Bancolombia Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
October 27, 2023

There are 15 speakers on the call.

Operator

Good morning, and welcome to Olin Corporation's Third Quarter 2023 Earnings Conference Call. All participants will be in listen only mode. Following today's brief opening comments, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Steve Keenan, Olin's Director of Investor Relations.

Operator

Please go ahead, Steve.

Speaker 1

Thank you, Jason. Good morning, everyone, and thank you for joining us today. Before we begin, let me remind you this discussion, along with the associated slides in The question and answer session that follows will include statements regarding estimates or expectations of future performance. Please note that these are forward looking statements and that actual results could differ materially from those projected. Some of the factors that could cause actual results Differ from our projections are described without limitations in the Risk Factors section of our most recent Form 10 ks And in yesterday's Q3 earnings press release.

Speaker 1

A copy of today's transcript and slides will be available on our website in the Investors section under Past Events. Our earnings press release and other financial data and information are available under Press Releases. With me this morning are Scott Sutton, Olin's CEO and Todd Slater, Olin's CFO. I'll now turn the call over to Scott Sutton to make brief remarks, after which we will be happy to take your questions.

Speaker 2

Thanks, Steve, and good morning to all. In the Q3, the Olin team delivered what we promised, which was $315,000,000 of adjusted EBITDA, No sequential reduction in chlorine pricing and a prioritization on share repurchases. Additionally, we complemented those confirmed deliveries with the acquisition of the White Flyer Clay Targets business at forecasted returns substantially better than share repurchase returns. Looking forward, Olin's strategy continues We are taking a dramatic, but necessary step to change the direction of declining ECU values. It is a challenging market, and we've already actioned this initiative to force a rebound of our ECU values, Which involves idling significant chunks of our assets and slashing our participation in weak markets.

Speaker 2

This value accelerator initiative results in $100,000,000 incremental penalty to adjusted EBITDA in the 4th quarter relative to our previous expectation, but delivers an anticipated improvement in 2024 adjusted EBITDA Relative to 2023, we are confident of that improvement. Even though We operate in an environment where bad news creates a negative recency bias. Please never forget That in chlor alkali, we believe future demand growth exceeds future supply growth And that growth may also be unbalanced across the ECU, all favorable for Olin. We are confident in that favorable outlook. So Jason, that concludes my opening remarks And we can now proceed to questions.

Operator

Thank you. We will now begin the question and answer session. Our first question comes from Alefsky Yefremov

Speaker 3

Scott, I believe this is the first earnings call The news came out. Can you address some of the concerns that are out there about own strategy, Whether with the Board and you decided, reflect how successful or not the strategy is and any other questions related to it?

Speaker 2

Okay. Yes. Hi, Alexia. I think I understood the question. But look, I mean, there is absolutely No change in the momentum that Olin has going forward.

Speaker 2

We absolutely all are pulling the Same way in terms of our model, our strategy, how we lift people And our shareholder value allocation scheme as well. So there is absolutely no in any of that, and we're running a process there.

Speaker 3

Thanks, Scott. And turning to your 4th quarter, chlorovineals segment earned about $280,000,000 EBITDA in 3Q and you're estimating about $100,000,000 EBITDA impact from your idling actions in the 4th quarter just seems like a very large number relative to On the segment earnings in total. So could you maybe talk about how you came up with $100,000,000 and whether you view that number as Something we could simply add back and assume that the real run rate is something like 300 maybe in Q1 of next year or Q2.

Speaker 2

Well, what I would say is, yes, it's certainly a big number, but this is a very big activation as well. And we've said probably through the previous 6 quarterly earnings calls that There could very well be a quarter where we have to take a significant action to make sure that our cash delivery over any longer period, say 4 to 6 quarters is maximized. And that's what this is intended To do, right? It consists of significant actions. We are idling major assets, Not participating in a lot of weak markets and additionally going out there and parlaying a bit And managing some of that liquidity to a more favorable place for Olin.

Speaker 2

So, yes, it's significant.

Operator

The next question comes from Kevin McCarthy from Vertical Research Partners. Please go ahead.

Speaker 4

Yes, good morning. Scott, having shut down St. Gabriel and I think at least a large unit at Freeport, What are you looking for? What should we look for as outsiders to gauge whether or not you may start those assets and do you have a preliminary idea of how long the outage might take?

