Q3 2021 Albemarle Corp Earnings Call
Okay.
Ladies and gentlemen, thank you for standing by and welcome to the Q3 2021 Albemarle Corporation earnings Conference call.
At this time all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session.
To ask a question during the session you will need to press star one on your telephone if you require any further assistance. Please press star zero.
I would now like to hand, the conference over to your Speaker today, David <unk> Director of Investor Relations. Thank you. Please go ahead.
Thank you and welcome to Albemarle is third quarter 2021 earnings conference call.
Our earnings were released after close of market yesterday, and you'll find our press release earnings presentation, and non-GAAP reconciliations posted on our website under the investors section at Www Dot Albemarle Dot Com joining me on the call today are Kip Masters, our Chief Executive Officer, and Scott Tozier, Chief Financial Officer.
Raphael Crawford President catalysts, NASA Johnson, President of 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 our outlook expected company performance and tiny of expansion projects may constitute forward looking statements within the meaning of federal Securities Law. Please note the cautionary language about forward looking statements contained in our press release and earnings presentation same language applies to this call.
Please also note that some of our comments today refer to non-GAAP financial measures a reconciliation to GAAP financial measures can be found in our earnings release and the appendix of our earnings presentation, both of which are posted on our website now I will turn the call over to Kent.
Thanks, David and thank you all for joining us today.
On today's call I will highlight our quarterly results provide an update on our goals for 2021 and discuss the progress of our ongoing expansion plans.
Scott will provide more detail on our results outlook and guidance.
We reported another solid quarter with net sales of $831 million and adjusted EBITDA of $218 million.
Sales improved by 11% on a year over year basis, while adjusted EBITDA was relatively flat compared to the third quarter last year.
Excluding Fcs from our third quarter 2020 results, our net sales were 19% higher and EBITDA was up 14%.
Scott will get into more detail on our financials in a few minutes, including favorable revisions to our guidance.
As we stated in our earnings release. This morning, we increased our guidance based on the third quarter results.
During our recent Investor day, we did a deep dive into our accelerated growth strategy and provided color on how we think about the near term expansion of our lithium business as well as our disciplined investment approach.
Since that event in early September we are pleased to have announced several updates on those efforts. This includes signing an agreement to acquire <unk>, John Young new energy materials or town young.
Which which owns a recently built conversion plant near Chin zone.
We are totaling to ensure the plant operates as advertised and expect to close this transaction in the first quarter of next year.
This puts us on track for first sales from this plant in the first half of next year.
In addition to this plan we have signed two recent agreements for investments in China to support two greenfield projects. Each initially targeting 50000 metric tons per year.
These projects position us for initial added conversion capacity of up to 150000 metric tons of lithium hydroxide on an annual basis to meet our customers' growing demands.
In addition, our marble joint venture announced the restart of the lithium mine in Western Australia.
On slide five you will see the objectives, we set for 2021.
When we set these goals we did so with the intent of challenging ourselves with plans that were aggressive but achievable.
As we approach the end of the year I am excited by the significant progress and proud of the effort. Our team has put into achieving these goals.
As you see on this slide we have accomplished the vast majority of what we set out to do.
For example, we are successfully progressing high return fast payback roaming projects at both Magnolia and JBC.
These projects will increase our capacity and improve the efficiencies of our operations.
We've also made significant progress on our lithium growth projects.
Now, let's turn to slide six.
First at La Negra III and for our team continues to execute the plan.
I'm excited to announce that we recently completed a major milestone by achieving <unk>.
Lithium carbonate production in late October.
Initial production volumes will be used to qualify the plant and the material with our customers to ensure we are meeting their requirements.
This qualification process is proceeding on track with first sales expected in the first half of next year.
In Western Australia, the ongoing labor shortages and pandemic related travel restrictions have continued to significantly impact virtually all companies in that region and show no signs of easing in the near term.
Spite these efforts and with herculean efforts. Our team has managed to hold Kim written one construction completion to year end 2021.
We now expect Kim to construction completion in the second half of 2022.
While we are facing challenges that these projects are strategy to consolidate resources and prioritize the first train continues to mitigate additional risks.
On slide seven.
Highlights the progress we've made on our wait three program since we last spoke to you at our Investor day.
At the end of September we announced an agreement to acquire Ken Yawn for $200 million, including a recently built conversion plant near the port of <unk> designed to produce up to 25000 metric tons of lithium per year with the potential to expand to 50000 metric tons per year.
