Scott Sutton: The military side of that business now has become about as big in rough terms as the commercial side of that business. In fact, in the third quarter of 2023, it was actually bigger than the commercial business for the first time in history. So, I think a good way to think of it is, it’s sort of half and half from a sales perspective. It’s not quite as profitable as the commercial business, but that’s roughly the sizing of it. Yes. What was the second part of the question?
Mike Leithead: The presidential election.
Scott Sutton: Yes. I mean that kind of uncertainty along with other things that are out there in the marketplace. So I mentioned this challenge on propellant supply to the whole industry. Those two things coming together are likely to cause a run on ammunition.
Mike Leithead: And then second question, I want to parse apart, what are the comments or bullets you have in the slide deck, Slide 4? Well, I think you said customer requests for merchant chlorine has increased. Should we interpret that that customers are coming to you asking for more products, but not at a price or an economics you’re willing to sell at? Or can you maybe expand upon that a bit?
Scott Sutton: Yes. I think the way to interpret that is that when we pull back from the market some just because we’re running our initiative, we’re not going to participate in a poor quality market. After we did that, that caused some customers, some not even the same customers that we may have pulled back from to come ask for more volume. Again, it’s just an indication that we can have an impact by taking that kind of action. And it’s an indication that we had the opportunity to turn back on some of these assets though at a very, very incremental amount only and do some additional business.
Operator: The next question comes from Mike Sison of Wells Fargo.
Mike Sison: I guess just to clarify, if you would need to get your operating rates in calves between 60% and 70% at some point, maybe the second quarter and beyond to get to your guidance of $1.3 billion or better. And I mean, in demand there to do that, I guess, it’s a follow-up question or do you need demand to get better to do that?
Scott Sutton : Yes. Well, I don’t know that we need to get back to the levels that you spoke of. I mean, remember Winchester and Epoxy are going to do better and we expect CAPV to do incrementally better as well. I think adding anything back to our rates, maybe below the numbers that you spoke of gets us there. When you take that in combination with the fact that look we don’t have another $100 million penalty from not being able to run our VCM unit for a whole quarter, for example. So when you put those two things together, I don’t think we need to get there. By 2025, I think we need to be in the 60s.
Mike Sison: And then what — I’m just curious, what would prevent you from moving or operating itself? I mean, I know the consultants, they have ECU margins kind of down sequentially. They might not necessarily be right. But what would prompt you not to be able to raise your operating rates heading into 2Q?
Scott Sutton : Yes. Well, if we weren’t having success moving product values, then we would keep running this initiative. But we’re having success changing the direction of our product pricing.
Operator: The next question comes from Jeff Zekauskas of JPMorgan.
Jeff Zekauskas: Earlier in the call, you spoke of a large contract that can end in 2030. Did that customer indicate that they didn’t wish to renew?
Scott Sutton : What I would say is that’s the natural expiration of that contract. And we’re currently in a dispute with a very significant value lift opportunity. So we’ll just have to see where that goes by 2030.
Jeff Zekauskas: And then secondly, can you just compare general demand conditions in the cost caustic chain to the chlorine chain. And in your curtailment of production, are you making a larger difference to the chlorine side or to the caustic side and why?
Scott Sutton: Yes. Well, I mean, right now, Jeff, the chlorine and chlorine derivative side is weaker for us. So, we generally set our participation according to that weaker side. And so we’re having an impact. But more than likely, the bigger part of the impact will be on the stronger side because you end up really shorting that demand profile more.
Operator: The next question comes from Vincent Anderson of Stifel.
Vincent Anderson: So, maybe you have a different view, but it looks like China is probably still planning a fair amount of capacity up and down the Epoxy value chain over the next few years. So, to me at least it would appear that trade protections might be necessary even if we did see some amount of demand recovery. So, I guess to turn that into a question, are you still considering trade cases in Epoxy? And how important is sort of your renewed focus on fleshing out your derivative portfolio as a balance to the operating leverage on the base resin assets?
Scott Sutton: Yes, sure. I mean, no, we’re absolutely doing more than considering that, right. I mean, look, effectively this is illegal product trade flows coming into both Europe and the U.S. And this has to be stopped. And for some of the reasons that you said, it’s likely to continue. So, we’re absolutely going to pursue that. I think in terms of getting rates up, we’ve reduced our on the ground capacity quite a bit and we’re using our systems portfolio to get some operating leverage back across our base resin. I think that was the second part of your question.
Vincent Anderson: Yeah, it was. And very helpful. Thank you. If I could ask one other one, maybe too early on this, but we’re reading about the Chinese ramping up capacity of sodium ion battery production. I’m curious if you’ve seen any meaningful change in their sodium markets, whether that’s coming from the caustic side or maybe they’re using soda ash, but just anything you can shed a light on because it’s still a bit of a black box on our end?
Scott Sutton: Yes. And I probably can’t help that much on that specific of an item, right? But what I can say is the ramp up of battery production and battery recycling is probably the largest growth item we have across our Chlor Alkali portfolio. There is a demand for more caustic in many of those applications. There is also an additional demand for hydrochloric acid in those as well. So, it’s probably the premier growth item over the next 10 years in this business.
Operator: The next question comes from Matthew Blair of TPH.
Matthew Blair: So Slide 8 shows caustic holding as a strong side of the ECU again this quarter. I think in the past you said you like it when that gap is pretty wide. Could you talk about what you’re seeing in the market now? And is that gap widening out or is it narrowing?
