Olin - Q1 2023
April 28, 2023
Transcript
Operator (participant)
Good morning. Welcome to Olin Corporation's first quarter 2023 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by 0. After today's brief opening comments, there will be an opportunity to ask questions. To ask a question, you may press star then 1 on your touchtone phone. To withdraw your question, please press star then 2. 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. Please go ahead, Steve.
Steve Keenan (Director of Investor Relations)
Thank you, Jason. 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 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 are described without limitations in the risk factors section of our most recent Form 10-K and in yesterday's first quarter earnings press release. A copy of today's transcript and slides will be available in 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 CEO, and Todd Slater, Olin CFO. I'll now turn the call over to Scott Sutton to make some brief remarks, after which we will be happy to take your questions.
Scott Sutton (President, Chairman, and CEO)
All right. Thank you, Steve Keenan, and good morning, everybody. The Olin team is deeply engaged in doing what we said we would do, which is to establish a new 12-month trough EBITDA level that is significantly higher than previous peaks and additionally supports a higher equity valuation. We are halfway through that demonstration after back-to-back quarters where our EBITDA delivery was $442 million in the fourth quarter and $434 million in the first quarter. Market conditions are quite poor. The forward outlook of those conditions is for more of the same. Olin is busy adjusting our market participation across the ECU to support product values, fixing our prior shortfall of not recession-proofing the Epoxy business while simultaneously growing Epoxy systems and correcting commercial ammunition channel loads and landing new military business in Winchester.
Referring to slide number 5 in our earnings presentation, the initial evolution of Olin to a higher level value state is also about halfway along. Leadership behavior in all three of our businesses through this recessionary environment will lead to more value growth opportunities that in turn deliver more firepower for share repurchases. We are currently on a run rate to repurchase 10% of the company's outstanding equity this year after repurchasing 16% in 2022. Vincent, that concludes my opening remarks. Let's go ahead and get to questions. Jason, we'll take questions now.
Operator (participant)
We will now begin the question and answer session. To ask a question, you may press star then one on your touch tone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. Our first question comes from Kevin McCarthy from Vertical Research Partners.
Kevin McCarthy (Partner)
Yes, good morning. Scott, you've taken a number of actions toward restructuring your Epoxy business. Can you talk through what you've done already and what lies ahead? I think there was a reference in your materials to some additional restructuring actions that wasn't clear as to whether that was in addition to what you communicated several weeks ago or just additional implementations against that existing communication.
Scott Sutton (President, Chairman, and CEO)
Yeah, sure. Thanks a lot and good morning. You know, we have taken some, you know, recent actions to really recession-proof the Epoxy business. In March, you know, we announced that the Terneuzen cumene plant and our solid Epoxy resins facilities in Korea and Brazil, you know, are to be closed. You see that we took a restructuring charge of almost $60 million in the first quarter to do that. You know, we had additionally also closed one BPA facility in our Stade Germany plant. You know, there's more to come. We're gonna have additional asset decisions to make, and then we're gonna also change the way that we go to market in the Epoxy business as well. That's gonna happen through the course of this year.
Kevin McCarthy (Partner)
Okay. Thank you for that. Secondly, perhaps for Todd, can you speak to the inventory levels on your balance sheet? Optically, it looks like they're up 20% year-over-year. How much of that is underlying escalation of inventory versus other factors? I'm not sure if your Blue Water joint venture establishment affects any of those numbers.
Scott Sutton (President, Chairman, and CEO)
Thanks for the question on inventory. We normally build inventory, and working capital during the first part of the year and liquidate that late in the third and fourth quarter. The inventory levels are higher than that normal seasonal activity this year because of a major turnaround that's planned that we built some inventory in advance of that turnaround. You should expect those levels to decline as the year unfolds with a step down you'll see in June.
Steve Byrne (Managing Director, US Chemicals Equity Research)
I see. Thank you very much. I'll pass it along.
Operator (participant)
The next question comes from Steve Byrne from Bank of America. Please go ahead.
Steve Byrne (Managing Director, US Chemicals Equity Research)
Yes, thank you. You've switched back and forth between which is the weaker side, caustic or chlorine, and now you're making another change there. I'm just curious whether when you've operated in the past with caustic as the weaker side, has that given you maybe more collective pricing power for the ECU because you have so many end markets you can go into with chlorine?