Speaker 2

Yes. I mean, hi, Kevin. Look, I mean, this is a 4th quarter activation, But it doesn't mean that it absolutely finishes in the Q4. If we need to continue to get the desired result We need to deliver the most shareholder value, then we're going to continue it, right? I think it's going to be Challenging for the outside world to see when we might change or reduce There's value acceleration initiative, but we have many internal signs That we can see and we know when it's effective, because we watch excess liquidity out there in the world.

Speaker 2

We watch if the strong side of the ECU is being chased by others at the detriment of both sides of the See you. We watch very carefully how much material is entering trade flows out of China And there's already less material entering trade flows. We watch that increasing price that you see in caustic and the to increase price in Europe and China and those things are happening, but maybe fluttering. Already there are some requests For merchant chlorine volume that we can supply. Already, there are some requests for EDC volumes That we can't supply.

Speaker 2

Already, HCL price is increasing and their request for volumes that we can't supply. So those are the kind of things that we'll watch, harder for the outside world to see that. Those indications will be more apparent In the Q1 and they'll appear in our results more than likely in the second quarter.

Speaker 4

That's very helpful. And then secondly, Scott, I'd welcome your view on the epoxy market Heading into the Q4, part of the reason I ask is one of your competitors has reportedly Implemented some sales control related to a Shell Force Measure declaration on phenyl and acetone as I understand it. Are you seeing any encouraging signs that epoxy may begin to firm up at this juncture? Yes.

Speaker 2

Well, I'll just say that we have already announced price increase in both North America and Europe, and we did that over the last Weak or so. Additionally, the other good sign that we see there is that The contribution from our systems business exceeds the contribution from our resins business and really that's the first time that has happened. I'll just caution you a little bit, it's Still really sloppy in those markets, no doubt about it. And we still have some inventory To clean up and those impacts are still going to haunt us a little bit in the Q4 and even into the Q1 as well.

Speaker 5

The

Operator

next question comes from Jeff Zekauskas from JPMorgan. Please go ahead.

Speaker 6

Thanks very much. Can you talk about the state of domestic chlorine demand? At what rate did it grow say in 2022? At what rate is it growing today and why?

Speaker 2

Yes. Hey, Jeff. Yes, I mean, look, it's not good. I mean, this is why we're running this You know, value acceleration initiative, because the chlorine side of the ECU has Turn to be in the weaker side. Those markets are very, very weak.

Speaker 2

And so we're not we're just not going to participate In those weak markets, because it's a chase down into the mud, and that's not where we're going to play. And you can see that in our results in the 3rd quarter as our merchant The chlorine price did not decline like may have been published in some of the trade publications. So, no, it's not good, but it's not getting worse is what I would say. So, we are timing this activation at point where we can see a future inflection point. The inflection point that we saw was probably 3 quarters out At least.

Speaker 2

And this whole activation is about pulling that inflection point forward in terms of ECU values.

Speaker 6

Okay. And of the $100,000,000 penalty in the 4th quarter, Is it best to understand that penalty as all volume or is there a Certain component of a certain amount of money, which has to do with the actual shutdown of the assets.

Speaker 2

Yes. No, it's not associated with the asset shutdown. I mean,

Speaker 4

it is

Speaker 2

100% nearly Just not participating in poor markets. That's it. So it's those volumes are out, Out of our system for that quarter.

Speaker 6

Okay, great. Thank you.

Speaker 7

Yes.

Operator

The next question comes from Josh Spector from UBS. Please go ahead.

Speaker 5

Yes. Hi, thanks. Just Just curious as you take down your volumes more, have you guys been hedged on gas costs for most of this year? Does this extend the roll through of some of that higher costs? I guess, is that more of a volume related hedge or time related?

Speaker 5

And just any early thoughts on how that impacts 'twenty four? Thanks.

Speaker 8

Thanks for the question, Josh. This is Todd. We are hedged For the Q4, we do expect to see sequential improvement In our cost structure, just like we saw that in the Q3 sequentially from the Q2 because of our No, hedge

Speaker 5

positions. Okay, thanks. And just as your volumes have pulled back, I mean, obviously, you're deselecting from a lot of different markets. How do you think about what you're selling into your epoxy business? I guess, are you taking volumes down there in tandem or are you parlaying that purchase to other regions?

