Earnings Call: Q2 2018

Aug 1, 2018

Good morning and welcome to the Olin Corporation Second Quarter 2018 Earnings Conference Call. All participants will be in listen only mode. After today's presentation there will be an opportunity to ask questions. Please note that this event is being recorded. I would now like to turn the conference over to Larry Cromides, Olin's Director of Investor Relations. Please go ahead, sir. Thank you, Cole. Good morning, everyone, and thank you for joining us on our second quarter earnings call. Where we begin this morning, want to remind everyone that this presentation, along with the associated slides, and the question and answer session following our prepared remarks, statements regarding estimates of future performance. Please note that these are forward looking statements and that actual results could differ materially from those projected. Some of of our most site in the Investors section under calendar of Events. The earnings press release and other financial data and information are available under Press Releases. With me this morning are John Fisher, Olin's Chairman, President and Chief Executive Officer Pat Dawson, Executive Vice President and President Oxy And International John McIntosh, Executive Vice President, Synergies And Systems Jim Virolek, Executive Vice President and President, chlor alkali products and vinyls and services and Todd Slater, Vice President and Chief Financial Officer. Now, I'd like to turn the call over to John Fisher. John? Thank you, Larry. Good morning and thank you for joining us today. During this call, I will begin by describing the 4 key highlights of Olin's 2nd quarter performance, followed by a more detailed discussion of each of our business So let's turn to Slide 3. In the second quarter of 2018, Olin generated the highest level of quarterly adjusted EBITDA since the acquisition the DowDuPont chlorine products assets. The opportunities and downside risks of approximately 4%. This year's major turnarounds in our chlor alkali products and vinyls and epoxy businesses have been completed on schedule and on budget. Maintenance turnaround costs during the second half of this year will be approximately $135,000,000 lower first half of the year. Costs are expected to be approximately 190 to the of EBITDA during the second quarter, a quarter which was impacted by $21,000,000 of planned maintenance turnaround costs. The overall supply and demand environment for proxy resins has continued to be favorable. With the significant maintenance turnarounds successfully completed, we expect improved volumes and improved results in this in half of twenty eighteen. Percent in the for the last 3 months, reflecting a more balanced supply and demand environment during the seasonally stronger period of chlorine demand. In the second quarter, we saw some modest weakness in the 6 soda market in more detail in a couple of slides, but we are confident that a positive caustic soda cycle remains intact and expect continued long products and vinyls, which is summarized on slide 4. Second quarter 2018 chlor alkali products and vinyls the due to last year with Olin setting quarterly records for both bleach and chlorinated organic shipments. Ethylene dye chloride prices in Olin's system increased the 25% sequential increase in the first quarter. We are expecting ethylene dichloride prices to increase further in the third quarter. We've experienced increased demand from Europe and improved pricing in Asia throughout 2018. We believe the improved pricing in Asia reflects strong PVC demand, higher NAFTA based ethylene costs and lower caustic soda prices in China. 18 ethylene dichloride pricing to improve compared to 2017. During the second quarter, we experienced sequential price and vinyls business is expected to improve in the second half of twenty eighteen from the first half driven by higher pricing, increased volumes and lower maintenance turnaround costs. Owen continues to maintain its positive long term view of caustic soda pricing. In 2018, we expect caustic soda export volumes from North America to once again index decreased $48 per metric ton in the second quarter of 2018, but was flat in July after increasing approximately $2.60 per metric ton in 2017. A key point of consideration for Olin. During the first half of twenty eighteen, approximately acquisition, we have moved to a caustic soda sales model that is virtually all contract base. We would also observe that the volume associated with recently lower priced spot export trades have been very minimal. For the U. S. Gulf Coast export pricing has been under pressure the last few months due to regional conditions in Asia, China, Brazil and Europe, influencing global supply demand dynamics, we are convinced that these regional factors are short term. The capacity additions that have been announced recently will not impact for approximately 3 years and are small in relation to the expected growth in caustic soda demand. Strong global and US GDP growth continues to drive key caustic soda market growth in pulp and paper, water treatment, organic and inorganic chemicals and alumina. As a result, we believe the favorable long term global caustic soda market dynamics that have been experienced over the past 2 years remain in place. Let us now move on the performance of our Epoxy segment, which is summarized on slide 6. Second quarter 2018 epoxy adjusted EBITDA of 49 point $9,000,000 was approximately $35,000,000 higher than the second quarter 2017 results. The significant earnings improvement was driven higher product pricing, partially offset by higher raw material costs and lower volumes. The lower volumes were primarily due to a cooler than normal spring in North America, which delayed industrial coatings customers demand. 