Scott Sutton (President, Chairman, and CEO)
Yeah. Hi, Steve. That is the nature of our leadership model, right? We set our market participation according to the weaker side of the ECU, and we don't chase a strong market in this co-production world because when you do that, you depress the strong market, and you kill the weak market. We have switched. You know, we've operated where caustic was the weaker side, just like it is today. You know, when we did operate in that manner, that's when we also set, you know, the 4-quarter peak earnings of the company at $2.8 billion. It certainly presents opportunities. What I'll say is, you know, you have to take into account many factors.
You know, when you have sort of a global, you know, recession going on, it doesn't necessarily mean that at this moment in time we can repeat those levels of earnings, but it certainly will support higher merchant chlorine pricing and higher pricing and value in other chlorine derivatives as well.
Steve Byrne (Managing Director, US Chemicals Equity Research)
You made a comment in your slides about potential other inorganic opportunities, and I just wanted to drill into that a little bit. I mean, your downstream businesses are essentially tied back to chlorine, and there are, you know, numerous chemical pathways that have a very essential chlorine component in it, like, you know, whether it's polyurethane or polycarbonate or so forth. Can you highlight any other opportunities that you're looking at downstream?
Scott Sutton (President, Chairman, and CEO)
Well, I would just say that as we look at inorganic opportunities, I mean, the best ones that create the biggest value for Olin are ones where we add to our ECU value model. That could be more ECU capability, or it could also be derivatives that, you know, use chlorine. I mean, those opportunities are likely improving. Clearly, I mean, they're gonna have to compete with the return that we get on share repurchase, and that's sort of a measuring stick for that.
Steve Byrne (Managing Director, US Chemicals Equity Research)
Very good. Thank you.
Scott Sutton (President, Chairman, and CEO)
Sure.
Operator (participant)
The next question comes from Hassan Ahmed from Alembic Global. Please go ahead.
Hassan Ahmed (Co-Founder and Head of Research)
Morning, Scott and Todd. you know, first question just around, you know, Q1 and the guidance that you guys gave. I mean, you know, you guys always talked about how there could be one quarter or two quarters where, you know, you could sort of trend at annualized below guided to sort of trough EBITDA, right? As you sort of rejig or readjust to the stronger side of the ECU. you know, what we saw in Q1 and the guidance that you have given for Q2, is it fair to assume that these two quarters are those two quarters and, you know, things kind of, trend higher there on after?
Scott Sutton (President, Chairman, and CEO)
Yeah. Yeah. Hi, Hassan. Look, I mean, it's certainly not impossible, right, that, you know, we make a significant adjustment in any one quarter to support that four quarter, you know, trough level around $1.7 billion. What I will say is we're halfway through, and we've essentially delivered the same EBITDA number in those first two quarters, and we've given guidance for the next quarter that is slightly below that. Hopefully we can get through this without having to make such a deep correction in any one quarter.
Hassan Ahmed (Co-Founder and Head of Research)
Understood. Understood. Also wanted to revisit the question around inorganic opportunities. You know, from the sounds of it, you know, you guys obviously wanna stick to the sort of area that you're comfortable with, you know, call it integration into the ECU and the like. From the sounds of it, you're looking at downstream products. You know, could you also chat a bit about sort of what geographies are of interest to you? I mean, you know, because back in the day, you did talk about maybe potentially being sort of replicating, you know, what you have in the U.S. out in Europe. Does that still sort of hold true?
Scott Sutton (President, Chairman, and CEO)
Yeah, look, I think that's a real, you know, possibility. Center the fairway in North America. It's also possible that we can add a new fairway in Europe, so that's a consideration.
Josh Spector (Executive Director, Chemicals Equity Research)
Very helpful, Scott. Thank you so much.
Scott Sutton (President, Chairman, and CEO)
Sure.
Operator (participant)
Our next question comes from Jeff Zakauskas from J.P. Morgan. Please go ahead.
Jeff Zakauskas (Equity Research Analyst)
Thanks very much. Why is it that the contract caustic markets in the United States are so much more stable than the spot export caustic markets? Can you talk about where caustic contract prices have been, say, over the past 6 months?
