Q1 2021 Albemarle Corp Earnings Call
[music].
Ladies and gentlemen, thank you for standing by and welcome to the first quarter 2021 Albemarle Corporation earnings Conference call.
At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session to ask a question. During this session you will need to press the star and under one key and you touched on the telephone.
Please be advised that today's conference is being recorded if you recall opera assistance. Please press Star then zero.
I would now like to hand, the conference Oh, Gee and speaker host Meredith Bandy, Vice President of Investor Relations and system ability. Please go ahead.
Alright, Thank you Linda and welcome to Albemarle as first quarter earnings Conference call. Our earnings were released after the close of the market yesterday, and you'll find our press release presentation and non-GAAP reconciliations posted to our website under the investors section at Albemarle Dot com.
Joining me on the call today are Kent Masters, Chief Executive Officer, Scott Tozier, Chief Financial Officer, Raphael Crawford, President catalysts, NASA, Johnson, President bromine specialties, and Eric Norris President and lithium are also available for Q&A as a reminder, some of the statements made during this call, including our outlook guidance expect.
The company performance and proposed divestitures and 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 and presentation that same language applies to this call.
And <unk> E V sales were up 135% versus last year led by China.
European and North American sales were also up significantly.
All that said remember that we are sold out and bromine and lithium and therefore, we're maintaining our previously reported company Guy that's for the full year, Scott will provide additional detail on this and just a few minutes.
We are advancing our growth plans with the progress being made and our wave to lithium projects. These two projects <unk>, three and four and Kemberton, one and two are expensive and volume beginning next year.
As you are probably aware during the first quarter. We successfully completed a 1.5 billion dollar equity offering and then subsequently reduced our debt. This enabled us to achieve two strategic goals first we are now well positioned to execute on a high return wave three growth projects for lithium and bromine and second.
We have maintained our investment grade credit rating, which is recently upgraded to a triple b rating by S and P global.
I'm also proud to say that we have signed the you and global compact joining the efforts of corporations and stakeholders worldwide to advance sustainability.
On slide five I want to update you on those two are both those two projects and <unk> and Kemberton are two ongoing projects to increase lithium predict production from our world-class resources.
These conversion facilities are and the final stages of construction and when complete are expected double to double our nameplate capacity to 175000 metric tons per year.
This added capacity will provide much needed volumes to support our customers growth ambitions and will enhance our ability to drive further earnings expansion.
Construction is on track for completion later this year, we were watching the western Australia labor situation closely but currently we do not expect any impact to our schedule and once complete we move into final commissioning and customer qualification, which typically typically it takes about six months we.
Expect to begin producing commercial volume from both projects and 2022.
Yes.
Bromine is adjusted EBITDA grew by about $8 million compared to the first quarter of 2020 and increase of 9%.
The strong quarter was due primarily to higher sales volumes across the product portfolio.
Pricing was also higher and large part related to a favorable customer mix.
The U S Gulf Coast Winter storm reduced production and increased costs by about $6 million in the quarter.
And just like lithium we drew down inventory and Q1 and our bromine plants are sold out for the year, making it difficult to offset the production losses from the storm.
We expect to see the impact from loss production and the Q2 and Q3 timeframe.
Catalysts adjusted EBITDA declined $23 million, primarily due to the U S Gulf Coast Winter storm.
Which impacted production and Bay Porte and Pasadena, Texas.
These sites incurred increased electric and natural gas costs production downtime and repair expenses that totaled $26 million.
Our Q1 catalyst results from last year included $12 million of income that was later corrected as and out of period adjustment, which further complicates the year over year comparison for this quarter.
Without this and the storm impact our catalyst EBITDA would have been up 31%.
Our corporate and other category adjusted EBITDA increased by $4 million, primarily due to lower corporate costs.
And <unk> expectations for the quarter, primarily driven by accelerated customer orders and a favorable customer mix.
We do not expect to see the same upside over the next three quarters, mostly because our lithium and bromine businesses are effectively sold out and we don't have excess inventory to meet increased demand.
Timing of orders can shift from quarter to quarter, but the outlook for full year volumes is mostly unchanged except for modest increases and lithium.
We continue to monitor the chip shortage at automotive manufacturers for impacts to lithium and bromine.
And so far we've not seen and impact.
This may be due to our position and the supply chain.
And May I H S revised their forecasts for 2021 E V production down 3% from prior forecast related to microchip shortages and supply chain issues.
