Q3 2019 Earnings Call
<unk> earnings Conference call.
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I'd now like to hand, the conference over to your Speaker today, Mr., Dave Ryan Vice President corporate strategy Investor Relations, Sir you may begin.
Thank you and welcome to Albemarle third quarter 2019 earnings Conference call.
Our earnings were released after the close of the market yesterday, and you'll find our press release earnings presentation, and non-GAAP reconciliations posted on our website under the investors section at Www Dot Albemarle Dot com.
Joining me on the call today, our Lukas Sam Chief Executive Officer, Scott <unk>, Chief Financial Officer, Raphael Crawford, President catalyst, nothing Johnson, President bromine specialties, and Eric Norris President lithium.
As a reminder, some of the statements made during this conference call about our outlook expected company performance production volumes and commitments as well as lithium demand may constitute forward looking statements within the meaning of federal securities laws.
Please note the cautionary language about forward looking statements contained in our press release that same language applies to this call.
Please also note that some of our comments today refer to financial measures that are not prepared in accordance with gap.
GAAP reconciliation can be found in our earnings release in the appendix of our earnings presentation, both of which are posted on our website now I will turn the call over to Luke.
Thanks, Dave Good morning, everybody on todays call I'm going to provide a quick recap on quarterly performance, but want to spend the bulk of my time on the long term position, we're taking and how the recent strategic decisions. We've made support that view Scott will provide more detail into our third quarter and full year performance.
Excluding currency impacts third quarter revenue grew by 14% adjusted EBITDA about 12% and adjusted diluted earnings per share by 22% year over year, excluding currency impact each of RGB use delivered year on your EBITDA growth increased volume across all of.
Our businesses and favorable year over year pricing in lithium and bromine contributed to that growth.
With that.
Let me take a step back and set the stage for where we are today.
As you know the lithium market is done in it.
It offers a very strong feature growth opportunity and the long term secular growth trends remain fully intact. However, we are and will be dealing with a challenging market conditions for the next 12 to 18 months since late July we've announced several significant strategic actions.
To successfully positioned our business for the long term.
Last quarter, we announced the decision to defer work on approximately 125000 metric tons of conversion capacity.
Freeing up about 1.5 billion of our Bob the again five year capital investment plan.
This will enable us to generate free cash in 2021 and is a white path to take based on current supply demand dynamics and provides us with the financial flexibility to take advantage of any opportunities we see.
Importantly, this decision does not affect current customer commitments, we are in the position to deliver on all committed contracts and we have the ability to add capacity if current market dynamics improve as you know we have access to geographically diverse.
Hi, quality low cost lithium resources, and the financial flexibility to build or buy conversion capacity in the future if doing so creates value for our stakeholders.
As we will discuss in detail at our upcoming Investor Day in December battery technology continues to advance.
We expect carbon that demand to continue to grow but expect hydroxide demand to be much stronger to that in we're focused on remaining an agnostic lithium producer.
Whether our customers won't carbonite or hydroxide or other lithium products, we have access to the world's best Brian and hard rock and industry, leading conversion expertise to deliver on their needs.
And we remain committed to investing to maintain our competitive position and deliver a truly differentiated customer value proposition.
When we shared our strategy in 2017, we told investors that we would take advantage of opportunities did accelerate and strengthened our long term growth strategy to that Ian we announced last week. The completion of our joint venture agreement with mineral resources, well, we have a majority interest.
In 60 40 ownership structure.
All in our investment of 1.3 billion consist of a cash payment of $820 million to MRL for 60% of the watching the mine in contribution of a 40% interest in our 50000 metric ton hydroxide facility currently under construction in camera 10 Western Australia.
We believe our investment in this new joint venture named Mirabelle lithium will produce substantial long term by the JV provides access to a high quality hard rock source further diversifying our global lithium resource base and strengthens our position in the long term.
Giving us the ability to increase capacity to support future market demand.
With the combined operating expertise of Albemarle and MRL, the top tier watching a mine and our market knowledge, we're well positioned to benefit from a rapidly growing market, which is increasingly emphasizing hydroxide.
The joint venture supports our long term view, but in the short term we made the decision to idle production of the watching them on until market conditions support production economics.
The returns for this project will still be very attractive.
We anticipate that when the JV is producing lithium hydroxide at a rate of 100000 met tons annually. The return on invested capital will be a healthy 17% to 19% or roughly two XR cost of capital.
Staying with lithium I want to address pricing in contracts.
As we commented in our preliminary earnings announcement current market conditions are challenging and we're experiencing pricing pressures in China and on our technical grade products today, our pricing strategy under our long term battery grade contracts have held.
As you can see on pages 10, and 11 of our earnings presentation album walls third quarter lithium pricing was up slightly year over year, Despite a significant year over year decline in market conditions.
Recently reported China Carbonite prices appear to have stabilized in the range of $7 a key low.
We expected this price level is at or near the marginal cost of production.
