Olin Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
July 28, 2023

There are 14 speakers on the call.

Operator

Please note this event is being recorded. I'd now like to turn the conference over to Steve Keenan, Olin's Director of Investor Relations. Please go ahead, Steve.

Speaker 1

Thank you, Keith. Good morning, everyone, and thank you for joining us today. Before we begin, let me remind you that this discussion, along with the associated slides and the question The question and answer session that follows will include statements regarding estimates or expectations of future performance. Please note these are forward looking statements And that actual results could differ materially from those projected. Some of the factors that could cause actual results to differ from our projections I'll describe without limitations in the Risk Factors section of our most recent Form 10 ks and in yesterday's Q2 earnings press release.

Speaker 1

A copy of today's transcript and slides will be available in our website under 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 some brief remarks, after which we'll be happy to take your questions.

Speaker 2

Thanks, Steve, and good morning, everybody. Global market conditions continue to be quite poor. Additionally, our performance in the The Q2 was not up to expectations, partially due to the previously announced Freeport Vinyl Chloride Monomer plant operating issues, But also due to excessive Asian epoxy resin exports and our associated epoxy asset rightsizing activities. These factors will result in a lower trough expectation for 2023 adjusted EBITDA. The bright spot in the second quarter was our purchase of 2.5 percent of our outstanding shares, while simultaneously reducing net debt Compared to the Q1, since January 1, 2022, we have purchased 21% of our outstanding shares.

Speaker 2

In the Q3, we expect epoxy resins and systems sales volumes to slightly improve relative to the 2nd quarter. However, inventory reduction efforts will leave the business in negative EBITDA territory. While Winchester's performance Slightly improve in the Q3, mainly due to international and domestic military growth. Our chlor alkali and vinyls business is Expected to be slightly down, mainly due to execution of our leadership model as we see bottoming of ECU values in Some geographies likely a positive sign for 2024. This is our time to be tested And I am confident that the Olin team is up to that test.

Speaker 2

It should be clear from Slide number 4 that Olin believes running a value strategy With lots of built in free options, delivers more total cash for shareholders versus any alternative strategy. Looking forward, we are working on numerous initiatives to make sure both future peaks and troughs From that value strategy are higher than our previous results. Those initiatives are spelled out on Slide number 5. Keith, that concludes my opening remarks and we can now proceed to questions.

Operator

Yes. Thank you. At this time, we will begin the question and answer session. And this morning's first question comes from Hassan Ahmed with Alembic Capital.

Speaker 3

Good morning, Scott and Todd. Question well, 2 part question. 1 on the implied sort of trough earnings number And the other one on sort of the peak number that you put up on your presentation. So first on the trough I mean, if I take a look at your implied Q4 2023 guidance, it's around 300,000,000 Right. And I annualized that, that's obviously $1,200,000,000 And obviously, you guys talked about the VCM Freeport, That's a facility being sort of one of the cause agents, epoxy being, call it, below trough being another cause agent Of this sort of perceived below trough guidance, so is the delta between the $1,500,000,000 to 2,000,000,000 Sort of trough range that you gave versus the annualized $300,000,000 Q4 2023 guidance that you gave, Primarily because of the VCM side of things and the epoxy side of things?

Speaker 2

Yes. Thanks, Hassan. Yes, look, I mean, first of all, I would say that 2024 has a lot more positives than negatives and we're calling a trough at 1,400,000,000 Not $1,200,000,000 Now the difference between $1,400,000,000 and what we've called out is our previous Trough there. Yes, I mean, we've got $100,000,000 problem with BCM. But on top of that, it really is The mass of material that's come out of Asia in epoxy and you heard me say that we're going to run 1 quarter probably here at negative EBITDA territory.

Speaker 2

I mean, Hassane, I would also add that we have had to run our model a little bit deeper. I mean, demand declined so fast relative to supply that if you look at rates, we're way below 50% in epoxy and not all that far above 50% across our CAPV portfolio right now. So it's those things that make up the difference.

