Lack of chlorine hits the pool supply industry; Which companies benefit the most?

Summer is here, but for many, the pool party will have to wait a little longer. In a global economy riddled with scarcity that is driving the price of everything from raw materials to used cars, chlorine is the newest commodity that is becoming scarce.

What’s happening?

As summer is about to begin, people and organizations want their waters to be crystal clear again, but the demand for chlorine is driving prices up. Much like the global chip shortage caused by a recent factory fire and production stoppages caused by the coronavirus, the chlorine shortage is largely caused by a fire that occurred at a chlorine manufacturer’s facility last year. The fire occurred in Westlake, Louisiana, at the Bio-Lab production facility in August after Hurricane Laura, destroyed the plant and ceased production.

The result was a chlorine shortage that pushed prices up 37% year over year, and Goldman Sachs analyst Kate McShane is forecasting 58% price spikes this summer. Many pool specialty shops are unsure whether they will have enough supplies for the pool season. A growing concern is a situation where people go out and buy more than needed to make sure they have enough for the season, which only makes things worse (e.g. the new toilet paper and hand sanitizer). The industry had a similar problem with pool products last year during the pandemic, when the demand for both underground and above-ground pools increased.

Who is affected?

Aside from the obvious impact of consumers having to pay higher prices and being negatively affected by the situation, investors should keep a close eye on companies affected by the scarcity as chlorine products are the backbone of many utility businesses as it is one of the most important items for pool owners.

Leslie’s (LESL) is one of the largest pool supplies retailers and will see its first summer as a public company after raising $ 680 million in its initial public offering (IPO) last October. LESL stock has been trading flat for the most part this year, stock price hovering right where it should start the year and has been on an upward trend for the past few weeks. The first news of a likely chlorine shortage this summer resulted in the LESL plummeting in early May but has since recovered fully.

During the conference call on Q1 results, Mike Egeck, CEO, assured investors that the company is currently very happy with its supply and cost position on chlorine as Leslie’s is confident it will be able to serve new and existing customers despite industry shortages . The increased demand for swimming pools from last year and the availability of chlorine alternatives, albeit less effective, should see the pool supply businesses thrive as people are excited to go public again this summer with vaccines leading to a return lead to “normality”. Consumers can be harmed by rising chlorine prices, but if stores like Leslie are able to meet that demand and charge a higher price to meet the increased costs, they will likely be fine.

More companies likely to benefit

In addition to Leslie’s, Pool Corporation (POOL) and Olin Corporation (OLN) are other pool suppliers. Pool Corp also sells pool supplies and related products, and the price of its shares has doubled since the pandemic, rising from just over $ 310 per share in February of this year to about $ 430 currently, amid shortages of investor expectations for the company clearly not affect. Olin is now a manufacturing company that makes chlorine among other goods, and its shares have soared since last summer, currently nearing $ 50, after trading at around $ 12 in late September. Given the chlorine shortage and fire that prompted Bio-Lab to rebuild its ruined facility, other manufacturers like Olin could benefit from taking market share as the demand for pool accessories like chlorine continues to grow.

Scarcity seems to be the topic of the economy right now. Although the chlorine shortage seems less severe than some others, such as the chip shortage, it will have a negative impact on pool owners who have to pay higher prices for their preferred cleaner. However, investors can still take advantage of this situation as pool suppliers and manufacturers stand ready to capitalize on the scarcity created by the pandemic.

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