Speaker 2

Well, I would say our volumes in the epoxy business are already Quite, quite low. I'll say the good again, the good news there is that sequentially in Q3 relative to Q2, our volumes Actually increased in that business. But look, our volumes are so low in epoxy, that's not Where the major adjustment is? The major adjustments are in merchant chlorine, EDC and caustic.

Speaker 5

Got it. Thanks.

Speaker 2

Sure.

Operator

The next question comes from Hassan Ahmed from Alembic Global. Please go ahead.

Speaker 7

Morning, Scott and Todd. Scott, I wanted to dig a bit deeper into your comfort level around the implications of the value I mean, you guys have been very specific in saying that you feel there's going to be a positive inflection in the Q2 of 2024. I mean, I'm just trying to understand. I mean, clearly, it's an uncertain world. Industrial production seems to be all over the place.

Speaker 7

So obviously that has an impact on caustic demand. And obviously there's Housing weakness here, out in China and the like. I mean, of course, you guys are controlling supply. But I'm just trying to understand what gives you that level of comfort that you will indeed with this uncertain sort of macro environment See that Q2 positive inflection?

Speaker 2

Yes. Well, you know, Hassane, Things aren't necessarily getting worse, right. Asia has been slow for a while and stayed there. Europe Been slow for a while and has stayed there, right? I mean, new homes In the U.

Speaker 2

S, yes, there is some slowdown, but that still continues. Granted, we all know that new mortgage applications Sales of existing homes are really low, maybe the lowest in many years. But the reason that we have a lot of confidence in this is, number We've been running this model for 3 years and we've been through other mini cycles Running that model over the course of those 3 years and we've always been able to be successful at Turning the value equation around when we need to turn it around. Number 2, we have a really seasoned and broad Olin team who's Completely united on this. And I just ask you to remember, we are the absolute leader in these businesses, Right.

Speaker 2

So when you pair those two things together, there's a lot of momentum to get this done. And then I'll refer back to maybe it was the first question As well. There's already some signs that this has a good chance to See, right, when request for EDC and merchant pouring come in that maybe can't be fulfilled Via another path, at least that's an indicator. But look, it's really early, right? We just implemented this or started this At the very first of the fourth quarter, right.

Speaker 2

So we still have a lot of the quarter to go clearly and if necessary, We have time in the Q1 as well. So, I don't want to mislead you. We've got a long way to go, But there's a lot of positive momentum to get this done.

Speaker 7

Understood. Understood. And as a follow-up, again, not to sort of keep harping But in your prepared remarks, you guys talked about how 2024 from an earnings perspective will be better than 2023. Now our exit run rate coming out of Q4 based off of your guidance is $200,000,000 in quarterly EBITDA. You annualize that and that's $800,000,000 And you earlier obviously talked about how in terms of The facilities that you guys are shutting down, it's TBD whether you'll restart them imminently or not, Right.

Speaker 7

So, I'm just trying to understand in terms of that guidance that you gave of 2024 earnings being better than 23, Keeping in mind the exit run rate in Q4, I mean, can you just help me sort of understand the quantification behind that?

Speaker 2

Yes, absolutely. And I'll just start with the 2 smaller businesses, right. So, Epoxy is ending the year, adjusting its inventory, Setting a bottom in, announcing price increase and we have our 2 major initiatives That are going to help us much more in 2024 relative to 2023. We're going to have a full year of benefits From the restructuring work that we've done. Our systems business has a lot of momentum and like I said before, this recent quarter was the first one where the contribution profit in systems exceeded the contribution profit in resin.

Speaker 2

So Those things are working. We're going to work to end this unfair trade that exists Coming out of Asia as well. So that's why Epoxy will step up. When you get to Winchester, there's Tremendous momentum in the military piece of that business. And again, this most recent quarter, for the first time ever, Military ammunition sales exceeded commercial sales, and we have a very long runway on military improvements, Selling international ammunition, NATO based type countries and then also the next generation squad weapon program, Which is a lift over the next 10 years.

Speaker 2

We said we will double that business in 2 years and we are well on our way to doing that. On top of that, The focus on and momentum and target shooting looks favorable. We just made the White Flyer Acquisition and while not a major one from a revenue standpoint, it's highly profitable and we merge that up With our sport shooting ammunition. And then finally, you get to our core alkali powerhouse business. I mean, we have this value accelerator initiative that we're running that is going to be favorable For next year and again the fundamentals underlying that business are good.

Speaker 2

Every product Demand growth bigger than supply growth.