Speaker 3

Understood. And sorry, it's the peak side of it, I also wanted to sort of touch base on. You guys sort of flagged over $3,000,000,000 in the next peak, right? And if I take a look at what you guys On a quarterly basis, our run rating in Q1 'twenty two and Q2 'twenty two, it was over 850,000,000 And clearly utilization rates weren't as tight as they potentially could be in the next peak, right? And you hadn't sort of Restructured the epoxy business as you are right now, right?

Speaker 3

So I mean, from the sounds of it, $3,000,000,000 in the next peak actually sounds pretty bare bone. Is that fair?

Speaker 2

Yes. I mean, Hassan, look, our outlook certainly says That the structure of chlor alkali only gets better over time. And it's true that we've done some restructuring in our epoxy business. But I will say that in order for epoxy to Back to the levels it was, that's probably a couple of years out. So you're going to see the next Peak in chlor alkali, while epoxy is still recovering.

Speaker 2

And that's why we put the next peak at somewhere just above 3,000,000,000

Speaker 3

Understood. And one last one, if I may. On Dow's earnings call, they basically Talked about how their contract with you was renewed through 2,035. Is there any sort of commentary you can give about I know historically sort of Olin has talked about not really making any money on that contract. But is there any commentary you guys can give us about that renewed contract?

Speaker 2

Yes. I would just agree that we did reach agreement and I think that's going to be good for everybody in the future.

Speaker 3

Fair enough. Thank you so much. Sure.

Operator

Thank you. And our next question comes from Steve Bohn with Bank of America.

Speaker 4

Hi, thank you. Just continuing on to this peak EBITDA discussion, Is it more driven by chlor alkali? And is your view on epoxy a little more measured than it used to be? And with the former chlor alkali, are you moving any further down the path Of partnering on some downstream polymer capacity or is it a little too early for that?

Speaker 2

Well, I would say, I mean, the big driver of it is certainly chlor alkali. There's no doubt epoxy will improve, but the structure of the epoxy industry, when you have a When you have a China that's probably added almost 20% to the world's supply In the last 18 months or so, it's going to take a little more time to recover. I mean, I'd also call out our Winchester business as Well, I mean that business has great fundamentals, particularly in the growth of international and domestic ammunition. So it's those things that will get us there.

Speaker 4

And one follow-up for you, Scott, on Winchester is, What is going on competitively that's leading to a challenging domestic Commercial market, is it underlying demand or is it increased imported product Competitive lack of discipline, what would you attribute it to?

Speaker 2

Yes. Well, I would say, Just a reminder, even though it's challenging, it's certainly well above pre COVID levels still. But what is driving the challenges is, I would say across outdoor sports, Inventory is just generally increasing. That's not just a comment only on ammunition, but we're subject to that. That's why it's a bit challenging.

Speaker 4

So there's destocking going on, is that the issue?

Speaker 2

Well, it's not necessarily destocking. I would say that, look, inventory in the channel has Creaked up. And therefore, supply into the channel is slowing down, right? There may be some follow on destocking That naturally would follow that, but that's the situation.

Speaker 4

And some of that creep from Russian import that you've talked about in the past?

Speaker 2

No, no. Russian imports have ended. If anything, imports into this country in terms of ammunition have gone down over the last 12 months, Primarily to Russia importing 0 anymore.

Speaker 5

Okay. Thank you.

Operator

Thank you. And the next question comes from Mike Sison with Wells Fargo.

Speaker 6

Hey, guys. Look, I wanted to understand the $300,000,000 a little bit. So In the Q3, what's the impact from the plant outages? Is it similar to the 80,000,000 In the Q2 and then for the Q4 $300,000,000 Q4 $300,000,000 Is there any impact from that Extended into the 4th.

