Q4 2020 Albemarle Corp Earnings Call
Ladies and gentlemen, thank you for standing by and the welcome to the Albemarle Corporation Q4, 'twenty and 'twenty earnings Conference call. At this time all participants are in a listen only mode. After the speaker presentation day would be a question and answer session John.
Good question during the session you will need the press star one on your telephone. Please be advised that today's conference is being recorded if you require any further assistance. Please press star zero and I would now like the other competency of speak of today Meredith Bandy V. P of Investor Relations and sustainability. Please go ahead ma'am.
Alright, Thank you Joelle and welcome to Albemarle, It's the fourth quarter 'twenty and 'twenty earnings Conference call. Our earnings were released after the close of the market yesterday and you'll find the materials posted to our website under the Investor Relations section at Albemarle Dot com.
Joining me on the call today are Kent Masters, Chief Executive Officer, and Scott Tozier, Chief Financial Officer.
Raphael Crawford President catalysts, Naphtha, Johnson, President bromine and Eric Norris, President and lithium are also available for Q&A.
As a reminder of some of the statements made during this call, including our outlook expected company performance expected impacts of the COVID-19 pandemic and proposed expansion projects 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 the comments today refer to financial measures that are not prepared in accordance with GAAP. A reconciliation to these measures to GAAP can be found in our earnings release and the appendix of our earnings presentation, both of which are posted to the website.
And now I'll turn the call over the counter.
Thanks Meredith.
And thank you all for joining us today.
On today's call I will highlight recent accomplishments and discuss our strategy to capitalize on the very attractive long term growth trends, we see for our businesses Scott will give more detail on our results outlook and capital allocation.
I'm pleased to say that Albemarle reported solid fourth quarter results, including net sales of $879 million and adjusted EBITDA of $221 million, both of which were at or above the high end of our previous outlook.
And I'm also encouraged by the rebound and we began to see and the second half of the year, particularly for bromine and lithium.
We expect to generate full year 'twenty 'twenty, one net sales of between 3.2, and $3 3 billion and adjusted EBITDA of between 810 and $860 million both up from 'twenty 'twenty results.
As I'm sure you're aware earlier this month, we completed a 1.5 billion dollar of capital rates.
The proceeds of this offering provides the financial flexibility to execute our long term strategy, including the acceleration of high return growth projects.
Now if we turn to slide five we have a clear strategy to drive sustainable value for our shareholders.
Albemarle has four primary steps.
This.
First.
We will grow profitably, we have identified and planned and portfolio of low capital intensity high return projects the.
These projects lever our diverse world class resources in both lithium and bromine.
Over the past five years, we have built the internal team and capabilities to execute these projects on time and on budget.
In addition, we have the long term commercial relationships with customers that are required for these projects.
We are working to ensure that we are aligning with their strategic requirements, while achieving adequate return for our shareholders.
Of course, the majority of our growth will be and lithium but at the same time, we will be investing and our bromine projects. This will include highly efficient brownfield projects with attractive returns and short paybacks and I'm sure nothing we'd be happy to give you more details when we get the Q&A.
Second we will maximize productivity.
Over the past year, we have optimized earnings and cash flow generation across our business, including our very successful sustainable cost savings program.
Operational discipline is the central for generating cash flow and supporting growth and we will not take our eyes off the ball, even as we move into and accelerated growth phase.
Third we will invest with discipline and.
Focusing our capital investments on our highest return opportunities just as we have and the past we will actively assess our portfolio for opportunities to unlock shareholder value. We will also continue to maintain our investment grade credit rating and support our dividend.
Fourth and finally, we will advance sustainability across our businesses, which is a core value, which is the core value for Albemarle.
Our aim is to increase sustainability throughout the value chain from the resource to the and use of our products. Most recognizably, we develop lithium products that enable the reduction of greenhouse gas emissions through the adoption of battery electric vehicles, our catalysts business contributes to the sustainability by helping refiners produce cleaner transportation fuels.
And our bromine products contribute the consumer safety of preventing fires and electronic equipment.
Yeah.
With continued regulatory changes and advancements in technology and investments and infrastructure like charging stations. The current environment is ideal for a step change and EV adoption we.
We are seeing this play out and the acceleration of global EV sales led by a rebounding demand in China, and new demand and Europe Global EV sales increased 45% during 'twenty and 'twenty and are expected to increase by over 70% in 'twenty and 'twenty one.
On the right hand side of the slide you see demand projections for lithium over the next five to 10 years based on our internal estimates, we believe demand will reach more than 1.1 million tons by 2025 up from around 300000 tonnes a day.
This is slightly higher than third party projections from industry analysts like benchmark minerals raw skill and the C. Are you see are you group, but as you can see the consensus is that the industry expects to see significant growth and the coming years.
As the industry leader and lithium Albemarle is able to take these external estimates internal forecast and discussions with our strategic customers and suppliers to generate a detailed demand forecast on slide seven you see other metrics, we use to gauge the future of the lithium market.
While Albemarle is demand demand outlook for lithium is above third party estimates are outlook is below some of the more ambitious targets from automotive Oems for example, Tesla vision of three Terawatt hours of battery production by 2030 would translate to roughly two 3 million tons of lithium that means that test.
And this demand alone when it seat estimates for the entire market.
Additional regulatory impacts for example, if the U S decides to adopt more of European like EV incentives would be incremental to our estimates.