2018 compared to both the second quarter of 2018 3rd quarter of last year. During the first half of twenty eighteen, pro wind costs increased approximately 23% compared to 2017 levels. And we expect 3rd quarter raw material costs increased approximately $20,000,000 to $25,000,000 sequentially from 2nd quarter levels. These higher raw material costs represent a potential offset We are encouraged by the 2nd quarter results in the epoxy business and the overall supply and demand dynamic present in the 18 into 2019 with the risk of higher raw material costs, primarily benzene and pro clean, a potential negative. On Slide 7, we show liquid epoxy resin pricing over the past two and one years for the United States, Europe and Asia. Resin pricing has improved in each reason since the beginning of 2016. A portion of these increases have necessary to recover the higher raw material costs, principally benzene and propylene. Tire market conditions for liquid epoxy resin have added to the price momentum and these dynamics are expected to continue. The current forecasted demand growth for our products over the next several years depending on the geographic location and the application is different by region. In Asian, excuse me, Asia resin prices increased dramatically in the latter part of 20 17 into 2018 and lately have moderated. In North America and Europe, prices increased late in the fourth quarter and through the beginning the second quarter with less moderation. We have announced additional resin price increases in North American and Europe to be effective September 1st. Moving on to Winchester on Slide 8. Second quarter 2018 Finchester adjusted EBITDA was $16,700,000, a decrease of $6,800,000 from the second quarter of 2017. This decline in euro year adjusted $5,000,000 in and other material costs to increase approximately $20,000,000 from 2017 levels. During the second quarter, lower and in 2017. However, we do expect commercial demand to improve sequentially in the third quarter of 2018 from the 2nd quarter level due to normal seasonal demand. As a result, commercial sales. Throughout the first half of twenty eighteen, our efforts have met with limited success. Before I conclude, I would like to emphasize that our outlook for the Chemical businesses is positive. RIM remain confident that we're in a multiyear upcycle in caustic soda. We're also experiencing favorable volume and price trends in chlorine ethylene chloride and other chlorine derivative products. In the epoxy business, we have also experienced improved volume and increased pricing. Our expectations of seasonally stronger second half of twenty eighteen will provide the basis for further improvement as we move in 2019. Now, I would like to turn the call over to Todd Slater. Todd? Thanks, John. Let's turn to our 2018 cash and our expectation is that by the end of 2018, the combination of debt reduction and EBITDA growth We'll reduce the net debt to EBITDA leverage ratio to the 2.5 times range. During the first to EBITDA forecast of $1,300,000,000 on the far left of the waterfall chart. We deduct $50,000,000 in estimated tax payments, which primarily reflect income tax payments made to foreign jurisdictions in 2018. We are forecasting our cash tax rate will be federal taxpayer because of the utilization of net operating loss carryforwards, primarily arising out of costs associated with the acquisition in 2015. Because of this, we do not expect to be a U. S. Federal taxpayer in 2018. While we are continuing to of 2017. The cash tax benefit to Olin of the changes in the tax law is minimal in 2018 due to the tax credit carryforwards. We do expect the new law to provide cash tax benefits to Olin beginning in 2019. The new law is current be estimated to reduce our cash tax rate for 2019 and beyond to the 15% to 20% range. This translates into an dollars. Our current forecast for capital spending of $400,000,000, which includes annual maintenance capital spending of between 225 $275,000,000 and the investment associated with our multi year information technology project of approximately $100,000,000. To implement chlorine products businesses. The projects includes required information, technology infrastructure. Now turning to the 4th column we're expecting working capital to be a use of cash in 20.18 of approximately 50,000,000 The estimated increase associated with hydrocarbons approximately 15% compared