Scott Sutton (President, Chairman, and CEO)
Yeah. You know, good morning, Jeff. Yeah. You know, the domestic caustic markets, of course, are, you know, right where Olin plays and right where Olin leads and right where we implement our leadership model. You know, there's some impact from that. I think, you know, you have to remember how, you know, the world landscape moves around, right? You may start with a butterfly effect coming out of China, so there's a volume and a price indication there. Over time, that may impact international trade. Over time, that may impact the U.S. Gulf Coast. Over time, the U.S. Gulf Coast impacts the barge market in the U.S. Over time, you know, the barge market may impact the rest of the domestic market.
Over all that time, Olin is looking far ahead and looking for the rate of change of each of those things and trying to take some kinda action that tends to support value. By the time you get all the way to the domestic market, we've supported the value of our business. You know, over the last six months, of course, that has stayed more stable, which is the back part of your question.
Jeff Zakauskas (Equity Research Analyst)
Okay. Maybe a question for Todd. What should the normal percentage of operating cash flow to EBITDA, to adjusted EBITDA be for Olin? Is it 70% or 80% or 60 or 85?
Scott Sutton (President, Chairman, and CEO)
I think, Jeff, this year in the recessionary trough period, that percentage is lower than would be typical and the expectation for Ol of that levered free cash flow because of a couple of one-time items that are occurring this year. The roughly $80 million international tax payment that we'll have to make later this year, as well as, you know, a one-time item that we need to pay related to some power assets in the Gulf Coast on a contract. You know, when you factor those in, I think that percentage would go up significantly compared to, you know, what it seems like this year. Overall, that number is in, you know, clearly in the upper quartile.
Jeff Zakauskas (Equity Research Analyst)
How big is the power asset payment?
Scott Sutton (President, Chairman, and CEO)
Between $50 million and $100 million this year.
Jeff Zakauskas (Equity Research Analyst)
Okay. Thank you so much.
Operator (participant)
The next question comes from Vincent Anderson from Olin. Please go ahead.
Vincent Anderson (Equity Research Analyst)
Yeah, thanks. Good morning. I wanted to follow up on Kevin's question earlier, Scott, on, you know, have you settled on maybe a more permanent vision for what the optimal footprint looks like for the Epoxy business, particularly with regards to, you know, an appropriate level of vertical integration?
Scott Sutton (President, Chairman, and CEO)
Yeah. Yeah. I mean, thanks for the question. Look, I mean, as we go through this restructuring, right, we're gonna get to a footprint and a business presence that removes some element of the duplication that we have. We have two of every single kind of asset all across that vertically integrated chain, and we may or may not need all of those to have full capability. What I will say, when we get through this, Epoxy is still gonna be the absolute global leader in that world, and it's still gonna be the absolute most vertically integrated business in that world as well. You know, Epoxy has certainly been a challenge. If you go a little bit backwards in time, you know, whenever Asia volumes became available, you know, customers bought away.
You know, when those Asian volumes weren't, you know, available because of instability or demand in Asia, you know, they came back to Olin for security of supply. More recently, you know, we probably overpriced a bit for a bit too long. We're just moving to a point where we're gonna partner with Epoxy customers for a bit longer run, and there's gonna be a lot more cooperation in that forward world with Epoxy customers, especially as our business pivots more to value from systems. You need to have a longer term profile mix with customers.
Vincent Anderson (Equity Research Analyst)
Okay, that's extremely helpful. Thank you.
Scott Sutton (President, Chairman, and CEO)
Sure.
Vincent Anderson (Equity Research Analyst)
Then a quick one, if you don't mind, on something you mentioned in your slides, talking about the hydrochloric acid recycling opportunity. Do you have just a couple of comments on what that market structure looks like? You know, I'm assuming it's coming from areas of HCL utilization where the customer's chlorine input is something other than HCL coming out the other end. Then maybe just early thoughts on build versus buy.
Scott Sutton (President, Chairman, and CEO)
Yeah. Yeah. I mean, sure. I mean, look, this is actually a business segment that Olin doesn't really participate in today, and we should be the leader. The reason that this business segment exists is many applications and many customers for merchant chlorine, and it's not just Olin's merchant chlorine, but any merchant chlorine that is used. A lot of that chlorine comes back out of the process, whether it's all or part of it, because it's not utilized in the final product. It comes back out as HCL or hydrochloric acid, and that material, you know, needs to be moved somewhere. Like a major application for that is, you know, downhole, you know, cleaning of formations and so forth in oil and gas. Today, Olin just doesn't really participate there, and there's no reason that we shouldn't be the leader there.