Speaker 2

Yes. And let me clarify, Mike, the $80,000,000 first Because in our earnings release, that is a year over year quarterly comparison, it includes the planned cost The turnaround that we were going to have. The guidance that we gave or the early guidance we gave in the second Porter said, look, we have a $50,000,000 impact and that was versus the expectation. I would say when you're looking at the 3rd quarter, It's very probable that that impact is the same. So what you have versus our earlier expectation is $100,000,000 essentially spread evenly over the second and third quarter.

Speaker 6

Okay. Got it. And the 4th quarter doesn't have an impact. That's just kind of the run rate for Where the ECU and everything is at, right?

Speaker 2

Yes. I mean, that's pretty much right, right. We've called out $1,400,000 You kind of back And to the numbers you're using for the Q4, there's some natural slowdown in some of the businesses and there's still negative momentum in costing.

Speaker 6

Okay. And then just in terms of where your mid cycle EBITDA could be, is it Sort of the delta between the peak and this year or is it a different number and how long do you think it takes to sort of get to sort of a mid cycle

Speaker 2

Well, I would just say, Mike, that we expect 2024 to be better. There's Good signs to that, I think, even though they are slowly maturing signs and 2025 looks even better than that. It's in that range.

Speaker 6

Thank you.

Speaker 2

Yes.

Operator

Thank you. And the next question comes from Evan McCarthy of Vertical Research Partners.

Speaker 7

Yes. Good morning. Scott, with regard to caustic soda, how much Was your average price down in 2Q versus 1Q? In chlorine, it Seems like you had a quite divergent experience versus consulting marks, so to speak. I'm curious As to any color you can provide in caustic as to where your own experience is perhaps differing or similar to outsiders' views?

Speaker 2

Yes. And so I won't give a specific number on that. Our caustic was definitely down in 2nd quarter versus first quarter and we're saying it's going to go down in 3rd. It's not that far off from what you see in the trade publications, Perhaps a little bit favorable to that. Of course, we had, just like you said, a different experience in merchant chlorine.

Speaker 2

Trade publications say flat to down. We were able to lift merchant chlorine pricing in the 2nd quarter relative The Q1 annual lift merchant chlorine pricing in 3rd quarter relative to 2nd quarter as well.

Speaker 8

Okay. Then secondly,

Speaker 7

the financial question for you. If I look at your balance sheet, Olin's inventory levels in the 2nd quarter were up 14% year over year in dollar terms. My question is, how would you characterize your inventory in unit terms or tons? Are there Product lines where you feel you have too much inventory and you need to draw it down or product lines where It might even be relatively lean. How would you characterize that?

Speaker 8

Hey, Kevin, this is Todd. Thanks for the question. Yes, through the first half of the year, you have seen a Couple of $100,000,000 working capital build from Olin. Ultimately, as you see in our cash flow forecast for the year, We think working capital actually be favorable. So you should expect to see working capital decline and turn into a source of cash in the back half Also, I think during Scott's prepared comments, he commented about the expectation Of reducing epoxy inventory during the Q3.

Speaker 4

Okay. Thank you.

Operator

Thank you. And the next question comes from Michael Atit with Barclays. Great. Thanks. Good morning, guys.

Speaker 2

Good morning.

Speaker 9

Good morning. First question on epoxy. When you look at Asian exports and the prices they're selling for in the market, Is your sense that producers there are below cash breakeven levels? And if so, how if at all, does that change your thinking about how Olin should approach, say, the epoxy

Speaker 2

I would just say, yes. I mean, you got to remember in China that they've been Operating with the favorability of negative chlorine values, right, at potentially negative Hydrochloric acid value, so those key inputs, which is just one input, has gone into the epoxy chain With somebody paying the producers of epoxy to take it, that's totally different than any other geography It has nothing to do with covering any kind of level of fixed cost and certainly no return on capital. So yes, I think that's a real issue. We're going to consider what we're going to do about proposing duties in certain geographies as well, because This really can't go on.

Speaker 9

Fair enough. And then second, just you look at your chemicals volumes overall with the exception of the VCM impact, do you think the second quarter is the low point in your volumes? Do you expect them to be stable or maybe lower in the back half?

