Earnings Call Transcript
OLIN Corp (OLN)
Earnings Call Transcript - OLN Q2 2022
Operator, Operator
Good morning, and welcome to Olin Corporation's Second Quarter 2022 Earnings Conference Call. All participants will be in listen-only mode. Following today's brief opening comments, there will give an opportunity to ask questions. 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, Andrew. 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 second quarter earnings press release. A copy of today's transcript and slides will be available on 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's CEO; and Todd Slater, Olin's CFO. Scott will begin with some brief remarks, after which we will be happy to take your questions. I'll now turn the call over to Scott Sutton.
Scott Sutton, CEO
Yeah. Thanks, Steve, and good morning to everybody. The Olin team did a great job delivering the highest quarterly EBITDA in our history, and delivering the fourth quarter in a row where EBITDA was $700 million, plus or minus, even though global economic conditions declined. We did what we said we would do. We ran our model of leadership and accelerated our reduction of Olin share count without adding debt to our investment grade balance sheet. Still, many imagine us all the way down in the earnings and free cash flow gutter in the imminent recession. So I will solely focus my remarks on what Olin looks like in a recession, and then on why Olin is a good investment in any event. So let's go back and revisit the recession, EBITDA and free cash flow slide from our first quarter earnings call shown here as slide number 4. Starting on the left-hand side of the slide, from our $2.8 billion EBITDA 12-month run rate, it is certainly not impossible that the CAPV business experiences lower, longer-term operating rate reductions as we focus on maintaining the value of our products through a recession. The associated percent drop in CAPV EBITDA could be like what our Epoxy business is experiencing. The combination of the two business performance reductions results in a $1 billion EBITDA drop. The right-hand side of the slide seems to be more interesting to most Olin followers. Starting from the 2020 EBITDA result of $636 million, the three line items that we don't expect to repeat in a recession under the new model are low core-in pricing, selling cash-negative EDC and Winchester operating in a significantly smaller demand structure. All three line items seem to be well accepted. The fourth upside line item called other structural change needs some clarification though. Included in that upside line item are the materialized fixed cost reductions for the closure of 865,000 ECU tons of chlor alkali production, an updated epichlorohydrin positioning, maintaining part of the improved epoxy pricing under our new model of value, an improved VCM contract arrangement, and gains from multiple alliances. In this recession scenario, Olin still generates $7 per share or more of levered free cash flow. In fact, we welcome the opportunity to further reduce our share count right through the middle of a recession. Obviously, we're bullish on Olin. Slide number 5 shows why. We're the leader in every one of our businesses, and we run a model that looks around corners so we can position for the future today. So, said differently, we take difficult actions early in the cycle. Part of that positioning is to temporarily reduce participation in markets with poor future quality indicators. Our curtailments in Epoxy and associated upstreams at Freeport and Brazil, as well as an EDC and Freeport continue today. Both Epoxy and EDC represent weakness on the chlorine side of the ECU. Accordingly, we match our market participation to the weak side of the ECU. This is a fundamental change to our positioning from prior periods. Additionally, we expect to curtail epoxy and associated upstreams again stated Germany late in the third quarter, in part due to the European energy situation. Our complete company strategy changed from heavy volume to nimble value along with the currently understated equity valuation positions us to buy up to 20% of our outstanding shares in a year even in a weak economic cycle. Our new $2 billion share repurchase program reflects our Board's confidence in Olin's future earnings and cash flow generation. With our solid balance sheet and strong cash flow, the company is well positioned to execute on this attractive opportunity to invest in Olin. So, that concludes my opening remarks. And Andrew, we're now ready to take questions.
Operator, Operator
We will now begin the question-and-answer session. The first question comes from Hassan Ahmed with Alembic Global. Please go ahead.
Hassan Ahmed, Analyst
Good morning, Scott.
Scott Sutton, CEO
Good morning.
