Chemtrade Logistics Income Fund (CHEUN) Earnings Call Transcript & Summary

Good morning. My name is Suzanne, and I will be your conference operator today. At this time, I would like to welcome everyone to the Chemtrade Logistics Income Fund Q1 2020 Results Conference Call. [Operator Instructions] Mr. Mark Davis, President and Chief Executive Officer, you may begin your conference.

Thank you, operator, and good morning, ladies and gentlemen. In these truly unprecedented circumstances, I hope you're all safe and well, and we thank you for joining us today. Before I commence the review, I would like to remind you our presentation contains certain forward-looking statements that are based on current expectations and are subject to a number of uncertainties and risks, and actual results may differ materially. Further information identifying risks, uncertainties and assumptions and additional information on certain non-IFRS measures referred to in this call can be found in the disclosure documents filed by Chemtrade with the securities regulatory authorities available at sedar.com. One of the non-IFRS measures we'll refer to on this call is adjusted EBITDA, which is EBITDA modified to exclude only noncash items such as unrealized foreign exchange gains and losses. For simplicity, we will just refer to it as EBITDA as opposed to adjusted EBITDA. Both of these terms are fully defined in our MD&A. COVID-19 has turned all of our worlds upside down. We are all affected in one way or another, and we send our sincere best wishes to all of you to stay safe and to stay healthy. As usual, Rohit Bhardwaj is on the call today, but due to the pandemic, we are doing this call virtually and are in different locations. Chemtrade, as you may be aware, falls under the essential business classification under the U.S. State and Canadian Provincial orders. Our employees' health and safety have been our highest priority as all of our operations have continued. We have implemented measures to ensure that our employees can continue their work safely and that we can continue to supply our customers. I would like to start this call by thanking each member of our workforce for their dedication and performance during these trying times. Specifically, I want to acknowledge and thank them for their adherence to all the safety precautions we've put in place, watching out for each other and their individual efforts in the communities where they live. They have truly been outstanding. On this morning's call, Rohit will provide a brief review of our first quarter results and an update on liquidity. As you will note from our news release yesterday, our Q1 results were not significantly affected by COVID-19. The focus on COVID and its future effects take our attention away from our first quarter results. Rohit will detail these. But from an operating sense, the improvements we implemented continue to bring benefits. SPPC sustained the improvements it realized in 2019. Our water business continued to improve, and our EC segment was affected by caustic pricing, which will, in time, turn in our favor. The focus and concern over COVID minimizes the many challenges the business faced and overcame in the first quarter. This includes the rail blockade, which received a lot of press in Q1, but was another issue overcome by the business. And again, thanks to the improvements we made and the efforts of our employees. Following Rohit's review, I'll have some comments on the current economic environment for Chemtrade and, to the extent we can, some comments on our outlook for the balance of the year. Rohit?