E V production is still though expect it to be up 70% year over year.
We are maintaining our company guidance for the full year and continue to expect net sales to be in the 3.2 to 3.3 billion dollar range, which is slightly higher than last year.
The demand we saw during the first quarter and sold out volumes speak to the importance of investing and our lithium and bromine businesses to add to our future earnings potential.
Or 2021 guidance for adjusted EBITDA remains between $810 million and $860 million, we continue to expect capex to be around $850 million to $950 million for the year as we complete our wave to lithium projects and begin focusing our efforts.
On wave three.
Net cash from operations are also tracking on plan.
As the year progresses, we expect higher inventories as we start to commission the two new lithium plants and higher cash taxes.
Expectations for adjusted diluted EPS of $3.25 to $3.65 are on track, reflecting higher taxes, depreciation and increased share count and lower interest expense.
While our total company guidance has not changed the outlook for our lithium and catalyst businesses has as shown on slide 10.
Our outlook for the lithium business has improved due to higher lithium volumes driven by plant productivity improvements and we have added some tolling of lithium carbonate.
We expect lithium prices to improve sequentially through the remainder of the year due to tightening market conditions.
Overall average realized pricing for the year will be flat compared to last year.
We continue to expect higher cost and 2021 related to project startups, but this will be partially offset by efficiency improvements.
And total lithium EBITDA is now expected to be up high single digits on a percentage basis.
The outlook for a catalyst business is lower than we had originally planned offsetting the upside we expect from lithium.
On a year over year basis total catalysts results were projected to be down about 30% to 40%.
This is primarily due to the impact of the U S Gulf Coast Winter storm.
And delays and customer F C C units.
Our outlook for the bromine business has not changed.
Well, we had a very strong first quarter, we do not expect a favorable customer mixed to continue and feature quarters, and we will not be able to make up the lost production and the first quarter.
In addition, raw material costs are moving higher.
We continue to expect results to be modestly higher than last year due to continued economic recovery and improvements and certain and markets, including electronics and building and construction along with ongoing cost savings and and proved pricing.
Finally, as to our quarterly progression for the phone company.
We expect queue to to have modest growth and EBITDA and the second half to have a modest decline.
We continue to expect that 2022 results will benefit from accelerated growth plans and bromine recovery and catalysts and the initial lithium sales from the <expletive> three four and Kemberton, one and two.
And with that and it back to Ken.
Thanks Scott.
As I mentioned earlier and April we signed the U N global compact.
A voluntary leadership platform for the development implementation and disclosure of responsible business practices.
In addition to supporting the U N G. C principles, we are aligning our sustainability framework to the U N sustainable development goals, the largest corporate sustainability initiative and the world.
Over the past year, we've increased E. S. G disclosure published updated sustainability policies and made public commitments to advance sustainability.
Sustainability is by its nature of long term commitment, but I'm pleased to report that we are beginning to see the benefits of our efforts. For example, Albemarle was recently recognized and added to the S and P 500 E. S. G index.
You can export expect more details on these and other sustainability related and <unk> initiatives and our 2020 annual sustainability report due to be issued in June.
Now on slide 12, and I'd like to reiterate our corporate strategy.
We have started 2021 with a strong quarter and continue to make progress on our for strategic pillars.
We are completing our wave to projects and plan for those to deliberate commercial volumes and generate sales and 20 twenty-two we're making plans to execute on our wave three lithium projects as well as expand our bromine resources to align with growing customer demand.
And we are laser focused on operational discipline to drive maximum productivity across our businesses.
We continue to expect around $75 million of productivity improvements this year, and we will continuously work to improve efficiencies within our operations.
With a revitalized balance sheet, we are well positioned to invest and high return growth maintain our investment grade credit rating and support our dividend.
Finally, sustainability remains a top priority and key component of our value proposition to our customers and we are dedicated to exploring opportunities such as to you and sustainable development goals to help us implement these efforts.
And with that I'd like to open the call for questions and we'll hand over to Libya.
Thank you, ladies and gentlemen to ask a question you would need to fastest bartender one key on your Touchtone telephone.
Giant question class the pound key and your configuration of time, we asked you that please limit yourself to one question and one follow up.
<unk> and I'll be compiled the Kenny last time.
And our first question coming from the lineup David tackled online to call and you know and is helping.
