Q3 2020 Albemarle Corp Earnings Call
[music].
Ladies and gentlemen, thank you for standing by and welcome to the Q3 2020 Albemarle Corporation earnings Conference call.
At this time all participants are in a listen only mode. After.
After the speaker's presentation, there will be a question and answer session Jeff.
If you ask a question during the session you will need to press star one of your telephone. Please be advised that today's conference is being recorded.
If you require any further assistance please press star zero.
I would now like to hand, the conference over to your presenter today Mr. Meredith Bandy Vice President of Investor Relations. Thank you. Please go ahead ma'am.
Our employees customers and communities.
To the courage and dedication of our employees, we've been able to safely operate our facilities throughout the pandemic to meet customer needs.
Or cross functional global response team continues to meet regularly to address to assess pandemic related risk and adapt protocols as necessary.
And the exceptional cost saving results across our businesses.
We currently expect full year 2020, adjusted EBITDA of between 780 and $810 million lower year over year based on reduced global economic activity due to the global pandemic and reduced lithium pricing as expected going into the year.
Scott will go into more detail on our outlook for the rest of this year and talk Directionally about next year.
In late 2019, we launched an initiative to achieve sustainable cost savings of over $100 million per year by the end of 2021.
Elyses, both consistent with you in guiding principles. These policies will be available on the sustainability section of our website.
I'm proud to say that Albemarle generates more than 50% of our revenues from products that help reduce greenhouse gas emissions or promote greater resource efficiency.
As our lithium business grows and even larger proportion of our business will contribute to global sustainability.
Indiscreet tax items with adjusted earnings of a dollar and nine cents per diluted share.
Lower net income was primarily driven by lower net sales, partially offset by cost and efficiency improvements.
Corporate and SG&A costs were lower versus the prior year due to these cost savings initiatives.
As Ken stated adjusted EBITDA was $216 million, a decrease of 15% from the prior year. The success of our short term and sustainable savings initiatives as well as timing of equity income from the Towson JV helped us improve margins and beat the midpoint of our key three EBIT outlook.
By about 20%.
Turning to slide eight for a look at the EBIT bridge by business segment.
Adjusted EBITDA was down $38 million over the prior year, reflecting lower net sales and lower equity income, partially offset by cost savings initiatives and efficiency improvements.
The 0.2 times.
Our commercial paper supported by a revolver, which is not due until 2024 and so that leaves about $670 million of short term debt to be restructured repaid over the next year.
We expect to repay the 2021 debt maturities out of cash on hand, assuming continued economic recovery and cash inflows from divestitures.
However, we are also working with our banks on a delayed draw term loan to backstop. Those 2021 majorities if the economic recovery or divestitures are delayed we'd be able to refinance the short term debt using this new delay draw term loan.
As Kent highlighted earlier or 2020 sustainable cost savings initiatives is on track to achieve cost reductions of about $80 million. This year that 60% above our initial estimates.
We expect to reach run rates savings of more than $120 million by the end of 2021 up 20% from the previous outlook.
We continue to expect a short term cash management actions such as travel restrictions limited use of external services and consultants and working capital management to save the company about $25 million to $40 million of cash per quarter of this year.
Next year, we expect some headwinds as some of these temporary cast savings reverse.
Finally, we are nearing our expected range of of 2020 capital spending two $850 million to $900 million based on timing of spend are.
Our two major capital projects <unk>, three and four and Kemberton remain on track for completion in mid 2021 in late 2021, respectively. They.
They will begin generating sales revenue in 2022, following Ah roughly six months qualification period for each plant.
Turning to our outlook this quarter as a transition from quarterly to annual outlook.
Our next quarter, we expect to return to a normal practice of giving annual outlooks.
As we approached the end of the year. We currently expect to deliver full year 2020, net sales of around $3.1 billion at the midpoint of our range adjusted EBITDA of between 780 and $810 million and adjusted diluted earnings per share between $3 80 and $4 five.
15 cents.
Fourth quarter is also typically a seasonally strong quarter for auto sales.
And similarly, I'd test market expects global EGD production to increase by 20% to 30% and full year 2020 and binding by nearly 70% in 2021.
