Summer is here but for many the pool party is going to have to wait a bit longer. In a global economy filled with shortages that are driving prices for everything from commodities to used car higher, chlorine is the latest good to be in short supply.
What’s Going On?
With summer kicking off soon, people and organizations are looking to get their body of water crystal clear once again but demand for chlorine is driving prices higher. Similar to how the global chip shortage was caused by a recent plant fire in addition to coronavirus-caused production halts, the chlorine shortage is largely driven by a fire that occurred at a chlorine manufacturer’s plant last year. The fire occurred in Westlake, Louisiana at the Bio-Lab manufacturing facility in August after Hurricane Laura, destroying the plant and ceasing production.
The result has been a shortage in chlorine that has pushed prices u p 37% year-over-year and predictions of a 58% increase in price during the summer according to Goldman Sachs analyst Kate McShane. Many pool supply shops are uncertain as to whether they will have enough supply for the pool season. A growing concern is a situation where people go out and buy more than necessary in order to make sure they have enough for the season, only leading to a worsening situation (i.e. the new toilet paper and hand sanitizer). The industry already experienced a similar problem last year with pool products during the pandemic as demand for both in-ground and above-ground pools surged.
Who’s Being Affected?
Apart from the obvious impact of consumers having to pay higher prices and being negatively affected by the situation, investors should watch closely businesses that are being affected by the shortage as chlorine products are the backbone of many supply shops since it is one of the most essential items for pool owners.
Leslie’s (LESL) is one of the largest pool supply retail businesses and is set to experience its first summer as a publicly traded company after raising $680 million last October in its Initial Public Offering (IPO). LESL shares have mostly traded flat this year with its share price hovering right around where it was to start the year and has recently been on an upward trend over the past couple weeks. The initial news of a likely chlorine shortage this summer led LESL to drop in early May but has since fully recovered.
During Leslie’s first quarter earnings call, Mike Egeck, CEO, assured investors that the company currently feels very good about its supply and cost situation surrounding chlorine as Leslie’s is confident in its ability to serve new and existing customers despite industry shortages. The increased demand in pools from last year and availability of chlorine alternatives, albeit less effective, should see pool supply stores prosper as people are excited to once again go out in public during the summer with vaccines leading to a return to "normal". Consumers may be hurt by rising chlorine prices but if stores such as Leslie’s are able to meet that demand and charge a higher price to cover any increased cost then it's likely they will do just fine.
Additional Firms Likely to Benefit
In addition to Leslie’s, other pool supply companies include Pool Corporation (POOL) and Olin Corporation (OLN). Pool Corp also distributes pool supplies and related products and has seen its shares double in price since the pandemic and rise from just over $310 a share in February of this year to roughly $430 currently as any shortages are clearly not hurting investors expectations of the company. Olin meanwhile is a manufacturing company that produces chlorine in addition to other goods and has seen its shares skyrocket since last summer with a share price of nearly $50 right now after trading around $12 at the end of last September. With a shortage of chlorine and the fire causing Bio-Lab to rebuild its destroyed plant, other manufacturers such as Olin stand to benefit from taking over market share as demand for pool supplies such as chlorine is only growing.
Shortages appear to be the theme of the economy right now. Although the chlorine shortage appears to be less severe than some others such as the chip shortage, it is going to negatively affect pool owners who will have to pay higher prices for their favorite cleaner. However, investors can still take advantage of this situation with pool supply distributors and manufacturers ready to benefit from the shortage coming out of the pandemic.