Speaker 2

Yes. I would say that for Olin, look, our volume challenge It's effectively finishing here, right. We've taken it down enough to preserve values, run a leadership model, We were prepared to capitalize on the run out. So we've taken volumes down further enough to achieve That objective. Even in our epoxy business in the Q3, we do expect systems and resin volumes To grow some.

Speaker 9

Got it. Thank you.

Speaker 2

Sure.

Operator

Thank you. And the next question comes from Jeff Zekauskas with JPMorgan.

Speaker 10

Thanks very much. You've always spoken of negotiation of the Dow contract That's a meaningful future benefit in 2025. Now it seems that Dow is going to take Less chlorine and caustic because of what they're doing in propylene oxide. Is it still a meaningful jump for Olin in 2025 or is that no longer the case?

Speaker 2

Yes. I would say it's really a positive arrangement For Olin. And Jeff, I mean, you are right that one PO unit, Dow has announced that they are closing that. So that volume goes away, but other volumes at that same site remain and the site in Louisiana becomes the site of focus the bigger volumes.

Speaker 10

So we shouldn't expect some meaningful contractual some meaningful EBITDA benefit to you in 20 25 because of the renegotiation of the contract. Is that correct?

Speaker 2

No, I think it's positive, Jeff.

Speaker 10

Okay. In terms of your chlorine prices, are your there's always a There are always contract resets that Olin benefits from because pricing in the old days was so poor. Is the positive momentum in prices in chlorine of the repricing of very old contracts or is it more an accurate picture of the current market today?

Speaker 2

Well, I think a large part of the continual improvement in our average merchant chlorine pricing Has to do with contracts maturing and being renegotiated. That's not the only part of it. The part that's on spot, we still continue to do well there. But the bigger part is the new contractual arrangements where we exit these remaining legacy deals.

Speaker 10

Is there much more to go or are you now pretty much caught up?

Speaker 2

Well, we have a little bit more to go.

Speaker 10

Okay, great. Thank you so much.

Speaker 2

Sure.

Operator

Thank you. And the next question comes from Duffy Fischer with Goldman Sachs.

Speaker 4

Yes, good morning. Scott, I was hoping, Can you just kind of summarize all the changes you've made to your epoxy footprint? And what does that To the upside coming out, I mean, how much capacity have we taken off when we get through this downturn? How much different is your footprint today?

Speaker 2

Yes. I mean, we've made and are in the process of making quite a number of changes. You know, upstream, I'll say that, you know, we exited a cumene plant. We exited one of our BPA facilities. In the resin area, we reduced Our capability both in Freeport, Texas and in SATA and then at a few down We reduced our capability in solids epoxy resin and then we shut down our facility in Korea.

Speaker 2

So, yes, I mean that has reduced our capability some. What I will say is that in epoxy, We had at least 2 of everything to begin with and sometimes 3 or 4 of everything. So we've gotten rid of that overhang. Much more efficient now and it's not going to take a massive amount of volume to put us closer to a higher capacity utilization. We're Still working to get those costs down.

Speaker 4

Fair enough. And then you often talk about managing one side or the other of the ECU. As you look out over the next year or so, which side do you think you're going to have to work hardest on to manage?

Speaker 2

Well, we work both sides, of course. But I will say that right now, you see the Rate of change of caustic pricing and so we're just not participating in that market as much. In other words, we're Setting our whole participation according to that dynamic and doing that, of course, Slows that rate of decline and on the other side of the ECU, it certainly enhances where it's already a little bit tighter. So that's our positioning now. We'll stay in that positioning for a little while.

Speaker 2

I expect it to change. Maybe it has changed twice over the next

Speaker 5

Great. Thank you, guys.

Speaker 11

Yes.

Operator

Thank you. And the next question comes from Ruma Smoloffin of RBC Capital Markets.