Our bromine business supplies, a diverse set of end markets and is generally driven by our broader consumer sentiment and global GDP.
Consumer sentiment continues to improve in most regions, albeit albeit still below pre pandemic levels.
Analysts now expect global and U.S GDP to be down about 4% in 2020 before rebounding next year.
Discussions with longterm battery gray customers are underway.
It's too early to say what changes will be made to those contracts for 2021.
Lower average market pricing and higher inventories may pressure pricing at.
At the same time many of our customers remain concerned about security of long-term high quality supply, which speaks to the strong demand growth seen for electric vehicles.
And bromine, we expect full year 2021 results to improve slightly assuming continued economic recovery, an ongoing cost savings or bromine business was probably the least impacted of our businesses. During 2020 and that's part of the reason, we expect a fairly modest improvement in 2021.
<unk>.
And and catalyst, we expect 2021 results to continue to improve from the very low level seen in 2020, but to remain well below 2019 levels.
Near term catalysts results are challenging as reduced refinery capacity utilization and lower oil price and continues to pressure our customers margins.
And the longer term this business as well positioned and growth regions like the middle East and Asia and poised to benefit is refinery shift production to chemicals.
Thank God.
Thanks, Scott economic conditions are improving but uncertainty remains particularly if additional COVID-19 impacts lengthened a time to have full economic recovery.
We have the playbook established and know how to manage through subsequent waves of COVID-19 as necessary.
At the same time, we are confident in the long term growth prospects of our core businesses and continue to focus on controlling what we can control.
That means first and foremost focusing on the health and wellbeing of our employees customers and communities. It also means building operational disciplined and sustainability into all aspects of our business, including manufacturing supply chain capital project execution and the customer experience.
We remain confident in our strategy and we will modify execution of that strategy further position Albemarle for success.
Alright, before we open the lines for Kunai I'd, just like to remind everyone to please my my questions to one question and one follow up to make sure that we have enough time for as many questions as possible and feel free to get back in the queue for additional follow up time allows thanks.
Thanks, Marcus Please proceed with the Q&A.
Thank you.
I would like to remind everyone. If you would like to ask you. A question. Please first star and then the number one on your telephone keypad again that star and the number one will pause for a moment to compile the Q&A roster.
Your first question comes with a lot of Bob crude with Goldman Sachs.
Good morning. This is Tom Glinski on for Bob. So first question is your guiding flat volumes in 2021 for lithium even though the battery chemicals market should be growing nicely next year.
This suggests that you're going to be losing market share first are you. Okay with that and then second if other producers capture that incremental volume in 2021 and get through with a challenging qualification process with the customers do you expect to regain that market share in 2022 and beyond.
Or is there a risk your competitors maintain.
Thank you.
[laughter].
Tom size, it's a function of our our projects and when they are coming on and the capacity is coming on and who has that capacity to capture growth. So.
Not a lot we can do about that at this point, we're we're on our plan to bring that capacity on but it likely demand will pick up before we have that capacity. So we will lose a little sure, but we we expect the battle move back to us as we get that capacity on as a market continues to grow out into the future.
Great that makes sense, and then I guess higher level looking at 2021.
Considering the moving pieces between price down and lithium volume flat, but capturing some incremental cost savings do you think you can grow segment EBITDA next year or is EBITA is going to be flat to down. Thank you.
Well frankly, it's going to it will depend on how the market develops over the year is with us without having volume will have some cost savings to offset inflation and those pieces, but we'll be close that will be around flat unless we get a material change in pricing.
Got it that makes sense. Thank you.
Your next question comes from the line of David Big Leonard with Deutsche Bank.
Hi, This is due on your four days I guess first.
<unk> somebody <unk> pricing.
Bought in and even some coughing and prices target.
Recover I guess you can elaborate elaborate more on your pricing witness carbonated in 21 and that that.
<unk> during the year or with that.
Be like the 2022 story.
Yes, I'll make a comment and then let Eric.
Give you a little bit more detail or his perspective, so and that's the magic question.
It looks like when you look at the indices out there that it's at least bottomed if not starting to pick up a little bit, but probably need to see that a bit more to have more confidence, but we are anticipating that that turns up during.
21, and the question is when during 21, so Eric you want to add something.