We're entering that business. Now you have three interesting, you know, nearly organic growth areas in our quote, CAPV business. One of them is trading or parlaying, which is, you know, partly our Blue Water Alliance joint venture. The other one is our hydrogen growth. Now you're going to have our growth in HCL, where we should be the leader, and we just haven't developed that business yet.
Vincent Anderson (Equity Research Analyst)
Excellent. Thank you.
Scott Sutton (President, Chairman, and CEO)
Sure.
Operator (participant)
The next question comes from Michael Sison from Wells Fargo. Please go ahead.
Michael Sison (Managing Director, Equity Research Analyst)
Hey, guys. Just curious, what are you going to do with your operating rates for 2023? I guess, given you're still in a recessionary trough level sort of outlook, does it stay at first quarter levels for the rest of the year?
Scott Sutton (President, Chairman, and CEO)
Yeah. Hey, hey, Mike. Look, I mean, you know what I would say there's a lot more of the same coming for us to grind through, right? We will change those operating rates to anything that's necessary, you know, to support value for Olin. You know, you're right. I mean, they're low. I think we put in our materials that, you know, our epoxy resin operating rate is around 40% or so. There, you know, the second quarter landscape is certainly not better than the first quarter landscape. If you were to think about operating rates in our core Alkali and Vinyls business, you know, maybe we're running around two-thirds or so. You know, these are not likely to change that much.
Within there, we'll have some units that run higher and, you know, some or many that run lower than that, Mike.
Michael Sison (Managing Director, Equity Research Analyst)
Got it. Okay. Then as a quick follow-up. You know, your ECU netback calculation is held up, you know, significantly better than the consultants. I understand it's yours. When you think about the level you're at now versus last year and where your adjusted EBITDA was being down, is it simply the year-over-year decline in EBITDA, just volume? Then if you can hold these ECU netback levels and volumes come back, are you sort of back to your prior EBITDA levels from?
Scott Sutton (President, Chairman, and CEO)
I mean, that's a good question. Yeah, I mean, the decline in EBITDA to these more trough levels in this recessionary time is certainly principally from volume. You know, that ECU netback, that's indicative of our value concept, right? We said we're going to be the value player, and we're going to place value over volume, and that leads to the best outcome in a trough. When you come out of that trough, you come out of it with, you know, a lot of earnings power. You know, that has been set to a totally different level. Look, I do know this. It will move down some, and it will move up some. Clearly, we're going to be the value player, and that's the biggest indicator of it. You're right, it's different than trade publications for sure.
I mean, it's just like, you know, the chlorine index that is published in a, in a trade indication actually, you know, went down just a little bit here recently. Our chlorine index moved up. Our chlorine price in the first quarter moved up over the fourth quarter, and yet our chlorine price will move up in the second quarter versus the first quarter as well.
Michael Sison (Managing Director, Equity Research Analyst)
Got it. Thank you.
Scott Sutton (President, Chairman, and CEO)
Sure.
Operator (participant)
The next question comes from Michael Leithead from Barclays. Please go ahead.
Michael Leithead (Director, Equity Research)
Great. Thanks. Good morning, guys. First on Epoxy, Scott, can you just maybe talk about where the Chinese export pressure currently stands today versus maybe a quarter ago and just where you think that trends over, say, the next quarter or so?
Scott Sutton (President, Chairman, and CEO)
Yeah. Yeah, sure. I mean, look, that export pressure, you know, I'll say in the second quarter is probably even more than in the first quarter. There's record Epoxy exports coming out of Asia. Those exports out of Asia are being driven by the fact that, you know, China has added a lot of capacity. They've got their supply apparatus running hard, yet their demand apparatus has not turned back on. That sort of reversal in trade flows out of China has caused the rest of the volume in Asia, you know, to come towards Europe and North America. That's the impact we're seeing, and we see extreme pressure continuing there.