Speaker 12

Thanks for taking my question. I had a question about the PCI and your Parley volume. So your parlay volumes looks like they hit a high point in the second quarter as a percent of your sales And yet you're still able to maintain the PCI in the high 250s. So is that really The swing wheel you have, the flywheel you have to maintain that PCI is the parlay volumes. And so When the market comes back and your utilization rates go higher and volume, you can service more of that volume from your own Production or how should we think about how the parlay volumes would evolve in order to keep the PCI constant And maybe as your profitability improves?

Speaker 2

Well, I would maybe start with let me redefine a little bit You know what these parlay volumes are. So, when we're faced with weak market conditions, We may very well reduce our production as we have. It doesn't mean that we back out of the market According to that same production volume decrease, we go out into the market and buy volumes Out of the market to satisfy that demand that we have. And when I said earlier, we've been having to run the model Deeper, this is evidence that we're having to run the market, I mean, run the model a lot deeper and go out and buy more volumes. Part of this volume, right, is working through our Bluewater Alliance joint venture, which is set up To go out and manage global liquidity as well.

Speaker 2

So all of those activities are just one contributing factor To keeping our profit contribution index up over time.

Speaker 12

And then if I could just ask a follow-up. So on the potential peak EBITDA of $3,000,000,000 maybe if you annualize that, it would be Somewhere in the range of 700 or so for Q1 and Q4 and maybe 800 to 900 for Q2, Q3. Could you potentially break down that by segment, Especially given some of the changes you've made on the footprint for epoxy and MCAV, what are those potentially contributing per quarter Now under the new structure. Thank you.

Speaker 2

Yes. I would say epoxy is not going to be the contributor that It was in recent history where we were running $700,000,000 plus annual EBITDA. Included in that $3,000,000,000 is not epoxy at that level. It's somewhere between today and that level. So what is in there is a strong performance from chlor alkali as The outlook on structure looks good.

Speaker 2

Demand outpaces supply. It's very likely that In fact, caustic growth may outpace chlorine growth due to all the things that are going on with minerals batteries and everything else and that imbalance helps us in the future. So in the chemical side, it's much more heavily weighted toward Chlor alkali and Winchester is a contributor to that as well. And in fact, For the first time ever, as evidence that we're going to move that way, for the first time ever in Q3, The consumer piece of the Winchester business is going to be less than 50% of that business and the military plus other is the larger part of it.

Speaker 12

And just so I'm clear, you said there's a lot of drivers for 2024, 2025. So do you expect to maybe get closer to that peak by 2025, 2020 6 or What's the timing on that? Thanks.

Speaker 2

Well, I don't have a specific time, but it's going to take a couple of years.

Speaker 12

Thanks.

Speaker 2

Yes.

Operator

Thank you. And the next question comes from Vincent Andrews with Morgan Stanley.

Speaker 9

Yes, thanks guys. Just continuing on the sort of peak cycle definition, just thinking back to the last peak, Obviously, very unique period of time where you had lots of supply outages and supply chain issues and obviously very strong Demand and significant stocking, it's obviously reversing now. I assume, Scott, you're looking for in the next peak cycle sort of a more traditional peak cycle where it's just Tight utilization rates from supply and demand. But is that the case or are you sort of also assuming there'll be some exotica On the operational side, and then where would your operating rates be in that scenario? Would you actually be running full out or Would you still be managing the situation volumetrically in order to achieve that level of EBITDA?

Speaker 2

Yes, I mean, thanks for the question. Look, I would say that, okay, it's a bit more traditional there as Global demand again outpaces global supply. I would say a situation like we had Coming out of COVID, that kind of volatility where demand is overstimulated for whatever the case You're certainly on top of what we're showing as our peak cycle right now. I don't think That, we should expect that everything will be smooth, right. I mean, traditionally, these supply chains have faced All kind of challenges and volatility, but you really haven't seen that over the last 18 months, at least not in a way that impacted supply demand.