And do not expect churn a carbon at prices to drop further in any material way, however, China carbon it at $7 a key low puts pressure on pricing across the global lithium portfolio, including the fixed and variable piece is under our long term agreements.
We know that our long term agreements are great interest concern and focus so let me broadly address the matter here as we have been in the past we're in active discussions with customers on our agreements those discussions involve price volume allocations between carbon in a draw oxide.
Length of the contract and the value that Albemarle offers for quality securitas supply flexibility between carbonate and hydroxide sheer volume of product needed and the ability to meet the customers growth expectations.
It is obviously not in our best commercial interests to discuss contract negotiations publicly so we're not going to do it.
These are active discussions with many moving pieces as the dust settles on these negotiations will give you a better look at what this means for our annual outlook rest assured that we understand the value we bring to the supply chain and we intend to capture our fair share and these discussions.
Now, let me switch gears and talk a little bit about 2020.
As a part of our strategy, we continue to assess our business portfolio.
We have received multiple inquiries about our fine chemistry services and performance catalyst solutions businesses. So we have initiated two processes to pursue these opportunities.
They are both profitable businesses with strong operating teams. So if we can come to agreement on an evaluation that we feel as appropriate we will pursue a divestiture. If we're not able to secure evaluation that we believed to be appropriate or in the best interest of our stakeholders. We will continue to operate.
These businesses, we would expect both of these transactions to be 2020 events.
In terms of how we see our portfolio performing in 2020 versus 2019, our preliminary view today is that we expect catalyst bromine in fine chemistry services to be essentially flat.
There are some gives and takes in each but right now assuming no overall economic slowdown these businesses should net to approximately flat.
Lithium will be lower year over year due to pricing pressure across the portfolio and are not having new conversion capacity to drive any significant volume growth.
We have initiated a structured program across the company to capture sustainable cost savings and expect this program to deliver over $100 million in sustainable cost savings over the next two years.
Taking all this into account our preliminary view is that our full year 2020, EBITDA performance could be lower than full year 2019 results by around 10%.
In closing, we're taking swift actions to navigate the market challenges that we see in 2020 and emerge even stronger to capture the long term growth opportunity in a profitable manner.
We will continue to build on our strengths in manufacturing excellence in bromine in catalyst and we will transform processes for lithium similar to our other businesses to ensure best in class operations.
We can we will we will continue to be conscientious and our asset management in capital plan and seek to be nimble in response to changing and dynamic market conditions with that I'll turn the call over to Scott.
Thanks, Luke and good morning, everyone.
For the third quarter, we reported net income of $155 million or $1.46 cents per diluted share.
Adjusted earnings per share were $1.53 cents, an increase of about 22 cents per share compared to third quarter 2018 or 17% growth.
Our businesses delivered about 23 cents per share of growth with double digit earnings growth in both bromine and lithium and high single digit growth in catalyst.
A lower effective tax rate contributed about six cents.
And a lower share count as a result of our 2018 share repurchase program contributed about three cents.
Those gains were partially offset by four cents of higher depreciation and unfavorable foreign exchange, which was a seven cents headwind compared to third quarter 2018.
Regarding our business performance.
Lithium reported third quarter net sales of $330 million, an adjusted EBITDA of $127 million.
Excluding the unfavorable impact of currency lithium sales were up 23% and adjusted EBITDA was up 9% year over year.
This growth was due to increased volume in favorable pricing. Despite the impacts we communicated in our earnings pre release.
As a reminder, these included first a volume shortfall, which impacted the third quarter by about $15 million in EBITDA.
This was primarily due to typhoon tapa, which caused the lithium shipments from ports in Shanghai to be delayed into October .
And we expect this to be fully recovered in the fourth quarter.
Second the use of Tollers to meet customer commitments and address operating issues in Chile.
This resulted in an EBITDA reduction of around $10 million. The technical team in Chile has focused on reliability improvements, which have enabled operating rates to now reach full capacity.
Given customer commitments totaling is expected to continue into the fourth quarter.
Third impacts also included a $7 million out of period adjustment regarding lithium carbonate inventory values that was identified and corrected during the third quarter close process and finally, and overall, 1% increase in lithium pricing versus prior year. However continue.
I think price pressure on lithium sales in China unfavorably impacted EBITDA by about $5 million versus our expectations.
Finally, adjusted EBITDA margin was 39% and it would've been 40% if you excluded the $7 million out a period adjustment.
Okay.
Bromine reported third quarter net sales of $256 million and adjusted EBITDA of $89 million up, 11% and 14% year over year, excluding unfavorable currency impacts.
Adjusted EBITDA margins were strong at 35% up nearly 90 basis points benefiting from 7% higher pricing, a favorable product mix and high plant Utilizations.
Price and volume are favorable across geographies and most of our products.
So we continue to see weakness in the automotive and construction sectors.
Flame retardant demand for electronics and drilling fluids in the oilfield market remains strong.
[noise] catalyst third quarter net sales were $261 million and adjusted EBITDA was $67 million up 5% and 8% respectively compared to the third quarter of 2018 on a excluding unfavorable currency impacts and adjusted EBITDA margins were 26%.