Total lithium demand is expected to grow by about 30% per year from 'twenty to 'twenty to 'twenty twenty-five led by lithium consumption of electric vehicles, which is expected to grow by 47% per year.
Two other trends support lithium demand increased adoption of battery electric vehicles and larger battery size.
Battery electric vehicles, and larger battery size improve the consumer experience with longer driving ranges and innovation and batteries is also driving shorter charging times.
It's important to note that this outlook does not assume a major shift and battery technologies over the next five years advanced battery technologies like solid state batteries could potentially increase lithium intensity later this decade.
Yeah.
Since 2015, we've nearly tripled our nameplate conversion capacity to 85000 tons per year.
Later this year, we expect to complete two major projects, which we refer to as wave two.
Wave two consists of our la Negra, three and four project and Kim written one and two projects, which will more than double our current capacity to 175000 tons per year.
Over the last five years, we engaged with our customers with long term volume commitments to execute this portfolio of projects now with this new acceleration and demand customers are asking us to repeat the model.
Our next two waves of expansion could once again more than double our nameplate capacity with lower capital intensity. We expect these projects to generate very attractive returns.
The identified and planned wave three projects would add 150000 tons of annual capacity over the next three to five years.
And this third wave and includes a conversion plant in China, which would be part of our normal marble joint venture.
A smaller expansion at our silver peak asset and Nevada.
Another plant in China on our new Mega site.
And Kim written three and four of Brownfield project and Australia.
We also have identified opportunities for our fourth wave of projects. These could include further expansions and Australia, China, and southeast Asia, and the potential to restart the mine and expand our conversion facility at Kings Mountain and North Carolina.
Wait for also includes options to support customers looking to localize supply for.
For example by converting carbonate to hydroxide near the battery manufacturer.
And before we continue let me update you on our wave two projects.
The linac grow of three and four enables us to add lithium carbonate capacity at the very low and of the cost curve. The project remains on track for mechanical completion in mid 'twenty 'twenty one.
Kimberly and one and two are new lithium hydroxide conversion plant in Western Australia is on track to reach of mechanical completion late in 'twenty and 'twenty one Kimberly.
<unk> is core to our hydroxide capacity in line with expected strong long term market demand.
Both of these projects will add significant commercial lithium sales beginning in 'twenty and 'twenty, two following commissioning and customer qualification processes.
As we move from wave two to wave three projects and beyond we expect an estimated 40% reduction and capital intensity to support compelling economic returns we can achieve these capital efficiencies.
And returns for three key reasons first we were able to leverage our experience and project execution by building standardized plants with economies of scale. For example, we expect new hydroxide plant would be of standard two trains or 50000 tons per year similar to what we are building of kimberlin today.
Second in many cases, we're moving from Greenfield to brownfield economics, just as today, we're moving from La Negra, one and two to two la Negra three and four likewise will move from Kimberlin, one and two the kimpton three and four and so on.
As with Kimpton, the focus will be on building, what we call Mega sites standard is large scale plants able to support multiple trains for lithium conversion.
Finally, we'll be buying or building additional facilities and low cost jurisdictions as we did when we successively acquired and then expanded our xinyu facility in China in 2016.
Before I turn it over to Scott to review recent results I'd like to acknowledge all of the hard work by our Albemarle team to continue to operate during the global pandemic as well as their ability to achieve significant progress on our long term strategy.
A year ago, when my predecessor laid out our 'twenty and 'twenty strategic objectives, I don't think any of us could imagine how the year would play out.
Despite all the challenges our team has delivered.
We set ourselves up to grow profitably keeping our major lithium capital projects on track for 'twenty 'twenty one completion.
We maximize productivity achieving $80 million of sustainable cost savings in 'twenty and 'twenty.
60% above our initial targets.
We demonstrated financial discipline, and completing our 26th consecutive year of dividend increases and maintaining our investment grade credit rating throughout the pandemic related downturn.
And finally, we improved the sustainability of our businesses by establishing baseline environmental data and improving our reporting and transparency.
Now I'll now turn the call over to Scott for a detailed review of the 'twenty and 'twenty financial results.
Thanks, Kent and good morning, everyone.
Albemarle generated fourth quarter net sales of over $879 million, a decrease of about 11% compared to the prior year.
But at the high end of our previous outlook.
This reduction was primarily due to reduced prices and lithium as expected coming into the year and reduce volumes and catalysts offset by improvements in bromine.
GAAP net income was $85 million adjusted EPS of $1.17 excludes the pension mark to market loss due to lower discount rates.
As Ken stated adjusted EBITDA was $221 million above the high end of our previous outlook.
Turning to slide 13 for a look at adjusted EBITDA by business segment.
Lithium EBITDA declined by $17 million versus the prior year pricing was down about 20% and the quarter due to contract pricing adjustments agreed in late 2019, as well as product mix.
Volumes were higher than expected due to a combination of improving demand and customers for filling their full year contract commitments.
Cost savings to help offset the impact of lower prices.
Bromine is EBITDA was up about $7 million, the increase was due to higher volumes and higher pricing.
Bromine is overall a good news story the business has essentially rebounded to pre pandemic levels and Q4, they benefited from higher demand customer restocking and some short term supply demand imbalances for both raw materials and finished goods.
Okay.
Catalysts E EBITDA declined by $53 million, primarily due to lower volumes. This.
And this business continues to be the most challenged of the three due to ongoing travel restrictions as well as reduced refinery capacity utilization and margins.
