Q2 2021 Albemarle Corp Earnings Call
Yeah.
Good morning, and welcome to the Q2.2021 Albemarle Corporation earnings Conference call. At this time all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will follow at that time.
If anyone should require assistance during the conference. Please press Star then zero on you touched on telephone as a reminder, this conference call is being recorded.
I will now like to turn the conference over to your host Meredith Bandy Vice President of sustainability and Investor Relations. Please go ahead.
Thanks, Operator, and welcome everyone to Albemarle second quarter 2021 earnings Conference call on our earnings were released after the close of market yesterday, and you will find the press release earnings presentation and non-GAAP reconciliations on GAAP.
Our web site under the Investor Relations section.
Dot Com joining me on the call today are Kent Masters, Chief Executive Officer, and Scott Tozier, Chief Financial Officer, Raphael Crawford, President catalysts, NASA Johnson, President bromine specialties, and Eric Norris President lithium are also available for Q&A.
As a reminder, some of the statements made during this call including outlook guidance expected company performance.
And timing of 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 earnings presentation that same language applies to this call on.
Also note that some of our comments today refer to non-GAAP financial measures reconciliations to GAAP financial measures can be found in our earnings release and the appendix of the presentation both of which are posted on the on site.
And finally as a reminder, albemarle will be hosting our 2021 Investor day, the morning of Friday September 10th with cash.
Our Charlotte offices registration webcast is also available on the Investor Relations section of our website and now I will turn the call over to GAAP.
Good morning, and thank you all for joining us today.
On today's call I'll highlight quarterly results and our recent strategic achievements.
Also introduced the new operating model, we are implementing to support Albemarle growth strategy.
Scott will give you more detail on our results outlook and guidance.
Passing through the commissioning stage.
Finally, I want to briefly describe the operating model weird watching to drive greater value improved performance and deliver exceptional customer service.
And you see that on slide 5.
Our operating model, which we call the Albemarle way of excellence or AWP serves as a framework for how we execute delivered and ultimately accelerate our strategy.
PW, it's based on 4 pillars sustainable approach include responsibly, managing our natural resources and engaging with our stakeholders huh.
High performance culture.
Include focusing on safety leadership, and fostering an agile engaged corporate culture.
Competitive capabilities means we are ensuring we have the right talent resources and technologies.
And finally operational discipline is about embracing lean principles and operational excellence across the organization.
The operating model helps us connect our strategy with day to day initiatives prioritize projects clarify resource allocation ensure accountability and drive efficient and profitable execution.
We will discuss the operating model in more detail at our upcoming Investor day on September 10th.
Now turning to slide 6.
We've completely construction of <unk>, 3 and 4 in Chile, Orange and are in the commissioning stage, we expect commercial production from these 2 trains beginning in the first half of next year ramping to 40000 tons of lithium carbonate per year by 2024.
This brownfield project allows us to increase existing capacity and leveraged our world class Brian resource in Chile, just 1 of the avenues of growth that we have as an established lithium producer with a global footprint.
We also continue to progress our Kim and conversion facility in Western Australia.
To mitigate risk related to the tight labor market in Covid related travel restrictions in Western Australia, we have modified our execution strategy to prioritize kemberton, 1 over cymry and 2 Kim.
Kemberton 1 remains on track for construction completion by the end of the year.
We know anticipate completion of cymry and 2 by the end of the first quarter next year, a delay of about 3 months.
These delays and higher labor rates have also increased capital cost.
It's been a difficult situation in a labor market that was already tight, but we have been able to maintain the schedule for kemberton, 1 with only a 3 month delay for cymry and too.
We continue to expect commercial production for both Kemberton, 1 and 2 during 2022.
Importantly, we're making progress on our wave III lithium projects and will provide further details on Investor day in September site selection is underway and we are negotiating with the authorities to include investment agreements.
We're also expediting investments in bromine to meet increasing demand.
We completed the first well at Magnolia ahead of schedule and under budget.
Unfortunately, we are unable to take advantage of that additional capacity on the second half due to shortages of chlorine in the supply chain.
We also have 2 projects in Arkansas that are currently in the select face. These projects are designed to increase production capacity of clear, Brian fluids and hydrobromic acid.
A third project to increase the capacity of our Brominated flame Retardants is in the evaluate stage.
I will now hand, the call over to Scott, who will provide an overview of our financial results for the border.
Thanks, Kenton good morning, everyone I'll begin on slide 7.
We generated net sales of $774 million during the second quarter, which is a slight increase from the same period last year, driven by stronger sales from our lithium and bromine segments.
Higher sales as well as strong operating margins resulted in an adjusted EBITDA of $195 million, which was 5% higher year over year.
GAAP net income of $425 million includes an after tax gain a $332 million related to the divestiture of R. F. C S business to W. R. Grace.
Adjusted EPS, which excludes the gain on F C S.
Was 89 cents for the quarter up 4% from the prior year.
Let's turn to slide 8 for a look at adjusted EBITDA by business.
Excluding FCS second quarter, adjusted EBITDA increased by 13% or $22 million compared to the prior year.
Higher adjusted EBITDA for lithium and bromine was partially offset by higher corporate costs related to incentive compensation and foreign exchange movements.