Good morning, guys. Thanks for thanks for the time this morning.
Good morning, and want to I wanted to follow up on your questions around potentially looking at acquiring a Chinese hydroxide conversion facility.
Can you just expand upon that a bit on and just help us understand.
What what sort of what sort of metrics are you using to weigh acquisition right now we've seen a lot of your peers looking to expand conversion capacity and and western hemisphere.
How how should we think about the scale of this and and and what sort of things you'd be looking for before making and acquisition like that.
Yeah, So we've and I'll I'll make a few comments and and Eric and give you some detail.
If I don't get there but.
But we've and we've looked at China very much we're very familiar with the operators there and we've been we've been kind of looking if there's opportunities for some time, we've we've made acquisitions and the past so we feel pretty comfortable with this with the assets that are on the ground and what we would need to do to move them to our standards. So we we did that it's and youth, we bought and ask that and we.
[noise] expanded and we and we were there we we considered that can be very successful. So we liked the model. We're comfortable we've got people on the ground and China. So we're able to do a good due diligence we have would be able to staff and new facility with with partially from people from our existing plants. So we.
With feel very comfortable with the strategy and then I think it seemed like part of your question was about people looking at a different geographies, so and we're looking at different geographies as well, but we still see growth and and Asia as being a big part of the growth coming forward and ultimately will be moving and other locations around the world, but we still.
See growth and Asia, which is why we're looking at this as a strategy.
And I appreciate that and.
And then I, just perhaps semi follow up and.
And you talked about just pricing this quarter, obviously driven by increased volumes of you know grade and mix with carbonate and industrial grade and so we we think about gross coming online from waves too. When do you think we should think as as we think about pricing with contracts Rolling you know and at what point do we see.
And battery grades, making up a greater component of the overall mix is that really like a late 2023 dynamic just given sort of delays around qualification or and how how should we think about that as you guys and increased capacity into the market.
Yes, I think that means a big pieces already battery, great material and both carbonate and hydroxide, so but I'll, let Eric get into details maybe around timing as they layer in yes. So good morning, the the volume and <unk>, just the bill and what Ken said, 60% of our business today is energy storage.
And that's split between carbonate and hydroxide relatively evenly as we sit here today with the expansion is coming on and we have and it will still be split because we have a large expansion and camera tend and hydroxide and similarly wandering around carbonate.
So so that's where our growth as as we bring that capacity out and that's where the volume will go. So that's 60% of sales will grow larger on a volume basis now in terms of say pricing that that's that's and evolution that we're going through now and our contracts. We've had as you may know concessions, we made to fixed price contracts.
We've done in the past and while that is given us security of supply to run our plants and and strong margins to the bottom of the cycle, where now evolving those pricing.
Mechanisms to give us more exposure to the market is it recovers and that will benefit is volume as well bring on volume under new terms that will allow us to benefit from a rising market.
That answer your question.
And yes for the most part thank you guys.
[noise] and our next question coming from the lineup. So I'll check then with BMO capital markets yellow and it's often.
Hi, This is robin on patrol. Thanks for taking my questions you talked about being limited on lithium and toys to meet your on demand how much offline conversion and spodumene capacity do you see we wrapping and the industry. This your to me told industry demand and and how quickly do you see.
And history inventories rebuilding or maybe you can talk about overall tightness and Hollywood that could need for pricing. Thanks.
So robin it's Eric here again, I think the short answer your question is while mine's of restarting there are still some that went into bankruptcy phase and Australia that still haven't come back and.
And they are there and it takes some time, particularly in Western Australia, right now given the labor crisis, and and the rising iron ore prices to to mobilize both the equipment and labor personnel to restart a plant. So what we foresee going forward given the strong demand that's starting to develop has.
Been under development and China and is now ramping around the world that it's going to remain short in and China that spodumene is going to be a constraint that that is why you're seeing carbonate prices rise, so quickly and China, where there's a high demand and particular carbonate for some of the recovering industries and China.
Post pandemic, but also because of the growth of L. F. P chemistry, specifically and China and inventories are bare minimum and the Chinese market and have come back to normal levels worldwide, which is why we were in a position during the first quarter to to what would otherwise thought it like his and prior quarters would not be a strong quarter and we are what it was quite the opposite.
We had to pull volumes forward and to that to drive the growth that you saw were limited and what we can do.
But will benefit greatly when we bring on that new capacity and be well positioned and to 2022.
