah. The the reason, Frank, I excluded China is because if you look at export data over the last 10 years, there's hardly any epi at all that has come out of China. And I think you can speculate as to why that is, but the fact the matter is, it just doesn't come out. And, also on LAR, China is a net importer of liquid epoxy resin. So, you know, the impact there of China's slowdown can back up material in other parts of the world, but, but China is a net importer. So that's some, learning that we've been going through here over the past couple you. Don. In Susquehanna Financial. Question for IHS on your outlook for, for caustic. What do you see as the tipping point or the operating rate at which you start to see this fly up in pricing? Do we get there before the 90%, sold out rate that you talked about in 2023? And and what are the constraints? Cause presumably, at some point, on caustic, for example, there would be, some demand substitution. You might see shifting to to soda ash, for example. So what are the constraints on seeing this flying a fly up in prices? I think you, you hit them. If you have big issues, they're gonna material competition. I think both for the chlorine and caustic, I use the example in chlorine. Yeah. If you're gonna have PVC going up, you know, you're gonna have, you know, other materials like high the polyethylene. In things like the, in caustic, you might be looking at, you know, using a different grade of bauxite to be able to use less caustic for that to make aluminum. So you'll see a little bit of that. And again, I I think you're getting towards that towards the, you know, I think we said it by 2023 here in the the US. You said 2021. I think you're looking out over the next couple of years to actually start to see us get some of that pressure on pricing. Tommy, do you want to talk about just the caustic soda soda soda ash certification or there's a couple interesting dynamics there to think about, you know, in in the past, consumers of caustic soda also had the ash capability so you could switch from one to the other. One thing to keep in mind is caustic soda is mainly transported and consumed in the liquid solution form. Soda ash is transported in in a bulk. So now you're talking about a completely different logistics to get the product into your plant and actually to sit in terms of kilns, storage, solution, and so forth. So you're talking about a new an investment that just is needed for that piece alone. Other thing to think about is, you know, when in terms of switching capabilities, the amount of, soda ash capacity. It's it's globally, we're running at capacity already, and you're talking about new mines that would have to be developed. To facilitate that. So, I know it's a topic that tends to come up. Currently today, we we'd say there's a very small fraction of people that actually still have older capabilities to switch, but generally speaking, it requires a net new investment. We're just even at this point today, we're just not seeing it. Hi. John Roberts, JBS. The the longer term 2.5 1,000,000,000 plus target. It was the really long, long term. Still doesn't have Winchester recovery, that's there. Is that possible you could get to 2,500,000,000 somewhere out in the future in Winchester still not recover by then. And what are you, what are you watching to understand, personal inventories that people have of bullets or the, the, the inventory that's out there that's hard to track because it's not at the retailers, just at the consumers. What, what met do you look at to kind of get a gauge on that? From the standpoint of our forecast, our forecast essentially assume that Winchester the Winchester that we saw in 2018 is the Winchester we see going forward just for simplicity purposes. John, what we're trying to track is what we've tried to determine what we think normal consumption is. We think that's somewhere in the 11, eleven to 12,000,000,000 rounds. And we've had we had a period of about 8 years where purchase quantity exceeded that. We're, we're looking at that versus where we are today in terms of selling quantity, and you can actually come up with a run rate down that says we've probably got another year to year and a half before we see inventories that the consumer deplete sufficiently to step the demand back up to the historic 11 to 12,000,000 round level. Kevin? Hi, Kevin McCarthy Vertical Research Partners. 