Lithium is adjusted EBITDA increased by $19 million, excluding FX compared to last year, primarily driven by higher volumes as customers on their longterm agreements continued to pull orders Ford.
Can we shipped higher spodumene volumes from our talisman joint venture.
Adjusted EBITDA for bromine increased by $16 million due to higher volumes in pricing.
And market demand continues to be very strong.
Following the winter storms experienced in Q1, we have very limited excess capacity, our inventory to meet that additional demand.
Catalysts adjusted EBITDA declined just $1 million from the previous year.
CFT volumes were down due to shipment timing.
C C continued to be impacted by a change in the order patterns from a large north American customer, although the FCC demand trend was generally higher.
This was partially offset by excellent pcf's results, which benefited from a favorable customer mix.
Slide 9 highlights the company's financial strength.
Since the beginning of the year, we've taken significant steps to strengthen our balance sheet.
The strategic decision to.
Divest our FCS business added cash proceeds to the balance sheet and reduced our leverage ratio to 1.5 times.
That transaction further demonstrates our ability to drive value by prudently managing our asset portfolio.
Are strong balance sheet and investment grade credit rating gives us the financial flexibility, we need to accelerate profitable growth and continue to provide a growing dividend.
Turning to slide 10, I'll walk you through the updates to our guidance debt Kent mentioned earlier.
And there are several key changes from our previous guidance first higher net sales guidance reflects higher lithium sales volumes and improving catalysts trends offset by our lower bromine outlook.
Adjusted EBITDA guidance is the same reflecting higher net sales offset by higher corporate costs and foreign exchange expense.
Guidance on adjusted diluted EPS and net cash from operations is improving from an expected reduction in interest expense and tax rates.
The timing of working capital changes is also expected to benefit net cash from operations.
And finally, we see capital expenditures trending toward the high end of our previous $850 million to $950 million range.
Just on the tight labor markets in Western Australia, as Kent discussed.
In the far right column pro forma revised guidance ranges are adjusted for the sale of our STS business on June 1st this year.
We're moving the guidance on FCS for the rest of the year.
I'm turning to slide 11 for more detail on the G b use outlook.
Adjusted EBITDA for lithium is expected to increase by 10% to 15% over last year.
An improvement from our previous outlook.
Lithium volume growth is expected to be in the mid teens on a percentage basis, mostly due to higher tolling volumes as well as the restart of North American plants at the beginning of the year and improvements and plant productivity.
Our pricing outlook is unchanged, we continue to expect average realized pricing to increase sequentially over the second half of the year, but to remain roughly 5 flat compared to full year 2020.
We also continue to expect margin to remain below 35%, owing to higher costs related to project startups and incremental tolling cost.
Margin should improve as the plants ramp up commercial sales volumes.
Our outlook for catalysts hasn't changed since the first quarter report with adjusted EBITDA anticipated to be lower by 30% to 40% how're.
However, we are more optimistic as fuel markets continue to improve globally.
Lower year over year results are primarily related to the impact of the U S. Gulf Coast Winter storm in the first quarter and the ongoing impact from the change in customer order patterns in North America.
Finally for bromine, we now expect mid single digit year over year growth and adjusted EBITDA, which is down from our previous outlook due to a forest Majora declaration from our current supplier in the U S.
Like many industrial companies, we are experiencing increased costs and supply disruptions for raw materials, but it is partially offset by price and productivity improvements.
Results are expected to be lower in the second half as production is constrained do the chlorine shortage.
We are accelerating our expansion plans and bromine. However, we have been unable to take advantage of this new capacity yet due to the coring disruption.
Looking ahead to 2022, we expect sales and EBITDA increases for all 3 businesses.
Lithium results are expected to improve on the higher volumes as the new plants ramp up.
Bromine results are expected to rebound from short term supply chain disruptions and the winter storm impacts.
And catalysts results are expected to rebound strongly from 2021 levels, assuming continued improvements and global transportation fuel demand.
And with that I'll hand, it back to Kent.
Okay. Thanks, Scott.
On slide 12, we continued to execute on our strategic objectives for 2021 <unk>.
First we are growing profitably construction is complete Attila negra and we are commissioning this project with commercial volumes expected in the first half of next year.
Both Skimmerton trains are expected to contribute volumes in 2022 as well despite the restructuring of our execution plan. It kemberton.
As previously discussed we're making progress on our wave III lithium projects and expediting investments in bromine to meet increasing demand.
Second we are increasing productivity, we are on track to achieve at least are targeted $75 million and productivity improvements this year.
We expect to continue to build on these improvements as we implement our operating model and build a culture of continuous improvement.
Third.
We are maintaining our disciplined approach to investments and continue to optimize shareholder value by actively managing our portfolio of assets, including the recently completed Fcs divestiture.
Finally, all of our efforts are being driven with sustainability in mind and our annual sustainability report published at the beginning of June we disclosed initial sustainability targets, including plans to reduce greenhouse gas emissions and fresh water use.
We are also working closely with customers investors and ESG rating companies to make sure. They are up to speed on all of these developments and have a full appreciation for our efforts.
So with that I'd like to open the call for questions.
I prayed on we're ready for your questions now.