to 2017 levels. In the next column, we time items of approximately $60,000,000 include integration, cash restructuring costs, the 1st quarter's $8,000,000 business interruption insurance recovery and the approximately $50,000,000 for the expense portion of the multi year IT project that I just spoke about. The next column represents the estimate at variable interest 2018 interest $500,000,000 of free cash flow in 2018. We are targeting a minimum debt reduction of approximately $300,000,000 this our quarter with a goal of offsetting dilution. And to date, we have repurchased approximately 300,000 shares. Finally, on Thursday, July 26, Olin's Board of Directors declared a dividend of $0.20 on each share of Olin common stock. The dividend is payable on September 10, 2018, to shareholders of record at the close of business on August 10, 2018. This is a 367 consecutive quarterly dividend to be paid by the company. Operator, we are now ready to questions. You. And our first question comes from Don Carson from Susquehanna. Please go ahead. Thank you. So, John, where do you think we are in the chlor alkali site you've talked in the past about mid cycle earnings of EBITDA of $1,500,000,000, do you think we can get there by by next year. And as you look, you expressed confidence that caustic pricing will continue to increase. What's sort of the magnitude is what you show on slide 5 in terms of what we've seen over the last year? Your first question, I think from the standpoint of achieving mid cycle of $1,500,000,000, I think that is a 2019 or 2020 event for us. I think from the standpoint of where we are in the cycle, I would say we're at worst case halfway through the cycle. I think what we're going to see though is that level or the degree of price increases are going to be slower as we go forward than we've seen in the past. We obviously saw a significant jump last year But I think it will be more steady increases. And I think we'll see occasionally things, some dislocations around events and production in certain areas that will cause slowing down of those increases, which is some of what we've seen right now recently. And then a follow-up on epoxy. So how would you characterize what's your view on what's your average margins will be this year versus last year? And can you help us out at all with any sort of idea of operating leverage per related to changes in, say, a $0.01 margin per pound? I'm not really sure from a competitive standpoint, we want to answer either of those questions. I would tell you that if you look at the if you go back to the investor presentation we made in February of 2016, we showed a chart that suggests is that EBITDA could reach $250,000,000 to $300,000,000. And I would say based on where we are today, we're making very good progress towards achieving that. Okay. Thank you. And our next question comes from Neil Kumar from Morgan Stanley. Please go ahead. Hi, good morning. What is your new $1,300,000,000 EBITDA guidance assumed with regards to caustic EDC and epoxy prices, is it as of July levels? Yes. Neil, this is Todd. It assumes the pricing for caustic that was in effect at theendofJuly. And for EDC it assumes our outlook for the full year on EDC being higher, priced in 2018 than it was in 2017. Is an improvement over what we've talked about in the prior two earnings calls. And on epoxy, I think we haven't talked about pricing other than the the improvement that you saw on the slide. And then there's a September 1st price announcement out there. But don't, on epoxy, as we were clear, you know, there is $20,000,000 to $25,000,000 of higher hydrocarbons that are coming through in the third quarter compared to the the quarter. Thanks. That's helpful. And then you've also guided to maintenance cost declining additional $30,000,000 to $40,000,000 in 20 19. Do you believe that would be a good run rate level for maintenance going forward or can costs come down even further? I think we guided to, they would be $30,000,000 to $40,000,000 lower in 2019 than they were in 2018. Right. Yeah. So maybe maybe you heard me wrong, but that's what I was saying. Is that basically a new run rate 2019 levels or you think they can come down even more in 2020 and going forward? I think if you looked at their we've talked about there are large turnarounds in 3 different assets, the epoxy assets, which are done every 5 to 6 years. Have now been done and the VCM asset, which is done every 3 years. That was done in 2017. So say if you looked at it on balance 'nineteen is probably near the low end of what we would see. Great. And then last question, in epoxy, where are you in your longer term initiatives to drive costs out of that business and upgrade your for you and cost mix? Yes, Neil, this is Pat Dawson. We have announced that we've been we're going to drive out $100,000,000 of cost over the next 5 years. And I would say, we have made good progress on that here. In the last 2 years. That remains productivity and driving productivity improvements is a critical part of the strategy going forward. And our next question comes from Kevin McCarthy