That's really helpful. Thank you and and just a quick follow up so I assume the rationale to reinstate tolling is too beat that market tightness. So is that strategy temporary them. Maybe you can discuss the the amount of volume from tolling and what the margin impact from that and is because.
I think the previous longterm, Tom and for for lithium margins, and Wisconsin, and 40%, obviously things are trending sub 45, right now and you can.
Just elaborate on those points. Thanks.
Tolling has always been a bridging strategy for us and it's only ever done and carbonate because we feel that there's adequate carbonate capacity out there that can meet the standards for for that for that product and and hydroxide is something review is different and more parts proprietary the bridging strategy. In this case is to get.
Revamped in relationships with Chinese customers that we supplied and the past such that when we bring on Allegra three and four next year, we have Ah ready customer base to take that on so it. It I would think of as AD hoc are bridging it's not a sustained strategy. It is something <unk> I can't get into the details of volumes per se.
But it is that you as you point out and not as a lucrative and not as high a margin of business for us because we're paying somebody to convert for us. So it moves us to the right on the cost curve, whereas where normally and the left side, you're moving more towards the right and so that impacts margins, but it it it does provide incremental EBITDA and it does set us up for a successful ramp next year.
Thank you very much.
And our next question coming from the lineup, David Thanks, and too, but like you Bank your line and helping.
Thank you good morning, first and last name what was the benefit of the acceleration of customer orders and to Q1 on EBITDA.
David I'm Gonna have to let me let me just take a quick look but I think.
It's it's meaningful and terms of in terms of the volume so it's <unk>.
Probably in the thirties 30 million dollar range something like that.
Yeah, and another way of saying that David is is that you may have had I don't know your model, but you may have had to get to guidance. You may have had a a much stronger second half and first half and and because of the robust demand whatever and we make were selling there's not very little going to inventory. So the quarters, they're gonna be a lot more even or similar.
Yeah, and then they were last year.
For the lithium business got it got it and I was just on redecorate and cabinets and following the commissioner and qualification processes.
How can you make sure we think about volume ramp up for these two new assets.
Yeah, So we've kind of when and we've said with those would will wrap up over a period of time. So from the first turn it on you know nothing too getting us to expect to get to a full ramp up and say 18 months and some of that depends on demand and customers, but yeah. So over that that first year per line you probably.
<unk> 40, or 50% of capacity and the first 12 months. That's you know that's probably the best way to think about it and some of that will depend on demand, but we think we expect demand to be there.
Perfect. Thank you.
Not and next question and having Tom the lineup Jessica Scott My T P Morgan yellow and it's open.
Thanks, very much when you bring on your new capacity and.
2022, 23 and lithium.
Hi, how might you compare the pricing structures that will be negotiated uhm versus the current pricing structures that you have today.
That is has the market changed and how is Albemarle changed and in the way that you charged our customers.
Contemplate charging.
Alright, so we've been talking about the kind of the shift and our commercial strategy and lithium for some time, we kind of delayed.
Intentionally delayed the conversion from kind of a strict long-term fixed price contract. So one that is it is more indicative of the market that moves more with the market and and we'd have different types of customers. We've contract slightly different ways, we delayed the conversion of that a little bit because the market was so far down and we didn't think it was the right.
Time to negotiate at the bottom of the market. So we held off on that so that strategy hasn't changed and the new volume doesn't change that so I think we were gonna moving into that dynamic as we go through the next 12 months or that the contract will be negotiating will be on that new basis, so portfolio of customers with.
Kind of customers, who really want security of supply will be more of a fixed price, but it'll still move with the markets and then contract with other people that are <unk> that look more like market price, it's not spot prices contracted but prices that move with the market and that's what we've been talking about for the I would say almost the last year and we did.
And the Lady implementation intentionally because we felt like we didn't wanna negotiate at the bottom and the market.
Okay, great. Thank you so much.
My next question coming from the lineup color and rush with Oppenheimer Yellin itself and.
And that was gel on for calling on for taking my questions.
Can you speak a little bit too how challenging hiring is at this point as you.
And the brain capacity and early next year.
Okay, Alright, <unk>, sorry, I missed that so hot yeah hiring so.
Yeah, So I mean to location, so chilly and and and Kemberton, So western Australia and.