Thank you so much if you have a question at this time, please price to start in the number 1 key on your test on telephone. If your question has been answered all you wish to remove yourself from the queue. Please press the pound key we ask that you limit yourself to 1 question and 1 follow up.
First question comes on the line of P. J G.
With C D.
Alright, good morning, Captain Scott.
Congrats on finishing law maigre 3 and 4.
Now that's done are you looking for new hydroxide.
Capacity.
Either in China, or elsewhere and would you consider.
Convergent planned in the U S.
So good morning BJ.
And thanks for that we are so we're we've completed construction, we're still commissioning so do a little bit to go at La Negra and and then as you see in the plans that we have the phase III, it's mostly about hydroxide capacity in the near term so kemberton will be coming on in the next year and.
Then the next wave of investments at the moment are focused on China.
And where we do look for acquisition of conversion capacity, but it is a bit of a challenge just find the assets that we want and that are for sale. So kind of have a meeting of our minds there, but we're also in parallel.
Progressing our plans to do Greenfield projects as well and if we were able to find an acquisition. We continue to progress the Greenfield plans that we have so they would be there. If we did an acquisition that doesn't mean, we stop our greenfield plans and projects, but we would just do them in parallel.
Okay, and then the last part sorry last part about the U S. So I mean, we will we will look at the U S. But it's not in the next year.
Year or so right. So there's time in our view is most of the capital.
Past it is being built and will be producing for the.
Next several years, it's gotta be in China, or at least Asia and so we have time before we have to see if we need capacity in North America or Europe.
Okay and then the next question is Gonna go back to comments that you had man can't I think on the last call about sort of market segmentation of customers.
That some customers would have a long term contract somewhat on more market related contracts, especially customers like those who negotiated prices down in 2019 I was just wondering if there are you on any could add some color on this on a market segmentation of customers. Thank you.
Sure. So yeah I don't know if we can add much more than we talked about preview.
Previously, but where.
In the past, we had kind of a long term contract formula on it was we were trying to use that strategy for all of our customers and and what we've learned is that not all customers want to buy that way. So we're trying to segment on how they want to buy and actually we think it's good for us as well, so where we have.
Longer term contracts that look more like a fixed price on ideally we want those contracts to move with the market, just but slightly with the market, but it looks more like a long term contract and on the other extreme will have contracts that look more like spot, they're probably not probably not a 1 year contract is probably more than that but but it moves with the market or closely with.
The market still.
Still may be dampened a bit and then you'll have some in the middle where that shakes out from a portfolio standpoint until we settle all of that with our customers.
Can't tell you but for <unk>.
Lack of anything else is probably a third a third third.
That's kind of how we see it now.
Thank you.
Your next question comes on the line of John Roberts with you B S.
Thank you on the delay on camera tend to if you are having delays as the entire industry, having significant delays here I mean, we've got the car companies accelerating demand plants here as the supply actually going on under shoot what the industry needs.
Well I can't speak to the other projects, but I mean, if you're building in western Australia. The the availability of labor. The tightness is extreme and Western Australia is kind of famous for <unk>.
Labor market that gets difficult if you're doing large projects just because of the the resource industry draws all of the resources if their if their prices go up and their prices have gone up significantly forward to say iron ore as in is probably the biggest example, and they're drawing all the resources away that's always been an issue in Western Australia.
Today, we have COVID-19, so they locked down not only Australia are about state by state. So we can't move not only can we not get resources from China, or Thailand, or even the UK, we can't get resources from the east part of Australia. So we're kind of stuck with what's in Western Australia, So and I think that will affect anyone doing a big capital project in on.
In Western Australia or Australia.
Not sure that it applies say in China for example.
And then when cattle announced it soda you mind battery on the lithium stocks popped, including Albemarle is sodium eye on something that we need to pay more attention to.
Hey, John morning, It's Eric Sorry, My on as you May know isn't isn't a new chemistry. The Cats's innovation is animatrix that may make it more more effective. It is is a chemistry that is Laura energy density heavier material.
So applicable price for the low very low end of EV ranges and maybe great storage.
I think 1 of the attractiveness components of it is it's starting as abundant price. So it's so it may alleviate.
At that low end of the market.
Given alternative if lithium supplies become tight as they have been in the past year or so.
Thank you.
Your next your next question comes on the line of Bob Court with Goldman Sachs.
[noise]. Thank you very much good morning, I was wondering you mentioned that non.
On on acres complete it takes 6 months to commission is that a function of just the qualifying process and can you inventory production, while you're doing that and then have a nice.
Buffer of inventory to start selling from as soon as the qualification is complete or is it a function of making sure the process work properly.
It's both so we were commissioning in qualifying and in parallel. So we can kind of we do early commissioning to get qualification samples, but the plants not net operating it right. So that it takes us time to get at the operating it right. So we.
Kind of the.
Long pole on the 10th so to speak is the qualification process, but were commissioning during that same time and we run them in parallel so that we save time. So I think the answer is both.
Okay, and then on what we've seen some pretty spectacular spot prices out there.
Some north of $1000. When do you turn that on and you imagine that would ever feed the camera's implants or will you feed kemberton through Dallas and.
For the foreseeable future. Thank you.
Yeah. So.