Fluid catalytic cracking or FCC volume improved sequentially, but remained down compared to the prior year quarter.
Hydro processing catalyst our H P. C volumes were also down with a tough comparable relative to an unusually strong Q4 2019.
Our corporate and other category EBIT decreased by $8 million due to a mix of slight slightly lower fine chemistry services results and slightly higher corporate costs.
The F. C. S business is contract driven and can vary quarter to quarter full year results were very strong compared to history.
Compare the comparing the full year to fourth quarter, you can see it and get a sense of the rebound we started to see in the second half of 'twenty and 'twenty, particularly for the lithium and bromine.
Yeah.
We are pivoting capital allocation to prioritize high return growth projects to out to align with strategic customer demand and maintain our leadership positions.
We remain committed to preserving the financial flexibility necessary to fund growth and to maintain our investment grade credit rating.
We will also continue to support our dividend, although dividend growth may be lower than the historical average while we build out the next wave of growth projects that will enable high return opportunities.
Finally, we will pursue of disciplined and thoughtful approach to investments, including M&A and joint ventures.
As we've said in the past the most likely M&A you'd see us do would be bolt on acquisitions of lithium conversion assets in cases were buying allows us to grow more quickly and.
And generate better returns than building.
We are finalizing the sale of our fine chemistry services and performance catalyst solutions businesses and expect to update you in the coming months.
Let's turn to slide 15 for a look at our balance sheet.
The primary use of proceeds from our equity offering is to accelerate profitable growth.
The 90% of.
Or about 90% of the proceeds are for lithium growth with most of the remainder for enhancements to our bromine business.
The returns on these projects are highly attractive and we expect to generate returns of at least two times, our weighted average cost of capital at mid cycle pricing.
These are large and long dated projects with the bulk of incremental spending in 'twenty and 'twenty two through 'twenty and 'twenty five.
In the meantime, instead of holding the proceeds of cash we plan to Delever.
And which will reduce interest expense and cash drag on the balance sheet.
This will enable us to use cash and debt capacity to fund investments as they are approved.
Our long term target net leverage ratio remains two to two and a half times adjusted EBITDA.
Pro forma for the offering we are below that range, but expect to increase our leverage as needed to accelerate growth and deliver returns to shareholders.
Yeah.
Overall, we expect 'twenty 'twenty, one results to improve year over year.
For the total company, we expect net sales to be higher year over year as our businesses continued to recover from the investor events of 'twenty and 'twenty.
Adjusted EBITDA of between 810 and $860 million also suggests potential upside compared to 2020 due to higher net sales and ongoing cost savings.
We expect capex to be slightly higher year over year, as we begin to execute our accelerated growth projects.
However, as I mentioned earlier, the bulk of that spending for these projects will be in 'twenty and 'twenty two to 'twenty 'twenty five.
Net cash from operations is expected to be lower due to higher cash taxes and higher inventories as we start up the two new lithium plants.
Expectations for adjusted diluted EPS of $3.25 to $3 of 65 cents is lower than last year due to higher taxes and depreciation as well as the increased share count.
Due to the recent severe winter weather, we have temporarily shut down four of our U S plants are bay Porte, Pasadena, Magnolia and Baton Rouge plants have been down since Monday.
Once it is safe to do so we will restart these facilities.
And this situation is still evolving at this point.
We expect some impact of Q1 results and potentially Q2.
It's possible the weather will have more of an impact and what is currently included in this outlook and we'll update you if there of any material changes.
Let's turn to slide 17.
Lithium results are expected to be relatively flat compared to 2020.
We expect slightly higher volumes with the restart of North American production least late last year as well as modest efficiency improvements.
As usual, we expect volumes to be back half weighted for lithium.
At this point, we still anticipate slightly lower pricing, depending on full year average realized pricing for carbonate and technical grade products.
Our new contract structures provide increased flexibility to increase price and response to improving market prices.
Lithium costs will be slightly higher year over year related to the startup cost associated with all the negra and Cameron, partially offset by continued cost and efficiency improvements.
And as Ken discussed the long term growth story for lithium is intact.
And catalyst, we expect 'twenty 'twenty, one results to be flat year over year, including higher P. C. S earnings.
We expect the decline in North American refining catalysts volume.
This is primarily a result of one customer who recently indicated that they would deselect Albemarle catalysts due to our public support for electric vehicles.
Longer term, we are continuing to position the catalysts business to grow and emerging markets and capitalize on our strengths as a global specialty chemicals producer in the crude to chemicals market and the renewed renewable fuels market.
Raphael can give more color on the challenges and opportunities we see for our catalyst business during Q&A.
Okay.
And bromine, we expect full year 'twenty 'twenty, one results to improve modestly with continued economic recovery and the return to sold out plants.
And our ongoing savings initiatives should offset the impact of inflation.
Looking ahead, we see steady demand increases for our flagship fire safety products, driven by new technology trends like five G and electric vehicles.
I'll turn it back to Kent to review, our strategic objectives for 'twenty and 'twenty one.
Thanks, Scott Albemarle.
Albemarle finished strong in 'twenty and 'twenty and we are excited about the opportunities ahead of us in 'twenty and 'twenty one.
We will continue to execute our long term strategy.
The successful completion of our wave two projects and investment decisions on new expansion projects and lithium and bromine.
We are also working with customers to reach commercial agreements for a majority of new capacity prior to investing.
We will continue to maximize productivity with operational discipline across our businesses, including cost reduction lean principles and continuous improvement and project execution excellence.
