Olin Announce Further Cuts in its Diaphragm-Grade Chlor-Alkali Capacity in Louisiana

In order to leverage stronger markets, Olin, the world’s largest chlor-alkali producer, is reducing its participation in weaker markets where there are high costs and low-return output. In lieu of that, on May 18th, Olin announced to permanently shut down 20% of its diaphragm-grade chlor-alkali capacity at its Plaquemine, Louisiana facility. The facility is largely into the manufacturing of diaphragm-grade chlorine and sodium hydroxide or Caustic Soda. The closure is expected to be completed by June 1, 2021 and is expected to be a cash flow accretive, as stated in the company’s press release.

The latest capacity reduction would cut the output by 225,000 ECU (electrochemical unit) tons, Olin stated. The company has made a paradigm shift since the appointment of Scott Sutton as CEO in September 2020. As a part of its strategy, the company is focusing on stronger markets where demand for the product is robust while it is moving away from weaker markets like poor quality Diaphragm-grade Caustic Soda. The overall Caustic Soda demand witnessed a slight spike only in Q2 after staying stagnant for more than one and a half year.

Following that strategy, Olin has already shut down its diaphragm-grade chlor-alkali capacity at its McIntosh, Alabama facility in March this year, which amounted to the reduction of 200,000 ECU Tons of diaphragm-grade combined caustic soda/chlorine capacity. While the planned shutdown of 230,000 ECU tons chlor-alkali capacity at its Freeport, Texas facility will happen in the second quarter this year.

CEO Scott Sutton after the announcement on 18th May, commented that, “This is the next step on our path to exit high-capital, low-return diaphragm ECUs and redirect Olin's cash generation model toward our transformative Parlaying and Structuring phases”. He also noted during the company's Q1 2021 earnings call on April 28 that shutdown announcements involved underused assets.

Olin Corporation started in 1892 as a small blasting powder supplier in East Alton, Illinois. Over time, the new Olin has grown and expanded to encompass several complementary business units, among them Olin Chlor Alkali Products & Vinyls and Olin Epoxy. In 1931, Olin brought Winchester into the fold; the leading manufacturer of ammunition in the United States. In total, these businesses employ 8,000 professionals in more than 20 countries with customers in nearly 100 countries all over the world.

Caustic Soda and chlorine are manufactured mainly through either the membrane or diaphragm process, with “membrane-grade” Caustic Soda often sold at a higher rates than “diaphragm-grade” because of its purity and lower levels of salt and iron present as impurities. The membrane process of manufacturing Caustic is considered environmentally safer than the diaphragm process. Out of major US Chlor-Alkali producers, Olin, Westlake Chemical and OxyChem, the chemical division of Occidental Petroleum, make both Caustic grades while Shintech and Formosa Plastics USA, produce only membrane-grade Caustic Soda.