Speaker 7

Perfect. Thank you so much, Kurt. Yes.

Operator

The next question comes from Arun Viswanathan from RBC Capital Markets. Please go ahead.

Speaker 9

Great. Thanks for taking my question. Yes, thanks for all your comments. I think it is quite helpful. So Just wanted to 0 in on a couple of those comments on Slide 4.

Speaker 9

You know that you're taking Some decisive action here and I think that you've laid it out as maybe $100,000,000 impact. And then you've also commented on a better 2024. So when I think about the numbers and how those will evolve, it sounds like Q1 should be seasonally better Then Q4 and also maybe less of that $100,000,000 impact. And then Q2, you see the real inflection point from the actions you've taken. And so maybe that's in the $350,000,000 to $400,000,000 range.

Speaker 9

And then you see maybe a little bit more improvement as well in Q3 and then seasonally softer in Q4. Is that right? And maybe you can just relate that to The PCI, which I guess dropped to 211 in Q3, so maybe you go down into the mid-100s or high-100s in Q4 of 2023, But then you really see that rebound into the maybe 250 level or above in Q2. Is that how you're thinking about how the Value Accelerator initiative kind of plays out? Thanks.

Speaker 2

Well, I would just say that, yes, later quarters In 2024, maybe are better than earlier ones. But just keep in mind, in Q1, We may still be running this initiative for part of the time, right. But no doubt, in order to make 2024, better than 2023, right? We have to have some quarters in the middle to back half of the year That are substantially better than where we are right now. So you'll see an improvement in those.

Speaker 9

And then just on capital allocation as a quick follow-up, you are doing the $600,000,000 or so leverage free cash flow this year. So next year, I assume that, that should be higher as well. Will that also be put mainly towards share repurchases or are there activities we can expect?

Speaker 2

Yes. Todd, do you want to catch that? Yes.

Speaker 8

Thanks, Scott. Clearly, we will continue to target share repurchases. As you saw this year, we're willing to deploy some of that cash towards the White Flyer acquisition, but Only any type of acquisition will have to demonstrate

Speaker 2

the ability to be much better

Speaker 8

than buying shares. And today, It's an easy decision. We're targeting buying 10% of our outstanding shares this year.

Speaker 10

Hey guys, good morning. So you're running your operating rates below 50% Or so for Chloroquelide, where do you think the industry or the other major players will run-in the Q4? And Just curious if you ran at that level, would your impact be more than the $100,000,000 that you're going to take for lowering your operating rates?

Speaker 2

Hey, Mike. Yes, I don't know what everybody else is doing, but I can say that, yes, I mean, our whole system is running around that 50% Number. And you may recall that we had predicted a certain trough level and we said that trough level Assume that we could get our whole system down to 50% rates if we needed to. The reality is we could run lower That if we had to, to have a bigger activation, but that would come at a bigger penalty than that $100,000,000 If we were doing that, we think this is the right place to go down to. It leaves us with One low number in the Q4, roughly $200,000,000 of EBITDA, which by the way, at that level, we still have positive levered Free cash flow.

Speaker 2

So, yes, look, we have some room. I don't think we need to use it, but we have some room.

Speaker 10

Okay. And then I guess it sounds like in Q1 you may have to run at this level. In order for you to have EBITDA above 23 for 2024, where would your operating need to improve to over time 2Q, 3Q, 4Q? And can you remind us In your prior $1,500,000,000 to $2,000,000,000 EBITDA sort of recession case, what your chlor alkali operating rates would need to be to sort of get back there?

Speaker 2

Yes. Well, I would just say we may or may not need to do this in Q1, Just to be clear, right. But if we did need to do this in Q1, in the later parts of the year, we need to bring rates up. Yes, we Can't run the whole year at 50% rate, right? And that's not our plan to do that.

Speaker 2

In our previous recession case or trough case guidance, right, which if you go back 4 quarters ago, it was $1,500,000,000 of EBITDA as the low point. That number assumed roughly 50% rates at that same pricing level. So I hope I answered your question on that.

Speaker 10

Okay. Thank you.

Speaker 2

Sure.

Operator

The next question comes from Matthew Blair from TPH. Please go ahead.

Speaker 11

Hey, good morning. Thanks for taking My question is, is it fair to think that the shutdowns at Freeport and Saint Gabriel are going to take about 1,000,000 tons of capacity out of a U. S. Market that's around 14,000,000 tons. And if those numbers are correct, is that enough to materially tighten up the market?