2, I guess, related questions on capacity expansions, 1 near term and 1 longer term. Over the near term, can you talk about the amount of debottlenecking that you're doing and the pace of that over the next couple of years, how that will flow through your financials. And then longer term, you know, John John made a case, and I think you agree that the market could tighten. You also mentioned it takes 4 to 5 years to bring on new and I understand you're not at reinvestment economics today, but recognizing that lag time, how are you thinking about potential for a meaning, more meaningful capacity expansion in, say, chlor alkali versus alternative uses for the capital deleveraging or returning it to, shareholders. Let me start. I think everything that John Sampson showed you there probably falls under what you would categorize as debottlenecking. The 200,000 tons that's in process is debottlenecking. It's essentially taking the framework we have and we are configuring or adding a few cells to getting more capacity. And I think you if you looked across our system, Jim talked about that. Almost every plant we have has some element of that. So I think virtually the entire million tons that we've port trade is really going to be in the form of debottlenecking. I think to answer your second question, which is, what would it take for Olin to build And I would tell you, we're not gonna build a greenfield. We're gonna build a brownfield. We're gonna add to the existing facilities that we have so that we can lever the infrastructure that John talked about, the brine, the cells, the electricity, it would take a situation where we've got a derivative set of derivative demands that sell out the chlor alkali capacity that we would be looking to build. So if somebody came forward and just for arguments, they said, we'll buy a 1,000,000 extra tons of EDC for you under a long term contract beginning in 3 years, that would cause us to say, well, under those economics, assuming the prices are right, that would be the trigger point for bill but I'll call new capacity. John, do you want to add anything to that? Yeah. No. I think you you hit the nail on the head really all incremental expansion in Brownfield Investments. We've got the, advantage of, space, that's allowing us to add to our, plan pretty efficiently. We talked about the $200 a ton expansion of 50,000 tons of DCUs that will be online here in the 12 months, and we've got other opportunities to do that with really, really low economics. Is there a question over here, Logan? Good morning. This is Matthew error from Tudor Pickering. I had two questions on slide 36 here. So first, you show your merchant chlorine position around 20% of your total sales. Is that are you okay with that long term? Would you like to get that down to to 0 And then could you also talk about, you know, the opportunity merchant chlorine versus PVC there? And then the second question, you showed Dow sales for chlorine 30 to 35 percent. Part of that goes into their PO business. Now, of course, there's other ways to make PO. They're more economical. Did you view that as as a long term, source of sales, or is there a risk that 30 to 35% could could trend down over time. Jim, why don't you answer the merchant acquiring question? I'll answer the PO question. Sure. The, the merchant flooring position, really, what we're trying to do is, as I mentioned, is that we're trying to place flooring at the highest value. So, we, we don't have anything against selling merchant chlorine. But we wanna place the chlorine in the capacity that we have at the highest value. So we're, right now, we're, we're moving things into derivatives. We have value. And I mentioned the bleach and the HCL. If the economics improve to the point where, merchant chlorine is a good value and that's, that's where we'll place it. So, no, there's no intent to take it down to 0. But we have no problem with reducing it if there are better value opportunities. And and I think on the PO question, remember, Jim mentioned, those contracts run out in 2025. None of the forecast that we showed you assumed any change in that relationship past 2025. That's probably quite a ways out from where we're thinking. From our perspective, the decision point, I think, is really gonna be what does Dow want to do. It's our point of view that Dow could build HPPO capacity at both Freeport and Plaquemint if they wanted to. Our view is they're not want to because that's a couple $1,000,000,000 of investment that really doesn't get them anything from a cost perspective. So I think there is a likelihood down the road that we will renew those contracts at some level. Maybe not at the level they're at today, but they're gonna be different in terms of Jim mentioned they were cost based. They're going to have to be much more of a mark to market. But I think that's a conversation that's probably not going to happen for another couple of years. We've sort of agreed between the two parties that that's a 4 year type of agree lead time to that. So in 2 years, if we have another investor's day, we might be in a position to talk to you more about that. Like we did from Barclays. I guess quick question on your VCM contract. If I understand it correctly, it's about £600,000,000 of ethylene that comes with tranche. And if I look at your annual EBITDA incremental here of $50,000,000 to $75,000,000, it kind of implies if that ethylene is cost based about $0.08 to $0.125 a pound on the ethylene margin and no margin on the VCM conversion. Is that the right way to think about it, or, or how