Hassan Ahmed, Analyst
Very helpful slides, obviously, particularly you guys brought it up in Q1, and again in Q2 on the recession side of things. Look, as I take a look at your Q3 guidance and what's implied for Q4, the Q4 sort of implied guidance range seems to be an EBITDA of $420 million to $620 million, right? And if I take the lower end of that guidance range for Q4, again, for 2020, I annualize that that's slightly north of $1.6 billion, which kind of falls on the lower end of your trough guidance range of $1.5 billion to $2 billion. So, my question really is, what are you guys seeing in your order books to, I guess, imply that sort of guidance for Q4? I mean are you seeing some sort of imminent recession, or is that you guys being conservative as it pertains to the last quarter of the year?
Scott Sutton, CEO
Yes. Thanks Hassan. Yes, I mean, look, Q4 is a bit different than some of the other quarters. We traditionally face some slowdowns and then we do some purposeful things like really close down Winchester for a couple of weeks at the end of the year. So, naturally, Q4 is really one of our lower quarters. I will just say that I know maybe the essence of that question is trying to get to 2023 and the outlook there. And I'll just say we're taking a cautionary approach there. And we are basing our outlook and our plans on some sort of a recession that seems to be materializing. And we're seeing some weaker demand, particularly in the vinyls chain, and continuing in Epoxy.
Hassan Ahmed, Analyst
Very helpful, Scott. And as a follow-up, could you just give us an update on the progress of growth vectors that you guys identified earlier? In particular, on the sort of PVC joint venture side of things, companies like Orbia have come out, talked about potentially sort of considering sort of joint venturing in the PVC domain. So, any updates on that would be helpful.
Scott Sutton, CEO
Yes, sure. I mean I would say the one that is furthest along and we're moving into the phase of regulatory approval is our blue water joint venture with Mitsui, where we become basically the largest manager of liquidity in the world. So, we need another six months or so probably to get that operational. In terms of the vinyls venture, we continue to work on that, Hassan, and we're making progress. We probably need a couple of quarters before we get to something that we can announce there.
Hassan Ahmed, Analyst
Very helpful Scott. Thank you so much.
Scott Sutton, CEO
Sure.
Operator, Operator
The next question comes from Jeff Zekauskas with JPMorgan. Please go ahead.
Jeff Zekauskas, Analyst
Thanks very much. Can you talk about the state of the Epoxy market and what your Epoxy volumes were like in the second quarter relative to the first?
Scott Sutton, CEO
Yes. Hey Jeff. Yes, I mean in epoxy, our volumes in the second quarter actually declined from the first quarter. In fact, we ran the lowest volume quarter in the history of the business. The big driver there, Jeff, is China. I mean China is at least 50% of the world's consumption of epoxy, consumption has declined much more than supply decline. And essentially, China has flipped its trade flows and has effectively become a net exporter of epoxy and epichlorohydrin and a lot of that material is moving into Asia. Consequently, all of that material that is already produced in other parts of Asia is moving into Europe and into North America. Now we all know this is a temporary situation, but it is incredibly dramatic and effectively, we're running that business. You can think of it as 50% sort of asset utilization and we're taking those difficult choices and making those asset and market moves to make sure we preserve value through this time. It just really doesn't get much worse than this. This is sort of beyond what you would expect out of a recession when you combine the European situation as well.
Jeff Zekauskas, Analyst
Can you discuss the cost of demand and whether it seems to be stable? Also, what are the differences in caustic prices and tightness between the United States and Asia?
Scott Sutton, CEO
Yes. I think demand is okay, Jeff. I mean I think the more interesting part of that whole discussion goes all the way back through the ECU and back to the vinyls chain. What's happening with PVC pricing declining, perhaps PVC demand declining. The key PVC producers, they're sort of in these tweaks in between worlds right now where caustic values are very good in part to Olin's actions. And so, sort of running their businesses to take advantage of that and putting even more vinyls into the marketplace, which is further driving down price. That can't hold very long. Pretty soon, that will flip to where vinyl production is reduced and then caustic supply-demand fundamentals get even better than they are today, and that's our expectation.