Speaker 11

Or Would you count on other producers also shutting in some capacity too?

Speaker 2

Well, I mean, this is an old Right. I can't comment on anybody else and it doesn't count on anybody else taking any kind of action that is similar to that. And I also won't comment on exactly what the capacity reduction is. I will just say it's significant. And it's significant enough to take our whole system, which we operate the largest system in the U.

Speaker 2

S. And the world by a long shot, All the way down to a utilization of 50% or below. So it's a big number.

Speaker 11

Sounds good. And then, Scott, I think you mentioned that chlorine has now flipped to the weak side of the ECU. Is that just a seasonal dynamic or is that something structural and what are the factors driving that?

Speaker 2

Yes. No, it's not a seasonal dynamic, right? I mean, there are some small seasonal things at play just like There's not as much demand going into water treatment as you head into the winter season relative to Heading into the summer season. But no, it's just the fact that businesses that are supported By merchant chlorine, the supply demand situation around those relative To the supply demand situation around the caustic world are worse off. It's a relative issue.

Speaker 11

Got it. Thank you.

Speaker 2

Okay.

Operator

The next question comes from Steve Byrne from Bank of America. Please go ahead.

Speaker 11

So just following on Your answer there, Scott, chlorine demand being worse off, do you have a view as to How much of the lower demand that you're seeing now for chlorine and chlorine derivatives versus 2 years ago Is due to just less end market demand versus destocking. Do you have the ability to split that? And potentially, is there a third bucket that's driving this? And that is End markets that are shifting to different products, just product substitution that's not a chlorinated Do you have a view on those 3 buckets?

Speaker 2

Yes, sure. Thanks for the question. Yes, I mean product substitution is pretty much a 0, I would say, there is no structural issue here. So then you get back to the other buckets, right. Taking inventory out of the channel, that's a non issue today.

Speaker 2

I mean that was Done some time ago and from month to month that varies, that's a non issue. This is all a temporary or transient issue around very weak demand and that's what it is.

Speaker 11

And is that also true for the epoxy side that it's none of this can you comment on how much of this Lower demand is at least in part to low inventory levels in the channel. Is that an additional source of upside for you in 20 for?

Speaker 2

Yes. No, no, epoxy is totally different than that. Epoxy, there's A structural issue, right? Over the last 18 months to 24 months, China added about 20% To the world's productive capability for epoxy. At the same time, their demand along with Europe's, Together, they constitute 75% of the world's demand has really diminished.

Speaker 2

So you have both aspects going on in epoxy. And that's why we've had to make some structural changes to our epoxy business To be able to combat that for the long term and we're doing some things in the short term as well. Epoxy It's going to have a much longer road to recovery, but it's going to be a steady methodical recovery.

Operator

The next question comes from Vincent Andrews from Morgan Stanley. Please go ahead.

Speaker 12

Thank you and good morning everyone. Just as I've been digesting this latest In listening to all the Q and A on the call this morning, I guess a conclusion I'm coming to and please correct me if this is just completely wrong is that For you to really be successful with this initiative, you will need to see an inflection in demand at some point in the middle of next year. And I just want to hear more about that and where you think it's going to come from. And I ask it this way, we're kind of halfway through earnings season maybe and Most of the companies that I'm listening to aren't really talking about an inflection in demand next year so much as it just seems like there's a rebase in demand that's taken place versus what we saw over the last couple of years and where maybe we're back to 2019 levels or lower, but it doesn't sound like there's going to be some big snap back coming. So any comments you have on that?

Speaker 12

And again, happy to be wrong.

Speaker 2

Yes. No, I mean, look, this does not Count on a major inflection in demand, right? I mean, clearly, we're not assuming that Things are as bad as they've been the last 2 or 3 quarters for the next 6 quarters. That's not the assumption Either. But what is you got to remember, again, this is a co production world.

Speaker 2

And What has happened over the last four quarters is so many companies and people have Chase, the strong side of the ECU that the value in the strong side Certainly got minimized and it was caustic for some period of time. But at the same time, The values on the weak side were absolutely destroyed because you're actually shoving more product Into weaker and weaker markets. So all of a sudden, the economics to run that game of Chasing the strong side, in other words, chasing caustic, even if you have to pay customers to take away pouring, which is what happened in China for quarters and quarters. Chasing caustic, even if you have to start dumping PVC into the export markets And diminishing price and value there, which is what happened for multiple quarters. Those economics don't exist Any more.

