Olin Reports 1Q

Major chlor alkali producer Olin OLN reported decent first-quarter results that we believe could represent a high-water mark for 2009. Sales amounted to $401 million, essentially flat with the year-ago quarter. Operating income climbed to $61 million from $52 million in the first quarter of 2008. The key driver of the firm's first-quarter performance was lofty chlor alkali prices, as average electro chemical unit prices reached $765 for the quarter--a historical high for the company. These high ECU prices helped offset the negative effects stemming from low operating rates, which sank to 65% for the quarter. However, we regard these favorable ECU prices as being untenable, as the travails of key caustic soda consumers in the paper and aluminum industries and cheap Chinese caustic imports have begun to drive down North American prices. Sliding ECU prices bode ill for other major chlor alkali suppliers in our coverage universe, including Westlake WLK, PPG PPG, and Georgia Gulf GGC.