from Vertical Research Partners. Please go ahead. Couple of questions on epoxy. How would you describe operating rate in North America and Europe And likewise, how would you describe your level of confidence that prices can increase enough through the course of time to offset the $20,000,000 to $25,000,000 of cost inflation that you referenced. What is the outlook there? Yes. The outlook, if you start back just a few years ago, the outlook has been moving over the past 2 years in terms of supply demand fundamentals. So supply demand, we think, continues to improve We have not announced any operating rates. That's not public information, but it's definitely improving. We also see the crack downs on the enforcement in China around the environmental regulations as each month goes by, that seems to have more teeth in it, and that has helped the improvement as well. But also you don't see any new additional capacity being added in the industry right now. And as long as we continue to grow in that 3% to 5% range that we've talked about before, we think conditions will continue to improve. And Pat, as a follow-up, propylene prices have been relatively high and volatile lately in both the U. S. And Europe. Obviously, Olin is short of the molecule have you considered or would you consider vertical integration in propylene either on your own or synthetically through base loading someone else's asset? Yes, I think that's something that we would continue to evaluate You know propylene obviously follows what oil's been doing and oil's been hitting highs here in the last couple of months. So that definitely is a headwind and we definitely are always looking at options to improve our propylene position. Thank you. And our next question comes from Jeff Zekauskas from JP Morgan. Please go ahead. Thanks very much. On your slide 7, do you show trends in liquid epoxy resin pricing and all of the three regions are decreasing as raw materials are going up. Can you describe what the market dynamic is and have an idea of where you think things will stabilize? Yes, I think first of all, I mean, if you look at where this started, back probably the middle of last year, third quarter of last year, you've seen a pretty good run up. And as I just mentioned earlier, I think that our supply demand fundamentals have been getting better, you know, across the whole epoxy chain. I think this little cool down that you've seen here. I think prices have gotten pretty frothy. Towards the end of last year, the beginning of the year So I think So overall, with this improving supply demand fundamentals, I think you're going to see better stability going forward than what you've seen past. And by the way, as John mentioned in his remarks, we do have a September 1st price increase out there in North America and Europe. Okay. And I've, I guess, a question on caustic soda. I imagine that you have different caustic contracts that were signed at different points in time. If all of your contract caustic was now priced at the market price, would that make a difference to your earnings or how much might that change your average caustic realizations? Yeah, this is, this is Jim. Yeah, we've got momentum in the contracts. And the contracts do renew over a period of time, 2 to 3 years, oftentimes, sometimes extending beyond that. So we constantly have contracts that are renewed And so we do have momentum going into the third quarter out of the second quarter. The prices that we that we attained their index changes and so forth that will continue to provide momentum into the third quarter, which is why we're saying that we will have higher domestic prices in the contract renewal season is in fourth quarter. And we have contracts that run anywhere from 3 to 5 years. So we still have a group of contracts that were negotiated in the 2015 timeframe, which you would say was not a sellers market point in time. And it's our expectation that as they roll over, you will see a meaningful improvement in our netback when get to Q1 of 2019 versus Q4. And the next question comes from John Roberts from UBS. Please go ahead. Good. Thank you. Was the improvement in epoxies concentrated at all in LAR, epi or aromatics? Yeah, I would say that that really was across the epoxy, our whole epoxy value chain from the stream to the mid stream to the downstream. Okay. So this is very broad based you're seeing. And that LAR price chart would be reflective kind of the center of gravity of your mix? I think it's a fair statement. Okay. And then, you gave your 2019 maintenance expense look. Do you have the capital budget yet for 2019 as well or anything else that you can share for us on a forward outlook? Not at this time, John. And our next question comes from the addition in the chlor alkali as taking 3 years and not having a dramatic impact on long term supply demand can you talk about why the basis for your confidence in saying that? If you look at the capacity announcement and the size of it and you believe that caustic demand is growing at 2% annually, the new capacity represents 2 months worth of global growth