Jeff Zekauskas, Analyst
Okay. Great. Thank you so much.
Operator, Operator
The next question comes from Aleksey Yefremov with KeyBanc Capital Markets. Please go ahead.
Aleksey Yefremov, Analyst
Thanks, and good morning, everyone. Scott, can you just talk about volumes for I guess, the chlorovinyls business in the third quarter versus second. What's the ballpark? How much is it going to be down?
Scott Sutton, CEO
Yes. Hey Aleksey. And so, you've seen the announcement that we made, of course, where we said we were going to curtail our EDC production, and of course, that has an upstream impact on our ECU production as well at our Freeport, Texas facility. And so, our production is going to be significantly reduced. Our market participation doesn't necessarily reduce as much as our production decline because we do go out and access liquidity that's available in the marketplace. So, we're taking two steps there at the same time. One, we're reducing our production. Two, we're accessing liquidity that is available in the marketplace, still our participation is lower than it was in the first quarter and fourth quarter of last year. And we're doing that in order to support the value of our EDC. So it's down some. That's the one item on our chlor alkali chain, where we're working to preserve value as much as we can, but still prices declined.
Aleksey Yefremov, Analyst
Okay. Thanks a lot, Scott. The $2 billion buyback program, how are you thinking about the timing of something between 12 or 24 months? And also, would you consider increasing leverage to kind of hit that buyback number, or is this entirely from available free cash flow?
Scott Sutton, CEO
Yes. I mean I'll start with the back of that question first. And look, our intention is to buy shares out of our levered free cash flow. So we take as much of that as we can and repurchase shares. So knowing that, that is generally our intention. If you think about the first half of this year, we probably bought back about 8% of our outstanding shares, and you should expect us to do something similar to that in the back half this year. And then we'll continue on into 2023. So that's the kind of run rate you might see.
Aleksey Yefremov, Analyst
Great. Thanks a lot.
Scott Sutton, CEO
Yes.
Operator, Operator
The next question comes from Arun Viswanathan with RBC. Please go ahead.
Arun Viswanathan, Analyst
Great. Thanks. So you also mentioned, I guess, in the release that you'd likely see a reduction in rates at start as well. And so does that mean that you kind of flip back and increase the rates at Freeport? Could you just update on how you're thinking about managing through this higher energy cost environment, and some of those demand trends that you're seeing there?
Scott Sutton, CEO
Yes. Sure. I mean when and if we take that action later here in the third quarter, I mean, we'll balance some of that with ramping up production at our other sites. But still, in this time period, this third quarter and moving into the fourth quarter, I mean you're going to see us run our overall system in Epoxy still at very, very low rates as we reduce our participation. Lots of areas of that market are still pretty poor quality.
Arun Viswanathan, Analyst
Thanks for the follow-up. You mentioned that China has changed its trade flows in epoxy, and I'm curious if you're worried about this regarding caustic or other chlorine products. If your outlook anticipates potentially higher caustic margins or ECU margins due to reduced operating rates from chlorine weakness, do you think more exports will be directed to the West Coast or the East Coast due to higher returns? Is that a possibility? Also, regarding the 865,000 tons of closures, are you satisfied with that number? Does it adequately address your high-cost capacity, or do you anticipate taking further action in that area? Thank you.
Scott Sutton, CEO
Yeah. Sure. I mean, look, what you described has already been happening. I mean, with the slowdown generally in China demand relative to production, we've already seen additional caustic exports out of China, just like there's been a lot of extra PVC exports as well. So that has been going on. And our model is already adapted to offset that exposure. And we've seen those flows come in, and we're working around flows. And still, we go out in certain cases and purchase some liquidity out of the global market space and maybe move it to a different area. I mean, look, with regard to the 865,000 ECU tons, and just as a reminder, that 865,000 ECU tons included shutting down the remaining 200,000 tons of ECU capacity that is diaphragm based in McIntosh, Alabama. And we have already accomplished that. In fact, we pulled it forward, so all of the diaphragm capacity is down in McIntosh, Alabama. We'll have to see we're satisfied with that. I mean, certainly, that's made a difference in our ability to be nimble and drive for value. But that number has taken us to a reasonable point for now. There's always other options.