Thanks, Mark, and I hope everyone is doing well. Good morning. Before I comment on our first quarter results, I wanted to mention a noncash item that affected our results. As we mentioned for the last number of quarters, our water business continues to improve and is one of our businesses in which demand should not be adversely affected by COVID-19. Having said that, and despite continually improving results, COVID-19 has resulted in everyone facing increasing business risks and thus a higher imputed cost of capital. Due to this increased cost of capital, we were required to record a goodwill impairment in our water business of $56 million. This morning's discussion will exclude this noncash goodwill impairment charge. Looking first at the aggregate results for the first quarter of 2020. Revenue was $366.9 million, a decrease of $18.4 million from 2019. The revenue decrease was primarily due to lower volumes of sulphuric acid in the Sulphur Products & Performance Chemicals, or SPPC, segment and lower prices for caustic soda and hydrochloric in the Electrochem, or EC, segment. These decreases more than offset higher selling prices for sulphuric acid and higher sales volume for water products. Aggregate EBITDA for the first quarter of 2020 was $80.9 million compared with $44 million in the first quarter of 2019, which included a $40 million litigation reserve. For the first quarter this year, EBITDA for our businesses was $10.4 million lower than last year. And ignoring the litigation reserve, corporate expenses were $7.3 million better. Distributable cash after maintenance capital expenditures for the first quarter was $38.2 million or $0.41 per unit. As announced on March 11, effective with our March distribution, which was paid on April 30, we reduced our distribution rate to $0.05 per unit, making distributions declared for the first quarter $0.25 per unit. Now turning to segmented results for the quarter. SPPC generated revenue of $113 million compared with $131.1 million in 2019. EBITDA for the quarter was $34.6 million, which was $2.9 million lower than 2019. Selling prices from merchant sulphuric acid were higher this year. The higher prices for merchant acid allowed us to maintain our margins for acid products even though we received substantially less volume from our by-product suppliers. For the segment as a whole, EBITDA was slightly down from last year as the steady margins for acid products were offset by lower contributions from sodium hydrosulphite and sulphur. Our Water Solutions and Specialty Chemicals segment, or WSSC, reported first quarter revenue of $113.3 million compared with $105.4 million in 2019. EBITDA substantially improved to $25.7 million from the $18.1 million generated in 2019. Our water products continued to improve, contributing about half of the segment's year-over-year improvement. The improvement was driven by increased alum selling price and volume, while our raw material costs remained stable. Our other water products also enjoyed generally higher volumes and prices. During the first quarter, as a result of changes in the macroeconomic conditions, we did record a $56 million goodwill impairment charge. Although this CGU's operating performance had been improving, higher discount rate resulted in this goodwill impairment. Within the segment, specialty chemicals EBITDA was higher than 2019 primarily due to stronger results from phosphorus pentasulphide or P2S5. While our water products should continue to have success over the balance of the year, the outlook for P2S5 is not as positive as we expect demand for automotive lubricants, which is the end market for P2S5, for the balance of the year to be adversely affected by COVID-19. Our EC segment reported revenue of $140.5 million for the first quarter of 2020, which was $8.2 million lower than the same period of 2019. The lower revenue was due to lower selling prices for caustic soda and lower volume and prices for hydrochloric acid. Despite the end market diversification we have achieved, HCl volume continued to struggle due to the downturn in the fracking industry. From an EBITDA perspective, EBITDA of $32.9 million for the first quarter of 2020 was $15.2 million lower than the same period 2019. This was primarily due to lower selling prices for both caustic and HCl. Our Brazil operation also reported lower EBITDA compared with the same period last year. Maintenance CapEx in the first quarter were $11 million. Maintenance CapEx in 2020 is difficult to predict primarily because of the uncertainty of being able to find contractors to carry out the work due to the pandemic. If we are able to hire contractors, we estimate maintenance CapEx of about $80 million for 2020, although it is quite possible that we will not spend the entire amount. Excluding unrealized foreign exchange gains, corporate costs during the first quarter of 2020 were $12.4 million compared with $59.7 million in the first quarter of 2019. 2019 costs includes the $40 million litigation reserve. Even excluding this reserve, 2020 costs were $7.3 million lower primarily due to lower incentive compensation accruals. Turning to liquidity, which we know is high on everyone's agenda, we maintain ample liquidity. Between cash on hand and our undrawn revolving facility, we have approximately USD 200 million available as liquidity. Regarding debt maturities, we have no maturities in the next 12 months. Our senior credit facility does not mature until October of 2024. We are in compliance with all our bank covenants. Further, in light of the current uncertain economic climate, we have negotiated and amended the covenant package on our senior credit facility, which provides us with additional covenant room over the next 2 years. I'll now hand the call back to Mark. Mark?