We expect this acquisition to follow a similar path as our acquisitions of <unk> and Chengdu facilities back in 2016, following the close of the transaction, which is expected in the first quarter of next year, we plan to make additional investments to bring Chin zone plant to Albemarle standards and.
Ramp to initial production of 25000 metric tons.
This acquisition enables us to accelerate conversion capacity growth and leverage our world class resource base.
Together with our partner, we agreed to restart operations at the Watson a lithium mine in Western Australia.
Initially <unk> will began one of three processing lines each of which can produce up to 250000 metric tons of lithium spodumene concentrate.
This resource will be critical as we ramp our conversion capacity in western Australia with our cymric insights.
We also signed agreements to invest in to Greenville, Greenfield convergence sites in China, Zheng Gong and May Shawn.
We plan to build identical conversion plants with initial target production of 50000 metric tons of battery grade lithium hydroxide at each site.
These investments offer additional optionality for future growth and have expansion potential.
Investing in China offers offers capital efficient high return growth with proximity to our low cost Australian spodumene resources, and many of our major cathode and battery customers.
We continue to explore global expansion of our conversion capacity as the battery supply chain shifts west.
Turning to slide eight for a review of our global project pipeline.
As you can see Albemarle is executing a robust pipeline of projects all around the world. For example, our bromine business is pursuing incremental expansions in Jordan and the United States.
These high return projects leverage our low cost resources, and technical knowhow to support customers and growing and diverse markets like electronics telecom and automotive.
In Chile, the <unk> yield improvement project allows us to increase lithium production without increasing our Bryan pumping rates utilizing a proprietary technology to improve efficiency and sustainability.
In Australia, we continued to progress study work on additional cymric and expansion the leverage greater scale and efficiency with repeatable designs.
Finally in the United States, we are expanding our silver peak facility in Nevada double lithium carbonate production.
This is the first of several options to expand local U S production.
In Kings Mountain North Carolina, we can we continue to evaluate restarting our mine and.
And at our bromine facility in Magnolia, Arkansas, we're evaluating the process technologies to leverage our brine to extract lithium.
We will continue to update you periodically on our pipeline I.
I Hope this gives you a sense of the diversity and Optionality Albemarle has as a global lithium producer.
I'll now turn the call over to Scott for a look at the financials.
Thanks, Ken and good morning, everyone, let's begin on slide nine.
During the third quarter, we generated net sales of $831 million, an 11% increase from the same period last year.
This improvement was driven by strong sales for our lithium and bromine segment.
Adjusted EBITDA was essentially flat on a year over year basis, resulting from the sale of FCS and increased freight and raw material costs.
The GAAP net loss of $393 million includes a $505 million after tax charge related to the recently announced Huntsman arbitration decision.
While we continue to assess our legal up our legal options.
We have also initiated discussions discussions with huntsman regarding a potential resolution.
Excluding this charge adjusted EPS was $1 five for the quarter down 4% from the prior year.
Now, let's turn to slide 10 for a look at adjusted EBITDA by business.
Third quarter, adjusted EBITDA of $218 million increased by 14% or $27 million compared to the prior year, excluding the sale of Fcs.
Higher adjusted EBITDA for lithium and bromine was partially offset by a $13 $5 million out of period adjustment regarding inventory valuation and our international locations impacting all three gpus.
Lithium is adjusted EBITDA increased by $25 million year over year, excluding foreign exchange.
We were able to offset the limited impact of a one month strike in the <unk> in Chile, thanks to higher tolling volumes and higher spodumene shipments from our callison joint venture.
Adjusted EBITDA for bromine increased by $5 million compared to the prior year due to higher pricing.
Partially offset by increased freight and raw material costs.
Volumes were flat given the Korean constraints in the quarter.
In catalysts adjusted EBIT declined $4 million from the previous year.
This was due to lower sales and cost pressures, partially offset by higher than expected joint venture income, which included a favorable tax settlement in Brazil.
Slide 11 highlights the company's financial strength that is key to our ability to execute our growth plans over the coming years, our net debt to EBITDA at the end of the quarter was one seven times and is below our targeted long term range of two to two five times. This.
It provides us with capacity to fund growth, while supporting modest dividend increases.
We don't expect the recent arbitration decision to impact our current growth plans, but it could temporarily reduce our flexibility to take advantage of upside growth opportunities.
Turning to slide 12, I'll walk you through the updates to our guidance that Kent mentioned mentioned earlier.
Higher full year 2021, net sales and adjusted EBITDA guidance reflects our strong third quarter performance.
Net cash from operations guidance is unchanged due to the timing of shipments to customers and increased raw materials and inventory costs.