Yes, I can add specifically relative to carbonate Mrs. We look at where the growth is is coming in the coming year. We look at what's happened. This year. It's it's more of a hydroxide gross story.
Carbonate is.
And therefore, not enjoying as much of that there is some growth in China, China is.
Where we see more of these low prices and into more oversupplied market.
So it is that the magic question is Ken referred to.
We have on some reported indices seen it picking up other see it flat, it's even from the price supporting groups that report price around the world and in China specifically.
Murky.
And well below margin cash cost is the cough the price of carbon has gone well below what we thought it would've gone.
Six months ago.
It is trending up in one report will have to see our view would be that given the dynamic that supplied dynamics I talked about in the great being more driven on the hydroxide side did it.
Clear movement above marginal cash cost for in the spot prices of carbonate is more likely of 2022 event I am not going to say it couldn't happen in 21, but it looks more favorable in 2022 hydroxide, however will be different we believe.
Thanks, and then huddle as it looks like the recovery at the Bill.
Sure.
That says.
<unk>.
<unk>.
<unk> I mean sales to be.
Five clean Coney, why I guess, what kind of.
Okay. How are we talking about and then just given that you know if we.
The current pace of recovering palace.
Expect that.
We can achieve that same level is Italian 20th <unk> 19 level.
So.
I'll comment and Raphael can also comment, but I think a lot of that it depends on demand in the view of what.
Driving comes back when travel comes back and it's really about fuel demand and refinery utilization for us so.
<unk>, we don't see us getting back to 19 levels for 20 until into 22, probably very late twenty-two there'd be back to that most of them are fuelled demand Ah utilization and from our perspective as well.
This is Raphael I think that that's right and.
And when we look at the outlook, there's a few things that play and what is the impact of the pandemic and when do few volumes recover two 2019 levels of volume component and the other is refining margins. So there's a lot of pressure on refineries right now just total value.
Of refined products from a marketing perspective.
And when that recovers.
Can be dependent on volume, but also on utilization.
Industry capacity, so we wouldn't see that returning 10 said until some time 20 twenty-two timeframe.
Okay. Thank you.
Your next question comes from the line of Mike Harrison with Seaport Global Securities.
Hi, good morning.
Uhm coming back to this idea of that lithium volumes are sold out for next year. If there is some additional demand pick up or if if some of this oversupply or inventory gets work down.
Could that put you in a position to drive higher pricing.
And can you maybe also comment on whether you have any flexibility.
To move more volume or maybe accelerate some of your your production if you do see demand picking up.
Okay.
Yeah. So.
If the market gets tightness and the supply is not there I mean prices should move up when we kind of expect to see that around hydroxide less.
Less about less with carbonate and it's difficult I mean, we have delayed our projects a bit when the pandemic hit because we just didn't know what things we're going to look like and as soon as we got some visibility we kind of tied to pull those back as much as possible and we haven't lost much time on that and we haven't really lost.
Capital estimates are still kind of the same range as well so it's really not possible for us to pull it more forward than our current plans, we wouldn't be able to accelerate now to impact when those projects are coming on stream July.
From our perspective, I don't think we're going to have extra capacity to what we.
Are anticipating we may be a little early with the projects earlier are planned, but it's not going to be dramatic.
Alright, and I I think everybody is kind of focused on.
What's happening here in the U S from a political standpoint, but can you maybe talk about two a and whether some of the political news there could impact your relationship with the government or your rights in the add a comma.
Alright, so while.
I mean.
What's happening there so they're gonna, they're gonna re they voted to redo their constitution. That's gonna that's a pretty long process that they have in place to do that and so far that's all been without too much turmoil. So we don't we have to wait and see what that constitution looks like we don't really expect it to impact our rights and the add a comment but I mean I guess.
Something will have to wait and see I don't think it would be I mean, it's not until as interests to start changing how they work with the international community Chilies got a great reputation.
Following the rule of law and having a strong economy in South America is kind of the examples. So I don't think they want to change that but something will have to to watch very closely is that plays out.
Alright, thanks very much.
Your next question comes from the line of Vincent Andrews with Morgan Stanley.
Thank you and good morning, everyone. Just wondering you talk about sort of 60% of your assets, you're you're you're going after with the new to new projects Gonna come on what about the other 40% can you talk to her for a medium term perspective.