Yeah, we'll see how that goes I mean, our plans are to feed Kim written from Tylosin and then as we either bring on other capacity or do an acquisition, we would use large enough for that and our strategy about selling spodumene hasn't changed.
Your next question comes from the line of Edlund Rodriguez with Jeffrey.
Thank you on with mine guys quick 1 on <unk>.
So you've talked about the current issue you have in there like when do you expect that to correct itself.
So I'll start method can add a little bit so.
I think there is a broader issue in the chlorine space, but I am on our suppliers has some equipment failures and we expect that the last when they're telling US a couple of months right. So they've got a short term fix we hope will get us back up to some higher rates and then the permanent fix is going to take a kind of.
I think they told us 2 to 3 months.
Oh.
Look at the.
If you look at the broader Korean market, we think there'll be opportunities to get it back in balance by by queue for that we're hopeful for that.
Okay makes sense.
I don't know why did I can terms of M&A Matthew.
You you've done the FCS deal. So you. So you monetize that like when you look at the rest of the portfolio like is there any.
Anything else in there that you think might might.
It might be better with somebody else not.
Can you talk about what sort of a portfolio what <unk> C N N.
Yeah. So we had when we were looking at our Pcf's business.
And we re random process and we didn't get the pricing we wanted for it so it's performing well and we pulled that.
No longer for sales and we're running as part of the portfolio are running as part of our catalysts business.
So we will hold on to that and then for the broader part of the portfolio. The 3 primary businesses bromine lithium and catalyst we see those as core businesses. So that's kind of our fundamental portfolio and and now pcs's part of catalyst.
Okay. Thank you very much.
Your next question comes from the line of Joel Jackson with BMO capital market.
Hi, Good morning, everyone. On my first question off up on Spodumene, you asked me seeing them pretty and interesting searches and sparge and prices.
Last.
On should we kind of theirs lagging on contracts non stop by Tom.
I think if we also it seems like conversion margin proxy conversion Margaret would be extremely strong. So are those carbohydrates price have been really strong. So can you see the spodumene price increases more of a lagging indicator on.
Or do you think that they are setting off on to be another run up in and spot prices sparked up.
They can go to the prices.
Look I'll make a broad comment on that Eric and try a little bit of detail, it's hard for us to project, where the market is going.
And we see prices, both spodumene and carbonate on hydroxide price is being up the only place you really have visibility of spot prices is in China for for the car.
Carbonate on hydroxide and so you see that you see the same numbers that we do those have not fully translated into the contract prices, but we do see contract prices moving up.
And spodumene I mean, it has gone up to come back down a little bit I don't know that we're in what you would call. It super cycle are headed toward that but I think I do think prices will be higher than they have been on the last couple of years.
Hey, John what.
This is and I think your question reflects this is that China market phenomenon. The China market is very dependent for its growth.
On imported spodumene.
So and there is a shortfall of available supply to meet demand given the rapid growth post pandemic, particularly in carbonate in China.
So in that regard, maybe maybe maybe spodumene is a bit of a lead because it's the short supply, but but but I think what we expect to happen is more supply to come into China from from other parts of the world. We've seen prices go up and stay up with demand.
It's hard to say, what what's going to happen with spodumene prices from my perspective, the way we take advantage of that is we don't sell spodumene R. S. Right on top chemical great Sarge managed to stay with solids, especially spodumene for the glass market.
But for US it's tolling so we've heard us talk about looking at tolling opportunities and that's part of our improved guidance and for that we are able to participate in that in that spot price market, which is as I said earlier very favorable.
Thank you for that so my follow up would be on.
Just looking at <unk> 2022 for LTE volume increases I think you've talked about maybe gaining about 30000 tons.
LC volume for next year with the different expansion on the rapping on cameras into the late a few months.
Maybe even pushing it a little more totaling now this year is about 30000 tonnes spelled the right number to think about for next year.
So John I mean, I think it's.
I'll have to break it that first of all I don't think we've said 30000 tonnes, we've talked about ramp rates on plants. So the camera and plant with a start up in the early part of next year. There is a 3 month delay to the second unit.
We've talked about getting to full run rate Ah capacity and by the end of the second year in.
In that facility, similarly, and carbonate you'd see a phenomenon that is somewhat like that I would say our run rate for carbonate by the end of of 22 are probably be at the 30000 run rate basis at the end of the year is that ramps, it's a little bit different ramping Brian versus <unk>.
<unk>, because brian's, obviously are harvested material, but as versus a fixed input, but that that roughly should should between those 2 would you be able to calculate sort of our guidance did change would be Ah slight delay at camera 10 in any year on year growth that we can achieve in totaling.
And that's going to be is harder for us to predict now because it's a function of what's available on the market for us at all with.
Yeah. It's also a function of how fast we ramp up by how well commissioning goes and then there's.
You'll commission, you'll be able to make product, but at lower rates and that will ramp up over time, and it's how well we do in that ramp curves and.
It's hard to speculate on that.
Thank you you are next.
Your next question comes on the line of a room on it then.
With RBC capital market.
Alright, Thanks for taking my question.
I guess I just wanted to get your thoughts we've we've had some different news I guess, maybe you can just provide your color on spodumene carbonate and hydroxide Uhm spodumene, obviously, there was some some oversupply in in years past, but it seems like most of that is slowly working itself out.