Speaker 2

As demand climbs back, As some mass comes out of the trade flows that's being injected into the trade flows today By Asia, driven by China. As that changes, you'll start to see some of those problems with the supply chain likely exposed again. Okay.

Speaker 9

And if I could just ask on the reduction in the cash flow, obviously commensurate with the reduction in EBITDA. But in terms of use of That cash flow, I assume nothing's changing. We should assume a similar pace of share repurchases in the back half?

Speaker 8

Yes. Good question. We levered free cash flow as we look forward, We continue to see the first best use of levered free cash flow as they continue to repurchase shares, And that's what you should see us continue to do.

Speaker 12

Okay. Thanks very much, guys.

Operator

Thank you. And the next question comes from Aleksey Yefremov with KeyBanc Capital Markets.

Speaker 11

Thanks. Good morning, everyone. VCM outage, is it it's somewhat meaningful in terms of U. S. Caustic soda supply, I believe.

Speaker 11

You seeing any improvements in caustic supply and demand since the outage? And as a follow-up to this question, Is your goal for this outage to be over by the Q4? Should we assume that at this point?

Speaker 2

Yes. Hey, Alexia, I mean, this Outage is really an impact to 2Q and 3Q and we haven't factored in Any outage issue in the 4th quarter nor do we anticipate that, okay? And so to some This has impacted our upstream production. This isn't the only way that we liberate vinyls intermediates, which in Turn liberates caustic, but I would say that's really not a driver on U. S.

Speaker 2

Caustic. What is The driver is going back to that mass of flows that's come out of Asia and that has impacted Global trade flows and tends to back things up in the U. S. Gulf Coast, That's been more the driver of how caustic pricing has changed.

Speaker 11

Thanks, Scott. And coming back to your configuration with Dow, as you mentioned, Dow will shut Some PO capacity at Freeport that will free up some of your chlor alkali capacity. Should we assume that that's not used in anywhere? Is it more likely that you'll look for some other derivative opportunities either through Joint ventures, other arrangements or even organic investments downstream of LaRocco?

Speaker 2

Well, I would just say it opens up possibilities, Right. And those are sort of some of the free options that we have going forward and we haven't made a decision about that.

Speaker 11

Got it. Thanks a lot.

Speaker 1

Sure.

Operator

Thank you. The next question comes from Matthew Blair with TPH.

Speaker 5

Hey, good morning, Scott and Todd. Circling back to the Dow contract, Scott, you mentioned it was a positive resolution there. Should we think about this as being more significant on the free cash flow side for you than the EBITDA side? Or can you give us any color on that?

Speaker 2

So I would say it's probably favorable for both parties on both sides, Because there is some real win win elements of this and that not only helps You know how we're both running our day to day operations, but it also prevents Inefficient investments on both parties side, which drives free cash flow. So I would just say It's a positive for both parties on both those fronts.

Speaker 5

Sounds good. And then do you have any more Commentary on the epoxy side, in terms of demand, could you talk about how things are going in areas like electronics and wind and autos?

Speaker 2

Yes. I mean, look, demand in all of those areas, well, at least in electronics Certainly sluggish. Automotive coatings, at least in the U. S. Has shown some recent recovery and you've seen some of that in the Companies earnings announcement here.

Speaker 2

There is a nice portfolio of Wind projects and that's one of the biggest outlets for our systems activities. But Those projects go through stops and starts and there has been some level of inventory adjustment in those supply chains. But I would say all three of those areas as we move into 2024 are positive.

Speaker 5

Sounds good. Thank you.

Speaker 11

Yes.

Operator

Thank you. And the next question comes from Frank Mitsch with Fermium Research.

Speaker 4

Hey, good morning. If I could just point a clarification. The new terms on the Dow contract, do they take place When the old one was supposed to expire in October of 2025 or is there a different effective date for the new terms?

Speaker 2

Yes. I mean, that's roughly right. I mean, Frank, I won't comment on all the different dates and all the different improvements, But I guess you're going to average it there.