What's it gonna take for you to go after those asset how much money it would require an capex spending and at what point when you start talking about how you'll go after that and how you'll you'll finance it.
I'm not sure Vince and I'm not sure I am clear on the question. So to go after the other 40% of the asset.
Yeah, I guess my question is.
When are we when when should we anticipate the other 40% coming online and how much where you have to spend to do it.
From a resource standpoint.
You're talking about yeah, okay. So we have.
Access to those resources. So it's just about building conversion capacity. So we kind of started that process Ola maigre and kemberton as part of that so we're building that out will sell those plants out and then we'll layer in additional capacity to go after I mean, that's our strategy our in our plan longer term.
We haven't necessarily laid out of Capex program.
Publicly over time, but that that's the plan as we build capacity and then we sell it out and and then we reinvest.
Oh, sorry is a follow up then to the earlier question about market share. How do you think about the medium term in terms of not per se having.
Suggested timeline for that other 40% of production versus how fast you think the market's gonna go out do you think you'll be able to bring that 40% on in conjunction with market growth or is it possible that it will lag.
Well, we'd be layering in that capacity so.
We're trying to do is just kind of get it just right we add capacity as the market grows and bring that on his it's required.
And it's a matter of how well, we execute and how well we forecast the market, but we think we can.
That's what we're trying to do.
Alright, Thank you very much I appreciate it.
Your next question comes from the line of John Roberts with UBS.
Thank you nice progress on the cost savings efforts uhm.
Get backstop indicate.
Indicate some uncertainty here in the divestment process refined chemicals and catalogs additives are we expecting one buyer for both or two and do you think both will be announced before year end.
Hey, John This is Scott.
So we are expecting that we'd have to different buyers for those two different businesses discussions continue favorably on both of those a little bit too early to call exactly when we'd be able to announce announcer deal on either one of them, but obviously, we're pushing hard to do that.
The backstop is also related to economic uncertainty and so we just got a I think we've just got to get through the winter period, and the increasing covid cases, and whatever the government reactions to this or to fully understand kind of where we ended up in 2021, and it's really just to say.
Devalle for us in case things go the wrong direction.
And the banks have been very supportive supportive of us in our story so really appreciate their contributions.
And then you mentioned in the third quarter the benefit of a timing talents in shipments to to Yankee was that a catch up from two Q. It doesn't sound like it's a pull forward from the fourth quarter given the strong four corner guidance.
You've got a right John it was really a catch up from from the queue to uhm shutdown that they had.
And just from an accounting perspective, <unk> takes more product we ended up getting that equity income immediately so it helps helps our bottom line.
Okay. Thank you.
Your next question comes from Iran.
With RBC capital.
Great. Thanks for taking my question good morning.
Yeah. Congrats on the results definitely nice to see the the cost reductions playing out I just wanted to ask about about the contracting side on lithium.
I think you had offered concessions to some of your customers this year in 2020.
Did you find the need to extend those concessions into 2021 could you just maybe comment on the contracting environment out there.
So we've well we're in the process of.
Having those discussions with our customers. So the I mean, you're right. We made concessions late 19 for the 2020 period. They were one year concessions market prices lower than it was at the time, we made those concessions today.
And so what we're having discussions about what that those contracts will look like.
Four 2021 at the moment is too early to kind of give any.
Too much guidance on exactly what that looks like we're having those discussions today.
Okay, I appreciate that and.
And then I guess on that note.
I imagine that you may be extending a rolling over maybe three year contracts that you signed up and and 16 or 17.
Is that going on when do you expect to do that and I guess would you expect to revert to the the prior price umbrella on those contracts or is there.
Potential for.
Those negotiations to results in.
Pricing closer to market levels at this point.
Eric do you want to talk a little bit about those contracting strategy.
Sure if so to answer that first part of that question Erin.
We don't have any contracts any major battery grade contracted turnover next year, it's not for the following year in 2022 that we have.
One that does turnover.
That being said it might be worthwhile to discuss what we're trying to do right and with our contract. So just as a recollection, what we shared in the past we're moving from what previously was a singular fixed price contract for all customers to a more segmented approach and really putting that into I would put it simply into.