Capital expenditures were revised higher related to the continuing tight labor markets and COVID-19 related travel restrictions in Western Australia.
As well as accelerated investments in growth.
Turning to slide 13 for a more detailed outlook on each of our Gpus.
Williams full year 2021, adjusted EBITDA is now expected to grow in the mid to high teens year over year.
Up from our previous guidance due to higher volumes and pricing.
The volume growth is driven primarily by tolling.
And our full year average realized pricing is now expected to be flat to slightly higher compared to 2020.
As a reminder, most of our battery grade lithium sales are on long term contracts with structured pricing mechanisms that are partially exposed to the market.
We also benefit from stronger market pricing on shorter term technical grade sales and on spot and tolling sales of battery grade lithium.
Full year 2021 average margins are expected to remain below 35% due to higher cost related to the project startups and tolling.
Partially offset by productivity improvements.
Bromine is full year 2021, adjusted EBITDA growth is now expected to be in the low double digits. That's also up from previous guidance due to the continued strength in demand and pricing for flame retardants.
Our bromine volumes remain constrained due to sold out conditions and a lack of inventory.
The outlook for chlorine availability has improved since last quarter, but the market remains tight.
And the impact of higher chlorine pricing is expected to be felt more in 2022 than in 2021 due to the timing of inventory changes and shipments.
Year to date higher bromine pricing has mostly offset higher raw material and freight costs.
Catalyst full year 2021, EBITDA is now expected to decline between 20% and 25%. That's also an improvement from our previous guidance.
Owing to the higher than expected joint venture income.
The year over year decline in adjusted EBITDA is primarily due to the impact of the U S Gulf Coast Winter storm and earlier in the year.
Product mix and the previously disclosed change in our customers' order patterns.
Catalyst fourth quarter margins will also be impacted by product mix, including a greater proportion of lower margin FCC and CFT resist orders.
FCC demand continues to improve with increasing global fuel demand, while HBC orders continue to be delayed.
Overall market conditions are improving but volumes in catalysts are not expected to return to pre pandemic levels until late 2022 or 2023.
In total we expect EBIT margins to be lower in the fourth quarter due to higher raw materials energy and freight costs across all three of our businesses.
We are closely watching several key risk factors, including global supply chain disruptions.
Global impacts of the energy rationing in China and chip shortages.
Supply chain and logistics challenges are the most immediate.
Our teams are working day and night to navigate these port issues, the lack of drivers and upstream supply disruptions to ensure our customers get their orders on time.
We also continue to monitor the global situation with regard to chip shortages.
We recognize that the auto industry has been struggling with those shortages.
But to date, we have not seen a direct impact on either our lithium bromine orders.
And with that I'll hand, it back to Ken.
Thanks Scott.
I'll end, our prepared remarks on slide 14.
As Scott mentioned, we are disappointed by the outcome of the Huntsman arbitration decision.
But regardless there'll be ultimate outcome of that dispute Albemarle will continue to focus on the execution of our growth strategy.
As we highlighted during our Investor day in September we have a well thought out and focused operating model that we are implementing across our businesses. This.
This model the Albemarle way of excellence provides us with a framework to execute our objectives effectively and efficiently.
And will help us to remain on target as we pursue the significant significant growth opportunities ahead.
And as we pursue these opportunities we will be disciplined in our approach to capital allocation.
Our primary capital priority is accelerating high return growth.
This means that we will invest not just to get bigger but to create tangible shareholder value and maintain financial flexibility to take advantage of future opportunities.
Utilizing this approach with our low cost resources, we believe our annual adjusted EBITDA will triple by 2026.
Finally at the core of all of this is sustainability.
As one of the world's largest lithium producers and innovators, we were able to work closely with our customers to create value and drive better sustainability outcomes for all stakeholders.
With that I'd like to open the call for questions I'll hand over to the operator.
Thank you Sir and at this time, ladies and gentlemen, if you would like to ask any questions. At this time you may do so by pressing star one on your telephone keypad.
Your first question comes from the line of John Roberts with UBS.
Good morning, This is Matt Skowronski on for John.
In the past you mentioned that <unk> may be able to ramp that 40% to 50% of capacity in a year following its commissioning and qualification process.
Is this still the case for that first line that's supposed to.
Done with construction at the end of this year or is it going to take some additional time due to the constraints going on right now.
So I think the.
Got to get through mechanical completion, and then we've got the commissioning and qualification. So I think what we said is after that and that's about a six month process. Then after that we think.
We would be able to ramp to maybe 50% in the first 12 months, that's probably a little aggressive, but that's what we're targeting.
And then.
