IHS: Olin Rises to Top Producer in Chlor-Alkali Industry Following Merger w/Dow Chlorine Products

The recent merger of chlor-alkali and vinyl assets from The Dow Chemical Company and Olin Corporation, which were combined to form a company with significant scale and synergies, is viewed as a ‘win-win’ deal with strategic benefits for both partners, according to new analysis from IHS,  the leading global source of critical information and insight.

According to the IHS Chemical report entitled Chemical Company Analysis: Olin (Post Dow Chlorine Products Business Merger), the estimated revenue potential of the new company is U.S. $7.2 billion. The new company will constitute approximately 34 percent of North American chlorine capacity in 2015. Pre-merger, IHS said, the Olin Corporation had revenues of $2.2 billion, and was a leading North American producer of chlorine and caustic soda, with much of its distribution in the U.S. and Canada. Olin also owns Winchester, a leading North American producer of small-caliber ammunition, and a well-known brand with 148 years of history.

“The deal offers both producers access to a secure feedstock supply as well as low-cost manufacturing and cost synergy benefits,” said the report’s author, Mohit Sood, principal analyst at IHS Chemical. “The deal also catapulted Olin from primarily a regional player with a limited product slate in the sector to the industry’s top, integrated chlor-alkali producer, capable of both sustainable growth and of withstanding industry pressures. The company now has greater geographic and product diversification, which is critical to revenue growth.”

Inter-party supply agreements between Dow and Olin, Sood said, will ensure ethylene, chlorine and caustic availability at producer economics for meeting the internal needs of both the companies. For Dow, which split off its U.S. Gulf Coast chlor-alkali and vinyl assets, its global chlorinated organics business, and its global epoxy business, the deal, he said, ensures fulfillment of Dow’s strategic objective to divest $7 billion to $8.5 billion by mid-2016. In addition, it helps the company to focus on its market-aligned business.

“While the longer-term benefits of this transaction for Olin are significant,” Sood said, “the high purchase price has resulted in a lower level of liquidity in the short term. That cost, as well as the limited integration of the epoxy assets, does pose some risks for the company.”

Olin reported third-quarter 2015 income of $5.9 million, down 77 percent year-over-year (YOY), on sales of $533.6 million, down 10 percent YOY. Olin said it may idle or permanently close 250,000 to 450,000 metric tons per year of chlor-alkali capacity. The company plans to provide details in the first quarter of 2016. Sales in the chlor-alkali product segment totaled $299.7 million, down 9 percent YOY.



Segment earnings declined 46 percent to $14.1 million, primarily due to lower electrochemical unit (ECU) netbacks and volumes, partially offset by lower operating costs, Olin said, in its earnings disclosures for third-quarter 2015. Chlorine and caustic soda volumes decreased 4 percent, and ECU netbacks declined about 3 percent. Potassium hydroxide volumes decreased 20 percent, and hydrochloric acid volumes decreased 14 percent. Bleach volumes were flat, Olin said.



The merger not only included the Dow North American chlor-alkali and vinyls assets at Freeport, Texas, and Plaquemine, La., but also two other related businesses from Dow–its Global Epoxy Resins and Global Chlorinated Organics units. Following the merger, Olin moved to the top two producer positions globally for these products.



The low profit margins for the base epoxy resins business in Europe and the highly cyclical nature of the chlor-alkali industry are challenges for operators in this sector of the petrochemical business, Sood said, but there are positive opportunities for the “new” Olin from this merger to potentially mitigate those challenges. “Namely, there is potential revenue upside due to a more diversified product portfolio, a larger potential customer base, and greater end-use application segments. In addition, this move enables Olin to shift its focus toward non-cyclical chlor-alkali derivatives, which provides greater market stability for the company, and in this environment, that is a welcome benefit,” Sood said.