Thanks, Rohit. Because it's so topical these days, I wanted to underscore what Rohit just noted, which is that we do not have any liquidity concerns and are in compliance with all of our bank covenants. Despite these uncertain times, we'll try to provide some relevant information about the balance of 2020. Recall that in early 2020, we issued guidance for the year that we have now suspended. At a high level, the midpoint of our guidance would have resulted in Chemtrade generating sufficient cash to satisfy all of our obligations and to cover our historical distribution rate of $1.20 per year. As we became aware of the potential economic effects of COVID-19, we moved aggressively to position Chemtrade for this downturn. After 13 years of maintaining a distribution rate of $0.10 per month, we reduced our monthly distribution by 50%. This increased our liquidity by about $55 million a year. Subject to all the uncertainties I will discuss, we expect that we will generate sufficient distributable cash during this unprecedented year to satisfy all of our obligations and to sustain our current distribution rate. The uncertainty of this pandemic makes it very difficult to estimate future earnings with any degree of specificity. This lack of specificity is what led us to withdraw our guidance. Since the chemical industry is an essential industry, our facilities have continued to operate. Our team has done an outstanding job throughout this pandemic operating safely, overcoming obstacles and keeping our customers supplied. In our case, it's not a question of whether we can continue to operate or whether there will be demand for our products. The question is how much will demand be affected by the shutdown or slowdown of much of the economy and how long will -- this may last. Although we are still in very uncertain times, we had now been through a couple of months of widespread restrictions and have had time to talk to our customers. While we will not yet be reinstituting guidance, we can make some comments on how the pandemic is affecting our business in the second quarter and how it may affect the balance of the year. At the highest level, our 2 largest concerns caused by COVID are its effect on the oil and gas industry and the ability for Chemtrade and its customers to perform maintenance turnarounds safely during COVID. Having said that, certain segments of our business, such as our products that help purify drinking water, are not suffering from reduced demand during the pandemic. Turning to some more specifics. In the outlook section of our MD&A, we set out the following. While we can no longer provide definitive guidance -- a definitive guidance EBITDA range, we can give you our current view of certain of our guidance assumptions. Our current views of these assumptions could be wrong, and we specifically caution that this is a very fluid situation. Our comments below are based largely on inputs from our customer base, which can and likely will change over time. Accordingly, the following comments should be read with extreme care, and given the fluidity of the situation, we will not update these comments until our next MD&A. Comments on certain key elements contributing to Chemtrade's earnings are as follows. First, COVID-19-related restrictions substantially reduced demand for gasoline and thus demand for our regen services. We expect this to have a significant negative effect in the second quarter of 2020 and will slowly improve over the balance of the year but still ending the year well below normal demand. We expect that none of the principal manufacturing facilities set out in our annual information form suffer -- will incur any significant unplanned downtime. However, due to the deferral of certain maintenance turnarounds and the future availability of contractors to perform the required maintenance, there could be an effect on the reliability of our operations. Key assumptions in our EC segment are as follows. We now expect North American MECU production volume of approximately 170,000 tonnes, limited primarily by demand for our chlorine and HCl products. If demand for these products decreases further, our production will decrease. Conversely, if demand increases production could be higher. We now expect that 2020 average caustic soda price will be stable for the year. North American production volume of sodium chlorate will be approximately 400,000 metric tons. We now take a foreign exchange rate US 0.72 per CAD 1. And we also expect out maintenance capital expenditures to range about $80 million; our ability to spend this amount will largely be dependent on the availability of needed contractors. Our lease payments should range between $55 million and $60 million. Cash interest, excluding the impact of IFRS 16, should be between $70 million and $75 million and cash taxes between $5 million and $10 million. So again, as a general statement, decreased demand from oil and gas industry is the main negative effect on Chemtrade. This affects both our regen business linked to refineries producing gasoline, and the fracking industry, which uses hydrochloric acid and is linked to production rates of our chlor-alkali plant. And I'll give you a little more color on those kind of assumptions I've just laid out. First, starting with our SPPC segment, sulphuric acid. Recall that we sell acid to 3 markets: regen acid to the refining industry, merchant acid to the North American general industry; and ultra-pure acid to the semiconductor industry. First and perhaps most obvious area that COVID affects us is refinery production. In a typical recession, cheaper crude oil, hence cheaper gas prices at the pump somewhat mitigate the effect of the recession and therefore, the reduction in refinery utilization rates is not too significant. Clearly, it's different this time as with very few cars on the road, gasoline production is down substantially. It's very expensive for our major refinery customers to completely shut down. Therefore, we expect refineries to run at historically low rates but that they will continue to operate. This affects our regen business. We believe that refineries will operate in Q2 at rates approximately 35% lower than last year, which is essentially the lowest rate our refinery customers can operate without fully shutting down their facilities. We expect a slight improvement in Q3 and for Q4 to be better than Q3 but still about 15% lower than what