should I think about that $50,000,000 to $75,000,000 step up? Jim, you can comment out I think the volume is actually quite a bit lower than that. I think it's more in the 450,000 tons. So I think your math might be off a little bit, Jim. Yeah. I think, from, it's just, it's just, a total value. You can, you can assess the value on whether on the, on the chlorine side or on the ethylene side of things. But it's, it's a, it's a long term contract that, that is, we'll just say that it has, has elements of making sure that, we're covered from a cost perspective variations on cost. It's a, it's a good, good solid long contract. That gives us some consistent value add. You can place the value on the ethylene. You can place the value on, on the sick. Yeah. Or, or on the, and the other side of that is on the caustic. And, there's, there's value to Olin across the board. And, and so not in any one spot. But it's $50,000,000 to $75,000,000 across the board. Well, there's a question here. Why don't we go up here first? Yeah. That's fine. We'll get everybody. Thank you. Jeff Zekauskas at JP Morgan. I was hoping you would just do a little bit of a historical review that is caustic soda prices were going up in 2017. They kept growing gone up until, I don't know, June contract prices in the U S, till about June of 2018, and then they stopped going up and began to fall. Why is it that they began to fall? And what is it, in the current environment that would reverse the trend and have them lift. And if you had to guess when that took place, when do you think it might take place? Tom, and you wanna tackle that? Sure. Sure. And thank you for your question. What we saw, if you actually go go back just a little further. Sure. If you go back to, 2016. So about March, April timeframe, we started to see, underlying supply demand fundamentals that we've kind of all been experiencing and and John kinda spoke a bit about. We started to see taking place in the market. And so we saw an appreciating, price dynamic of both globally and in the domestic North America side throughout the latter half of twenty sixteen, into 2017. Now then in the latter half of twenty seventeen, we saw some, one time events that provided some additional tailwinds in the form of a couple of factors. The first thing is everybody knew that, Mercury was going to be sunsetted in Europe that created a one time event that created some, dynamics there that tightened up the market in that period of time separation of that. The second was, the weather event that occurred in the US Gulf in the, in the form of Hurricane Harvey occurred right about the same time. The third thing that took place is China, was starting to prepare for their winter 2+26 initiative of curtailing emissions. That caused, some tightness in the market in preparation of that. So we had some events that, really drove the market higher in 20 seventeen's build over into 2018. Those events then came to pass, and then, were replaced if you will, by, an event on the downside, which was this event in in Brazil, that occurred you know, almost a year ago that curtailed caustic soda demand. So that's now played itself out over the course of of the, of 2018. To with that in mind now, we see once one time events that were favorable. Went away. They were replaced by, 1 and a couple of other, temporary events to the downside. Once these events, you know, in the rearview mirror, we think that the underlying supply demand fundamentals, pick right back up. If I can try one follow So if we were listening to, a, a Celanese presentation, what what they would be doing is talking about all of the different derivatives that they make and finding the best market for the market that had grown tightest. And and trying to stay away from the markets that were were more loose. And in the, the presentation that you gave, you you talked about your strength in so many different chlorine derivative markets, but there wasn't so much of a commentary around, which mark might be better to focus on or which market, you know, could be tighter or which market might be looser. Is that, are are those options not really possible for you? And so your business is fundamentally different, or are are there ways that you might be able to do better in certain derivatives. And if there are, which are the derivatives you're really focusing on? Let let me start with the answer to that, because I said in the introduction, Sure. That that portfolio of chlorine derivatives that we have allows us to manage where chlorine goes to MISE value almost on an hourly basis. And to answer your question, we make that decision almost daily of where chlorine is gonna go, and we make a decision where chlorine's not gonna go. I would say this, the majority of the time the outlet for chlorine that gets shorted is the merchant market, because that is typically a market today. You've seen it has been oversupplied. And that's been shorted. We've seen EDC prices go from $0.05 a a pound, probably 