Michael Leithead (Director, Equity Research)
Great. Thank you. Just real briefly, I wanted to follow up on the inorganic opportunities. I think in your slide, you made a comment calling them potentially being more executable. I was just curious if that's really just a comment about asking prices, it becoming more palatable and the discussions picking up or just more about Olin's ability to execute given where it is in its evolution or financial position?
Scott Sutton (President, Chairman, and CEO)
Yeah. Well, I think, you know, Olin is able to execute on most anything we would want to considering our financial position, right? That's really not an issue. The reason that we use the words more executable is it's not impossible now to get deals done closer to Olin's current trading multiples. It doesn't mean it'll be the same, but it certainly means that we'll get there really quickly with the batch of synergies that we would expect to be available in any acquisition.
Michael Leithead (Director, Equity Research)
Makes sense. Thank you.
Scott Sutton (President, Chairman, and CEO)
Sure.
Operator (participant)
Our next question comes from Arun Viswanathan from RBC Capital Markets. Please go ahead.
Arun Viswanathan (Senior Research Analyst, Chemicals and Packaging)
Great. Thanks for taking my question. Just a kind of question on the cadence of the year. You know, it looks like the guidance now has been tightened up to $1.6 billion-$1.9 billion, which would put you at $1.75 billion for the full year. It's very possible that, you know, you do $865 million maybe in the first half and another $865 million or more or slightly more in the second half. Is that the right way to think about it, that the halves will be kind of equally split?
If that is the case, when you look into next year, is it mainly volume that would drive you back up to the upper end of that, you know, one nine range, $1 billion-$2 billion range, and above? What would put you at the upper end of the range this year itself? Thanks.
Scott Sutton (President, Chairman, and CEO)
Well, I wouldn't assume that first half and second half are sort of, you know, are perfectly balanced, right? I mean, we will do whatever we need to do, you know, to put this 4-quarter trough in around that $1.77 billion. Clearly, we've said for the calendar year, we have a range of $1.6-$1.9. The way you would end up at a $1.9 is that, you know, maybe there's a little better condition in the second half than what we're forecasting. The way you would end up at the $1.6 is that we keep having to make heavy adjustments and things actually get worse, particularly in Asia demand versus where they are today. That's why we've, you know, we've kept this range.
When, when we sort of get out of this, you know, slow demand, recessionary conditions, right, we'll have a number of earnings levers. Yes, one of them will be natural volume. It won't be volume from share gain, but it'll be just natural volume coming back in on the shoulders of a recovery. We'll also have our Epoxy systems business being more effective, and it's already made a lot of, you know, great progress there. Some of the discussion we just went through, entering the HCL business, that's something that we can do pretty rapidly. Maybe some of the best conditions actually exist in our Winchester ammunition business. The international military piece of that business is growing rapidly. In addition to that, so is the preparations for the Next Generation Squad Weapon.
In fact, if you were to think about our military ammunition business, we expect to double that in roughly 2 years from where we were about 6 months ago.
Arun Viswanathan (Senior Research Analyst, Chemicals and Packaging)
Thanks for that. Then, something on the cash flow side. It sounds like your levered free cash flow is gonna eclipse $1 billion. Should we assume that maybe that leaves about $800 million for buybacks? How are you thinking about that opportunity as you move forward? Will you continue to, you know, be prioritizing, you know, share buybacks, or are there other uses for the capital? Thanks.
Scott Sutton (President, Chairman, and CEO)
Yeah, I think our current forecast for leverage free cash flow for you know, for 2023 is $965 million range. Obviously, that includes, you know, roughly $150 million of one-timers that I mentioned earlier. You know, as we look at that levered free cash flow, you know, we would say the first and best use of that excess cash flow, relates to share repurchase. You should see us continue on that pathway.
Operator (participant)
Thanks. The next question comes from Josh Spector from UBS. Please go ahead.
Josh Spector (Executive Director, Chemicals Equity Research)
Thanks for taking my question. You know, just to follow up on your market participation and kinda how you address, you know, the weaker side. I mean, your response over the last year, at least within the CAPV segment, has been generally lower utilization rates. I guess, is there anything different now that that's shifted back to chlorine being strong, caustics being weaker, that would require a different playbook for you to maintain that EBITDA over the next 6 months or so?