Huh.
Favorable pricing and fluid catalytic cracking or FCC catalyst was offset by lower volumes due to the delays in the startup of two customers new FCC units.
We currently expect both of these units to be an operation in 2020.
Clean fuel technology, or Hydroprocessing catalyst benefited from higher sales volumes and a favorable product mix.
On the innovation front on October 31st Exxonmobil, and Albemarle together launched a transformative hydroprocessing suite of catalysts and service solutions for the refining industry called the Lexia platform.
The new platform helps refiners realize the full potential of specialty catalyst and enhance plant performance by analyzing and identifying operational opportunities that extract greater value.
Corporate cost in the third quarter were $39 million, an increase of $16 million over the same period in 2018, primarily driven by unfavorable currency losses of approximately $11 million.
Our cash from operations was approximately $346 million for the nine months ended at the end of September .
And a decrease of $31 million versus the same period in 2018, primarily due to the timing of payables and the collection of certain receivables.
Capital expenditures through September were $608 million expenditures for Golden Negra lithium carbonate expansion and the cameras and lithium lithium hydroxide project remains on track and we now expect full year 2019, capex to range between $900 million $950 million.
Yes.
At the ended the quarter, our net debt to adjusted EBITDA was 1.6 times.
With a close of the MRL deal, we estimate our gross debt to adjusted EBITDA ratio to remove from 1.9 times to around 2.8 times and net debt to EBITDA to be around 2.6 times.
We have funded our payments associated with the new joint venture by boring approximately $1 billion under an unsecured credit facility.
We expect that this borrowing along with other corporate funding activity may ultimately be converted to long term debt given attractive economics.
As communicated in our pre release on October 24th we expect 2019 pro forma net sales to be 3.6 billion to $3.7 billion, reflecting 7% to 10% growth.
Adjusted EBITDA to be $1.02 billion to $1.06 billion equating to 2% to 6% growth in adjusted EPS of $66 to $6.20 or 10% to 14% growth.
Drilling down into the businesses, we expect that bromine will continue at strong performance and deliver adjusted EBITDA growth in the low double digits per cent for the full year.
The catalyst business has improved since our second quarter outlook, and we now expected to be down low single digits on a percentage basis, excluding divested businesses.
And finally lithium is expected to grow EBITDA in the low to mid single digit percent range and deliver full year adjusted EBITDA margins of around 40%.
You've likely seen reports of civil unrest in Chile and are wondering how this is affecting our operations and first I'm happy to report that all of our employees are safe.
At this time, our plants, our operational and shipments are moving on schedule.
We have lost approximately 500 metric tons of production since the unrest started.
But it will not.
Materially impact our financial results.
We will continue to monitor this fluid situation very closely.
Based on our current geographic sales production next year to date and our expectations for the rest of 2019. We currently expect our full year effective tax rate to be about 18%, excluding special items non operating pension and OPEB items. This rate isn't part a rough.
Flexion of strong operating port performance at our bromine plants.
To close we will be prudent in these challenging times.
Act on cost reduction measures to align our cost structure and maintain our leadership position to deliver value to our stakeholders.
We look forward to sharing more details with you at our Investor Day on December 12 in New York City, and with that I'll turn the call back over to Dave.
Operator, we're now ready to open the lines for Q1 day, but before doing so I would like to remind everyone to please limit questions to two per person to ensure that all participants have a chance to asks questions then feel free to get back into queue for follow ups. If time allows please proceed.
Thank you.
Ladies and gentlemen, if you have a question at this time. Please press the star followed by the number one key on your Touchtone telephone. If your question has been answered or you wish to remove yourself from the Q.
Yes, the pound <unk> once again that Star then one to ask a question.
Our first question comes from Bob Court from Goldman Sachs. Your line is open.
Good morning. This is Don Campbell on for Bob I, when we look at kind of that 10% decline again looking at for 2020 give us a sense of just kind of what moving pieces are embedded in that guidance in terms of.
The roll over in terms of lithium volume growth and then I guess for the callison bromine businesses.
Yeah. So this is Lee let me try that at high level. If you look at page 11 on our own the earnings presentation, you can see that year over year lithium prices is down about 30% and Albemarle has been.
Flat to up slightly on our year over year comparisons each quarter on lithium price and so the big move or that we're seeing on the down for the profitability from 19 to 20, all comes down to lithium pricing and how much of that we can offset with cost reductions.
On on catalyst when we look next year, we'll have probably higher volume.
And in FCC catalyst and it depends on HPC, how those bills, how they time out do we get some in the second half and next year they roll into 2021, so again catalyst Ob.
So moving bits and pieces, there, but FCC would probably be stronger from a volume and price standpoint, and HPC, probably a little bit weaker, but we're working hard to get some of those additional loads in 20.