Arun Viswanathan, Analyst
Okay. Thanks.
Operator, Operator
The next question comes from Mike Sison with Wells Fargo. Please go ahead.
Mike Sison, Analyst
Hey guys. So in terms of the third quarter, if you got the volume that you're willing to walk away from, would your EBITDA be higher or lower or about the same?
Scott Sutton, CEO
Hey Mike, this is Scott. So let me make sure I understand your question. You're saying, if we were to get the volume that we are instead making proactive decisions to walk away from what would be the outcome on EBITDA relative to what we forecasted?
Mike Sison, Analyst
Yeah.
Scott Sutton, CEO
Yeah, yeah. Well, look, I mean we're purposely not participating for a reason, right? So if we were to go out and grab that volume, it would be exactly counter to what we're trying to achieve. It's not impossible that we could accomplish that and have significantly higher EBITDA in the quarter, but it wouldn't be the right thing to do for 2023 in the back half of this year.
Mike Sison, Analyst
Got it. Okay. When I look at your ECU PCI continuing to rise, does that trend reverse? What do you anticipate for the second half of the year?
Scott Sutton, CEO
Yeah. I mean, look, I'll let Todd kind of comment on this in just a minute. There's clearly some things we have, there is opportunity for pricing to move down. However, fundamentally, I would say that most of our prices are going to move up so that if you saw a change in that, it likely be predominantly from mix or the impacts of our vinyls chain. Todd, help me on that.
Todd Slater, CFO
No. That's right, Scott.
Mike Sison, Analyst
Great. Thank you.
Operator, Operator
The next question comes from Frank Mitsch with Fermium Research. Please go ahead.
Frank Mitsch, Analyst
Hey, good morning and nice results. I was curious about Winchester. I saw that you're guiding 3Q to be down due to higher costs. Typically, Winchester has its best quarter in the third quarter. So does that imply that you've basically been running flat out here in the second quarter? And so there's not much more that you can get from a volume perspective, and it's really just a function of the higher input costs? Is that how we think about it?
Todd Slater, CFO
Hi, Frank, it's Todd. We expect that volumes in Q3 will be similar to Q2. Given the current demand environment, this is how Winchester should operate. We have a high degree of confidence in our commodity hedges, but we anticipate that our commodity costs in the third quarter will be higher than in the second quarter. This presents a short-term headwind for us.
Frank Mitsch, Analyst
Thank you for your help. Referring to Slide 4, I want to clarify my understanding. If you were to operate your chemical assets at 50% for a whole year, should we anticipate EBITDA to be around $1.5 billion? Is that the correct interpretation?
Scott Sutton, CEO
I would say in the range of $1.5 billion to $2 billion. If a severe recession lasted for an extended period and we had to reduce everything to that low level, we would likely end up somewhere within that range. If that situation arose, we would be implementing various strategies to try to move us back up in that range. However, that is the potential effect that significant changes and drastic actions could have on Olin.
Frank Mitsch, Analyst
Very helpful. Thank you so much.
Scott Sutton, CEO
Sure.
Operator, Operator
The next question comes from Kevin McCarthy from Vertical Research. Please go ahead.
Kevin McCarthy, Analyst
Yes, good morning. Scott, if Germany went to Phase 3 of their energy contingency program. How do you think that would impact supply demand in the markets where you compete, and by extension Olin?
Scott Sutton, CEO
Yes. I mean, there'd be a direct impact on Olin, and then there'd be indirect and tertiary impacts likely. So I mean, look, the direct impact would be somewhat of a negative hit just because of our assets there. But as we've shown recently, we certainly have the ability to curtail those and still be okay. When you get to the secondary impacts, it's more than likely to increase product values and trade flows that move into Europe, and any increase in the product value of those trade flows is a positive for Olin.