Speaker 2

So that desire to go chase the strong side has disappeared regardless Demand out there. So that attribute is happening. At the same time, we're overlaying Our value accelerator initiative, just those two things together will lift values. If there is Inflection in demand, that's going to be a nice upside.

Speaker 12

Okay. And if I could just ask on the CEO succession, could you talk a little bit about the candidate you're looking for and presumably you want someone that can run the existing playbook. But what other attributes might that person bring to the role that might be new or additive for Olin?

Speaker 2

Well, I think that candidate is going to be somebody who can take Olin to the next level. In other words, their focus is going to be to take what the team has done here and build on it. So they'll endorse the value model, do a lot better with it and there'll be very clever capital allocation. So that's what we're looking for.

Speaker 12

And if I can just add, clever on capital allocation means what beyond just doing share repurchases?

Speaker 2

Well, it means Finding opportunities that deliver even more value to shareholders than just share repurchases. Those may come through alliances. It may come through ventures. It's possible it could come through acquisitions Just like the White Flyer acquisition that we did, it's all of those things.

Speaker 6

Okay. Thanks for

Speaker 12

all the detail. I really appreciate it.

Speaker 2

Yes, you bet.

Operator

The next question comes from Frank Mitsch from Fermium Research Company. Please go ahead.

Speaker 13

Thank you so much. Congrats on a successful tenure at Olin and looking forward to the next your next opportunity. I wanted to come back with comments that you said early on in the call where You went through a few products that your customers are getting are requesting chlorine, EDC, HCL And you mentioned that you can't supply. I mean, obviously, you're shutting that capacity. Are the prices That they're willing to pay, unattractive, is that what's causing the disconnect between your inability to supply the product satisfy these requests from customers?

Speaker 2

Well, It's not an inability to supply, right? We are running an initiative that Where we have cut back operations significantly and are not participating in those markets. So if we're not participating in a market, we're not participating. So the choice is to not participate.

Speaker 13

Understood. And so the logical follow on is that because the prices that they're willing to pay right now Are not attractive for Olin. And when you reflect that back to the customers, what sort of response are you getting? Or is it simply a matter of waiting out a few weeks, a month or a quarter and then they'll come back and offer the prices that you do find attractive?

Speaker 2

Look, I can't speak for every customer. But what I can say is we're not participating. So our response is we're not participating.

Speaker 13

Okay. Thank you. And among the Q3 highlights was your ability to hold Chlorine price flat despite the broader indices going lower. What's your outlook on Olin's chlorine price?

Speaker 2

Yes, sure. I think in this 4th quarter Period, right, because we shuttered some assets and we're not participating. It's very possible that our mix generates a lower chlorine price Janine, we're choosing not to participate. And where we may have to choose not to participate Maybe at higher pricing because it's more spot business than some committed contract business. So I think you'll see a mix issue appear in the Q4.

Speaker 2

But in the Q1, I'm quite sure That chlorine price will increase again.

Speaker 13

Very helpful. Thank you.

Speaker 2

Thanks.

Operator

The next question comes from Roger Spitz from Bank of America. Please go ahead.

Speaker 14

Thank you very much. Maybe you've I've been asked this in a different way, but typically when chlorine prices demand is false, And cost of which is typically a lagging indicator or demand would become tight and as prices spike when as you turn down your chlor alkali plants, why hasn't that happened this time?

Speaker 2

Can you repeat that? I'm sorry, I just don't understand the question.

Speaker 14

Sure. In the Great Recession, everyone in the Great Recession in 2,007, 2018, demand for housing collapsed. Everyone had to turn down their chlor alkali plants because chlorine demand was poor. And Because caustic demand, at least in my view, lags chlorine demand by 2 or 3 quarters, Chlorine got extremely tight as everyone turned down their chlor alkali plants and U. S.

Speaker 14

Caustic soda prices were extremely high. And classic is countercyclical, chlorine is postcyclical. That's typically how it happens. And you have a couple of quarters where things are great. And then after a while, I think everything goes bad.

Speaker 14

But for the 1st few quarters, everything okay. Now here we are, we're coming up a period where cost Prices have been falling pretty hard. But suddenly, you're saying, chlorine is now the weak side. So it sounds like and you are clearly turning down your chlor alkali Why hasn't caustic demand tightened as chlorine has become very weak, giving some caustic pricing flexibility.