we had assumed in our original 2020 guidance. The positive side of this is that as economy regains its footing and people start to drive more, we expect refineries' production rates will improve. And with that, so will our regen earnings. We believe this is a direct COVID-related downturn, and it will be remedied as the effect of the pandemic lessens. Merchant sulphuric acid demand is also down due to the general reduction in industrial manufacturing activity. As we have noted before, sulphuric acid is one of the main raw materials for the production of water treatment chemicals. This lets us consider placing more of the sulphuric acid we generally sell to the industrial market into our own water chemical business instead of sourcing from third parties. Despite our ability to self-supply, we believe that the extreme slowdown of industrial demand will be a downside in the second quarter and a lesser extent to the third quarter for merchant acid. We expect that by the fourth quarter, there will be sufficient demand between self-supply and general industry demand that we will return to more normal earnings. Finally, ultra pure acid. To date, our customers have not indicated any change to their operations. And thus, our demand for this product should continue unaffected by COVID. So as a general statement, in our SPPC segment, the most significant effect of COVID-19 should be the downturn in refinery operating rates. We believe that Q2 will see the most significant effect, and it should slowly improve over the rest of the year. Turning to our EC segment, I want to comment on both of the main products -- on both of its main products, chlor-alkali and chlorate. First, chlor-alkali. As noted, the biggest COVID-related effects are from the oil and gas industry. SPPC is affected by refinery operating rates, while EC is affected by activity in the fracking industry. Our original guidance forecast MECU production was 190,000 tonnes in 2020. Recall that we must make and sell either chlorine or HCl in order to make and sell caustic. And thus, our operating rates are determined by the amount of chlorine or hydrochloric acid that we can sell. Our original guidance was based on converting about 39% of our chlorine into HCl. HCl is a key component in fracking oil and gas and is a major end market for us. In 2019, we actively and successfully diversified our HCl customer base, adding end-use customers outside the fracking industry. Nevertheless, we still intended to sell approximately 40% of our HCl into the fracking industry. As a result of both COVID and low oil prices, the fracking industry has suffered a significant downturn. Our chlorine demand has increased, which offset some but not all of the HCl demand that has been lost. The result is that, again, based on our current views, our 2020 MECU production will be limited to 170,000 tonnes or about 10% less than our original guidance due to lower chlorine HCl demand. For the coproduct, caustic soda, we had assumed that Northeast Asia spot price, which is the key determinant of our pricing, will be flat for the first half of 2020 from where it ended in 2019 and that it would increase by about 15% over the second half of 2020. We still feel comfortable about our first half projection but are now assuming that the index will be flat for the balance of the year. Over time, we will be able to sell more chlorine and the fracking industry should improve, but we do not foresee either of these events occurring for the balance of 2020. Longer term, as we have been saying, we believe that caustic pricing will increase for a number of years as the worldwide economy regains its footing and the macro caustic supply-demand balances tighten up again. Turning to chlorate. Again, as a reminder, sodium chlorate is used to bleach pulp. Bleached pulp is used to make paper but also tissue, diapers and similar uses. Our suspended guidance detailed our assumption that we would sell 420,000 tonnes in 2020. To date, we are tracking this assumption, and our customers have indicated they expect some softness later this year. So we now expect to produce about 5% less chlorate than our original guidance. While tissue and related demand has been strong, there has been significant weakness of paper demand in North America. As noted, this will have a negative effect on us but not to the same magnitude as the oil and gasoline downturns I've already discussed. And finally, I want to make some brief comments on our water products. Not surprisingly, our water products, primarily used to treat drinking water, has seen no reduction in demand. This business continues to experience improved performance over its 2019 results. Although this is good news, the improvement is not sufficient to offset the expected weaknesses in the rest of our businesses that I've outlined above. Those conclude our comments on demand expectations, but I want to briefly comment on operations and foreign exchange. We announced last month that we had proposed -- postponed the major turnaround of our North Vancouver plant. The same is true for our other plant turnarounds and for those of our customers. A plant turnaround requires a number of outside workers as well as a supply chain of parts and equipment. Until the COVID environment stabilizes, most of heavy industry has deferred what maintenance work they can. We are conducting whatever work we can to ensure that we operate safely. However, we do have a concern that as turnarounds are delayed, the reliability of our plants and our customers' plants could suffer. And finally, the only good news out of all this, if you can call it that, is that the lower Canadian dollar helps us. Our original guidance had assumed the Canadian dollar valued at $0.77 while it's now trading at roughly $0.715. This is expected to have a favorable impact of about $11 million for the last 3 quarters of 2020. However, this is dependent on how our business performs over the rest of the year and on changes in the exchange rate. So in summary, this year, we expect to generate sufficient distributable cash to satisfy by our obligations and to fund our distributions. Demand for some of our products will suffer in 2020 while other products will not suffer. And we do expect that as the economy returns, demand will return to more normal rates and our earnings will improve. Thank you, operator. That concludes our remarks, and we'd be happy to answer any questions.