20, and then I'll bromine Oh, we don't have any additional volume I mean, we're running flat out right now on allocating every bromine molecule. We have so it all comes down to what do we see from an overall economic condition what happens in the electronics, what do we see from automotive, where we see a little pick up and as pricing hold.
And then that's offset by cost actions. So those are the big moving pieces is preliminary right now we will obviously have more information as we finish this quarter in head in the head into next year. So we'll update that on our at the at our year end <unk> earnings call.
Thank you that's helpful and then considering.
Situation I guess if.
So in that the market tightens once again.
How do you preserve or I guess some type of upside.
Concerning the fact that and them the majority of your volumes are going through.
Contracting structure.
Well under those contracts. These structures, we have the ability to raise price on a certain percentage of that volumes just like we have in the past. So we would if the conditions.
On the Titan, we'll certainly be looking at pricing actions that we can take the rates those prices.
Got it thank you.
Thank you.
Our next question comes from Stephen Berman from Bank of America. Your line is open.
So.
As Matt do you have on for Steve.
Want to talk a little bit about the potential fallout.
To you in the industry from that you proposal to ban certain flame retardants and consumer electronics and display applications kind of broadly what percent of demand goes into that market.
Do you think consumer electronics companies kind of may adopt the new standard more globally.
Yes, I will let netlist start and then I'll go into the specific and then I'll tell you at a high level we are.
Yeah, we've looked at it looked at that and we expect it to have minimal impact on our business going forward starting when when it goes into effect in 2021.
Customers will make some alternative substitution there, but we've looked at that and we think of alternative pass there to replace that business.
So at a high level, we've been dealing with the if you look at tasca in the U.S. If you look good some of the European regulations globally. All of these flame retardants have been under review for or since I joined Albemarle in 2003.
And we've done a we've done a really good job of moving away from some of the products that were smaller so we're getting a large molecule. So it's harder formed a bio accumulate if at all and we are constantly evolving our technology to be able to meet the needs that the customers have so would you seen you.
It's a small piece today, we believe its controlled in that sense, and we continue to innovate to being products to the market to meet what's really needed and as a serious issue related to flame retardants, a and so I think that it's it won't have an effect in 2020, maybe a smaller.
If anything around the edges and long term will continue to innovate to provide the really needed flame retardants our customers need.
Hi, Thank you and then.
I can touch on the contract. So I think pass discussions stipulated that the contract terms can being renegotiated customers could find like product.
Like both like quality and like quantity.
As you're seeing.
Demand slowed down for each of these and.
The market kind of soften here.
It's what's happening more proliferation of.
Technology in such that different producers can now hit the specs or are you just seeing more supply to a market from the same four or five a you know incumbent tech savvy producers.
Well I think all those four or five tech savvy producers, you're talking about have sufficient volume. It's what's what's you're seeing is there is an oversupply in the market today and I talked about it carbonates selling in China right now $7 Akila, that's probably below some of the cash conversion cost for some of those China converter. So I.
I wouldn't you should not have the impression that there's any technological advance by some of the marginal producers is not.
It is where it's been.
The specs are getting tighter and ultimately long term, it's going to be for those easy battery grade you're going to see those big four or five able to meet those specs on a consistent regular basis with the volume. There is other volume out there that is not the spec and that's where you're seeing.
In the technical grade and some other though lower.
The specs for a for other uses you're seeing those lower producers lower technology producers being able to come in at a price that they're comfortable with.
Hi, Thank you.
Thank you. Our next question comes from Joel Jackson from BMO capital markets. Your line is open.
Good morning.
If I if I take 100 million dollar EBITDA guide down on lithium it looks like you're guiding down to a average price decline next year.
15% to 20% can you maybe give a little more color how do we break down the price decline between your your contracted your non contract base. So it's a very very massive 30% drop your non contracted be small decline year contract base or that's going to be similar do you think across both contracted and non contracted thanks.
Yeah, So as I said I'm not going to get into discussions about specific contracts because we're in the middle and negotiation and then do us any good sought so I hope you'll understand that so let me let me back up and just say at a high level. There is pricing pressure across the portfolio. The most pressure is coming in carbon it particularly.
The and technical grade and in China, but that is having a ripple effect across the portfolio. So you're going to see it as you said different levels of price movement. According to different products and according to that end market, but that's about as that's about as much as I'm comfortable going into given the fact that were in the mill.
The discussions.
Appreciate that second question on camera, Ken So it looks like.
It looks like you have almost enough barge mean at Green Bush is to support the camera attend the next wave.
Dropping 2021 and beyond there.
Maybe not quite enough to get the 50000 tons me 45 does that mean, you'll look for operational improvement at Green Bush's where you source external carbonite doesn't seem like it makes sense to restart watching I try to at very low rates to supply the extra extra margin I mean there.
Yes, so I can't see us buying carbon it from other parties to do anything we'll have sufficient column that supply to do whatever we need to do from a from a spot Jimmy standpoint, because of our geographic diversity that we have around the globe. What we'll do is will source barge mean from the source that gives us the highest net.