Three buckets, one is there'll be a group of customers that that as we talk in the future.
With them and we've actually had some new customers coming in so we have some brand new L. T. H, one we've signed during the quarter.
That is what prospectively for the cabinets and volumes when they come online.
So.
That first category are people that really want very little.
Bolotin witty and their price and our will and as a result, we are we are looking at are negotiating a fixed price with them, that's well above current prices and favorable investment economics for us.
There is a second category that may want to have a little bit more volatility, but not quite so much. They don't Wanna. They don't want to have a nosebleed price when the market recovers and we're existing on the floor that we have we can earn.
We'll reinvestment economics over that pricing cycles back that second category and then there's a third it'll be price Myers now are <unk> and the way. This is shaping up is that we expect about once we have moved from this old contract structure to the new in this price concession. We gave this year that bridging between the two two contract structures.
Is to have about 20% in that price bucket and about 80% in the first two buckets and at that 80% that drive our capacity expansion what they what they commit to us to in these on term contracts as the basis for are adding capacity overtime and any access is what we would then sell it to the to the price market. So we don't we don't bill for that.
Price market, and we don't commit very long to that price market.
That's the strategy, where we are today quite encouraging we're starting to see with as as the second six months of the year is come come about and you're looking now and of 2021 is a very strong we believe demand curve associated with it and we're starting to see that already in Europe were already 15% up year to date.
With that with those those positive signals coming through the channel, we're seeing more and more customers coming to us and wanting to talk with us about long term contracts that have favorable reinvestment economics to us or transitioning their existing legacy contracts to that new structure. I. Just described in a way that allows favorable reinvestment economics for us and that.
Is absolutely Paramount because I think a lot of the rest of the industry. That's still buying a price is not appreciated. The fact that at current prices no one's gonna expand and there isn't gonna be sufficient lithium for them and so having more and more customers, including automotive Oems become aware of the need for.
Reinvestment economics on behalf of the lithium and supply industry is is starting to turn the tide.
2021 will be because of the pandemic, it's going to be a bit of a transitional year. We're still working through that that's why there is some uncertainty and of course, we talked about the weakness already in carbonate, but maybe that's helpful. Additional context to your question here.
Oh very helpful. Thanks, a lot Eric.
Your next question comes from Lawrence Alexander with Jeffries.
I could you.
Since for your current thinking around inventory management, how much of an inventory build you need to do next year.
To prepare for the growth curve, you expect from 2022 to 2023.
Okay. So I'm, assuming you are talking about lithium.
That's where we all the inventory questions come from Thunder Glenda.
Find that so next year I mean, we've been inventories probably in the channel. We don't think it really changed much from what we said in the last quarter.
We're saying.
Demand is picked up and it feels better but we don't have data to say that inventories any less than it was last quarter. So that still has to be worked off but given the demand profile, we see in 2021.
And our limited capacity, we kind of we don't expect to build inventories. There we would expect to actually will work those down and then we're working off of what we would consider kind of standard inventory in the channel. So we don't see it building at least from our perspective.
Through 2021, we see us working working inventories off.
And then can you <unk> and then for bromine given the trends and market.
Negative factor did you see keeping the bromine improvement next year at a fairly modest.
And that's why you want to make a few comments on that sure.
I think that the biggest impact versus the overall macro economy.
We tend to be driven by global GDP. So that's really the limiting factor for US is how fast. This thing is going to come back and is it going to come back in a stable consistent way is you're going to be lumpy and right now it's just a little bit unclear how that recovery is gonna take place across the globe in 2021.
Thank you.
Your next question comes from a line of Joel Jackson with B M O capital.
I just didn't Robyn on food cool can you provide some more order of magnitude around the guidance of catalyst EBITDA. You expect next year, you reasonable to be about halfway between 2020, and 22 or is it more likely to be above or below that level. You can just kind of walk through some of the building blocks to get there.
Hey, Robyn this is Scott, let me make a quick comment and maybe Raphael can give some additional color.
It's really going to depend on <unk> on a refinery utilization rates as well as transportation fuel demand and given what we're seeing in projections right now it's likely in the bottom half of that range that you just gave versus the top half.