Maybe you can just characterize supply demand in each of those areas.
Okay, and again I'll start Eric can fill in where I.
Miss Miss things, but.
But I think in the past the industry is growing right. So as as the industry grows you bring on capacity, it's a smaller percentage of the industry. So I don't think we're going to have those periods of OPE oversupply undersupply as tight as they were in the past with the extremes showing up in price so that think that applies across.
For hard rock as well as kind of assaults conversion capacity for the salt. So I think it's the industry gets bigger each edition is a smaller percentage of the total industry that has less of an impact.
That said, where we are I mean spodumene is pretty spodumene is tight and I think that the conversion capacity as as the growth rates that we see which you can kind of see and.
As an indicator EV sales is the forward looking growth curve for lithium those are pretty tight and you've got to make investments and you've got a.
Be good at executing those projects and commissioning them in in ramping them up to full capacity, which is.
I think we're good at that but we're in the process of proving it.
And I would just add her in that.
Today as we sit here today on all 3 are extremely tight if we had more carbonate that we could produce in sao we could sell it readily same with hydroxide.
We don't have the disadvantage we have the ability we have idle capacity on the on the spodumene side. So we are not feedstock limited that's a strength we have going forward. What we're limited on is our ability to get conversion capacity in the ground.
Quickly so and that's part of our plan for next year as to the long term my guess would be that our view would be I should say that hydroxide will probably see the higher rate of growth going forward off a smaller base.
Carbonated has done well in the near term based upon the LSP trend for lower end vehicles, particularly in China, and we see that starting to take root in some other regions as well for the low end, but the key to high E. V penetration is higher energy density and the key to that is hydroxide and ultimately potentially solid state chemistries. So that's going.
To require a heavier burden on hydroxide, we see that being the tighter market on a long term basis going forward.
Okay, great. Thanks, and I'm, just wondering if there's any concern from elevate and logistics costs for the next little while I'm also maybe he can just address if there is any concerns on the container shortage issue. Thanks.
Well I think across all of our businesses to supply chain is is a challenge on on concern so oceangoing freight probably the biggest but well chemical.
Chemicals supply chain in the U S is is hitting us and particularly chlorine at the moment, but it's tight on a number of chemicals, but oceangoing freight is a big concern for us and something that we are working pretty hard to try on to manage we spent a lot of time trying to to.
Streamline that that supply chain digitizes. So we have much better visibility on it so we're making progress on that but it's still a concern.
Okay. Thanks.
Your next question comes on the line of Vinson Andrews with Morgan Stanley.
Thank you on good morning, if I can just ask him and brought me and it doesn't sound like either you're sort of electronic sales are on your auto sales that you're seeing any any real volume issues from the shortage of a microchip. So is that just something that it's either being offset by other parts of the business or it's just not an issue.
Year to date or to the back half of the year.
Yeah, Vincent from where we sit in the supply chain, we're not seeing that at all and from a demand side or demand in those areas are have been steady.
Okay, great and if I could just ask you know you have the analyst day coming up and you also can currently working on the.
The wave 3 projects and looking to move forward with US I mean should we be expecting on material update on those at the analyst day or are those 2 events unique.
So material update so it depends on the definition. So we'll give you progress on where we are but we're not and.
We're still in the planning phase we're not moving.
Moving dirt on any of the projects yet.
Okay. So no we shouldn't be expecting on a I D decision.
No I mean, we're progressing as we go and we will tell you the plans that we have but it's not at a.
We will not have a final investment decision by in a month.
Okay very good thank you so much.
Your next question comes on the line of David Begleiter with Deutsche Bank.
Thank you good morning, a couple of questions for you just on lithium price in Q3 is your guidance for that price on speed up your over here in Q3.
Ah yes, the second half I mean, we were down 10 percentage recant little history here to put in perspective were down 10% across the board in the first quarter, 4% in the second quarter, and we're saying flat for the year. So it will be up year over year. Another way to think about is our lowest price point.
Over the past 24 months or including the rest of this year. So over 2020 and 2021, we expect to be the fourth quarter of last year and ever. Since then we sort of bottom they're seeing as as spot prices move up for that small amount of our business is exposed to that such as better grade in China or tech right and.
As concessions to contracts given during the height of the pandemic roll off we.
We see those prices rising in the back into the second half of this year and and given the tightness in the market, we expect into next year as well.
Very good and also there's been some progress ideally project and you're on your operations in Southern Arkansas.
The 5 ability of a D. L E project for you guys in southern Arkansas going forward.
Well, yes, so I'll I'll say that for US we continue to look at at Magnolia, Brian's, where we or operate our bromine operation is being a spot where we could process lithium in DLA as a potential technology for that DLA, just it's a it's a bandied about.
[noise] term most often here in the U S. We've made a project what they're talking about is absorption resins.
And so it's it's a mechanical operation for extracting Brian that's on mechanical operation as opposed to an evaporation.
Effort, such as we do in Chile that you know you would only apply you have to apply meaning you apply it to resources that are of lower quality or have higher impurities, president, which is generally true with both oilfield brines, which is what we have in magnolia or geothermal Brian. So it's more capital intensive it actually I'll also consumes a.