[Operator Instructions] Your first question comes from the line of Bria Murphy of BMO Capital Markets.

This is Bria Murphy on for Joel Jackson. Given limited COVID-19-related impacts in Q1 and obviously the expectation that some of your businesses will be materially impacted in the coming quarters, do you expect Q1 to represent the highest quarter for earnings for the year?

Yes.

Okay. And then just maybe on the water business. Obviously, the margins were quite strong in the first quarter. Were there any onetime mix effects in Q1? And how sustainable do you think these strong margins are going forward?

So we think the business, as we said, has improved and continues to improve. The one thing we are watching is whether or not some municipalities might have preordered to make sure their supply chain stayed strong in the face of COVID. But most people don't have that much storage. So we expect the business to continue strong. Rohit, did you want to add anything?

No. I think that's a fair comment, Mark.

Yes.

Great. And then just one last quick one for me. How do you expect corporate costs to trend in 2020 versus 2019 levels?

So if you look at corporate costs, as we pointed out, they were really low in Q1. We had net reversals in our long-term incentive accruals. So our range for corporate costs is --annually is about $65 million to $70 million. We expect the same, keeping in mind that there is a U.S. component to our corporate cost, so with the lower Canadian dollar we will see corporate costs being higher than they would have been last year, but they should still fall within that $65 million to $70 million range.

And your next question comes from the line of Jacob Bout of CIBC.

Yes. I wanted to start with the SPPC. The volumes that you're seeing overall in that segment and how they've been in April versus what you saw in first quarter?

Lower. They start trending down, I guess, at the -- right at the end of March really. But April is reflective of the comments we gave on guidance: regen down substantially, merchant down around the edges.

So 30%, 40%? Is that what we should be thinking about?

I think we said at 32% to 35% for regen.

Okay. And then has there been any improvement? Or has it just steadily gotten worse as you kind of proceeded through to the second quarter?

There's a lot of noise out there. So look, we're only, I guess, 1.5 months into the quarter. And we all watch the news, and I think this thing I saw yesterday was 26 million more Americans were moving around last week than week before, right? So that should have, if that keeps up, maybe the refineries have hit the trough, but we've had some stuff that's been better and some stuff that's been worse. So we'll just have to wait and see.

Okay. And then can you remind us again regen volumes as a percentage of overall SPPC?

[ Sorry. Right. You’re on. ]

[ 50% ]?

We said about 40% or so of SPPC would be regen.

Okay. And then on the EC side, as we think about North Van, how should we think about fixed versus variable cost at North Van?

Actually, not...

For that -- I can -- maybe I can take that one. So it's -- we do have a pretty high variable margin in that business. And the reality with most of our chemical plants is that so long as you're operating, even if you're operating at 75%, 80% of capacity, there's really not much fixed cost that you can shed because these are automated plants and you tend to have a certain minimum crew that you run. So while there may be some maintenance and some other cost, but by and large, the fixed cost kind of remain intact.

Okay. And sorry, you said up to 75%?

No. No, I would -- I mean it's -- maybe through -- because these plants are not designed to run less than 24-hour shifts by and large. So you do end up -- you'll just turn it down. So you really won't shed costs unless you decide to start operating in a different manner.

You should assume our fixed costs are fixed. And actually, the reduction in volume we actually talk about is pure margin hurt. We're not going to be able to save our way to mitigate that in costs.

Okay. And then yes, you made a -- in the commentary on caustic prices, I think you said second quarter prices should be relatively stable through the remainder of the year. And if we look at some of the industry publications, we talk about caustic prices moving higher in the U.S. Gulf. How are caustic prices in the second quarter versus what your -- what you saw in first quarter for you?