But maybe rasiah you can add some more color as to what you're saying.
Hi, Robyn I think Scott characterizing correctly Scott.
But over the next six months I think we'll have a much clearer picture as to what that recovery will look like as we see demand recovery, we see margins progress.
Refineries, we will have a better sense of that but.
At least.
Robinett, while it's going to be a challenging 2021 a.
Better than 2020.
This is still very focused on the right.
Return to growth in the future with a focus on chemicals with a focus on.
Refineries east of Suez, We're demand continues to grow so while we have a challenge. We also have been strategies to establish us for long term recovery and growth.
That's helpful. Thank you. This is a follow up I apologize did I hear correctly really gonna call that was mentioned that lithium EBITDA will be closer to lap for next year I assume the cost savings Olympians portion of the cost savings exhausted and at that time.
Pricing is that right.
He is Robin. This is Scott I think I think you have about right, it's really a little bit early to call exactly what the number is gonna be but.
Lithium EBIT should be flat to maybe down a bit just given the dynamics that we're seeing.
Okay. Thank you.
Your next question comes from the lineup.
P J.
Drove car with Citigroup.
Yes, hi, good morning.
So it looks like you know you'll have some limited capacity growth and you might lose some share next year.
Why couldn't you build inventories in full queue here to sell so as to not to lose sure and then secondly, you. Some of your capacity is still I don't like the word you're not mine and what does it take for you to start that back up.
Ken would you like.
Yeah I'll start so first question about inventory so I mean, there's there's a limit on inventories on hydroxide.
And there.
They're a little more than normal in the channel and.
We would actually shut down some facilities to manage that a little bit because there's a light on hydroxide. So you want to be careful about how you manage those inventories.
So it and we'll we'll work through those inventories. The next year. So we'll be able to probably will sell more than we will be able to make so we are doing that to some degree, but we're limited by come to life of of hydroxide, and that's where that extra demand comes from.
The other question on low Donoso hour limitation is on conversion capacity right. So origin does not producing but that's because we can't because we don't have capacity to convert that so kemberton bring.
Brings us gets us going in that in that direction and then we would just we have to manage between <unk> and Palestine about how that.
How.
What resource we use there so but we're limited more on conversion capacity, so we'd be neat needing to add additional conversion capacity to take full advantage of our resources.
Yeah, just to add cannot this year PJ, we're selling all the hydroxide that we can make so we're sold out this year in fact.
We have made the concessions we talked about on price and the leverage for that as we're getting we're getting the volume this year that we planned the reason for the <unk> the.
The upper guidance for the fourth quarter. So we're getting what we intended in fact, we will be up year over year on volumes overall respect industry to be down. So this will be in that regard to a solid year for lithium as you go into next year can't hit it conversion capacity in fact, our ratio of mining capacity to conversion capacity.
Mining potential to actually conversion bats about four to one so it's about more conversion assets and we're being as we talked about in terms of managing our cash flow and managing our profitability very disciplined about how we bring that converge pack capacity to market next year will be a flat year, but we'll have significant capacity, we bring on and and <unk>.
Thousand 22, and being a position as we ramp those clients to recover any loss ground, we have with our customers desire earlier said, we've also starting to.
Drop new contracts with customers before that volume in that year.
Thank you for that color you know, it's interesting you're saying conversion capacities the bottleneck.
Maybe related to that can you talk about what's happening to conversion capacity in China I know the at some point by can 15 16. They are constrained they overbuild, where do we stand unconverted and capacity utilization in China can you just give us some update there.
And could you also could you take some of your volumes into the Chinese third party conversion. Thanks.
Eric you want to.
Sure.
So in in China as you know these Chinese converters now I assume you are talking not about our integrated competitors, such a peon hsinking and you're talking about other non integrated producers those or do not own a resource they're dependent upon economics right in their their net buyer of they have to buy their rock many.
Of those mines had have been curtailed.
Altera being the latest victim, a low market prices they've been able to operate so supply for Iraq has dried up and they've been.
Getting themselves through available inventory.
That's one factor another factor is day themselves that current carbonate prices are are are breakeven at that and most of our operating at a loss.