Back to Albemarle and our stakeholders. So we're all in the we'll see where the market shakes out.
And where we are at that point in time, but youre right that we have.
Flexibility for sourcing that not other producers have.
Thank you.
Thank you.
Next question comes from John Roberts from either Yes. Your line is open.
Hi, this mess croskey on for John .
And your Preannouncement, you mentioned lower prices in China were 5 million dollar hit the EBITDA in the third quarter, where if prices moved from Threeq you average level and if this remain if if prices remained at this level throughout 2020, what would the impact be.
Asset asked that question one more time, please I'm not sure I'm following yet.
So you mentioned that Chinese prices were 5 million dollar hit the EBITDA lower pricing.
Where prices moved from that level, sorry, they lower or they are higher than threeq Q nine.
19, and that look you.
Yeah. If you look at page 11, you'll see that most of the over in a lot of the price decline that we've seen year over year. It accelerated in the third quarter. So you see you saw an acceleration of price decline overall for the market.
For lithium products in the third quarter, if they were down 30% in some of those it was 15% of that down was in about half of it was you saw in the third quarter year over year. So prices have continued to decelerate going into the fourth quarter.
Eric you want to talk about some details I would just to offer that and looking at a price in China. If you are asking that question, where we were talking about price three months ago. We would have talked be talking about an eight or nine dollar price and that we're talking about a $7 price. So that that's your difference right. There in China is a small part of our business, but it is apart and that's the impact it had an arpino.
Thanks for that and then you noted your bromine assets are operating at a higher than expected volumes.
Just going off a comment that you just made are these kind of normalized levels now.
Yeah, I think weve been able to get some nice get rights in our JBC expansion that we did last year that enable us to run it a little bit higher rates, we expect when we set the plan in place and that will be the new win rate going forward, but we always do productivity enhancement and utilization increases and and we'll continue to do that and we're very confident in our media.
Veteran capability to keen to get out increased volumes from those manufacturing enhancements.
Thank you.
Thank you. Our next question comes from Aaron just want to phones from RBC capital markets. Your line is open.
[noise] morning, I guess I just wanted to ask about the lithium environment.
You think.
As you look into next year, what are some of the drivers you're watching to see you know if things are stabilizing.
Or.
Or even potentially turning around I mean is just TV demand or is that a you know macroeconomic growth or what else are you guys kind of looking for us or maybe supply disruptions or anything else.
Aaron its Eric here I think the big drivers for us are not necessarily about demand, we feel fundamentally that while we've seen a pause in China, that's a pause and our long term view for the global heavy growth remains intact. So our focus is on supply and inventory that's in the channel.
There, we believe on our assessment theres not a lot there's not enough new supply or let's put this way there that new supply coming in will not exceed the demand growth. So the question is how much is still in inventory. There is probably at least six months of product in inventory maybe more so you probably two to three times a level inventory you should have and that's the drag on price now than we see that.
At having an effect into 2020.
And.
On that note I guess I'm, how long do you think it would take to kind of work through that especially on the technical grades and I'm just a little bit surprised that there has been such an impact on you know he be battery grade lithium.
Even with the oversupply in the tech side. So maybe just help us understand what the impact is there and why we're seeing that yeah, Hey, This is Lee.
Don't we Didnt, what Eric was just talking about was overall that included battery grade as well as technical grade. So we think there's on we think theres, an overhang of the supply chain for lithium derivatives overall.
And what I said in in the prepared remarks, as we think we're looking at 12 to 18 months of trying market conditions. When we think that's about the Tom it's going to take from people walking to work at all.
Yes, that's our view today.
And is lastly, just is there anything else that the industry can do I guess to.
Accelerate that process of de stocking you know have you have you been.
Aware of any other potential.
Got downs or reductions in production.
Yes, I can't comment on what other people are thinking about doing I can tell you. What we're doing is we're going to take control of what we can control. So you can see when when the joint venture deal with it.
MRL close we made the decision to idle those assets, because we don't need to bring any more spodumene brought to the market in this market conditions on secondly, we're going to take actions internally from a cost standpoint to ensure that what we can control we will control.
Thanks.
Thank you. Our next question comes from Mike Harrison from Seaport Global Securities. Your line is open.
Hi, good morning.
I just.
Looking at the and kind of building on the questions around inventory levels. It seems like spots. You mean is one of the areas, where there is too much supply and I'm just wondering.
Talk about your operations that Allison.
And maybe how we should think about the contribution from Talison.
In 2020 relative 2019.
Yes, so talison contribution 20 relative to 19 remember that Talison is a raw material supplier to tee us she and Albemarle and that's really it both from a technical grade perspective, as well as from a battery grade perspective that we take that lock and convert it as.
And she does into our in our assets are in told from BARDA. So it's going to be essentially that.
That volume will be similar to up slightly based fiancees, bringing on a new plant.
And so I would expect it to be slightly higher than what we saw in 2019.