Caustic prices have -- again, remember we -- our customers and we had a big reliance on what happens to that Northeast Asia index, and prices fell awfully far on that index below actually where the year ended. But they've now starting to come back, right? So as we've seen pretty stable caustic pricing through the year, and as you heard from our comments, that's kind of what we're assuming for the balance of the year. If you read the reports you're reading, and we do too, it looks like there could be some more upward movement in caustic pricing as the chlorine derivatives have actually -- demand has fallen quicker. And look, we hope that that's so and hope it'll last for a while, but we're assuming pricing is flat for the year.

And our next question comes from the line of David Newman of Desjardins.

This is Chi Le sitting in for David Newman. And thank you for the color earlier. Very helpful. So our first question comes -- is regarding chlorine and HCl. You said that chlorine has been down a bit because of industrial activity and HCl, obviously, being impacted by oil and gas as well. Do you plan to have any adjustment from the normal conversion rate of 35%, 37%?

Yes. Two things that...

Yes. So we're expecting...

Go ahead.

Go ahead, Mark.

It's okay.

Okay. I'm going to say that we are expecting -- we had said 40% was what we had thought we would be at for chlorine conversion to HCl. We now think it's going to be around 30%. And so that is kind of the reduction that we're forecasting right now based on reduced demand industrially and from the fracking. So even though we had diversified away from the fracking industry, we still had a fair bit of -- going into fracking, and now we see that even dropping to maybe 25%.

So. 30% -- 25% to 30% for now?

Yes.

All right. And regarding -- or coming back to the caustic soda in Northeast Asia. We've seen that weak domestic price in China caused more exports to buy. And also, the auto manufacturing plants are coming back in China, which then boosted the chlorine usage. So do you think this can make -- if you can -- result in more supply in the export market and probably guiding down the caustic side?

We don't know. I guess that is the question there, too, is what happens to the aluminum producers and other caustic demand within China, is right now that the views seem to be that caustic demand is actually held over there more than the chlorine derivatives. So there's been an upward pressure on caustic pricing, which, as you know, is good for us. But if I'm leery, frankly, to forecast supply-demand characteristics in North America, I'm even more leery to forecast them in Asia.

I can just add one thing to that. If you -- you mentioned the automotive industry. So as far as we know, actually, that automotive industry uses slightly more caustic than chlorine. So it's somewhat balanced, but if you kind of go, it actually takes a bit more caustic. So if that industry picks up, it should be actually slightly positive.

I see. Very helpful. And maybe just switching gear to SPPC. Is the regen asset pro rata with the refinery utilization rate so that if you see refinery going down, let's say 5%, regen will also go down by the same amount?

Yes. And I'm just pausing because that's a really good wrapper of a statement. But the other statement is that generally, specific refineries spent acid goes to specific of our regen plants. And so -- and most of our regen plants don't just get product from one refinery, right? So if all of the refineries that were served by a particular plant go down 35%, probably their alkylate production goes down by 35%. Probably their regen -- our regen production goes down. It's a little bit of a mix and match, right?

I see. Maybe just the last question regarding the Richmond turnaround. So I assume that you performed a small turnaround in Q1 and that, in turn, can delay the Q4 big turnaround as well? Is there any -- have you heard anything from the big refiners that you [ measure ] the turnaround list?

We still think that Q4 -- we're still planning on that Q4 turnaround happening late. The refinery really needs to make it happen, and we keep planning on that to happen. So I'm pretty sure that one happens. Some of the other ones I'm more concerned about.

[Operator Instructions] Your next question comes from the line of Ben Isaacson of Scotiabank.

First question is on the debt covenants. Can you just talk about what those old covenants were and what the new ones are?

Sure. So the 2 key covenants are debt -- senior debt-to-EBITDA. As a reminder, senior debt excludes our convertible debentures. So it's really our bank debt. And then the other one is an earnings and interest coverage. And again, as a reminder, our entire previous credit agreement is on SEDAR. It's unredacted. It was posted in about April of 2017. The covenant for the debt-to-EBITDA, which was the main one was 4.21, and it was meant to step down to 3.75 at the end of the year. And now we'll be posting our amendment shortly, but you will see that the allowable covenant is over 5x. We have always been prudent, and we like to have ample room. We don't ever get squeezed or get even anywhere near closer to a covenant. We try and have at least a 1-turn room or near 1-turn room in it. So you will see that, that -- you'll see the covenant step up, and then you will see it gradually step down over the next couple of years.

And the interest coverage?