Kevin McCarthy, Analyst
I appreciate that. Secondly, I wanted to ask about caustic soda pricing. In early July, you proposed an increase, and if some consultant notes are accurate, you doubled the proposed increase a week or two later in mid-July. Is that correct? If so, what prompted that decision? Could you provide more details on what you're observing in that market today?
Scott Sutton, CEO
Yes, that's generally accurate. We took that step because the product has more value in today's market. The driving factor behind this is the weakness in chlorine derivatives, including epoxy, polyurethanes, PVC, and their associated vinyl intermediates. This evolving weakness has shifted the dynamics of the ECU, with the caustic side being weaker than chlorine derivatives for many months. Now, however, chlorine derivatives are the weaker part of the ECU. We've adjusted our model accordingly and focused our market participation based on the current weakness in chlorine derivatives. At the same time, we anticipate an increase in the value of the caustic side, which is why we've raised our pricing.
Kevin McCarthy, Analyst
Perfect. Thank you so much.
Scott Sutton, CEO
Sure.
Operator, Operator
The next question comes from Steve Byrne with Bank of America. Please go ahead.
Steve Byrne, Analyst
Thank you. I have a couple of questions regarding your statement about being able to operate your assets at 50% rates for a year. What do you estimate your operating rates will be in the third quarter? Also, could you explain the importance of the one-year phase? Is there something inherent in running at that rate that may be unsustainable beyond just the financial implications?
Scott Sutton, CEO
Yes. Sure. I mean the only business that we really provided indications on where we're running is our Epoxy business. And we've said we're running that business pretty close to 50% operating rates. I would just say in our CAPB business that we're well above that level and have plenty of room there. The only significance in the one year is we were trying to demonstrate what is the lowest full year EBITDA that Olin might have in its future. So, we picked a pretty long recession scenario. In other words, one year where the global economy declined so much that we had to run at that rate every day for a full year. We're trying to be a bit conservative here because clearly Olin's equity value is driven by the view that under that kind of scenario, our EBITDA must be much lower than where we believe it is. So, we're just trying to present a compelling case that says we are good in a recession. And in fact, we can create value via a really good capital allocation right through the middle of that recession. So, that's the idea that's behind that 12-month window.
Steve Byrne, Analyst
And I also wanted to ask you just whether or not you're getting any collective criticisms from the municipal water treatment authorities on the price of chlorine. Anything going on there that's kind of unusual?
Scott Sutton, CEO
No, I wouldn't say that there's anything unusual. I think the real issue is that chlorine has only been moved up to call it $0.50 a pound. And for the value it provides and in the importance of the material that we directionally in that market got to move it toward dollar amount. So, that's the only criticism we have is our own that it's undervalued.
Steve Byrne, Analyst
Okay. Thank you.
Operator, Operator
The next question comes from Josh Spector with UBS. Please go ahead.
James Cameron, Analyst
This is James Cameron on for Josh.
Scott Sutton, CEO
Hi.
James Cameron, Analyst
So, are you looking to further reduce your utilization and close plants? Will there be a significant release of working capital?
Scott Sutton, CEO
Well, look I mean the working capital release should one occur would likely be at the face or the initial point of a slowdown. That's when you would see it. It's not necessarily associated with a curtailment or a shutdown. Those are generally not related.
James Cameron, Analyst
Okay. Thank you.
Scott Sutton, CEO
Sure.
Operator, Operator
The next question comes from Matthew Blair with TPH. Please go ahead.
Matthew Blair, Analyst
Hey, good morning. Scott, how are you thinking about the global cost curve for ECU in the second half of the year? We've seen a significant rise in European natural gas prices so far in July. Does that offer some price support for caustic and chlorine, or do you expect these demand factors to have a greater impact?