[noise] Alright, and then the err on the catalyst side of the business I guess I was a little bit surprised to hear you say that HPC was expected to be a little bit lower in 2020, Ken can we go back and discuss maybe your updated view on IMO 20.
20 in the impact that that could have on HPC catalyst growth over the next [laughter], maybe what it's doing here in second half a 19 and what your expectations are for 20.
Yeah sure Mike This is Raphael.
So.
We do think that IMO will have an impact on HPC catalyst demand low to mid single digits.
Well I think when you look at.
You step back to you look at the overall picture more so than I am mode for our business, it's really the tightening of sulfur specifications around the world, which will be favorable.
As Luke mentioned.
Beyond that of the call in their thing that.
The timing of various refills customers that could push us up or down in any given year not indication of what weakness in the business more of timing in customer demand, but overall, we feel like the tightening sulfur such big of regulations around the world IMO included.
It's favorable for our business in the industry. Yeah. This is Lee HPC, just simply a lumpy business and what you have to do is the customer mix the product mix as well as what that.
The fields are going to be in any anyone theories of time. So that's the only reason a site could be down it's got nothing to do with.
Overall market demand not not a share issue not a price issue. It's just simply a matter of the feels that we expect today now if we were sitting here in 2018, we got more builds in 2019, and we felt we get an 18. So the team still working we maybe able to move some orders up a little bit.
Our our our get a little bit better mix. So it's early but yet people ask what an indication is from where we are today. It looks like HPC is going to be a little bit down in FCC is going to be up. Thanks.
Got it thanks very much.
Thank you. Our next question comes from David Begleiter from Deutsche Bank. Your line is open.
Thank you good morning look and Eric just on lithium volumes and 2019, what do you think they'll be and do expect any growth in lithium sales volumes in 2020.
You had there David your question is the market or us I'm sorry.
On you your sales volumes and 19 and potentially 20.
So our sales volumes in 19, so your one about the growth and what it's like you're on.
Versus prior year growth is coming is coming from.
Both from June you the ramp up of Zhenyu, too, which is now running at full rates, but for the first half years ramping so we'll be three quarters full there for this year. So that that the 20000 ton plan. So that's a big part of our growth and the remainder is coming from from when agro, though the Nagra, we haven't run as well as we wanted to add them in the in the third quarter.
We expect to show favorable year on year growth, though in the fourth quarter.
The thousand out a couple of thousand tons are so for the year. So if you look the 2020, David I would expect it from a volume standpoint, we probably have maybe five to seven and a half thousand metric tons of growth that assumes we get additional growth in and run low negra.
At rates, we don't have another rain incident like we did in the first quarter Brines. You know is park you laid down there the way it ought to be and they ran at October rates at the highest right they've ever run now we got to sustain that all into 2000 in 20.
And then we'll get a full year of Xinyu to from from what we ran this year. So that's how I get too about the five to seven and a half or our 8000 met tons. Okay.
Very helpful and look just suddenly cost savings how much will be realized next year, a $100 million and what's of Kate break down between the three segments of the Heartland dollars.
Yeah, I don't I don't know how much we're going to get a in next year because some of it is it it's going to take a little bit of Tom. So we will update you in a in December we will have more information at Investor Day, and then when we roll out into into our fourth quarter earnings call. We'll give you more update David.
Thank you.
Thank you. Our next question comes from Jim Sheehan from Suntrust. Your line is open.
Thanks. Good morning, I think you have repeatedly said that when they grow is on track to produce close to 40000 metric tons of lithium carbonate and 2019, what is that number now going to be given the shortfall in third quarter and can you just give some color on what caused these operational issues that when negra and what gives you the confidence they.
They won't repeat.
Yeah. So let me do the fossil in air and talk about some details we're running at about 38000 that about right there.
Between between 30 839000 met times for oil and natural this year and one of the things that we've done and we've taken.
Some of the best process Engineers, we have around the company from catalyst from fine chemistry services from bromine and they've been down.
Inland nagra over the last.
Couple of months, helping with some best in class some de bottlenecks and things like that so I'm confident next year that we'll be able to build from where we are not have the hit not have the rain events not have the struggles with the with the brand because of the rain and things such as that so I feel good about where we.
On the progress that we're making.
So Jim I'll, just add and I'll move beyond Brian the Brian issue in the rain, we've talked about that enough. This year, but in terms of reliability uptime at the plant, we'd expected more reliability and more uptime during the third quarter than we had let me first of all point at this point is sold out so everything we make we can sell so if there is no time issue is going to have an impact and thats why were backfilling, where we can.
Then where were qualified to do so with Tollers now that being said at Glu earlier said, we had the best October we've ever had.
In that or last month, we ever had and the month of October we got to sustain that it's been in large measure due to upscaling from people from outside of the lithium business, but we've also brought a new operational talent and we're building skills within the organization to journey right is an operationally. This plant has to be operationally excellent and we're on our way there. The aim is world class, but we're not there yet.
Very helpful and Lou could you could you also explain how the tolling process works in Chile.