We expect to achieve $75 million of productivity improvements and 'twenty 'twenty one.
We will be disciplined stewards of capital investing and high return growth, maintaining our investment grade credit rating and supporting our dividend.
Finally, we will continue to implement and improve sustainability across our company, including setting near term goals to reduce greenhouse gas emissions at our existing operations and exploring science based target options for all three of our businesses.
And with that we'd like to open up the call for questions Joelle over to you.
Thank you as a reminder to ask the question you all need the press star one on your telephone.
Your question Pester turnkey and the interest of time, we ask that you. Please limit yourself to one question and one follow up please standby, while we compile the Q&A roster.
The first question comes from David Begleiter with Deutsche Bank. Your line is now open. Thank you and good morning, Ken.
Kent.
Cycling and lithium when do you expect it to become a bigger part of the market and what will be Albemarle and roll and lithium recycling going forward.
Yeah. So let me I'll start with that maybe Eric can give a little bit more detail. So I mean, we've got activities around lithium, but we expect that to be a number of years out before it becomes a major.
A major business of basically it has to be enough of lithium in the market to a.
We will report the run its lifecycle and a vehicle and then come back for recycling, So and I think all roll in that and we'll have to look at those business options, but when you see the lithium being recycled theres a component of that and it looks a lot like our conversion facility. So we would anticipate that we would play and that but it's a number of years out before that comes to fruition.
So Eric anything you want to add there sure.
Sure, Ken and David I'd add that we have a number of efforts already with existing customers.
Both <unk> and.
And the U S and in Europe, who are very focused on investing and recycling capabilities and some cases in Europe. It's part of the EU battery directive the.
Those targets within EU for example are still being set and being discussed at the industry's offering its views on technology as are we and when it will be ready.
And as Ken pointed out.
We're doing some novel process development and linking it into how we might run all our conversion plants or adapt those plants and those designs for that capability. So it is early days, but albemarle is really well positioned with its customer base and it's spread across the various cathode technologies and with our global footprint.
To to really take advantage of that trend as it develops and the next decade.
Thank you and and I would guess.
Wave three projects you listed on slide eight.
And what should we see expect a formal announcement on which project will be moving moving forward and how would you rank order of these projects right now and your mind and likelihood of moving forward first.
Yeah, I think the order that we listed them and that's kind of our our order. So we expect to see of our China facility would be the first thing that we would move on.
We're working on that investigating it doing planning around it now, but it's still out of its a point, where it could be and acquisition and then.
And the acquisition usually has some element of work to it before it really becomes and Albemarle facility or a greenfield plant, but where we're working on that now and we'd probably come to a F. I D on that.
Late 'twenty, one depending on whether it's an acquisition or greenfield.
Thank you very much.
Thank you. Our next question comes from Ben <unk> with Baird. Your line is now open.
Hey, Thanks for taking my question maybe.
Maybe just taking a step back could you talk a bit about just visibility and your lithium sales you know as we move into the next year like we see all of these announcements from Big Auto Oems.
And and.
And the smaller startups.
Can you talk about how your sales people.
Those companies and that your lead time to that.
And then maybe Bob.
We began.
And next year going from a I think the street's at like 800 for the millions this year.
To over $1 billion of EBITDA next year.
As for guidance for 'twenty, two but just could you give us some puts and takes for growth and and 22 with with both volume and then how you think about pricing as well. Thank you.
Good morning, Ben This is Eric Norris I'm first in terms of the visibility we see near term, which I think was your first question.
We have two approaches we take right. One is exactly what Kent described and the car, which is a macro to micro approach of modeling demand and that has led us with some of the announcements you've referenced to increase our demand outlook on a macro basis.
That a big part of that is what happens on the ground with our salespeople and our strategy has been and will continue to be to use contracts and secure long term volume that requires a discussion with the customer and commit anywhere from three to five years and of discussion that follows that into the details of what they are looking at from from.
From a specific chemistry location and quantity point of view, so I'd characterize our visibility is quite reasonable and good in that regard, giving us a certainty we need to expand.
And positioning us well and the market to grow with the additional resources we have.
Maybe you could repeat your second question.
My second question of your question was just the.
The the street is modeling of about 20% growth and it's mostly coming from lithium from 'twenty one to 'twenty two could you talk about the all the puts and takes that we should think about without giving without having to give guidance, but you know the you know the volume you're bringing on and how we should think about that versus the.
Pricing maybe.
And maybe rebounds.
The new contracts.
Yeah, Ben This is Scott and I'll I'll take that question. So as you look into 'twenty and 'twenty two of the volumetric growth coming from lithium and with the startup of Lindbergh with three and four and camera to and wanted to is clearly the highlight for that year. However, we do see continued recovery in riffs.
Finding catalysts as transportation fuels and refinery utilization continues to improve.
And potentially some additional growth in bromine and some of those early growth projects come to come to fruition and we're able to place that into the market. So I think we're well positioned going into 'twenty and 'twenty two to see very meaningful and high return growth and in that year.
Great. Thank you guys.
Thank you. Our next question comes from Chris Capps with loop capital markets. Your line is now open.
Yeah. Good morning, Thanks for taking my question. So on the upward revision to your 2025 lithium demand forecast and you pointed to obviously, the EV penetration and the mix of the beads larger batteries of the drivers I'm. Just wondering if you could provide color on on the outlook from a hydroxide burst and.