and maybe 10 months of domestic growth. So that's really not a lot of capacity. Great. And On your outlook for 2018 EBITDA, you've got the range of plus or minus 4%. Obviously raw materials are a factor there. What would happen have to happen for you to get to the high end of that range? I think the biggest factor for us would be if we have stronger than expected volumes, And we've got some opportunities around pricing both caustic soda and EDC. And I would say those are the 2 biggest And the next question comes from Matthew Blair from Tudor, Pickering, Holt. Please go ahead. Hey, good morning. John, you mentioned that you're expecting higher cost to contract pricing in Q3 despite some of the spot weakness. Could you explain what gives you confidence here? Is that just a function of what you're seeing on supply and demand? And And also could you talk about what kind of demand trends are you seeing in the U. S, Europe and Asia? Thanks. Matthew, this is Jim. We do have confidence in what we're seeing. The demand picture actually for cost is quite good. North America, the GDPs that you've seen, the industrial production and so forth is very solid, very strong. We're confident in our 3rd quarter numbers because of the fact that we have had success in the 1st and second quarter. Demand is strong and those carry through with our contract situations that we have. And we'd expect that to continue on. There's nothing that takes us off of that from a global standpoint. We have seen some things in Latin America and Asia that have impacted the export pricing. We believe those to be temporary As capacity comes back on stream in Latin America, we returned to the trade flows that we had about a year ago and those were tied And in Asia, we also expect even though we have seen some things in China in terms of the demand, we do expect to to some capacity, to come offline, but we also expect the demand side to return to the norm there. So There's nothing that takes us off of the long term trends that we've been saying all along. Continued global GDP, very strong. There's no capacity coming on stream anytime soon. And, there's actually been capacity taken out and good GDPs around the world that drive the cost of growth. So we expect a continued good environment as we go forward. Okay. Thanks. And then, I guess based on current pricing, what do you think greenfield and brownfield economics are for for new chlor alkali capacity in the U. S, whether in terms of like an IRR or maybe a multiple? I wouldn't necessarily want to comment on an IRR because remember you're building an ECU and where the user puts his chlorine has a lot to do with that. I would say that we think today Greenfield is probably north of $1500 a ton. I think Brownfield all depends on who it is and what they're doing. There's probably some debottlenecking that can be done for $7.50 to $1000 a ton, I would imagine. But those kind of debottleneck don't create world scale plants. They create 100,000 tons here and there. Got it. Thank you. And the next question comes from Arun Viswanathan from RBC Capital Markets. Please go ahead. Great, thanks. Good morning, guys. Congrats on a good quarter. Just a question on the operating rates. We're seeing I guess relatively high operating rates in the mid-90s now. And, just wanted to get your thoughts on how we project for the rest of the year. I mean, should we expect operating rates to remain high, in Q3 and that would result in your kind of stable pricing, environment for caustic, and then maybe operating rates tick down in Q4, and that allows for some pricing on on typical maintenance or has that, seasonality kind of changed now? Arun, I think, you've outlined it actually quite well. We do expect operating rates to stay strong. During the summer months, you've got a strong chlorine demand both from water treatment from a vinyl standpoint that will drive operating rates. There is some seasonality to those operating rates into the 4th quarter. And we would expect to see some modest decline, but overall the picture is still very snug from an operating asset standpoint. But is that the mechanism that you do expect prices to reaccelerate in Q4? The reason I ask is because there's been an increase for Q3 And now we've seen a decrease of $5 in July. So I guess should we assume that the price momentum picks back up in Q4 on the maintenance And another reason I ask is because it seems like the maintenance has now been shifted a lot of it within the industry to the 1st 2 quarters of the year, but, I may be wrong. So maybe you can just elaborate on that? Yes, the operating rates definitely have an impact on the pricing and that's what you've seen in and then any specific event driven things that under a high operating rate environment causes some spikes and we've seen that over the last couple of years. I think it's also important to note the chlorine side of the equation as well. And a lot of the chlorine derivatives, the tightness in the marketplace driving the porting side and the pricing on the porting side as well. Okay, that's helpful. And then maybe you can