Scott Sutton (President, Chairman, and CEO)
Yeah. Hey, Josh. Thanks for the question. I mean, not really, right? Not in totality, we don't expect necessarily, you know, lower overall operating rates, right? You know, I think the dilemma is that, you know, I mean, market conditions are really poor, and we certainly expect more of the same. That's one element that ends up, you know, setting our operating rates. What you have to remember about Olin, we make value when there's a level of imbalance between the two sides of the ECU. You can actually have a declining overall global market, but yet there's some kind of imbalance between the two totally different kinds of market outlets on the chlorine side of the ECU versus the caustic side of the ECU.
When we have that imbalance or can help create that imbalance, that's when we're able to hold value.
Josh Spector (Executive Director, Chemicals Equity Research)
Okay. I guess, maybe you could correct me if I'm wrong, but I would think, I mean, you have more options, I'd say, on the chlorine side of where you can do that and maybe go to a stronger market. I mean, conversely, I'd say maybe there's less options on the caustic side. I guess, where would I be wrong in that?
Scott Sutton (President, Chairman, and CEO)
Well, I mean, it's true that. Look, I mean, we have a lot of business on, you know, the chlorine side of the ECU and are forward integrated into vinyls, Epoxy, chlorinated organics, a number of inorganics there, so we have options. Also, you know, the caustic market is not just one fungible product either, right? If you know, kind of go back to the discussion we were just having about going from China export, you know, all the way through international trade, Gulf Coast, impact on other regions into the barge market and the domestic market. There's a lot of service options there, and there's also options to package up ECUs for customers that use a full ECU.
On top of that, you know, we're able to use our Blue Water joint venture to make sure that there's all kinds of complex options on that 3D chessboard to get the best value that we can.
Josh Spector (Executive Director, Chemicals Equity Research)
Okay, got it. Thanks, Scott.
Scott Sutton (President, Chairman, and CEO)
Sure.
Operator (participant)
The next question comes from Aleksey Yefremov from KeyBanc Capital Markets. Please go ahead.
Aleksey Yefremov (Managing Director, Senior Chemicals Equity Research Analyst)
Thanks. Good morning, everyone. Scott, inorganic opportunities, can you tell us how you're thinking about, you know, potential size of a deal here, bolt-ons or something larger, more transformational in nature?
Scott Sutton (President, Chairman, and CEO)
Yeah. I mean, look, there's of course a number of options. I mean, what we need to do and would prefer to do is something that's right down the fairway that we can get a high level of synergies quickly and, you know, pay off any kind of financing that we might do in order to do that acquisition. All of that has to add up to a picture that gives us much better return to our shareholders than doing share repurchases. I think there's options there. Of course, we would prefer to do something initially that's measured down the fairway and is slam dunk.
Aleksey Yefremov (Managing Director, Senior Chemicals Equity Research Analyst)
Very helpful. Thank you. Your annual guidance range, especially at the low end, are you assuming any meaningful decline in the caustic soda price? By meaningful, I mean, say, $100 or more drop or price declines in any other, you know, important commodity? Is it the range variability mostly due to volumes going up and down?
Scott Sutton (President, Chairman, and CEO)
I would say caustic pricing is moving down globally. You know, that's why it's become the weaker side of the ECU, and that's why we adjusted our participation, you know, decline. We've taken our outlook there into account in our forecast, and that's included in that range of 1.6-1.9.
Operator (participant)
Thanks a lot.
Scott Sutton (President, Chairman, and CEO)
Sure.
Operator (participant)
The next question comes from Matthew Blair from Tudor, Pickering, Holt & Co. Please go ahead.
Matthew Blair (Managing Director, Equity Research)
Hey, good morning. Thanks for taking my questions. Scott, I just wanted to follow up on your comment a few questions ago when you talked about you can make value when there's a level of imbalance between the two sides of the ECU. Should we assume or can we assume that that level of imbalance was actually pretty tight in Q1 given that the caustic flip to the weak side? I guess, how is that trending in Q2, and what are your expectations? Do you think that level of imbalance will widen as we progress throughout the rest of the year?