The carbonate standpoint.
And just curious if the you know the upward.
Revision is.
Tied mostly the higher energy density he needs and therefore more skewed towards hydroxide.
Good morning, Chris So relative to the demand question of the mix of it is.
Weighted towards hydroxide, if you look at the market today, we see it being sort of of 30 70 split.
And by the top 30% of hydroxide that was being that value and if you look out to 'twenty.
The 25, and there's going to be some error bars on this of course, but it's about 60 40, 60% of hydroxide. So the the large part of the growth is in hydroxide high nickel chemistries, it's not to say there isn't growth and carbonate for a more.
And more conventional technologies like L F P, but to enable the the the growth targets of the western Oems in particular, and the range Theyre looking for and energy density, it's gonna be hydroxide, and that's true even in 'twenty and 'twenty one the rate of growth, we see of for demand and 21 is incrementally higher for hydroxide and as for carbonate.
And as you know Albemarle is well position no matter, which way it goes because we have capacity coming on and we're doubling our capacity and both product lines.
As we roll forward and look at wave three of the predominance of that is going to go towards hydroxide for the reasons I just referenced.
Got it that's helpful and the follow up is regarding your comments about your contracts, which sort of are seemingly kind of non sort of a perpetual renegotiation right now, but but what.
You mentioned the ability to lift prices higher.
Im curious if theres also of a floor and the renegotiated contract and it applies to bolt EV supply chain customers and and and industrial grade customers also and then just any color on just the the tone of the the conversations given that the world kind of has changed over the last three to six.
Months, if the if the if it feels like the the leverage that shifted back from from them to the suppliers given.
Maybe concerns about the security of supply.
<unk>.
Yes, the all Oh I'll start with that and then maybe Eric give some color we're not sure, but I think for the industrial customers I mean, the long term contracts were mostly in the EV market. So when we talk about our long term.
<unk>, that's about the EV market EV market less so on the industrial side and I don't know if the leverage yearly has shifted but it has changed the tone of the discussions and it's.
We we still sit with our long term prices above the spot market, even with the moves that we've seen but there's less pressure on those contracts is not that there's no pressure on those contracts, but there's I would say less pressure if that trend continues it will kind of moving the same direction, Eric you want to top that off.
And the only thing I would add Ken and Chris is that these contracts you've characterized them Qantas at our Chris is if they have been perpetually and negotiated and that they may be one size fits all that's the change we did make an adjustment of concession as the market.
Pricing collapsed a year ago and now we're moving into restructuring these contracts based on customer needs and.
And and Theyre going to be some that are going to look like spot and that's gonna beat as Ken pointed out some of those contracts and the T G area, and perhaps and the China market.
There's others are going to be like the old variety, but the the vast majority is going to be variable based pricing that reflects some market index of global index not necessarily just China.
And that's positioning us well as we go into <unk> and improving market from a price standpoint.
And to benefit and a <unk> from.
From a growth standpoint.
Very helpful. Thanks.
Thank you. Our next question comes from Laurence Alexander with Jefferies. Your line is now open.
Good morning, So I guess two questions first Paul on the recycling comments earlier, it's the message that you will engage and significant recycling. When the returns are double your WAC or is it that you are engaging and a significant amount of R&D to try and position yourselves for when that market develops and I mean like all your subsidized.
And the market to some of the development to some extent.
And secondly, can you speak to the trends and conversion costs as the specs change of the automotive Oems, where the costs rising or falling over the next few years.
Yeah, so on and on.
The cling of Pink I would say, it's really we're investing we're investing in R&D process, but we're actually we're talking to customers and about one of the business model might look like but it's really and early phase of that and it's and we're investing at this point and trying to figure out what the business model would look like and what our role would be and that but we're also investing in R&D to kind of get us there.
There. So I don't think we're we're not sitting and waiting till we get the returns that we expect AR and the kind of the biggest driver for that is there's not going to be no lithium that's coming through the lifecycle to feed our recycling processes for another on another a number of years.
And.
Okay.
And I'm sorry, the second question.
And just with respect of some auto OEM us, whereas the battery specs are evolving as the.
Inversion costs, rising or falling and if it becomes tougher to meet the specs.
Yeah. So I mean, the the the specs are evolving and but I don't know the processing cost of really going up so we're driving hard on productivity and try and drive those costs down there are and some cases some steps that we've modified in order to meet some of the specs are around crystallization of.
I don't think it's driving the cost up at this point, but it and it but it's probably offsetting some of our productivity gains, but it and it's as it gets more sophisticated but we get better at making it a lot of that's about process control. All we are looking at one step and the process that we have to add in which would add a little bit of cost by all.
We would at all at a minimum we'd offset that one of their productivity.
Thank you.
Thank you. The next question comes from Mike Harrison with Seaport Global Securities. Your line is now open.
Hi, good morning.
Wanted to ask about the lithium business and your pricing and mix. You said was down 20% typically I think about pricing, it's flowing through pretty directly to the bottom line and so that 20% decline would've been something like $80 million of and EBITDA headwind yet your EBITDA was.
The only down $18 million.
And so how did you make up a fairly significant difference it doesn't look like volume would've been.
The big enough to make that up on its own.
Yeah. This is Scott I would I would point to there is volume growth and the in the quarter on a year over year basis, but also we're seeing the the results of our productivity actions.