just give us your thoughts on input costs as well on through the chain and vinyls. We've seen some increase in ethane. Is that an impact for you guys? Or is more not? Thanks. Yes, we have cost base ethylene and so ethane mean an input into that yes, it does have an impact on our cost structure. And our next question comes from Eric Petrie from Citi. Please go ahead. A question on caustic soda prices. You noted going forward, you expect smaller initiatives. At what price point do we get into a dynamic, the potential substitution in some end markets for, you know, either soda ash or alumina customers produce are purchasing more pure bauxite grades? I think that customers are always going to want to try to optimize their usage and so forth. And so that's something that can be done whether in the aluminum markets and so forth. They're doing that all the time. So I don't see any specific change on the pricing. Aluminum price are moving. The affordability is there in terms of caustic soda production and pricing. So we're not, I'm not that concerned about that. So to ASH, quite honestly, there's a that market and that those demands are running they're running high capacities. There's a large switching costs and so forth. So we don't see any impact from soda ash. Helpful. Thank you. And then secondly, on your slide 7 with the liquid epoxy resin pricing dynamic and the gap between regions, are you seeing any competitive pressures from Asia producers into either Europe or US markets? No, not really. It's been this way for many years. So we don't see anything really changing dramatically. Actually, we see much better fundamentals, as the market tightens, we see better fundamentals in each of the regions. And I think that's been one of the main good data point for the fact that things are tighter. Thank you. And our next question comes from Steven Byrne from Bank of America Merrill Lynch. Please go ahead. Hi. I was wondering if you had a roster of chlor alkali plants in China that you've drilled into and whether you you have a view on the the fraction that's that's not operating at historical levels, whether it's it's more a function of, a permanent shutdown or a temporary idling or whether it's just a matter of implementing some updated pollution controls? I think the answer to that in general is we have some view and it's some effect of all the three things that you mentioned. And simply similarly on, on epoxies, is are are those Asian producers? Is that just a matter of of, improvement in emission controls driving that because you're not really you're not really dealing with, you know, a coal derived, unit operation. No, but you are dealing with sorry, this is Pat Dawson. You are dealing though with a high energy intensiveness. I mean, that's, that's where it starts with chlorine to get the epichlorohydrin, which is key raw material. So you are dealing with high energy, high resource and you know, a very environmentally challenging product from a from a water and a water treatment standpoint. So we do see those this new round of China regulations and enforcement continuing to have an impact on capacity in China. And our next question comes from Silverstein from Longbow Research. Please go ahead. Thanks for taking my question. A couple of them, one on the chlor alkali segment. Can you talk a little bit about domestic volume growth that you're seeing, versus export growth in terms of, if there's big differences in the base of growth you mentioned overall market growing at about 2% globally, but in terms of your volumes and where they're going. And in the export growth, can you talk a little bit about what kind of the main destinations are? Is it still sort of Asia Pacific and Latin America? Are you getting more and more into Europe there? This is Jim. The second part of the question in terms of destinations and so forth, the destinations out of the Gulf Coast are similar to what they have Asia Pacific, a lot into Australia into aluminum. There have been, there were earlier this year, some movements to Europe in the second quarter, that's pretty much slowed down, but so not a dramatic shift in any of the trade flows out of the Gulf Coast. As far as as far as demand, I think the best way to look at is in terms of the GDPs, because we have a tendency to track GDP quite well. As you know, in the U. S, GDPs have been relatively strong. So we do have strong demand growth here in the U. S, and we expect to have that continue, strong markets, pulp and paper market in the process chemicals, quite honestly, everything is relatively strong. So we see good demand. That's not to say that they export and around the world, the demand is dropping off by any means. You get some dislocation here or there. But, I would say again, you know, China is what it is, and the aluminum markets in Australia are quite solid. So the demand is there, globally. And again, GDPs are probably the best driver to use for our demand. All right. Thank you. And then the second question on Winchester, how should we think about the profitability of this business in an environment of persistently