And it's a different dynamic because we've got a significant operation and chili already so I don't it's not a not such a challenge and that location a bigger issue and chili at the moment COVID-19, but we were able to bring people on there and and we've been bringing them on training them with existing staff and Australia is a little different cause it's a true greenfield facility, so, but we've been huh.
Firing we've been we're happy with the plan, we've been doing well and the labor market and it's a different a little different dynamic and the construction market that it is enough chemical operating market. So we've been able to hire according to our plans and ramp up.
Staff that that would operate the facility. According to our plan. So that has an impact and that's what's been more of a challenge is and the construction labor market and and getting the staff that we that we need to complete construction and we were actually trying to accelerate it but we're not able <unk> when we're not able to do that we're just kind of treading water with our original plan.
Okay. That's helpful. And then switching gears a little bit beyond pricing can you speak to any other elements of your long term contracts that you're working to improve given what seems like a better negotiating position.
Well I would I mean, I guess, it's several elements, but it's really about the guarantee supply the profile of that supply pricing is a big part of that and my and my abilities and.
Eric you have I I would say that the big the the evolution of dialogue, where we feel we have a lot of value to offer now is is is uhm location of supply uhm as well, so localization and we've referenced and our expansion strategies down the road, how we can play to that and it's for many of our customers that's down the road consideration because the bass.
Majority of the business today is still Asia based and then the other sustainability sustainability has been key is oem's become more involved and and thought through their value proposition, which is based on lower C. O two and other sustainable factors. They want suppliers, who are differentiated in that regard and what we are.
Doing what Kent, describing the call has real value, we talk and these calls very much about what it means to shareholders and being part of the S. And P. 500, Iezzi index for me, it's about driving a value proposition with our customers and getting paid for it. So that's become a bit big part of our proposition as well.
Super helpful. Thank you very much.
Our next question coming from the line of instant and tries with Morgan Stanley Your line or something.
Hi, This is angel on for events and I just curious on your way of three and what are the key gating factor. So you can see you know for both bashing and lithium and and bromine Uhm before you actually and now and so if I day.
I'm, sorry, you said the key.
They keep getting factors or or what are the primary and uhm I guess checkpoints hurting and so you want to see before you actually make that if I did decision.
Yeah. So let me go out looking bright so we're I mean, we're looking at projects identifying them designing in the plans for that so I guess is anything you would you would expect to see and a normal investment program. So we're getting making sure that we've got designs to process chemistry that we like we are lined up and we have the resources, that's not an issue, but a lot of it is.
Location about permitting work force them and all the things that you would say that we would line up but where relatively advanced it looking at that.
And then obviously when you get to that decision point, the returned or a big deal.
Got it and then switching I get so probably and a little bit you talked about the favorite Paul mix customer I guess, not not repeating going forward and one I guess could you give us a modem and we'll call it on that and why I won't repeat and then as we think about kind of the second half or kind of took you and beyond should we expect higher pricing and brown and to.
Kind of all set both you know the the shorter and shorter supply because the last production because if you're a and also the raw materials had one that you mentioned.
Yeah. This is Scott I would start maybe not taken add some add some additional caller, but you know and the first quarter. The bromine market overall was relatively short so gave us some some nice opportunities and the spot market to to to take advantage of that and get some upside. We're <unk>, we're not expecting that that kind of.
Condition to to continue through the rest of the year, but maybe net that he has more specifics yeah. Just as Scott described we had a chance to go so some volume at a inventory to our non contracted customers that increased demand based on market recovery, that's a unique opportunity and it very good pricing, we don't expect it to continue through the second half of the year.
But just like other industrial businesses is you look forward to the second part of your question freight and raw materials are going up and they'll do the same for US and then all the impact and our business and Q2 and beyond for the rest of the year.
To help thank you.
And our next question coming from the lineup Matthew deal with Bank of America, you know and it's open.
Hi, Thanks.
Can we talk a little bit about the puts and takes uhm lithium EBITDA as we move sequentially through the year and I understand the transition from wants you to to cute but.
It seems like your guiding for price to improve sequentially isn't this year, but also costs are up and.
So perhaps like how much cost you expect to incur with these new plants startups and and when would that rolled off.
Yeah. This is Scott so and the second half was have something in the range of $10 million to $15 million of incremental costs from those plants. You know it all depends on the timing of of what does come in but that's that's the kind of kind of range that we're looking at all ultimately so is <unk>.