Scott Sutton, CEO
Yes. Thanks for the question. I mean generally I just don't think about it at all to tell you the truth. I mean we're focused on the value of ECUs for what they deliver in the marketplace and in the world. But I mean your point is relevant that as the energy complex and other costs and inflation in the world that may be different between the regions. So, you're right we can sort of point at Europe here. As that moves up, it certainly helps put what I'll call a psychological margin bottom or a floor on where the value of ECUs might be. So it's the trends that are happening are generally only favorable there.
Matthew Blair, Analyst
Makes sense. And then can we circle back to the Winchester guide for Q3, I guess, we're seeing copper and lead prices that are actually cheaper in July versus the Q2 average. So could you walk through exactly what commodity costs are causing the headwinds in Q3?
Todd Slater, CFO
Matthew, this is Todd. As you know, we do hedge our commodity costs, not just natural gas, but copper and zinc for Winchester for brass. And so a quarter out, we are very heavily hedged. We have a rolling four-quarter program. So because of our hedge positions, you just can't look at the, I'll say, the current month of the spot prices in the market and assume that will be the value that runs through our P&L. So we – again, we do have a high degree of confidence based on our hedges, our commodity costs and other material costs are going to be higher in the third quarter than the second.
Matthew Blair, Analyst
Sounds good. Thank you.
Operator, Operator
The next question comes from Angel Castillo with Morgan Stanley. Please go ahead.
Unidentified Analyst, Analyst
Hey, guys. This is Alyssa on for Angel. I'm just wondering if bolt-on M&A is still in the mix? And if so, what kind of opportunities are you looking at there? And how are valuations trending in this weak macro?
Scott Sutton, CEO
Yeah. Hi. I mean, it's definitely part of the mix. I mean, when we do think about our capital allocation program, I mean, we're going to – we take care of our dividend, there's a very limited amount of bonds that we'd like to pay by the end of the year, but that's capped at roughly $200 million. Most of that is going to go to share repurchase. There is some opportunistic small bolt-on M&A available. I'm doubtful that, there's a high chance that a lot of that would happen in the back half of this year. 2023 is not impossible. What is more likely is that, we continue to make progress on some of these alliances and joint ventures, which are very low capital endeavors. Todd?
Todd Slater, CFO
And maybe just to add a comment, Scott, as we look at bolt-ons or M&A activities, those investments truly need to compete with investing in Olin stock, and buying Olin shares back with directionally a 20% free cash flow yield. So the lens of M&A has to compete with that. And today, even though maybe multiples have come in a little bit, it's still a pretty high hurdle for that to compete with the Olin stock price.
Unidentified Analyst, Analyst
Understood. Thank you.
Operator, Operator
The next question comes from Eric Petrie with Citi. Please go ahead.
Eric Petrie, Analyst
Hey, good morning, Scott and Todd.
Scott Sutton, CEO
Good morning.
Todd Slater, CFO
Hi.
Eric Petrie, Analyst
I was wondering if you could comment a little bit your thoughts on the EPA's proposal to ban the best cell-based production. And in terms of Olin, would you take that as an opportunity to keep capacity flat or expand or reduce capacity?
Scott Sutton, CEO
There is currently a proposed rule for a two-year phase-out of all diaphragm asbestos-based chlorine production. This accounts for approximately 30% to 40% of the country’s ECU and chlorine production. If the EPA were to finalize this rule as it stands, it would severely impact the country, but I don’t expect that to happen. We’ve been actively involved in discussions around this issue and have pushed back against it. I believe the final rule will likely differ from the proposal. If it were to be implemented as suggested, it would necessitate shutting down large amounts of capacity, leading to significant changes in ECUs.
Eric Petrie, Analyst
Helpful. And then for my follow-up question, you're guiding third quarter EBITDA down 16% quarter-over-quarter, how would you bucket that roughly between volume price and higher costs?