high raw material costs don't seem to be able to pass through. We kind of talked about $120,000,000 to $130,000,000 in annual EBITDA back date when you were relocating to, from Illinois to Mississippi. How should we think about sort of structural EBITDA of this business assuming the pricing stays where it is in terms of raw material and metal costs and, your ability or lack thereof to recapture of that margin. Dimitry, last quarter, when we talked about Winchester, we said we did not believe that 2018 results would would be better than 2017. I mean all the factors that you just described, we have lower commercial volumes. However, we do think if you look back historically, commercial volumes tend to decline 6 consecutive quarters off a peak. The second quarter of this year would have been the 6th quarter. So we have expectation that commercial volumes will stabilize here. The higher commodity costs, we've been able to offset some of that with better military volumes, which for us should continue for several years and we've got to improve our operating costs. I would say right now as we look at the world, I think the 125 was probably too high. But I definitely think that once we get to a more stable market environment, we will do better than what we did in 2017. And our next question comes from Aleksey Yefremov from Nomura Instinet. Please go ahead. Good morning, everyone. Thank you. In epoxy segment, your outage costs will decline approximately $20,000,000 sequentially. And raw material costs are going up $20,000,000 to $25,000,000. She when you think about epoxy pricing as as a sort of a neutral factor here and and So your EBITDA could be about flat sequentially. Is it a good way to think about the segment? Well, the one thing we did say was we expected improved volumes in the second half of epoxy relative to the first half. So I think other than what you just said, if you add in improved volumes, it would be if you don't have improved volumes, it would be flat. I agree. So John, just to clarify the $20,000,000 improvement in outage cost, it does not account for that improved volume, right? There were this Alexis, this is Todd. There are additional volumes beyond the fact that's just in the 20,000,000 of the outage. And the on the outage costs as well as the unabsorbed fixed cost. Understood. Okay. Thank you very much. And then another question on epoxy. If we look at Slide 7, Asia resin prices went up approximately $0.40 a pound. Is there any way to to say how much costs went up and what's the current cost floor for these prices globally? No, I don't think we have given any information out on that cost floor other than saying that if you look have been going up and that has a real impact on non integrated producers. And maybe one follow-up for Pat. Epoxys as well. Do you think sort of the next move in August for these prices in U. S. And Europe as flat, up or down and also what gives you confidence in the September price increase? Well, I think what gives us confidence in September increases just the tightness of the market. So, you know, there's been some turnarounds. We obviously just came off of a big turnaround ourselves So, we just don't see a lot of available product out there, anywhere in the globe and that gives us the most confidence. Great. Thank you. And our next question comes from Roger Spitz from Bank of America. Please go ahead. Thanks very much. Good morning. I just want to help square the higher classic soda pricing outlook and the higher EDC price outlook in the in the second half. I mean, usually, as you said before, you know, EDC Exports is where you, 1, pushes chlorine to make more caustic so they tend to move in opposite directions frequently. I wonder if you might address that. Yeah, Roger. Remember, EDC process is entirely an export product. That we the short term improvement in caustic soda prices is in the domestic market. Those two markets do not react to each other. It's caustic soda in the export market, which we've talked about was being lower and a factor for the or EDC prices. Got it. And on small product, but I guess you sell U. S. Acetone Copilot of your pre port for NOL facility, is that all under fixed spread contracts or Acetone has been weak here? In demand and pricing. Has that impacted you or is all is all on cost plus, fixed spread contracts for you? Roger, it primarily moves around the indexes that you see published out there. And our next question comes from Carl Blunden from Goldman Sachs. Please go ahead. Hi, good morning guys. Thanks for the time. Just focused on slide 14, your 2018 bridge to the near term $1,500,000,000 potential. On the epoxy piece, when you describe epoxy improvement in earnings, could you go into a bit more detail about what drives that? Is that a continuation of existing margins and simply run rating at a higher rate perhaps in the in the first half of twenty nineteen, twenty twenty relative to where we were in 2018? Or is there something else, maybe it's operating rates, interested in in your view on on what drives it and how big that driver could be? The biggest