Look at that puts and takes obviously, there's a limit in terms of our ability to supply additional volume, we're getting some out of out of out of tolling of course that comes out of lower margin. Ultimately force. So that's a bit of a dragon from a margin perspective as well.
Okay, and then catalysts.
You you made a comment to you and I expect to get back to pre COVID-19 levels. Before late 2022 2023. So can you just walk through your assumptions there that just all miles driven or is there something else is happening.
Ultimately, it's coming from our customers and what our customers are telling them, but maybe Raphael you can provide some.
Additional color as to the specific parts of the market that are that are slower than others.
Sure Scott So I think there's a few different pieces that come into play and one of them is Ah miles driven has a big.
Driver of recovery in refining utilization I think we've already starting to see and improvement and refining utilization and you'll see that throughout the year and into next year. That's gonna have we'll have a big effect on F. C. C U.
Usage at the refineries and our business you know about 60% of our business is F. C. C. So we'll see that recovery.
On the C. F T R. H P. C business that business is timed with turnarounds. It refineries a lot of that has been pushed out until 2022, and that's and we'll start to see and uptick and that business. The portfolio, we have and our business is very much geared towards high performance.
And when refiners are running near capacity, that's really when the value of our business of our products kicks in because we help them maximize on yield and.
Maximize on the throughput through their their assets so as as it recovers, we'll start to see that leveraged effect.
And the return of our business.
Okay, and so just right now you're seeing next.
And the Kingdom and call center and catalyst because people don't need their utilization.
Oh.
Yeah, I think I think that's a fair statement and we have we see a mixed impact and a volume impact we'd expect both of those too.
To reverse as the world recovers.
Thank you.
<unk>.
And our next question coming from the lineup I'd want and with my napkin and with RBC capital markets Your line itself and.
Great. Thanks for taking my question and good morning, and I'm. Just curious you know, what you're seeing and I guess and China, you know, there's no and obviously, some some robust recovery and and lithium markets and and there as well as in Europe.
Do you expect that to kind of continue you know and the next year is there is there and environment or a scenario, where you see prices kind of getting back to say that 12 to $14000 per ton range. Yeah. Maybe you can just comment on what your outlook for for pricing is for for hydroxide ex.
Yeah. It was hard to comment too much on on price I mean, those are the that's the magic questions, but the market's clearly moving in that direction and you know you're seeing the demand growth and so it would be the man growth. We expect to continue I mean, what we're seeing is kind of a it's extraordinary but it may not be 135%, but it's gonna be 78.
80% for the year around you know E V levels and lithium is gonna follow that so the man growth is going to be there and and pricing has moved very quickly and China cause that's mostly a spot market. So it would move quicker that has and translated into the contract market fully yet. So it has started to we think and we we see that moving and that direction.
Overtime.
It's hard to predict what's gonna happen, you know out into the future, but we see prices moving up and that what's happening and the spot market will translate into the contact prices and that will be a positive for albemarle.
And just as a quick follow up and you know a couple of hours ago. You are discussing contracts with you know term lengths and maybe yeah, seven and 10 years and at times and.
Have you seen your customers kind of come back to you know with yeah requests to kind of.
Elongate their contracts or yeah, maybe you can just comment on on the the customer environment for from a contracting perspective.
Let me start Eric and add some detailed to that so but I would say I mean, it's our philosophy hasn't really changed we've adjusted a bit on the and it's kind of a nature with and I would say, we've evolved and our contracting structure, but it's really still the same philosophy and I think our customers are kind of coming around and that way of thinking a bit.
And I think it's changing because some of its with Oem's now and you know several years ago, we were talking to cathode makers and and battery makers and now it's oem's and still talking across that all three of those areas, but the oem's are getting more involved and they have a longer term view. So I don't know about 10 year contracts, but you know.
Three year five year, maybe seven on the out uhm on the longest term, but that those are the kind of that's the nature of the contracts day that we're discussing I don't know and won't nobody wants pushing us further than that.
Thanks.
And our next question coming from the lineup and like see you have time off with Keybanc. Your line is helping.
This is Paul and for let's see could you ask me to send them with you and recycling initiatives come so far.
Okay.
So yes, Paul Eric hair recycling is is a key part of quickie platform for us going forward from a growth standpoint, both because our customers and who is Kent just indicated are increasingly Oems value that as part of their partnership with us and because a good amount of the know how we have from processing lithium.