Scott Sutton (President, Chairman, and CEO)
Yeah, I mean, thanks for the question. I mean, I think as the global landscape changes, you know, there's likely to be more imbalance as opposed to less imbalance, right? I mean, where the landscape is weaker, at least for Olin's outlook, is when there's balance between the two sides. You know, at the first part of the quarter, you know, it looked like PVC and vinyls were actually, you know, going to get a little stronger, but that was, you know, a bit false, and maybe that trend has moderated some. You know, now you see the global demand for caustic sort of softening a bit. Things are changing. When things are changing, there's likely to be some imbalances.
We have the ability to go out and, you know, manage some global liquidity, do some parlaying to accelerate or decelerate the timing of where those imbalances happen. You know, I don't know that it'll necessarily be a lot more, but as things change, there'll be opportunities. It's been pretty stable, I would say, if you look back over the last six to nine months, more stable than maybe it's been in a very long time.
Matthew Blair (Managing Director, Equity Research)
Okay. Sounds good. Then I had a question on slide 9. You showed the parlay volumes at, what I think is a record 16%, which I thought that happened when caustic prices in your system were moving down. That same slide shows caustic prices moving up quarter-over-quarter in Q1. Could you help us just understand what's going on there?
Scott Sutton (President, Chairman, and CEO)
Yeah, sure. I mean, in January, our Blue Water Alliance joint venture started operation. Remember the point of that joint venture is to go out and do more trading, more parlaying, more management of global liquidity that is to the partners' benefit. As a percent of our total volumes, much more of it came from trading and parlaying, and that's why it jumped up to 16% of our total sales volume.
Matthew Blair (Managing Director, Equity Research)
Okay. Thank you.
Scott Sutton (President, Chairman, and CEO)
Sure.
Operator (participant)
The next question comes from John Roberts from Credit Suisse. Please go ahead.
John Roberts (Senior Equity Research Analyst, Chemicals)
Yes. Thank you. On slide nine, the ECU netback declined sequentially from $287 down to $262. Almost all the chlorine caustic products went up sequentially. Epoxy was big enough and declined enough that it offset all the gains in the other products sequentially?
Scott Sutton (President, Chairman, and CEO)
Yeah. I mean, John, Epoxy was a big driver of that because, you know, per ECU, you know, there was less delivery of contribution profit. In Epoxy, not only do you have price declines, but you have volume declines as well. You get the impact of volume and price coming through there. Even within core Alkali, you know, a lot of it has to do with the mix of products as well. For all those reasons, that's why it came down.
John Roberts (Senior Equity Research Analyst, Chemicals)
That's a variable contribution. The volume shouldn't play into there, right?
Scott Sutton (President, Chairman, and CEO)
No, no, it will. I mean, it could because here's what it is. It's the total contribution profit that this company delivers divided by the total number of ECUs that we sell.
John Roberts (Senior Equity Research Analyst, Chemicals)
Okay.
Scott Sutton (President, Chairman, and CEO)
The ratio of volumes between different products can impact that a lot.
John Roberts (Senior Equity Research Analyst, Chemicals)
All right. Then are you surprised, given the housing market weakness that caustic has actually flipped to the weak side here?
Scott Sutton (President, Chairman, and CEO)
Well, I think caustic is actually flipping to the weak side. I mean, housing is certainly off, but, you know, you also have movements in the caustic demand market as well.
John Roberts (Senior Equity Research Analyst, Chemicals)
Okay. I just historically more housing would have driven, which is strong, weak versus general industrial, I think, but.
Scott Sutton (President, Chairman, and CEO)
Yeah. John, Claire, maybe I misunderstood your question. You asked me if I was surprised that caustic hasn't become weak.
John Roberts (Senior Equity Research Analyst, Chemicals)
No, that it flipped to the weak side, that's there. Usually with a weaker housing market here, we'd have a, you know, caustic as the strong side.
Scott Sutton (President, Chairman, and CEO)
Yeah.
John Roberts (Senior Equity Research Analyst, Chemicals)
Which is what we've had until recently.
Scott Sutton (President, Chairman, and CEO)
Yeah, yeah. Look, I mean, you got to remember, you know, caustic is also, you know, globally traded, right? If, if PVC demand, you know, goes down even more, our actions to flip our approach to the market, along with maybe a shortfall in caustic supply could redirect that. That's not impossible. I mean, to your point, traditionally, that's the way it would go. We've taken actions to support our caustic pricing. Then there could be market impacts that, you know, return to you know, traditional ways such that it may be another force that's lifting, you know, caustic price.