driver as we move forward here is the absence of large outages that occurred both in 20172018 that will drive lower maintenance costs and improved volumes. Pat talked a little bit about productivity. That's a piece of it. And obviously, we've been in we have the opportunity to be in a better long term pricing environment as we move through 'nineteen and 'twenty than we've been in historically. Expectation on market pricing holding up. Just on the capital structure here, you've announced this $300,000,000 debt reduction target What's the rationale for that? Is that tied in some way to the cash flow expectations you have for the business? Is it, maybe more precision on on where you want debt to be through the cycle. Any thoughts around that from Todd perhaps would be very helpful. This is John. We have a debt target that is based on what do we think the trough EBITDA in this business will be because as you know, it's a highly cyclical business when the cycle turns, it turns and I'm not forecasting a turn to the negative cycle here, but that's what we are targeting a specific debt level based upon what we think we can earn in a trough. And that would be our objective. And Carl, what we've said is that you know, by the time you get to the $1,500,000,005 range of EBITDA, we'll have net debt to EBITDA under two times. And doing that math, you need to repay approximately $700,000,000 of debt from where we ended 2017. So 300 approximately 300 and a minimum is coming out this year. Gotcha. Okay. So it's simply kind of allocating a time frame to actions that you had in mind already. That's helpful. Thanks guys. Appreciate it. And our next question comes from Owen Douglas from Baird. Please go ahead. Hi. Good morning guys. Thanks for taking the question. Just a quick one in terms of, the outlook for the higher cost or the higher chlorine prices while also being constructive on caustic soda. How much of that is a reflection on on the market supply demand balance for chlorine versus perhaps a little bit of, sort of, I guess, cost push. I think it's more reflective of the of the supply demand environment. Quite honestly, we talked about high operating rates earlier and we're seeing good demand on both sides of the ECU. And that's what's driving the pricing. Got it. I see. So as things move forward in this, in the in the cycle here, do you think that there's a real risk to softening on the caustic soda economics? This is Jim. I guess the short answer would be no. We see a positive outlook with several years of runway left and and we would expect the economics to continue to improve. Okay. That's very helpful. And final one for me. The outlook for epoxy kinda sounded a little bit more cautious than I was expecting, with some of the commentary around, the earnings potential for that business appearing that you guys were too far off of it. Can you sort of help me understand what do you think are some of the factors holding back, the enthusiasm? Yeah, this is Pat. I think first of all, you've seen on our graph 7, the run up that we've experienced here primarily in the last 6 to 9 months and I'd say we're cautiously optimistic about that run up in the sustainable of the supply demand fundamentals continuing to improve. I think the other issue is is around growth and we talk about 3 to 5% mark growth depending on geography and applications. And there's no question that we're probably seeing a little bit on the lower end of that growth curve than and what we had expected at this point in time. And I would say those are factors we think about going forward. And of course, as we've mentioned, and we'll mention again, you've got the hydrocarbon volatility or, you know, the oil volatility that impacts our hydrocarbon costs that continue to be a concern looking forward. Okay. That is helpful. And final one for me. It knows that you guys obviously have, performed well, but still have these legacy 9 and 3 quarter and 10% notes, which you know, take a little bite out of the, EPS, if you will. So just to help me understand a little bit, what priorities as far as some of this debt repayment? How much of it is around the absolute balance of debt versus also thinking about your, sort of, funding cost and what that does for your earnings? I think being repaid is designed to 2020 bonds. Oh, I see. Sorry. The, the 2025 bonds and 2023 bonds, you mean? Yes. Those, the debt that was issued in conjunction with the Dow transaction, is first callable in October of 2020. And because of the reverse morris trust can't really be called before October of 2020. And in today's economics on interest you're looking at potentially saving between $50,000,000 $70,000,000 once those bonds are called. So that can't happen until late 2020. And this can there are no further questions. This concludes our question and answer session. I would now like to turn the conference back over to John Fisher for closing remarks. Is I'd like to thank everyone for joining us today and we look forward to speaking to you again about our third quarter results. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.