Is gonna be replicable, I N and the streams that will come from and recycled process. We've got investments, we've made and since and start ups are looking at making through through some relationships. We have we've got technology initiatives underway with some business development activities underway to partner, we have one joint development agreement, which.
Currently doing with a customer all these are all confidential at this stage, so I can't divulge names, but it's a pretty comprehensive effort and a critical one for our growth going forward. We aim to we view this as a future resource that we we would like to play prominently and.
And our next question.
Question coming from the line John My Bank, So let me be S, yeah and itself and.
Good morning. This is Matt Skorupski on for John going off of Jeff's question earlier, you mentioned that you're restructuring some of your lithium contracts and I believe on the last call you mentioned and the majority of these contracts will eventually have some sort of variable based pricing and.
Tied to and index when do you expect the majority of your contract be based on this variable price mechanism and how frequently does a typical contract allow for price adjustment.
Right. So hey, it's Eric here, we you right with our legacy contracts had as can't describe and the past a fixed price mechanism and during the crisis of the past year plus we've we've we've gate we gave some relief on that the that relief claws expires during.
And of course of this year, so I'm in the middle of this year all by the end of the year. So that's for our legacy contracts. That's the time frame and we're looking to move to the new structure that we'd earlier described and it will give us that upside to rise and half price rise with the market more more freely than it would have under the <unk>.
Fixed price contracts and it's the basis for any new contracts. We've struck we've struck several new contracts, both with battery and automotive OEM producers and the past three six months and and they are and that that same construct now it's important and out it's not one structure, we have some customers who actually value more.
And consistency and obviously, that's a higher price point from a fixed price and points. So we can get our returns over and over the cycle and there's certain commitments will make to go along with them on volume on the other hand, those who are more fixated on price.
There will have a component of our mixed there will be a little more just <unk> ex has a more discretion about how long we go on some of those contracts and so there's gonna be a mix, they're just gonna mix that we see but the underlying message is exposure to a rising market.
That's all thank you.
And our next question coming from the line up and calling with that and and it's often.
Hey, guys. Thanks for taking my question.
Just just on bromine all our notes on the topic deserve.
But.
The the chip shortage that we we see everyone sees out there and can you talk about you know how.
And how your visibility is on that or.
And what you could gain you know, there's there's somebody conductor new builds and.
<unk>, if that back with you and and and then <unk> on the on the lithium side you know.
<unk> <unk> <unk> <unk> when when the the word he was around.
No no no patterns being produced and and you can.
R E V coverage.
<unk>, that's a worry too, but what you what you guys see on that slot is as far as your new capacity being built and and.
And how you guys or or Molly about yourselves and.
And the visibility on that so thank you.
And so yeah, so on let.
And let me start with the second part first with the battery I mean, we're we're focused on making sure we get the lithium that goes with the Arquette and we we model that from the vehicle back backwards to the battery and then to the cat boats and and it's there's a lot of plans and capacity being added and they'll know that we you know.
We're not gonna put an opinion out there about and they know capacity for batteries were very focused on making sure that we've got the hard part of the lithium market and we're building out and so what I'll up our growth plans are about those investments and executing on those investments. So we've got lithium to provide that market. So uhm.
I don't think we should come in about the capacity and the and the battery market, but we see a lot of projects and <unk> and a lot of capability and executing those projects.
And.
And that that could talk a little bit about the chip shortage and how that impacts bromine from I guess that would be across all the electronics space and then.
<unk>, we see the electronics market is really strong but it is Scott mentioned, we were not seeing that chip shortage impact us and.
A strong semiconductor chip electronics market is definitely good for us, but with us being sold out we have very limited additional capacity to lever set and the rest of the year. So we do have contractive items and those markets. Those volumes are being ordered as as we expect and so we don't really see that as an issue.
Right now and that things could always change, but from where we sit and the supply chain, we're not seeing and Peck right now with the chip shortage and I think it's a little bit and part of your question was <unk> was just about an advantage we might I see coming forward and I think it has really just gonna be about demand and those electronic so what they build and <unk> they need more chips those underlying.
Applications, where we where we play with us and automotive or just.
Call it the Internet of things Clifford Asian of chips, and that's an advantage for us so they but they have to be able to keep up with it for it to be an advantage force.
And if I can sneak one more and just what about just the overall flexibility of the three businesses know you guys have done a lot and but just no overall yolks, 80% of the questions are about with you I'm here and so how do you think about it you have a portfolio together. Thanks.