Scott Sutton, CEO
Well, I think you see some elements of all of that and like Todd commented, where we have hedge positions and other things in cost some of that is well known because of the steps that we've announced to curtail some of our production. There's an element of that that is volume, which is offset by the material that we purchase and resell and pricing across more products than not are likely to increase a bit offsetting some of that as well. So, it's kind of a balance.
Eric Petrie, Analyst
Okay. Thank you.
Operator, Operator
The next question comes from Mike Leithead with Barclays. Please go ahead.
Mike Leithead, Analyst
Hey, thanks. Good morning, guys. First question I just wanted to follow up on a comment Todd made, but just given all the energy volatility can you just remind us your hedging position or just philosophy around locking in natural gas or electricity costs?
Todd Slater, CFO
Yes, thanks Mike. If you consider the energy landscape, about 70% of our power consumption in North America comes from natural gas, and we actively hedge our gas usage. Currently, we are well-hedged with a significant position already secured for the third quarter, and we are rolling into the fourth quarter with a flexible strategy for the following periods. As gas prices remain high, we expect to see an impact on our profit and loss statement due to increased energy costs. Conversely, if gas prices decrease, we can secure lower rates. Therefore, we anticipate higher power costs in our chemical operations for the third quarter.
Mike Leithead, Analyst
Got it. Makes sense. And then maybe just a second, I want to circle back to I think your answer to Jeff's question about Epoxy and China turning to a net exporter. And just – when you look at other chemical products or cycles when you see that happen, things do tend to get a bit sloppy for a bit of time. So can you just walk through your comfort that that's not the case for Epoxy or EPI right now and try as you say?
Scott Sutton, CEO
Well, no I would just say that it is already it takes for EPI and Epoxy. There is so much material that used to be imported into China that now because of the mismatch of China's internal consumption versus their production. Now that material that used to move into China does not anymore. Most of that material came from other Asian countries. Consequently those other Asian countries have been exporting that material to North America and to Europe. And that's been going on for a number of months. And that is why our Epoxy earnings came down. We've elected not to participate in that have our value remain where it is. And when that reverses, which it will reverse, we're left where our volumes return but the return at the pricing level that we had notched it up to.
Mike Leithead, Analyst
Great. Makes sense. Thank you.
Operator, Operator
The next question comes from Roger Spitz with Bank of America Credit. Please go ahead.
Roger Spitz, Analyst
Thank you and good morning. Can we have an update on your desire to actually achieve IG ratings and perhaps your share repurchase program announced suggests that you're not really chasing that.
Todd Slater, CFO
Hi, Roger, it's Todd. Obviously in the past Olin has been an investment-grade credit. We've been operating with investment-grade metrics since late last year. And as you can see from the recession scenario that we laid out on Slide 4. Frankly we can continue to operate with investment-grade metrics during a recession given the strong balance sheet earnings and cash flows of the business. So to your question about the share repurchase, I don't think that we are sacrificing any of our credit metrics on our share repurchase program. We understand the question about investment grade and we're going to continue to evaluate whether investment grade really should be an objective for Olin, given that the view is we can operate with those metrics in a recession as well as without.
Roger Spitz, Analyst
Great. And secondly, a number of the European chlor-alkali producers have been able to expand their spreads in the face of extraordinarily high electrical power costs. I wonder if you could speak to your chlor alkali on a non-integrated basis how your spreads have looked here in North America?
Scott Sutton, CEO
Yes. I would just say that they've been constantly expanding. And if you kind of refer to a chart we have in the appendix, it's the ECU PCI. It basically shows the expanding contribution margin there. So that is our variable margin, and it's been ever expanding over nearly the last couple of years. That's slide 9 in the deck, Roger.
Roger Spitz, Analyst
Got it. Thank you very much.
Scott Sutton, CEO
Sure.
Operator, Operator
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, CEO
Yeah. No. Thanks a lot. I would just thank everyone for joining us today, and we appreciate the questions. Thanks a lot.
Operator, Operator
Thank you for attending today's presentation. You may now disconnect.