Chemicals manufacturer Olin (NYSE:OLN) Corporation could struggle next year if the price of caustic soda and chlorine fall, according to analysts at UBS.
The firm downgraded Olin (NYSE:OLN)’s stock to Neutral from Buy and lowered its price target to $53 from $68. Shares of Olin traded 0.5% higher Tuesday afternoon at $49.47.
“2023 earnings are impacted by slower demand and recent 2Q update of higher turnaround costs,” analysts wrote in a note to clients Tuesday. “However, 2024 estimates now assume a weakening in caustic prices Y/Y, which in our view could offset a significant portion of volume/earnings recovery in other markets.”
Over the past 2 years, caustic prices have risen from about $650 per ton in the first quarter of 2021 to a $1,250 per ton peak in the fourth quarter of 2022. Chlorine prices similarly increased due to what the analysts called Olin’s “price over volume strategy.”
To that point, analysts noted that over the past couple of years, Olin has handled weakening prices by reducing capacity, but they expect that to come to an end.
However, prices have begun to come down to about $1,100 per ton. UBS estimates that will sink to $900 by the end of 2025, which would be a -25% premium compared to Olin’s 2017-2021 contract average.
“OLN has less ability to influence caustic prices vs chlorine in our view, which presents spread risk that could clash with demand improvement,” analysts added.
Contact Andrew Kessel at andrew.kessel@proactiveinvestors.com
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