You mean, when negra commitments with told brine based car than eight or spied, you mean based carbonate and you've explained a lot in the past about how difficult. It is to meet product specifications for battery grade products are told volumes coming from that a big five producer and thus they meet the specs and if not a do you have to offer some kind of.
Nice concession given the lower quality told product.
That's a lot of questions. So let me let me try to address them one at a time overall, we don't take any Brian .
From anybody else until it and we don't give our brine anybody else to toll for us. So if we have a slowdown at la Negra, where we lose a thousand metric tons, we take sponsored mean from our Talison.
Supply and have a third party generally in China toll lit either to carbon at our hydroxide and we generally if its told to carbonite at least in 2019 previously it might been a little bit different but in 2019, we use that for internal consumption, mainly to go downstream into our specialty.
The businesses and we continued to sell our carbon that directly to third party customers.
<unk>.
Thank you.
Thank you.
Our next question comes from Dimitri Silverstein from Buckingham Research Your line is open.
Hi, Good morning. Thank you for taking my call a couple of questions. If I may you talked about the sort of that the outlook for for incremental volume growth that you're still going to get in 2020 without.
Added capacity just from capacity ramp up so that you were talking over 2019.
But I just want I understand that the closure of that we've seen a mine.
It doesn't impact sort of the progression of capacity additions that you've outlined on a second quarter slide when you. When you took down the <unk> billion or they have a capex expectation right I mean in terms of hydroxide and carpeting capacity, that's still going to go online through 2022 as you've outlined on that slide.
That's exactly right Dimitri.
Okay, and then I'm on the divestitures I found it interesting that you're getting sort of inquiries on the catalyst and the fine chemistry business, obviously, the fine chemistry business has been around and on the market I guess for awhile.
I'm a catalyst side, you mentioned kind of pro forma catalyst being that the subject of interest does that include the curatives and are getting metallic's or would that still strictly the off the FCC HPC catalysts, but yes. So let me be clear Dimitri <unk>. It is it is not the refining catalyst it is not FCC and it is not H.
PC the inquiries have been for the PC, yes portion of that business, which you are right or the organic metallic's and the curatives.
Okay. Okay. Your looks like you basically you look you're looking at if some of what I would call sort of orphan business does not not necessarily.
Contemplating yet the possibility of bromine or or refining catalyst being used as a as a way to help you with or without capital requirements.
It makes us like asking me, which one of my children are favorable I Love a mall, yeah, I wouldn't call him, an orphan business, but I would say that they are quality businesses would get operating teams that didn't do much better if they have a focus and additional capital and with the competition for capital.
We have they're just not going to get it so it's a better value creation for our stakeholders for divestiture enough is enough and only if the valuation is where it needs to be so that's how I look at it okay.
It makes perfect sense look thank you very much.
Thank you.
Next question comes from P.J. Juvekar from Citi. Your line is open.
Yes, hi, good morning look.
And then.
So in light up here why did you not shut down can you talk about disparagement Costco.
The cost of marginal producer and where does what do you not fall there and what signals are you looking I'm looking to four for the startup of watching again.
Well the best cost position in the World from Spodumene rock is talison.
And if you followed the the purity of the rock and lack of.
You know foreign substances in there you follow the cost curve Talison is the premier in the world.
If you take talison out of the picture than watching the is right up there on the cost curve with the with the low cost producers out there from a quality resource from the size of the resource from the link that we're going to be able to mine and from the cost position that we'll be able to get so it's a top tier a resource from a cost standpoint and from a quality standpoint.
We.
Remember were we weren't planning sell that sponsored mean, we're going to use it to convert it to lithium hydroxide and we look at the market today. It makes sense for US we think today to treat watching in the same way, we treat talison as a raw materials source for the marble limited joint venture but.
Twain Albemarle and MRL, So we'll get camera to an online.
And we'll start that break mechanical completion sometime in 2021 now we'll have a period of time, where we have to have qualification runs and then we'll look to sourced wajid no with Cameron to the extent the market conditions make sense for us.
To bring whatever amount of capacity it makes for us to bring on for lithium hydroxide, we don't need to operate it wide open on day, one will bring on capacity to meet that demand for lithium hydroxide and not will.
Dictate how we run the watch and <unk>.
Sure. Thank you for that.
And then if you have to divest you're fine chemistry and performance kept on his business.
The long term goal for older Mall.
It will be called Butyllithium company or is it just to keep you know they do a defining catalyst business and bromine in the portfolio. So that's a catch up but I do business that can fund the growth of the Tim. Thank you.
I think lithium we'll be able to funded if we start back and look at least on cash flow positive in 2020, 122 kind of timeframe I inclusive of sovereign. His dad, if you had two and things like that.
But right now our goal is to drive shareholder value.
When we look at our portfolio today, we see bromine and catalyst good solid business high EBITDA margins that allows us to harvest cash.
And use that for the lithium business.
So we will consistently as we always have looked at our portfolio, but but for the for the foreseeable future. We like what we are after these two divestitures.