From a cost perspective, and so that's been a big focus that we started in 2019 as we're as we're trying to maximize the productivity and not only and have the the world class resources that give us low cost, but also have low cost operations and and we're seeing the benefits of that very clearly in the fourth quarter.
And we'll we'll see benefit of of that of in the in 'twenty 'twenty, one as well and both on the cost basis, but also we're seeing some volume metric growth just from the yield enhancements and improvements that the engineers are able to get out of our plants.
So all all all pointing in the right direction for us.
And I would add to that and I mean, those productivity improvements that I mean, they flow through it's much more difficult to get them and flat volumes as we get volume growth that was really starting to show up but there'll be new facilities, which will lead and kind of redo the playbook on productivity again, but I think as volume grows those really show up more.
Understood. Okay, and then over on the catalyst side, you mentioned, the change and customer order patterns of affecting maybe the cadence of the year, but I wanted to dig in a little bit on this customer that Deselected you guys because of your support for electric vehicles.
And do you see that as kind of a one off happening with the specific customer or are there other customers, where and you see this coming into play.
Going forward.
Yeah, so difficult to predict the future, but we kind of see it as kind of one customer took exception and all we're going to work pretty hard to gain their confidence and get that customer back.
But they've kind of taken a different view at the moment.
Alright, thanks very much.
Thank you. Our next question comes from Nathan.
Nathan with RBC capital markets. Your line is now open.
Alright, Thanks for taking my question.
And I'm just curious on the pricing outlook.
And you commented that maybe you're all.
Overall pricing would be down a little of it.
Year on year and in 'twenty, one versus 'twenty.
And we have seen some initial.
Initial improvement and pricing I guess and certain market. So maybe you can just give us your thoughts on how you know price and both carbonate and hydroxide evolves through the year as you see it and and and maybe if there's any regional differences between China and North America are that'd be helpful. Thanks.
So I'll make a comment and Eric can.
Add some color, but I mean I think.
I think we see the same numbers that you're seeing around spot prices. So they have moved China spot prices, So we sell and little to no volume and China on a spot basis. So it's not directly applicable, but it is indicative of the market but.
We've not really seen prices change outside of China for the contract prices, we haven't really seen but as I'd said earlier it lessens the pressure on our discussions with customers. So it's not as much downward pressure as all of we we'd seen paid second quarter third quarter of last year, because the spot prices have turned up.
But we'll just have to see how it plays out during the year at the moment the spot prices are still below our contract prices. So it's not like a sea change if it continues to move.
And that could give us some upside but at the moment that those prices are still below our contract prices.
And so I'd add to that or and that if the prices.
In China that you're seeing are largely carbonate and of largely inflected in the past two months.
It's a bit early encouraging sign but a bit early to extrapolate that to the world and as Kent pointed out our business is biased to more of a world, where ex China prices and in China prices and most of our outlook is around carbonate and T. G products not of Brown necessarily battery grade hydroxide, which is relatively flat and this outlook. So it's it's and encourage.
<unk> signed and the way we've got our contracts structured should it continue broaden and deepen over time that trend than weird and extremely good position to benefit and benefit from that going forward and we'll just continue to watch it I would say, it's a matter of from where we are today, it's not a matter of if price.
And as inflict inflect upwards broadly, it's just a matter of win in 'twenty and 'twenty, one as a transition year.
I think as we go forward and the futures is going to get pretty tight.
Great. Thanks for that detail and maybe you could also offer your thoughts on maybe a little bit longer term. You know you noted that it is going to get pretty tight.
Would you expect pricing.
Pricing to kind of head back towards prior peaks that we saw and 17 and 18 and also maybe you can just comment on on that as it relates to spodumene as well. Thanks.
Yeah, So I would say I mean, we're predicting the future right and this industry has really only been through one down cycles. So we're coming off that we don't anticipate that prices moved back to the peaks that they were before but we don't know that so I think I'll leave it the I'll leave it at that.
Yeah on spodumene, the weird because of what's happened in China, what what's really the reason we believe prices have spiked and China is a fundamental shortage now of of available of carbonate inventory and and available spodumene supply and inventory. So what that's meant is now prices have started to inflect.
<unk> upward for chemical grade spodumene.
Which should that trend continue will will provide more supply and to that market to meet that meet that need.
And what that all means from a future standpoint, as Ken said the hub of calculus.
Too hard to say given the the maturity of as this market and we'll continue to watch.
Our next question comes from Vincent Andrews with Morgan Stanley. Your line is now open.
Thank you. Thank you for taking my question I just wanted to bridge the wave three on slide eight with sort of the the plans from when you when you did the the Marvel JV.
And just looking back at that slide you were going to build two stages of 50000 tons of LTE Atwal Juneau and it was gonna be of 1 billion six split between the two parties.
Doesn't seem like you're still planning to do that at watch and a.
So what what's changed and why and and that billion six number as it relates to 250000 ton plant is that still a good approximation of what it would cost and Australia.
And really it's less and China, just if you could just help us bridge that that would be very helpful.
Yeah. So I mean, I guess, our plans around the marble JV of have evolved but the cut so the initial conversion.
As is the Kimpton, one two and then and as we see it today the second conversion facility and the second 50000 would be and China, and then that would be probably that first project that we were talking about and the wait three projects.
Okay, so, presumably that's going to come in and lessen the Australia and Capex costs. This year and fish does that correct yep yep, absolutely soap it'll be it'll be quite a bit less than western Australia plant.