18 months ago to today, it's 14. I would tell you today, EDC is a lot more desirable market for us. And what we're trying to emphasize, Jeff, is we have the flexibility to do that day to day. We can turn HCL on and off on a daily basis. We can turn bleach on and off on a daily basis. And bleach, which is very seasonal, we actually do at. So we set, you know, we produced probably 65% of our bleach in the summer months, you know, June 1st to October 1st. So we're we're constantly doing that trying to attract value. If we were pumping a 100% of our capacity in bleach today, when it's snow and outside New York, and there's not a lot of bacteria growing in frozen reservoirs, we probably would be hurting ourselves. So I don't I can't answer that specifically to say where are we today? I mean, I can do it where we are today. I'm not we're not here to tell you we think there is a better outlook of one versus the other. I can tell you there's a couple that over the 3 years we've been to get pad this together, it's consistently not been shorted, and I can tell you there's one that's been consistently shorted. And I think that's how we would answer that question. Okay. Thank you. Jim Machian from SunTrust. Could you share your thoughts on whether it makes sense for Olin to integrate downstream into PBC and under what circumstances would you consider that? I'll answer that. I think Olin is not going to integrate downstream into PBC. I think that is a business for an integrated PVC producer that has this global the industry structure that John described. I think to do that, actually have to be integrated into ethylene in a bigger way than we are. I think John properly categorized what we have, which is a condo scenario. And I would say our strategy is we're gonna try to optimize this chlorine derivative portfolio of 19th. Things, and that does not require us to go downstream to PVC to be successful in our point of view. And on caustic soda, you talked about, the premium that you think you deserve for operating reliability. Now over the past few years, I think you've actually had discounts in your prices that you've, you're you're working on removing. Why haven't you been able to have that premium for reliability in the past? I think if you went back and looked at the charts that we've had in our quarterly earnings calls for the last two and a half years, We'd show you what the pricing, the met metrics of caustic soda are relative to discounts. And What I what you will see is those discounts have consistently declined to a level today where we're yielding 80 to a 100% of the quote published price. So I don't accept the premise that we've been discounting it because we're an unreliable supplier. I think we've gradually prove where we're actually eliminating market discounts and we're selling close to max value. Mike Sison KeyBanc, if IHS, if their forecast is correct in the sense that the industry, chloroqua, sold out into 2023, would you be closer to the 2.5 or or the 2 and and given a lot of the, you know, improvements that you see over the couple of years? I I think if if they're if they're correct and the industry globally is sold out in 2023, will be a lot closer to 2.5, then we will the 2. Great. And then a quick follow-up, you know, in one of the slides, I can't remember which one you had the the cost of your coral alkali footprint. It was like $200 and then a lot of folks were well above that. Does that cost stay kind of flattish over the next couple of years? And then when you think about doing a world scale facility. And I know the, IHS Outlook said something like current prices are less than 10% return. Is your, return better at a lower price than what they are looking at to do that world scale facility? I would say that what the benefit that Olin get that gives it its low cost position is twofold. We have access to natural gas as a power source or hydro power as a high, as a power source, and that's probably 90 to 95 percent of our power. And our plants, especially our Gulf Coast plants, have significant scale. If we were to go and add significant amounts of capacity, we would be leveraging the scale in those large plants and presumably leveraging natural gas. So it would be our expectation that our car, we would not change the cost outlook for Olin X, a a movement in natural gas up, which would affect the entire industry. So from that perspective, I think that's where we would there. Eric Petrie with Citi. In the backdrop of improving caustic prices into next decade, just a question on contract strategy, do you see more frequent, refreshes compared to the 20 to 25% renewals that you see in your cost of contracts? And how do you see the pricing lag changing, if any? Damien, why don't you talk first about what's actually occurring in the spot market, and then you can comment on what you're seeing in our contract. Well, sure. One of the things that we see is, you know, with your underlying, premise, first of all, thank you for your