And the interest coverage goes from 3 to 2.25 and then slowly steps back up to 3 over the next couple of years.

Great. My next question is on the sensitivity of your maintenance CapEx. If you are not able to spend it, can you talk about how low the reliability of the plants can go?

No. And I'm sorry, I don't mean to be abrupt, but it is -- we're doing work as we can to actually make sure our plants stay reliable, is there's -- look, most of our turnarounds, I believe, are going to happen, and we're going to fix the most important things. We share the concern because we're concerned, right, the more people you have on site are the more potential spreaders of the virus. And to the extent that we can minimize that, we will, but we still want to do the work. So I suspect most of our work is going to get done. Some of it might get pushed, but our concern is finding contractors.

Got it. That's helpful. And then the last question is if you could just bridge your outlook of stable caustic pricing for the remainder of the year, roughly, to your optimism longer term. And kind of is that going to be demand driven? I mean what are you looking for in that bridge from stability to more [ optimistic ]?

So if you remember, right, is that -- so ex COVID is the general statement as caustic demand grows by GDP every year. And there's been no new capacity announced, right? So the macro thesis of all the market experts has been as demand continues to grow is supply/demand gets tighter and tighter and pricing goes up. And the pricing that caustic has to reach to justify reinvestment economics is hundreds of dollars above where caustic is currently selling for. So if you looked -- and frankly, I don't have it in front of me, but if you looked our website, I think, in January of our latest business update is we actually show IHS' forecast -- this was from January -- of actually price increases for the next -- expected for the next, I think, 5 years. And by memory, I think it was supposed to go up by $50 or something like that in 2021 and then by maybe another $200 over the next number of years. So I'm looking at -- I'm cosmically discerning Rohit's nodding at my statements. So a big generic statement is if you took that forecast from January, and look, because everyone needs to redo stuff from then, is when the world stabilizes, again there's arguably USD $300 million -- USD $300 of price increase on caustic over 220,000 tonnes of production. That's kind of the [ carried ] out there.

Okay. And then just a follow-up. Just to come back to the debt covenants, can you just tell me what the net debt-to-EBITDA covenant metric was at the end of the quarter, please?

Sure. We're at about 3.3x.

And that's an LTM?

Yes. It's an LTM, yes. So I should point out one other thing is that most of our debt is in U.S. dollars. So on an LTM basis, a lower Canadian dollar helps us. But when there are spikes in the exchange rate like there were at the end of Q1, our debt gets converted at the spot rate, whereas EBITDA stays obviously at its historic rate. So over time, that's beneficial, but our covenant actually went up in Q1 because the EBITDA didn't have the benefit of the low Canadian dollar, whereas our debt took the entire hurt of the lower Canadian dollar.

Yes. On an LTM basis, it actually hurts us if it goes up suddenly. And when you get a full year of a lower exchange rate, then that's beneficial for us.

And your next question comes from the line of David Newman of Desjardins.

Just a brief follow-up here on the ultra pure. So you didn't comment on the demand and pricing for ultra pure in 1Q, but what do we expect for the rest of the year? Is it still strong like what we've seen in 2019?

Yes. There's -- it's the outlook. But -- and look, is that if we want -- because the next -- because we look at these things. The next possible upside for us is there's a whole bunch of, again, press in the U.S. about wanting to onshore more chip makers. And as some of you know is we have a large market share of actually ultra pure acid. And if they start on-shoring more ship makers is we'd like to be their partners to provide them with an extra ultra pure acid they require. So it should be there for the rest of the year.

Very good. And for specialty chemicals on the WSSC side, what do you expect for sodium nitrite and KCl for the rest of the year? We know that P2S5 is going to be impacted by automotive, but what about the other 2?

Both of those guys should be pretty stable from where they were, Rohit, I think?

Yes. I think sodium nitrite may be down a little bit because of -- if some of it goes into automotive, but it's such a small percentage that it probably goes to flat.

I have no further in the queue. I turn the call back to the presenters for any closing remarks.

Good. Well, thank you all for joining us. For those of you that are interested as we are having our virtual AGM on Friday, but I could assure you that we won't be saying anything there that you haven't heard today. So feel free to join us. And everyone stay healthy and well, and we'll see you next quarter. Thanks.

And this concludes today's conference call. You may now disconnect.