John Roberts (Senior Equity Research Analyst, Chemicals)
Thank you.
Scott Sutton (President, Chairman, and CEO)
Sure.
Operator (participant)
The next question comes from Angel Castillo from Morgan Stanley. Please go ahead.
Angel Castillo (Executive Director, Mid-Cap Chemicals and Packaging Equity Research)
Hi, good morning, and thanks for taking my question. Scott, just wanted to, you know, maybe dig a little bit deeper on the second quarter. I think the commentary has generally indicated just extremely weak markets. I think last night we also saw trade sources sell April for caustic down more than expected and lower their estimates for 2Q and 3Q for both caustic and the ECU margin. Just curious, you know, in the past, you've given for some of these quarters a range of what your expectation is of percentage EBITDA decline.
Curious if you could give the same, you know, just way of kind of clarifying what slightly lower than 1Q means, and in that sense, giving a kind of a guardrail for, you know, what the downside or upside risk is, versus your expectations?
Scott Sutton (President, Chairman, and CEO)
Yeah. Yeah. Yeah, Angel, I mean, I would just say, you know, slightly lower means, you know, a little bit lower is the reality. And we have, you know, taken into account, you know, the current negative momentum in caustic pricing. In fact, you know, we readjusted our market positioning to dampen that some and likely strengthen the other side of the ECU. We've just taken all that into account. I would just say, remember when we were in the fourth quarter, you know, we said the first quarter might be slightly down, too, you know, if you need some guidance for the second quarter.
Angel Castillo (Executive Director, Mid-Cap Chemicals and Packaging Equity Research)
I guess, you know, as I think about it for as we kind of move through the, through the second quarter, it sounds like you are kind of accounting for some of this weakness. Just curious, have these plants that have been under turnaround, it seems like there's a pretty large amount in term of maintenance activity in the current market. It's surprising, I guess, that the caustic market is so weak given given the degree of turnaround. Just curious, as those plants come back online, it sounds like you are kind of enforcing your parlaying activity a little bit more. Curious, do you, do you see enough flexibility to offset that? I think as those plants kind of re-return into the market, and how do you kind of see the degree, again, of downside risk?
Like, slightly lower doesn't necessarily feel like you feel like there's a lot of risk that, you know, as plants restart and given the current demand that, you know, things can move materially lower. Curious what gives you confidence in that.
Scott Sutton (President, Chairman, and CEO)
Well, you know, I mean, we feel okay about slightly lower. You know, I don't think anyone should be surprised that, you know, caustic pricing has started coming down, right? I mean, PVC was chased hard for a while. In China, you know, caustic exports have been pretty extensive, much more than normal. You know, that certainly didn't help the caustic world. I think if there's one piece of good news, it's that those export prices of caustic out of China have sort of flattened. The reason that they're flattening now is that the China ECU producers, right, were not getting value for chlorine. In fact, they were paying customers to take chlorine. That was to be able to chase things. When they chased them, market pricing eventually came down on caustic.
All of a sudden, to be in an ECU business, you have to be willing to attach $100 bills to every shipment that's going out of China. Even they're not willing to do that. Finally, you see that moderate, and perhaps that means something different in the future.
Angel Castillo (Executive Director, Mid-Cap Chemicals and Packaging Equity Research)
Got it. Maybe ask a different way. You raised the low end of your 2023 guidance from $1.5 billion to $1.6 billion. Just given the backdrop that you've kind of described, I would, you know, what is kind of the step change that gives you confidence that we won't see something closer with a $1.5 billion rather than a $1.6 billion? Like, what's kind of changed in the past quarter that gets you that?
Scott Sutton (President, Chairman, and CEO)
I think what gives us confidence there is we just printed one quarter, and we just gave a forecast for the second quarter that is just slightly lower.
Angel Castillo (Executive Director, Mid-Cap Chemicals and Packaging Equity Research)
Got it. Thank you so much.
Scott Sutton (President, Chairman, and CEO)
Okay. Thank you.
Operator (participant)
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.
Scott Sutton (President, Chairman, and CEO)
Yeah. Yeah. I would just say, you know, thanks a lot to everybody for joining the call. Thanks.
Operator (participant)
Thank you for attending today's presentation. You may now disconnect.