See the price in China spot price it can China below Marshall cash cost so it's pretty challenging economic picture for those producers and a market recovery, we expect that capacity to come back and China's going to remain a very healthy market for lithium into the future. So I think there's going to be a place for those producers.
In terms of our going in as you know we're looking in terms of growing our capacity, we've talked about buying versus building capacity. We still are evaluating that approach and that never made the Bible expansion.
Route process the way, we got the capacity we have today the basis for how we got our current Chinese conversion capacity.
We are less inclined, particularly for hydroxide, which is the growth part of the market, where there's a lot of process knowhow quality differentiators to teach at 12 producer how to do that.
That's proprietary knowhow that we would we would be concerned we'd lose if we were to toll so our bias would be to acquire.
Great. Thank you.
Your next question comes the line of Mike Simpson with Wells Fargo.
Hey, good morning, nice quarter Uhm as I recall, you've got a $40 million in carbonate coming on and and I guess I'm 22, and 50 is hydroxide and 22.
How much of that is already sort of contracted out and and how long do you think how long do you think you'll take to to sell those out.
So your numbers are right, although they are not going to it's not going to turn on day, one at those capacities right. So there's a ramp.
And our manufacturing processes to get us up to those full capacity. So they will they will come on all it when you just turn to switch. Unfortunately, it doesn't work like that.
And Eric you Wanna talk about kind of the ramp of sales versus production.
Yeah, So where I mentioned earlier like that we are on the particularly on the hydroxides high which the tighter market we are entertaining.
First of all we already had longterm contracts actually longterm contracts that had earmarks, if you will against that capacity when it came on.
And now we are having additional countries. We signed one recently as I said during the quarter.
To increase that utilization of that plant and we're negotiation with still others. So I don't think I'm, where liberty yet to share the details of exactly how much but I would say a significant portion of the camera and capacity as well assured from a sales standpoint on the carbonate side little different most of the carbonate market is.
Is increasingly in China.
As you know the China market is a much shorter term contracting market.
We have been very diligent to maintain relationships with with our existing capacity I will never wanted to relationships an ongoing beim relationships our sales to a number of leading Chinese producers with whom we are talking about growing our business.
We are talking with him about about committed volumes.
The nature of contract and that was different with so it's going to be a little different with carbonate in terms of will be closer to bringing it to market before we have firm prices with <unk> for that for that volume.
Remember that whereas the law and the cost curve. So it's still very attractive business. Notwithstanding the fact that won't have some of the same long duration contracts that we see on the camera inside.
Right great. Thanks, and then a quick one on catalyst any thoughts on pricing for STC heading into 21.
Raphael and you want to comment sure like this is Raphael I think pricing in FCC has been challenged in 2024 non-contract volumes. So there are non specialty non-contract volumes have been under the most pressure.
In response to.
And decisions by refinery to look for proper special less less specialty catalysts in order to.
Help their near term economic pain now going into 2021, I think it's a trend will continue I mean, I think we'll continue to see pressure on non contracted volumes, but where we create a differential.
Value, namely in areas like high propylene yield I think we'll continue to hold on to price and.
Remains strong in that area.
Great. Thank you.
Your next question comes from a line of Chris capacity with Luke capital markets.
Yeah. Good morning, Thanks for taking my question, so sort of a follow up on.
Comprehensive comments about the.
Shifting approach to their contracts and really I guess.
Against the context of some of the anecdotal commentary about hydroxy versus carbonate. It seems like the oversupply, it's still a little more acute and carbonate versus hydroxide. So and then you. Obviously have this tension about you know some customers wanting near term pricing relief and others, maybe more focused on concern.
Turns about longer term supply I'm wondering if those conversations reflect this bifurcation hydroxide versus carpet and if you could take another you know a little bit further as it is just plays out is it more likely in the context of those buckets that you described Eric more likely that the hydroxide guys are gonna fall.
Bucket, where.
They want you know fix prices security of supply and the carbonate customers are more likely to be willing to play some of the volatility.
Sure I any advanced comments can before I Die then no go ahead.
So I think the reflection about.
Everything I've described and you asked Chris is both there is a difference between carbonate and hydroxide more of the carbonate market going forward will be in China.
And and to date I don't see the same approach to security of supply in terms of contracting with us or with anybody for that but volume.