Okay, and if I could just also ask what is the plan in terms of the Washington facility, I believes and care and maintenance mode. Right. Now do you intend to leave it like that or do you anticipate bringing it back on line at some point this year.
Well I don't know about this year. So we just have to see how we evolved as the Kimpton project comes on and then we accelerate growth and modernize and our plans for being a resource at the very good quality resource. So it's there.
All off the top of I don't want to commit to when we bring that resource on but it would be as we start into these phase III projects of when we would need that and beat that resource.
Thank you very much I really appreciate it.
Thank you. Our next question comes from Kevin Mccarthy with vertical Research partners. Your line is now open.
Hi, Good morning, this is corey on for Kevin.
And as it relates to all the bromine business.
One of the 19 Investor day, and you talked about expecting new resource discovery and expansion of offshore drilling.
Obviously the.
Things have changed so how is your view of the market changed and.
Can you talk a little bit more about your U S based bromine expansion.
Yeah, I think in terms of our view of the offshore oil market and I think it's a it's muted slightly things have changed a little bit, but we do see oil prices recovering, which we know what the lag time of six to nine months is going to be good for our business going forward.
In terms of the U S expansion and it fits right along to the corporate strategy of accelerating our lower capital intensity higher return growth projects.
Magnolia for example, it's great jurisdiction for US we've been there for decades, and we know those assets well and really lends itself to investments SAB of quicker return and a higher return and those of the ones, we'll leverage as we grow this business going forward.
Thank you and if I.
And maybe a follow up.
And sort of pivoting.
Pivoting here on divestitures.
It sounds like you're close on performance catalysts.
Do you have any expectations regarding aggregate proceeds and timing and with lithium recovering and equity raises recently would you consider a.
Separating the balance of the catalysts business at some point.
Yeah. So on the F C S and P. C. S. A we're on the same track that we were it's gone slower COVID-19 slowed us down, but where I'd say, we're back on track, but they are not done yet.
And as we said in the prepared remarks that will kind of let you know when we get closer or or.
And those deals get signed on catalyst I mean, we still think that we're kind of the best the owners for that business are we've been in that business for some time, we add value we've taken a hit over COVID-19, and the so.
The.
Miles driven being down and the refinery utilizations and all of those all of those issues, but we still think we like the strategy of kind of becoming more and crude to chemicals moving toward Asia.
As we move and we still like the products, we have and the innovation, we have and that business. We think we're the best owners of that business for today. So we don't have immediate plans all around divestiture of catalysts. There core part of our businesses three businesses, we have and the portfolio of whole core for us.
Understood. Thank you very much for you of the color.
Thank you. Our next question comes from Jeff Zekauskas with J P. Morgan Your line is now open.
Thanks very much.
And you're bringing on 50000 tons of camera.
Cameras, and then 30 of which is yours, and you're bringing on and 40000 tonnes and when that growth.
And you you said that demand is going to be really strong for electric vehicles, all of our three year period much stronger than people thought before.
So that's the base case.
How many tons do you expect to sell out of those two units in 2022 and I know it takes time to ramp up so all of the you know the.
The 40, and the 13th that's yours as the base case, how much we sell and 2020 and stuff.
And so Eric if you want to look at the detail on that I would I would think as we bring those plants on and ramp them up we'd expect to be selling kind of half of each and the first year.
And then.
That's fair Yeah, and if you look at we have an example, jetblue and obviously, we are and growth mode. We've done. This one other time before as part of wave one with John you too and that plant.
It came up a little north of 50%, but.
But it was the brownfield facility with much of the existing infrastructure in place from the acquisition, we'd made prior to that Cameron is greenfield considering that 50% feels it feels reasonable and the same with when the Agra as well for 'twenty and 'twenty two right.
And for my follow up and is there any volume or EBIT a benefit.
Either of these two projects and 2021.
And I guess the rock for camera 10 has to come from Palisson Green bushes.
The other the watch and the mine is on its.
Sleeping.
Is that correct or is that not correct and and what what's the effect on 'twenty.
Yeah, Scott I don't and I don't think you're going to see much in 'twenty, one and we've got increased cost because we're commissioning and bringing those on and if we if we were to if we could accelerate and get a little bit of sales would be offset by those cost, but I wouldnt be planning on benefit and 21.
And the initial and the and initially as most likely we'll feed them a kit the kimpton from the initial phases with palace and product.
Okay, great. Thank you so much.
Thank you. Our next question comes from P. J G of the car with Citigroup. Your line is now open.
Yes, hi, good morning.
All currently in China, the carbonate prices are higher than the hydroxide prices because of all coming back over the head of feed.
Batteries.
Do you think that's a trend and anomaly that.
And then secondly, just on pricing you had given sort of 15% of concessions on certain contracts and 2020 and the expectation that the time was in 2021 and those contracts will go back to <unk>.
And.
Did that happen on those contracts.
So on the first question P. J good morning, it's Eric here.
The carbon and the delta and carbonate and the and version of carbonate being higher than historically and.
Historically, the hydroxide, a buck or two Laura we think that's a that's a dislocation of our rapidly responding China market, which is largely carbonate and not not a longtime trend. It's important to understand that a lot of the hydroxide market is supplied by low cost brine producers of which Albert of mowers, one converting to hydroxide, which is what we do at King.
Mountain and without that supply.
There's not enough market and there's on the volume for four of the marketplace. So the pointed that the the.
And the economics say that there has to be that that incentive for those producers who go to hydroxide. So we expect that to revert and we are we are obviously very well positioned and in and both product lines to participate.