Thank you.
Thank you. Our next question comes from Colin Rusch from Oppenheimer and company. Your line is open.
Thanks, So much guidance you know as you're looking at the landscape of battery manufacturers and.
Considering your strategy can you talk about.
Consolidation in the industry, so upset that maybe a distressed and how you expect to handle that's our situation.
Hey, Collin this is Eric so well we are seeing I've talked about before and it continues is a shift of power decision, making around lithium ion battery materials used in a battery to the battery manufacturers themselves and in some cases, the OEM is getting more engaged on and so when we look at how we do business.
Going forward that is the group that we speak with Thats, a group or partner with that's a group. We have our are a great deal of our contract relationships already Katherine players form the balance that's where there's more stress in the value chain Theres a lot more fragmentation and I think you will see some consolidation over time, there, but it's hard to say at what pace that would occur but that's that's the.
Dynamic, we see and we're well balance and prepared with pretty deep relationships across all of those three parties Oems battery producers Kathy producers.
Great and then on the policy size, obviously to the situation in China from a sell through perspective, you can use as Ben Natter disappointment, partially in the second half this year.
You know what are you hearing in terms of potential for stimulus in China for.
Yeah goals and for each.
Point if any.
Well, what we interpret it as what is going on as a pause right. It's a it's a shift and policies to to Incent. The development of an industry that is part of the Grand plan for it for China. So we have no doubt about China's intent and where they want to go and what we're hearing specifically is that.
The drive towards higher energy density batteries in full battery electric vehicles is the aim of where they want to go. So we we recognize that the past couple of months is been a pause has been little slow, but we view that as simply a.
A natural pausing the road of what will be significant growth and we're sorry, certainly seeing that in the globally. These space in Europe today.
Great. Thanks, much guys.
Thank you.
Our next question comes from Joseph Cattaneo from T. Research. Your line is open.
Good morning, everyone.
Obviously, the lithium industry has responded and softening price dynamic with you and others delaying or canceling capacity expansions.
But with the amount of lithium carbonate sitting in supply chain speak consumed.
Are you concerned theres going be more room for prices to fall going forward as the industry de stocks.
Yeah.
We as we said I think a on the call you know you got $7 a key low price County in China right now, we think thats about where there where their cash cost of conversion as I have seen a hard time them going much much lower than that.
Okay and as.
The shift to high nickel catheters accelerates and you're seeing growth in lithium carbonate slowed you expect the price spread between the two to widen seems like its tracked fairly steadily. This here the 150 to $2 per kilogram range.
Well a couple of things I'll say, one one is that that the demand growth for carbonate remained strong demand outlook for hydroxide is much stronger.
Today, the workforce of the industry is six to two chemistry that can be made with carbonate or hydroxide, which plays to admirals advantage is where the only produce that has ability to play both.
As to the future, we see hydro because of the growth we see the hydroxide market getting tight but today I don't know that we would forecast any major change in spreads between the two.
Okay. Thank you.
Thank you. Our next question comes from Kevin Mccarthy from vertical Research partners. Your line is open.
Yes. Good morning, a look one of your industry peers announced a new contract with LG earlier this week.
As you consider your contract strategy you know given all that has transpired with lithium prices are you generally disinclined to enter new long term contracts or are there, perhaps isolated opportunities that look attractive.
Yes, so Kevin we're talking to everybody has US said, we're in negotiations a under our existing long term agreements and for new long term agreements both in the both with Oems as well as with.
Additional battery producers. So we're we're we're in negotiations and in discussions with a lot of moving parts and pieces and what that tells me is that there's a ability.
There's a need for a security of supply from companies like Albemarle and.
Everybody knows we're not going to enter into a contract long term today at a $7 a key low.
Price for Carvana isn't nago happen, we're not we'll do it doesn't make any sense for us to do and a lot that in because we think the market is going to move up so we know the value would bring.
I think the customers know the value that we bring as well.
And we're inclined to enter into agreements that will drive value for our stakeholders. That's the best way I noted describe it.
Okay Fair enough and then second.
With regard to your potential divestitures, how would you characterize the the aggregate level of EBITDA, there and as a point of clarification is that amounts of EBITDA.
Included in your 2020 guidance comments or are you contemplating.
Decrement or step down related to a mid year divestiture.
Hey, Kevin This is Scott so the combined EBITDA is kind of in the $55 million to $60 million range. We are not assumed that we sell those businesses in our guidance at this point in time, we just started the process as we've talked about and you know we need to see if we're going to get the.
<unk> for those businesses that we expect and if not then we'll.
If we don't will hold them if we.
We do we'll end up transacting.
Okay. Thank you Scott.
Thank you and that does conclude the question and answer session for today's conference I'd now like to turn the conference back over to Dave Ryan for any closing remarks.
I'd like to thank everyone for joining us this morning and for your questions and participation as always we appreciate your interest. This concludes Albemarle third quarter earnings call. Thank you.
Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program you may all disconnect everyone have a wonderful day.