Speaker 2

Yes. Okay, got it. Yes. Thanks for clarifying that. Look, we just started this Value accelerator initiative, right.

Speaker 2

You're not going to see an instantaneous Result in the trade publications, which is what most people look at in a public format. It takes some time to generate that impact, but that impact could happen. The other thing to remember is that it depends on a big way what the PVC producers do as Well, and at least PVC hasn't come off yet, near as much as things like the polyurethanes Segment, like the Ag Chemicals segment, even some things like titanium dioxide And bromine are likely a little bit weaker than PVC. So there's some work to do to get that impact to happen.

Speaker 14

Got it. Thank you, Bruce. My second question is just to be clear on understanding how you run your chlor alkali. Running at or slightly below 50% right now. Does that the way you do that, is that that you shut down whole trains Or plants and then run what you have very high or near full?

Speaker 14

Or do you actually run trains With implants at far less than near full capacity?

Speaker 2

Well, it's all of the above, Right. But this time, because it's so significant, right, we've shut down complete sites And we've shut down complete units at larger sites.

Speaker 14

Got it. Thank you very much for your time.

Speaker 2

Okay. Sure.

Operator

The next question is a follow-up from Jeff Zekauskas from JPMorgan. Please go ahead.

Speaker 6

Thanks very much. You talk about the shutdown of As an initiative to, I think, attempt to tighten up the markets. But you also have a Sort of a new trough EBITDA on an annual basis, which looks to me like it's maybe 1,300,000,000 Something like that. Does that new trough imply that your initiative will be Full or unsuccessful, where does that trough estimation stand relative to the initiative that you're trying to execute?

Speaker 2

Yes. I mean, Jeff, I mean, yes, I mean, I think you've got it right there that, yes, We're going to do roughly $1,300,000,000 this year. And you know, that results That result incorporates a couple of quarters where conditions have been quite challenging And we've had to pay the price to run a very deep initiative. So Yes, you're right. I mean that's a trough, that $1,300,000,000 And that trough, Of course, just happens to be higher than the highest peak of any prior cycle Before we started running this model, just FYI.

Speaker 6

Yes. And then for my follow-up, the I think in the Q3, the costs of the VCM plant not running Or maybe about $50,000,000 And so in the Q4, we're going to go well, from the 3rd to the 4th, we're going to go from, call it, $300,000,000 to $200,000,000 But with the VCM plant, wouldn't that be on the margin Sort of a $50,000,000 benefit. So where is the extra margin Pressure coming from in the Q4. That is why isn't the 4th quarter EBITDA more like 250 rather than 200?

Speaker 2

Yes. I mean, you got it, Jeff, you're right. I mean, we had an extra penalty Yes. During the Q3 of that $50,000,000 that we don't have in the 4th quarter, Right. But there's quite a number of other things at play across the business.

Speaker 2

And for example, because a big chunk of our caustic business is still priced On public trade indices, those public trade indices have dropped In Q4 relative to Q3. So you've got that impact going on, on top of everything that we're doing As one

Speaker 6

example. Okay, great. Thank you so much.

Speaker 2

Sure.

Operator

And our next question is a follow-up from Aleksey Yefremov from KeyBanc Capital Markets. Please go ahead.

Speaker 3

Thanks for taking my follow-up. Scott, I appreciate that you don't want to comment on actions of your competitors, but I guess your strategy Kind of depends on them not filling the supply deficit or supply balance that you're trying to create as your strategy. Why wouldn't your competitors just Fill the room that you're creating for them.

Speaker 2

Look, I can't comment And don't need to comment on what competitors might do. Our strategy is Totally not dependent on their actions. So I just can't I really just can't comment on that. Of course, when we call back, those volumes might be filled in for a temporary Period of time. But as they're filled in, it's a tightening of supply demand, Which gives us benefit, Craig.

Speaker 13

Okay. Thanks, Scott.

Speaker 2

Okay.

Operator

As there are no further questions, this concludes our question and answer session. I would like to turn the conference back over to Scott Sutton for closing comments.

Speaker 2

Yes. No, I'd just say thanks a lot, Jason. Thanks to everyone for joining us today. We appreciate the questions. Thanks.

Operator

Thank you for attending today's presentation. You may now disconnect.

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Earnings Conference Call
Bancolombia Q3 2023
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