question. As we see the supply demand tightening, what we see then is customers taking more of their demand out for contracts and need to lock that up because I said, the premise of my, my talk is secure to supply and the importance of that. And so, you get to a point where if don't think you're going to get all the product out in the spot market that you need, you actually go out and and secure contracts. And one thing that we've we've we've been seeing in the market. And if you keep keep up with, press publications, the amount of spot material has declined as this dynamic has unfolded. We see that both in the domestic and the export market. What that then means is, someone like us with Olin with our position. We we're then able to, look across the table to a customer put our value proposition on the table and in the cases where we think there's value on on contracting for a period for more than 1 to 2 years, then, then we will do that because it it it achieves certain certain value. They bring certain value to us. And conversely, if we think that the timing is is not as as ripe for that kind of, longer term commitment, then we'll do something more in the 1 to 2 years. But we feel we have that flexibility. We have that flexibility across our our assets and our regions and our product. And so we, we do a portfolio management of caustic soda across, the regions we serve, across the grades we serve, across the modes. So really, as John said, it can much like we do in chlorine across the below. We do that in a portfolio across caustic soda. And from my follow-up question is directed to John, but it's open for a comment by Olin Management as well. I think the last chunk of capacity in North America that came out was 6% in 2014. Can you talk about the returns when they made those investment decisions compared to the 10% or low teens that you indicated at current pricing levels today? Jamie, when I'm talking about that, that was sent back. I think, and and John Samson may may was was involved with that as well. I think that the asset, the assets that were built in 24 team, were, were made for different reasons. I think there was, there was internal reasons in terms of supply and so forth that needed to be done, and renewal. So that was, that was important, to the asset. So, that That asset base was, a brownfield, asset. And it's been, it's been quite nice from, from our standpoint to, to receive that asset. The new, the new, the new, assets that we're adding, the new capability and capacity that we're added, will be a fraction of even the cost that we spent on, on that, on that for our pipeline. Hi, Neil Kumar from Morgan Stanley. Just a question on the $200, $450,000,000 of epoxy improvement to get to your $1,000,000,000 of EBITDA. How is the split up between volume and margin improvements? And, what price deck is that assuming? I I'm sorry. Could you repeat that? I didn't get the beginning of it. Of the $150,000,000 of epoxy improvements gets your $2,000,000,000 of EBITDA. What is the split between volume versus margin improvement and what type of price deck is it assuming? Yeah. I would say it's about half and half I I think what you saw this year with pricing, you know, pricing, is up about 40%. And, those kind of margins, you know, while they tailed off at the end of the year, mainly because of demand destocking, I think as you see, demand start to pick up again, we're pretty confident those kind of margins, will return. We're not too far from them today. And I think it's just the normal volume growth that I spoke to in the market of around 3% also helps that as well. So it's a combination pretty much half and half between volume and, and margin. But make no mistake, we made a tremendous jump in improvement in, margins over hydrocarbons from 17 to 18. And then for my follow-up, in terms of your chlorine envelope slide, you just give us a sense of the magnitude of differential between mean, you know, your margins selling into your merchant chlorine market versus other derivatives like EDC? Well, as I said, EDC's probably not a good example, because there have been days in the last 3 years, if you've looked at that chart, it looks like an EKG. There have been days when we would have preferred to put that chlorine in the merchant market. I would tell you that the, the, the one product that is the most consistent has been bleach. Jim had on his side that it sells for $100 to $200 a ton premium to the ECU. That's very consistent. It's seasonal. It's not the biggest product, but that's the one that probably does the best. The other 2, I would say that have not really ever been on the radar for shorting have been the chlorinated organic portfolio itself, because things like carbonset are very high value, and epoxy, just because we have the whole sequence of epoxy to upgrade that. And if you get down to liquid epoxy resin or solid epoxy resin, that value creation is very substantial. Okay. We have one in the back. Thank you. Alexie from Nomura