Lot more water and energy given the price. So it has some drawbacks from it worth studying what alternatives, we could deploy to a resource like that that could include absorption that optimize those factors of cost and sustainability.
Given where we are with our high quality resources and then what we can do in the near term to drive our growth. The next 5 years, we put that as a resource later in the decade that we would consider for that given it given those technical challenge and given its cost profile.
Yeah, and I would just add so we've we didn't wasn't included in our phase 3 and but it's something that we look at what we're looking at the technology, we have access to the Brian and we have the operation we're already kind of pumping the Brian around so we'd be in a good position to leverage it. If we think that we get the technology right and we believe the cost position is right, but it is something.
That comes probably face for if.
If we get that technology Ryan.
Very helpful. Thank you.
Your next question comes from the line of Jeff Hawkins with J P. Morgan.
Thanks very much.
In your kellison operation and equity income and lithium uhm.
Sometimes you earn 30 million and sometimes you earn 15 or 16 million.
Uhm.
What's the difference between the 2 and we've had some 15th and 16th are there any 30th to come.
Jeff This is Scott so the.
The equity income and thousands affected by 2 things 1 is the volume that's being shipped on.
Both to ourselves as well as to <unk> our partner.
And of course that has been either flat or rising overtime, the bigger impact that you're seeing through the equity income is coming from the transfer price.
Which is affected by the by the spodumene price market price that's out there so.
So when that price is high you're going to see a higher equity income on its lower you'll see a lower equity income and generally that's gonna track on about a 6 month lag to the market indicators that are out there. So as we talked about in the some of the prior questions.
Because the spodumene prices higher are going higher right now you should expect in the second half the debt equity income would also track to that you should just keep in mind, though that been our input costs for conversion goes up on that price goes up. So we don't really it doesn't matter so much to do us cause it's all it washes through but the difference between equity income and what show.
Up in the the lithium P&L.
And for my follow up.
I think over the past several years, if you had to describe.
Contractual terms of your long term, let him contracts.
Thank you would've set that day were above market.
Given the changes in with Ian market tightness.
Oh goodness.
Is it now the case that you're in long term contracts.
More comparable to current prices.
Based on what you've got.
Yeah, I think it depends on what you're calling current prices. So if you're talking about spot prices in China, which is what everyone can see.
That's probably correct.
But I think if you were to think about contract prices over over time on my contract prices outside of China that different suppliers have probably in line or or above those I would say probably probably still above those.
Okay, great. Thank you very much.
Your next question comes on the line of Ben caller with band.
Hey, Thanks, Good morning, guys. Thanks for taking my question.
Just maybe 2 on the lithium and then 1 on bromine.
Lithium.
You know you get this question a lot, but just on recycling, we saw redwood materials raise a a large sum of money I wanted to understand how you see the players on the recycling does that.
Work with your competitors you because.
His number 1 number 2 you know on the tests will call and I think before that.
Moss was talking about.
<unk> and the increase there and just wanted to understand that I think you talked a little bit about this for how you you make adjustments into cognitive versus hydroxide with that background looking looking like there's a large increase in demand for L. P.
And then on bromine just.
<unk> comfy, how comfortable you are around the timing of the expansion on I think.
It's really chemical expanded already earlier.
So just wanted to see how how strong you think that markets.
Bringing on new capacity. Thank you very much yes.
And then this is Eric on on recycling a recycling is happening around the world and so on the company's you're referring to are largely here in the U S. There's a set of companies. Similarly in Europe. So regional business model because of the collection of nature of different regulations around the around the world as a global player were engaged with all of these companies.
<unk>, we view them in almost every case as a partner not a competitor and we bring process technology and know how to what we deploy and some of our existing Virgin Brian operations that can be.
A partnership approach to helping to remove the lithium and or take a byproduct that comes out of their operations, which is lithium rich and so that's that's the way we work with them you have to remember a lot of these companies got setup and this is in in Europe is ahead on this largely to go after the nickel on the cobalt not lithium lithium is usually the byproducts.
<unk> of the recycling operation, that's where we fit in.
And so as we look at trying to partner with our customers on.
And drive their success from a sustainability standpoint, we did it as an important part of the value next we bring is helping them recycle the lithium and recycle it back to them for their continued growth.
On the Tesla side.
We do what test is described as very generally very consistent with our our market outlook, it's going to continue to to shift and I think expand meaning the size of the EV market, which.
By 2025 might be at 1 level, but by 2030, I think you're going to have a larger proportion of vehicles that are electrified some news out about some intentions around that here in the U S. Today.
And for the lower end LSP as the applicable technology I mean, it gives you a lower range, we still believe though that for that the mid and high range vehicles, you're going to need in order to get you need higher energy density to get the range.
And you can drive good costs. If you can get good technology now to get that get caught the cost per kilowatt hour down and you'll get the kilowatt hours up per unit weight on.
So that's that's the mix, we see and it's very consistent way tests was approaching the market as well.
Turn it over to a nurse it for bromine.
Hello.
Talk about the timing of our bromine expansion. So I think we feel really good about the markets that we participate in in their projections over the next few years and we're really just executing the company's strategy of building capabilities to accelerate lower capital intensity I returned growth and for US what we're doing it AD as in Magnolia and that's a.