P. J. Your your second question was what again please.
So you of contracts.
And 2020.
Laura and I would expect it to go back to the original price and 2021.
Got it all.
Recall, what we we had what we've done our strategy has been to migrate these contracts to benefit from the a recovering market price of what we have we have converted of several of them over and struck new ones based upon a market reference price all the.
And all are a part of it depends on the customer and we are we will do the remainder of this year going forward.
And so so that's our strategy our strategy to take advantage of the inflection of price not to go back to and are a fixed price and the past necessarily although there are some customers, who who are asking for that right. So it's not a one size fits all answer but the aim is to benefit from a recovering market and prices and.
In terms of how we structure those contracts so Eric.
If I heard you right, you're saying that your contracts that are going to be more sort of all depend.
Dependent on price or maybe more variable.
And as opposed to think of fixed annual price.
That is correct that is correct. It will vary look I I can give you examples of some customers who want a fixed price. They want the stability that's that today as of prices well above where we're not going to agree to that unless it's well above market.
And but that's that's one segment of the customer base another segment and a big chunk of want some variability to say that they are able to move with the market place relative to.
Other there are competitors are out of other sources of supply they buy and as a result, those contracts will have that kind of a market based component to them either collared ore and part for their volume or for a large part of their volume the degree to which we give that flexibility also dictates how much of the commitment we make to them as well the more spot.
Base, the customer wants to be the less likely we're going to commit to them long term and use that as part of our justification for expansion and so there are some of the caveat there and our value proposition, but that's how we're approaching things and all of this is going to allow us we believe to really improve our overall mix on a price and profitability basis as the mark.
The price recovers.
Great. Thank you for that.
Thank you. Our next question comes from Bob Quiet with Goldman Sachs. Your line is now all of them.
And we very much.
One of the explore little bit more on the marble integration with how you plan your lithium expansion. So a couple of questions there.
We and the transfer price from Talis and to the the.
Camera and Marvel Jbs and.
Why pursue the Chinese expansion in concert with marble if you could get 100% of it and now you have the financial wherewithal with the.
Accommodating equity markets to fund that kind of expansion why share of that why not keep it all for your shareholders.
Yes, so well I would say the short answer on that as that was and our original agreement that we would do.
Two of the 50000 tons and then the next one we expect to do would be the one in China and but that's so that's part of that's part of the JV. So we have been and the the JV was done cause one to get the resource for the wage in mind, we have at and also their expertise of mining to help us on that side, because we're more of chemical processing.
Expertise on our side and and they bring the expertise on the on the mining side. So that's kind of of the logic behind the overall and that's that that's part of the the original deal that we did with them. So we're committed to doing another project of the conversion project with them.
Okay.
And maybe if I could get an answer on the transfer price from <unk> and and then also your new La Negra project is going to use the thermal evaporator can you talk about what that does to the cost structure out of la Negra, three and four versus the.
And the capacity that's already there and one and two from the cost curve standpoint. Thanks.
Yeah, So I'm on the the transfer price I mean, it's the kind of established market price and we were following Australia and tax rules around that and so it's the it's a market. It would tell you at the market price of arm's length market transaction around that.
And then the thermal evaporator I mean, the it was the return project, that's driven by financials, but probably just as much around sustainability. So it allows us to operate without water or we're much less water than we were using before.
And of that that's an area where water is tight and then the cost of that and I think the returns were were good I don't recall exactly what they were I don't know that they were extraordinary but the benefit was also around from a sustainability perspective as well.
Great. Thanks, a bunch of.
Thank you. Our next question comes from Mike Sison with Wells Fargo. Your line is now open.
Hey, guys. Good morning, just the one quick question on on and your 'twenty twenty-five forecast to you and the.
Sort of pundits believe the industry can sort of support that by then and then how much capacity do you hope to have odd and online by 2025.
To support that growth.
So I mean, I think the I mean, I can't speak for the industry and so part of our as we see acceleration and EV adoption and that's kind of what has moved us in this current pivot towards accelerating our growth plans and the goal was that we kind of maintain our share and there Eric maybe you won't talk about the capacity and <unk>.
Twenty-five I don't have that number of my head.
Well, I think and our rule of thumb way to think about our capacity growth and the plans that we've put forth for wave three and for way for to sustain our leadership and grow with the market is it's gonna be hydroxide weighted the growth we already comment on that earlier and earlier question and it's it's going to require as you get down to the middle part of the decade.
And I was bringing at least 50000 tons to market a year of hydroxide.
And that is that is what that plan. If you look at the details would enable into the middle of decade and beyond.
Approximately speaking you are talking about 150.
And tons of growth a year and the market price.
And in that neighborhood.
And are bringing on 50.
That's the kind of pace, we're looking at.
Great. Thank you.
Thank you. This concludes our question and answer session I would now like to turn the call back all of its cat losses for closing remarks.
Okay. Thank you joelle.
And closing Albemarle is well positioned to capitalize on long term growth trends for all three of our core businesses. We have built the capabilities to accelerate low capital intensity higher return growth.
At the same time, we will continue to control what we can control that.
And that means first and foremost focusing on the health and wellbeing of our employees customers and communities.
It also means building operational discipline and sustainability and the all aspects of our business, including manufacturing supply chain capital project execution and customer experience.
We remain confident and our strategy and we will modify execution positioned Albemarle for success.
And you.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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Yes.
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