Instinet, on slide 71, you're showing 3 buckets of, chlor alkali expansions in the middle bucket intermediate over the next 3, 4 years. How would you assess the probability of doing that? This is very, very light play fifty-fifty? Or I would say that's in the very likely category. I think the the 3rd bucket is the one that you know, we'll take we'll take some analysis and take some better understanding of where the chlorine derivative demand is to support that. Thank you, John. And just to follow-up on the first bucket near term, should we think of that 200, 250 KT being available early in 2020, and then you start it out, or or that's more gradual? I I think if you looked at if you remember what Jim had on his slide, he had 70 1000 tons of HCL and 60,000 tons of bleach, those 2 make up the majority of that 200,000 debottlenecking. And that will be in place by sometime in the middle of 2020. Thanks. One more, Larry, here. Jeff Zekauskas at JP Morgan. If if I could just try one more. Can you talk A little bit about your operating rates. In that, in the in the discussion, you talked about various types, capacity expansions, as though you couldn't produce any more than you're already producing. Is there an optimal operating rate for you? Are are you close to that? You know, where do your operating rates max out, why do you need to actually lift your capacity? If that's a correct description of what you've been signing. Let me clarify one point. If you look at Todd's step up to 2.5. The first element of capacity was higher operating rates, and we have operated it. We did operate on a higher volume of chlorine produced in 2016 2017 than we did in 2018. Generally speaking, in John Samson, you can comment we look at max core alkali operating rates. It's somewhere between 90 93%. The the the chemistry is very corrosive on both sides of the molecule. And one of the disciplines we put in place and agreed to when we did this merger was we were going to take outages when they're planned, and we weren't gonna risk running longer and have some kind of catastrophic failure. Those inevitably create unplanned outages and take long. Right, John? Yeah. I think, in addition to that, we've taken a strategic approach to being more resilient. And so we're trying to see around corners and anticipate what most vulnerable parts of our assets are and then planning for how we can recover quicker. And I think that's adding another point or 2 to our ability to get product out But generally speaking, somewhere between 90 93% on an asset is max, just because of the necessary outages. Okay. We'll have one more, and then we'll end this. Hi, Jed. No store from Soapsstone Capital. Two quick questions. One for Todd and one for John. Todd, in your bridge to the 2,000,000,000 and beyond, it does not include the 50,000,000 of savings from the IT project that's referenced in the appendix. I'm curious why that was omitted there. And second, know that the IT project is costing about 80,000,000 of the roughly 400,000,000 of CapEx this year. Can you build the debottleneck projects that, and and still are you gonna basically fill up that 80,000,000 when that goes away from an IT project? With other debottlenecking opportunities, or should we expect over time the CapEx sort of underlying CapEx? The current number is less than 80,000,000 Why don't you answer the 50 and I'll answer the capital? Sure. I was trying to keep, 22.5 $1,000,000,000, at least a reasonable number. I I apologize. In fairness, the the IT project is worth at least $50,000,000 to us beginning in 2021. We are taking out some of the duplicate costs, that that we're incurring today, and that's worth about $25,000,000. So probably this step up in 20 1, it's really $25,000,000 compared to what you And it and if you go back to the the bar chart that John John Sampson showed, the red line was actually the what he called integration. That is predominantly the IT project. And he showed you in the chart on the far right where the the a bit, the growth was a much bigger number. And I would say he is categorizing that as available for growth. That is not necessarily a committed number at this point in time. But everything through 2019 is committed. So okay. That that will end our Q and A session. I'd like to thank you all for coming today and being here with us. I would say needless to say we're very optimistic. We're very excited about where Olin is. We think there are a lot of opportunities. You heard about structural change. We believe in structural change. We believe that we have the sets, the market position, the resources to take advantage of that. And I would just say one thing. We showed you a a slide here. I'm getting to $2,000,000,000. I would tell you that from a management perspective and the people in the room with me from Olin, that's not aspirational. That's a commitment on our part to get to $2,000,000,000. So with that, Thank you very much. Travel safe.

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