Great place for us to do it because we have great jurisdiction. We've been there for over 50 years, we know the asset well and we can produce every product that we make out of that facility. So that leads us to have high confidence in those projects and the timing of execution and we feel really good about the plan there and their ability to deliver what we want out of those expansion projects.
Great. Thank you very much.
Your next question comes on the line of Matthew Daniel with Bank of America.
Thank you.
So as you rent Towson to meet camera and demand what do you expect your partner to do I know they have their own kind of hydroxide plans.
And pushed a bit.
Do you expect callison output to increase by the 50000 metric tons, you're gonna need or will be closer to 100000 metric tons.
And how do you see that that timeline playing out can you move as fast as you think you'll need if.
It's a joint discussion versus you know your singular.
Desires I guess.
Yeah, well, it's definitely a joint discussions it's J V and I think will will optimize the supply so the product of Tylosin.
Our portion or half of that with donkey, that's that's hours, but the we have J V product at <unk>. They have their own product on other parts of Australia, and we'll swap product kind of optimize economics I think what way you would think about it is tylosin.
Goes to feed our portion of them and some other product feeds their portion at Kemberton. However, physically it probably won't work that way, we'll swap product to optimize the economics.
All I guess on that more what you expect Yankee to do versus an address on that.
<unk> I apologize.
This is Eric jumping and we can't predict what John she is going to do.
They have some some public statements out there around their <unk> facility, which is really very in terms of its potential overtime similar in size to camera 10 at least on it at least our first investment on camera thing.
And the JV is owned by the 2 of US. So it produces a budget to what we need.
So you really need to talk about what's on the ground there CGP 1 in CGP too.
We feel with CGP to being fully ramp will meet the needs of what we have invested in and allow us to ramp at kemberton and and and if they don't have the need on their side. They won't take their share right is how it comes down to it. So that's how it works, we're always entitled to at least 50 per cent it could be on what the.
Oh, but it could be more but I don't need to take more than vice versa on the other side.
Okay. If I could just follow up so the new pricing approach you talked about I understand it's still in the works but.
Periodically I guess, if you were to look over the last cycle may be peaks, and 2018 and trough more on 2020.
Can you provide some context like how much you realized price would have been higher in 2018 had you chosen this path versus how much lower you would've been in 2020 like how much higher the peaks and how much lower with a chops and I would imagine some sort of analysis has been done to kind of get.
Get a sense for if this was a net winner or loser overtime.
Yeah, So we have not.
We've not done analysis that we can share about what our price would have been under the new model, but you're right. It would have been higher and higher toward the peak and lower during the trough. So which is the point, we're trying to move a little bit more with the market, but not expose ourselves fully to the commodity price.
But I don't have the numbers to share with you to exactly what it would be and the other part.
Other part of that question, which we don't really know the answer to is how the portfolio. What does it look like you know how much of that bought type pricing will we end up with versus that long term contract pricing because during the last peak and bottom that were pretty much. We're all on the long on a longterm contracts.
I think it's also important out in the last peak and bottom there were no automotive producers involved at all in the cycle. There are now and there's a lot more demand now and Ah.
Reference of account earmarked handmade earlier that given the size of maturity of I've only gone for 1 cycle before really since the dawn on the heavy and now we're moving through the next part of the cycle.
It's going to catch on it probably won't have the same volatility did before we don't know, but but I think the the size of growth is such that it is.
And supply additions is such that it is going to change with time.
So.
The pricing structure, we're putting in place is going to continue to evolve we have contracted fit the structure. So we know it works we have customers paying fixed price as we have customers who are only coming on we're only going to give them a year commitment and they will take.
I want to ride the wave and at that point that wave is going on so it's.
How it settles out over time will have to continue to dimension for Ya, but we're at the early stages.
Understood. Thank you.
Your next question comes from the line of Mike says on with Wells Fargo.
Hey, good morning, nice corner Uhm.
Curious what your thoughts on Alithia on demand.
Whether it per cent or tons and 22 is expected to be.
For the industry.
Yeah.
A question like that I may have to go back and look at our demand model because we do have a model would put out and it's and it's still consistent what we think today and it was some months ago earlier this year, we did that.
We're seeing a much bigger demand year and 21 overall this year than last.
Because of the post pandemic recovery.
Overall market growth is 25 per cent plus so we're going to be at least on that order of magnitude for 2022, I'd say on a year on year basis.
Got it and then.
I know that some timing in terms of getting the volume on till 8.2 but when do you think roughly you'll have all the capacity available to south does it 23.24 25.
Just curious on the.
When you will be able to sell at all.
And when you say a bit of capacity, you mean, <unk> and Kemberton.
Yeah, Yeah, Okay cause we're on our plans were going to be building plants overtime, it's gotta be ramping up over time, but Lynn negra between <unk>, Kim Martin's at full rates ramped up selling everything.
24 for the full year.
On the 4 year great. Thank you.
Your next question comes on the line of Chris cash with Luke capital markets.
Yeah. Good morning, just slightly more nuanced follow up on this discussion around.
The increased volume implied in your guidance and thanks to my most of that is coming from a more volume from via Green bushes in that spot gene being converted down stream via Pullers Uhm first is that an accurate characterization and then with that in mind, Eric I'm pretty sure you've stated in the past that you don't rely on on.
