Market and product

Compiled by Bao Hien

Major US chemical producers Olin and Westlake reported lower third-quarter profits, as the chlor-alkali industry prepares to replace asbestos diaphragm technology under environmental regulations, a transition that could cost billions of dollars.

The US chlor-alkali industry is facing pressure from both weakening market demand and the need to upgrade production technology. The sector produces chlorine and caustic soda (sodium hydroxide) through the electrolysis of brine, supplying essential raw materials to industries such as PVC manufacturing, water treatment, paper, alumina and other chemicals.

Because chlorine and caustic soda are produced simultaneously in fixed proportions, manufacturers' profitability depends on demand for both products. When either market weakens, producers have limited flexibility to adjust output independently to offset changes in prices or demand.

Olin's profits fall despite higher selling prices

On October 29, Olin reported third-quarter net income of $14.4 million, down nearly 66% from $42.8 million in the same period last year. Revenue edged up from $1.713 billion to $1.748 billion, while adjusted EBITDA fell from $222.4 million to $191.4 million.

In its Chlor Alkali Products and Vinyls segment, revenue declined from $924 million to $850.8 million, while segment earnings fell to $71.3 million from $127.6 million a year earlier. Higher selling prices for caustic soda and ethylene dichloride (EDC) were insufficient to offset lower production volumes. The decline was partly attributable to the termination of a joint venture at the end of 2025 and reduced output of vinyl chloride monomer (VCM), a key feedstock for PVC production.

An operational disruption at Olin's VCM plant in Freeport, Texas, also had an adverse financial impact of $32.1 million through higher costs and lost revenue.

Chief Executive Officer Ken Lane said domestic electrochemical values remained stable despite weak global demand. However, the company expects fourth-quarter adjusted EBITDA of just $80–100 million. The outlook reflects seasonal factors, customers' year-end inventory reductions, higher raw material costs, subsidized exports from Asia and several major maintenance shutdowns.

At the end of September, Olin's net debt stood at approximately $2.8 billion, equivalent to 5.2 times its trailing 12-month adjusted EBITDA.

Against this challenging business environment, Olin and Huntsman are advancing plans for a merger of equals to form a new company, OlinHuntsman. Announced in June 2026, the transaction has received shareholder approval from both companies and passed the waiting period under US antitrust rules. Remaining regulatory approvals are still being pursued, with completion expected in the first quarter of 2027.

Westlake faces pressure from the European market

On November 4, Westlake reported third-quarter revenue of $2.98 billion, down approximately 9% from the second quarter but up around 5% year on year. Net income was $6 million, compared with $260 million in the previous quarter. Excluding items identified separately by the company, including costs associated with facility closures and restructuring, earnings amounted to $58 million.

The Performance and Essential Materials (PEM) segment, which includes chemical and essential materials operations, generated revenue of $1.894 billion, down from $2.02 billion in the second quarter. According to Westlake, the European chemicals market remained weak due to high energy costs, subdued demand and rising imports from Asia.

Average selling prices in the PEM segment declined 8% from the previous quarter as price increases implemented during the early stages of the Middle East conflict began to moderate. Nevertheless, prices remained above year-earlier levels and showed signs of strengthening again in the fourth quarter.

Technology transition could cost billions of dollars

Alongside market pressures, US chlor-alkali producers must also replace electrolysis technology that uses asbestos diaphragms.

Under regulations issued by the US Environmental Protection Agency (EPA) in 2024, the manufacture and import of chrysotile asbestos diaphragms for the chlor-alkali industry have been prohibited since May 28, 2024. Existing diaphragms must be phased out by May 28, 2029 under the standard transition schedule. Certain facilities may qualify for extended compliance periods of up to eight or 12 years, subject to specific EPA requirements and the alternative technologies adopted.

EPA documents identify five facilities designated for transition to asbestos-free diaphragm technology: two operated by Olin, two by OxyChem and one by Westlake. Compliance schedules vary according to the facility and the technology selected.

Olin has asked the EPA for a two-year extension, until May 28, 2031, to develop its Olin Sustainable Diaphragm (OSD) technology, which is designed to eliminate both asbestos and per- and polyfluoroalkyl substances (PFAS). Under the company's plan, expanded fiber production is expected to be completed by the end of 2026, followed by full-scale testing by the end of 2027 and initial deployment from 2028.

Olin said that without an extension, it may have to install asbestos-free diaphragms containing PFAS, which are expected to have an operating life of 15–20 years, or shut down its Chlorine-5 production line in Freeport. The line has annual capacity of approximately 920 million pounds of chlorine and 1.012 billion pounds of caustic soda, equivalent to around 417,000 tonnes of chlorine and 459,000 tonnes of caustic soda.

According to Olin's estimates, converting all its facilities to ion-exchange membrane technology would cost more than $3 billion. The company said there are currently only three suppliers of this technology, all based outside the United States. Olin also estimates that it accounts for approximately 35% of US chlor-alkali capacity. These figures and assessments were presented by the company in its petition to the EPA; the agency has not yet announced a decision on the requested extension.

These developments highlight the multiple challenges facing the US chlor-alkali industry: weakening chemical demand, competition from Asian suppliers, high energy costs in Europe and substantial investment requirements to comply with environmental regulations. In response, mergers, closures of less efficient facilities and the adoption of alternative technologies are emerging as key industry adjustment strategies.