Yeah. So we've got three core businesses, and and and and it's a portfolio. So catalyst is struggling a little bit there market is not as strong mail because of miles driven and the issues. We saw from COVID-19. There bromine held up very well during the the the pandemic and then L really E bees, and then and and.
And part of that day lithium market was accelerated through through COVID-19 because of really the European response to the COVID-19 was really about clean energy and electric vehicles, So and I think the portfolio effect is working force mood love for all three businesses to be.
Striking on all cylinders, but that's part of the portfolio. We think there key businesses. They all fit into the sustainability angle that we're we're pushing and there's a sustainability piece for all three of those businesses and that's kinda what ties them all together and we can we liked that portfolio and and it. It's working you know because you know we will.
And one business is down the other two were doing quite well and that'll probably cycle.
Alright, thank you.
And our next question coming from the lineup Crescott Smith, Luke capital your line or something.
Yeah, Hi, good morning, So my question relates to lithium business and the industry and and focused on your visibility more specifically so the industry. At this point is still pretty China centric and and and the materials space.
You know and China has been notoriously sort of double ordered or build excess inventories during periods of rising commodity prices and on the flip side is this industry's witness the the pain can be pretty cute and prices are coming in with Destocking and the and the supply chain exacerbating the downward price and pressures granted this lithium.
Chemicals for the battery application or not as commodity oriented as as <unk> copper iron or something but I'm. Just wondering if if what if you could comment on the ability right now for the industry to build back inventories are safety stocks or buffer stocks and maybe also speaking to your visibility how how is this changing.
Along with the pure procurement strategies, which are migrating maybe away from cathode producer simply to to Catholic plus battery and in some cases and <unk>. So just if you could speak the visibility on that what the dynamic and is currently and how do you see that and evolving thanks.
Okay. So I mean, I guess a bit about China I'm not sure we have a ton more visibility, but there's not I mean, we're we're fighting to keep up with demand and I think the industry doing the same and I don't think they're building anybody's building inventory and the supply chain, everyone and it probably goes from batteries to cathodes to to material.
<unk> as well and I'm from our perspective, where we're not building inventories, we actually sold down inventories to take advantage or to satisfy demand and the first quarter and I don't know Eric feet have any more visibility around that.
No I mean I.
And the industry tight I can up and down and not just and China around the world and and it's it's a consequence and some regards of just how bad it got last year from a value standpoint, and I did a lot of capacity went out of the market on a project slowed down and so it's gonna take awhile to catch up and yet demand is accelerating so it's we don't see.
Ah, let up and the situation and which is one reason why why are we won't give a specific number we see price rising going forward for the foreseeable future China's and still very important to the industry. If there's a delay anywhere and building a capacity downstream for batteries, it's outside of China. So Asia continues to be and important point.
Going forward was certainly and the near term suits, where we're bringing on capacity. So we're we're very optimistic about being able to place that capacity would bring on next year.
And I would just say one thing that's a little different than some of the other industries that you know kind of mining industries iron or ferrous materials, I mean were integrated into the resource and and to the convergent as well, so we and and that's not all China. That's you know the the resources are really not and China all of the conversion capacity and the custard and.
Demand today is and China, but you know it's it's we've and we spent a lot of effort, making sure. We have a diverse resource base from a resource standpoint, and also from a conversion specifics. So we're not too heavy and China's Y U C as building and Western Australia, and we do and conversion capacity and chili as well. So we we focus on that.
First vacation from a resource standpoint, and a a conversion basis as well and to some and then you know in some cases, it's more expensive forced to do that but we think it's important.
A good color thanks for the insights I appreciate it.
And I'm not showing any further questions at this time I would now like to tend to call back and my time, Mister camp answers for clothes and relax.
Okay. Thank you Livia.
And again and thank you all for joining us today.
All the efforts and opportunities we discussed today require execution and we have the capabilities the resources and most importantly, the people to execute on our strategy.
And we expect to achieve accelerated growth with lower capital intensity, we should enable us to achieve higher returns and we will continue to work on a and sustainability throughout the value chain, not only with and Albemarle as operations, but by continuing to support our customers.
Thank you and we look forward to speaking to you on our next call.
Ladies and gentlemen, and that that Scott conference for today. Thank you for your participation you may now disconnect.
[noise].