Speaker 4

All right. Awesome. Thank you. And yes, I fully appreciate the difficulties in And obviously, you've been taking a number of steps to improve your own footprint. You've outlined some of them.

Speaker 4

And I know in the past, you've indicated that Some of these actions should start to lead to $50,000,000 annual EBITDA improvement starting in the Q4. Given the degradation in the broader markets, how should we think about Sort of these actions that Olin is proactively taking will start impacting your income statement?

Speaker 2

Yes. I mean principally you'll see it more in 2024. It's actually being effective today and into the Q4, Frank, But we're having to clean up our inventory on the balance sheet a bit and that is offsetting Some of that underlying improvement that will expose itself after a couple of quarters here.

Speaker 4

Got you. Thank you so much.

Speaker 12

Sure.

Operator

Thank you. And the next question comes from Josh Spector with UBS.

Speaker 13

Yes. Hi. Thanks for taking my question. Just curious on EDC. Has your participation rate in that market changed at all?

Speaker 13

I mean, I think it was pretty minimal before. I guess The VCM outage, has that pushed more material into there or not? And when do you think about when you would get more involved in that market in the future?

Speaker 2

Yes. Well, yes, I mean, thanks for the question. I wouldn't say it's changed that much. But I mean, look, our participation In the global EDC merchant market, we've traditionally been the biggest player there. But recently, because of low values, we had reduced that.

Speaker 2

I think through this period, were having challenges in our VCM operation, still our participation hasn't changed all that much. I think the interesting thing about PVC is U. S. Inventories have declined And you've seen the PVC players all nominate recent price increases. So Eventually, the non integrated PBC players where our EDC ends up Are going to get back in business.

Speaker 2

We've just got to make sure we get the right product values when that phenomenon happens.

Speaker 13

Thanks. I appreciate that. I guess when you talk about some of the win wins potentially with Dow, do we be contemplating any increase The amount of ethylene you can get from them and I guess what's your desire for you to participate larger in whether EDC or VCM without a partner?

Speaker 2

I would say our ethylene arrangements are kind of good forever. It's not forever. I forget how many years is left, It was a long term agreement for more than 20 years, right? So we're set there. We do have the ability when it makes sense to partner with a vinyls player, because again, we have Incremental capability there.

Speaker 2

We have the ECUs, the ethylene, the EDC capability, Some level of VCM capability already. So we sit on a little gold mine there. The timing is just not right.

Speaker 13

Understood. Thanks, Scott.

Speaker 9

Yes.

Operator

Thank you. And the next question comes from John Roberts with Credit Suisse.

Speaker 4

Just to confirm, nothing got renegotiated on the ethylene contract?

Speaker 2

That was a contract that we had in place Some time ago, it wasn't part of the discussion.

Speaker 4

And then is any of the parlay activity in epoxies Or is it all in chlor alkali vinyls?

Speaker 2

The majority of it is in chlor alkali. We've been successful at running that parlay strategy and epoxy and tool capacity utilization got So low. And so we've reduced that participation there. It just doesn't make sense to do it at the moment.

Speaker 4

Do you have any longer term targets for both total parlay and the balance between epoxy and chlor alkali?

Speaker 2

Well, I wouldn't say there's a target for a balance between chlor alkali In Epoxy, I would say that we're going to do the right amount of parlay so that we can keep a leadership strategy in place And keep our product values up even when our capacity utilization is low. So when our capacity utilization is very low, like it is now, you're going to see big percentages. When it goes up, you might see some Smaller percentages. However, I will say that Blue Water is out there trading more caustic and more EDC Across the oceans and that trading activity will continue and grow no matter what our capacity utilization is.

Speaker 12

Thank you.

Operator

Thank you. And this concludes our question and answer session. I now would like to turn the floor to Scott Sutton for any closing comments.

Speaker 2

Yes. Well, I would just say thanks a lot to everybody for joining. So I think, Keith, That closes the call.

Operator

Okay. Thank you. And as mentioned, the conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.

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