Total conversion for battery grade chemicals, but only for technical gray lithium product, but in this case it seems like the extra volumes are carbonate feeding into the L. P. Cathode market. So I'm just wondering if that also is accurate and if that's the case I should we be thinking of these carbonate grades via taller says as.
Or maybe just the L F P market being more of a technical grade market and then finally just.
It seems like this is part of the market. Your address once <unk> is ramp next year, but will well then we then say the the current poll relationships that you're leading into currently operating Opportunistically address designs.
They're a bunch of questions there, Chris Let me go to the first 1 which had to do with how many here on stuck on the on the LSP, which had something before that what was that what was your first question Chris Yeah. So rapidly that Paul the tolling volume are vulnerable.
<unk>, yeah, yeah, sorry.
Senior moment, there I guess [laughter]. The if you look at our produce volumes, we're going to be fairly flat first half the second half maybe slightly better in the second half because we have a little better production, we have some production better production and chili in the fourth quarter seasonally just buy a tad what the real differences in our in our <unk>.
<unk> first the second half and our volume growth year over year is on the first half second half as the tolling increased tolling year over year is totally because we didn't on last year as well as plants come back on line and efficiencies in the plants better operation on the plants year over year. So there's a bit of difference between first half second half of the year over year there.
On on what we're using that carbonate for when we told on China, it's going into the LSP market.
I think what we've I don't know what he said Ah years ago, but what we said more recently as a dicarbonate market. The tolling network is able to produce sufficient at are great quality to supply the LSP market for batteries in China.
So that's that's where we are selling that material.
Currently.
And then now I'm Gonna ask you help again the last question was.
Well, yeah, so since you're dread write that down via via debt tolling relationships. Currently when you ramp on Negra next year will you stayed those relationships or do you still intend to participate.
<unk>. Obviously this has mixed implication given the higher feedstock costs and the fact that pullers need to make a margin. So curious if you'll feed those pulling relationships, where maybe would there be a bear hug like you've done in the past with tolling partners that you're comfortable with.
We're taking advantage of currently higher spot prices than contract.
That's helpful. Thanks, a lot.
Yes.
Okay and our final question comes from the line of Kevin Mccarthy with vertical research.
Good morning, Thank you for squeezing me in.
I wanted to ask about your catalyst business. If we look at margins in the first half of the year in broad strokes, they're running maybe half of historical levels yet in the prepared remarks, I think you indicated you anticipate strong rebound in the business. So I was wondering if you could flesh that out in terms of.
What youre seeing in your refinery catalyst order books, and when might we expect those margins to.
To get back to historical levels might that be as soon as 22 or more likely 'twenty 3 or later.
Hey, good morning, Kevin This is Raphael.
Just to to respond there.
Been a series of effects in the first half of the year, we certainly had an impact from the winter storm.
We have residual impact from the pandemic a lot of that pandemic impact was a down trade of high performance catalyst to maybe more workhorse catalysts.
That has a effect on margins and as well as on our mix looking forward I think we would see recovery I mean, some of our best products. What we're known for for example is our high performance hydro processing catalyst.
As the markets recovering as change out start to occur at a faster clip in 2022.
We're going to start to see that come back.
Again, we have a great partnerships for great performance catalyst those are the higher margin that will improve our mix and I think it's that mix impact going into 2022.
Youll start to see that improvement in our margins, we already see it today, Kevin we have customers that are they down trade it too.
Lower performance catalysts, when they were under margin pressure.
We just had a customer meeting this week with a large north American refiner, who was telling us that because theyre starting to operate at higher rates, they're needing to run under more severe conditions. They need higher performance catalyst those command higher margins for us. So we think it's a favorable trend it will probably start to materialize in 2022.
Where youll start to see them.
Thank you for that and then secondly, if I may for Eric and a.
Prior answer I think you alluded to that news out today that the U S is now targeting 40% to 50% of new auto sales as Evs by 2030, although I thought I read that it might be non mandatory. So just curious about your view on that is it is it incrementally accrue.
Accretive to your demand outlook in any way or.
Are the U S automakers.
Alrighty tracking to similar levels, what do you think about the potential market impact of of that announcement.
Yeah.
Yes. So this is Kent.
It's early news is just out today and I don't from my understanding it's not mandatory it's got on something there trying to lead legislation to something maybe like that.
So I'd say, it's early days and I'm not.
And it's probably in the ballpark of what the car companies are already thinking maybe it's a little more aggressive but it doesn't shift the model from our perspective I don't think I think our view would be that's neutral.
Thank you very much.
And now we will I would like to turn the call over to Kent Masters for closing remarks.
Yeah.
Thank you Carol and thank you all again for your participation on our call today as you can see we have a lot to be excited about at Albemarle and we see extraordinary opportunities for growth. We are implementing a comprehensive operating model that will enable us to execute on our objectives effectively and efficiently.
We look forward to discussing this in greater detail during our Investor day on September 10th and we hope you will all be able to join US then.
Thank you and that concludes our call today.
Ladies and gentlemen. This concludes today's conference. Thank you for your participation and have a wonderful day.
You may now disconnect.
[music].
Okay.
[music].
[music].
[music].