I'd, rather icy that the market tends to be content to go for a short duration on the bed that resources will continue to come online converse, perhaps continue to come online and there'll be sufficient capacity.
And there's also a bifurcation based on who's buying right.
More of the purchasing decision is moving.
Closer to the point of view, so it's moving to the battery producers in the automotive producers.
And day, given the investments they are making in the length of supply chain, whether it be carbonate or hydroxide tend to want longer that's charity that they're going to have it.
Because of the size of investments, they're making not everybody's doing that but increasingly more are and more becoming I think appropriately aware of the need to do that.
So it's also who we're contracting with and and he's on some contracts. It plays a factor in that.
Yeah.
Oh, Okay. Thanks for that and then just as a follow up you've I think it was the last quarter you characterize the the inventories that you saw on the supply chain.
Any update on on that and also just the any changes to the timeline on the idling of your convert your hydroxide conversion facility in North America. Thanks.
Yeah. So we have so first of all I'll, just reiterate reiterate what Kent said, okay. It is imperfect beat the science of assessing how much inventories of the channel. We can survey our customers and we do and that gives us a basis for understanding that we obviously don't know what our competition holds M. A.
And some of help quite a bit.
If we look at it things net net the overall months of inventory and the channels. So about the same as to what three months ago five months five months of excess roughly speaking, though I think thats shifted there's probably more carbonate then hydroxide now so carbonate has built up a bit and hydroxides drawn down a bit again, we are probably wrong about that but directionally.
Correct, it doesn't feel that different cause a little bit better because I think that's the pull on hydroxide, but not too different I'm, sorry that you had a second part of your question Chris.
The timeline of your idling of your head Yeah. We have we are in the process of restarting the Kings Mountain hydroxide facility now employs are returning.
Sooner than we thought and that's based upon the improvement we're seeing for demand next year and some of the earlier questions around can you can you. Please try to get more volume next year. So we're ramping that plane up it's a small plant. So it is a very small impact to the overall volume growth, but we're starting that up and silver peak, which is the feedstock plant that seed that hydroxide plant with the.
Carbonate feedstock.
Well restart on schedule beginning of the year 2021.
Oh.
Your next question comes in the line of color and rush with Oppenheimer.
Thanks, So much guys can you give us a sense of how mature the conversations are on the finance inside it sounds like things are going pretty well and there's some pretty meaningful opportunities to reduce your cost Catholic going for it but just curious how far down the road you want with that.
Yeah, we're well advanced in those discussions so.
So feel comfortable about where we're headed.
Excellent and then.
The lesson Martin has been pretty local labor, but I'm just curious if you're seeing any consolidation in terms of battery Williams.
Given where we're seeing capacity editions it looks like there's going to be you know a handful of folks that really strive out here and if there's any consolidation kind of below that with some of the.
The cathode producers uhm as soon as you look out over the next three to five years.
Eric.
Yeah sure can so on the battery Oem's I I don't I don't be interested to see what you see calling because we don't see that in fact I've seen the opposite you've seen new players come into the market not not very recently, but companies like northolt come into the market for Europe.
And many other multinational to have played around the space in the past I think looking to come in to support the growth of the European market. So I see I see more players coming into the market and the batteries that'd not less and some of that is being supported and driven by the automotive Oems. So I think want more off they want some some some negotiating leverage right and once they once more opt.
<unk> or they want more localized options for for in the case of Europe on the cast outside it is it is constantly changing right. This is this is the part of the market that has as as I said is is not necessarily directly involved in the purchasing decision as much anymore, yeah as being as being told what to make either by the automotive OEM with battery maker.
So they're losing some of their their power in the decision channel and so I do expect some change consolidation I can't point to any obvious ones now, but there is disruption there's people gaining sharon losing share and so I think that will continue to see evolution in that part of the channels and also some backward integration you have some battery makers now I'm building.
Their own and housecat them capabilities.
Super helpful. Yeah Love to have a conversation offline.
At this time, we have no further questions I will now turn the conference back over to Miss Mandy.
Alright. Thank you all for your questions and your participation in today's conference call. It's always we appreciate your interest in Abu now and this concludes our earnings conference call.
This doesn't close today's conference you may now disconnect.
[noise].