I think the labor and all those issues are primarily around construction, we've got operators and staffed and onboard and theyre, helping with commissioning so.
The labor market is going to be tied in we may fight to keep the ones, we want I'm not sure, but the real labor issue was around construction.
Thank you and then Scott.
You mentioned it.
Han arbitration issue could impact your ability to opportunistically take hold of growth opportunities.
Is that organic or inorganic opportunities.
Yes, I think it's really more.
It's really too I think partly on the organic side, our ability to accelerate further accelerate our.
Our projects.
Bill to do some of it but clearly it's a it's a big drag.
And then the second is any sort of larger type of inorganic would be would need some sort of more creative type of financing.
<unk>.
Yes.
Okay.
Your next question comes from the line of P. J <unk> with Citi.
Yes, hi, good morning.
Good morning.
So now that you expect lithium prices to be flat to up.
For this year and sort of down.
Are you.
Must be expecting.
<unk> and <unk> that are well into double digits can you comment on that.
And then and then as you look forward into next year.
Percentage of your contracts will be renewed next year and do you have any early look into negotiations. Thank you.
So P. J good morning, it's Eric I want to make sure I understand your first question. Your first question was would they be double digit in Q4 is that what you said.
Yes, Hi, I was willing to double digit for Q4.
For your pricing.
The way to think about pricing is and the flat to down comment is that it's progressive throughout the year prices were at their lowest point late last year and early this year and have been gradually rising as we've gone through the year due to two factors. One is the expiration of any concession we gave against fixed.
<unk> long term agreement.
And the second would be just the movement of spot prices for that that portion of our business is exposed to that those markets, which im sure Youre aware know those prices have gone up significantly and throughout the course of the year.
So the guidance, we've given that Scott gave at Investor Day for next year was at least 15% to 20% year on year increase for 2022 versus 2021, and certainly that's a progressive sort of.
Trends. So you could certainly see those kinds of increases starting to happen in Q4 versus a year ago.
Okay, Great and then on marble restarting one of the three lines.
Rock prices have skyrocketed.
So I just one line and then what would your concentrate that rock would that be would that be in China.
Can you just goodness can you just talk about that.
Yes, so the.
Yes.
P J, it's Ken so.
I think we're going to get started on one and will ramp.
Other facilities over time, but it's really our capacity to convert so we're not really mining rocked to sell spodumene into the market where mining rocked to convert spodumene into finished products and then we would.
And we will do that Kim Martin.
Initially I mean, I guess, we haven't worked out exactly kind of what the logistics are so on that product may go to China and other products go to <unk>. So we just have to balance our.
Our sourcing of facilities, but thats the next tranche of our product in that part of the world.
Your next question comes from the line of Laurence Alexander with Jefferies.
Good morning, first on the bromine pricing can you discuss how much of that you feel is transitory versus sustainable given the demand trends youre seeing.
And can you give any sense of the magnitude of the chlorine headwind for this year, so that the reason that.
We have some better context for the larger than this year kind of headwind next year.
Yes, I think in terms of the pricing.
Could probably figure most of that is transitory.
Based on the raw materials pricing that we pay and the ability for us to absorb that and manage that as we price forward and in terms of the Korean impact it's more of a timing issue, we're going to get more core next year, probably a different price and we're going to get this year, so youll see that.
<unk> really impact us starting mostly in Q1 next year throughout the year.
And then with catalyst.
Recovery next year.
Should that be lagging or coincident with production ramp ups at the refineries.
Hey, Laurence this is Raphael the FCC business is very ratable to miles driven and that correlates to refining output. So I think FCC is as I've mentioned sequentially continues to improve.
From a volume standpoint, so that one you would see first and there's usually a lag on hydro processing, which is 12 to 18 month lag as conditions improve and refineries to get more capital availability and then.
We invest in change outs for <unk>. So that has more of a lag effect, but overall look we see sequential improvement we see refining conditions, improving we're very tied to that with our performance products. So we see that as a fee.
Favorable outlook going forward.
Your next question comes from the line of Bob Court with Goldman Sachs.
Yes.
Yes. This is actually Mike here sitting in for Bob.
I could ask a question around the lithium business looking at the energy storage related sales.
Is there a potential one to two quarter lag behind the EV production versus those sales actually maybe leading.
Yes, Mike it's Eric here.
It's simply a factor of the length of supply chain lithium is consumed in the cathode material.
Which then has formulated into.
Electric that's put into a battery of the batteries and assembled and then put into an EV car. So it's just the length of time that takes in the geographies involved most of the cathode on nearly all of the cathode production and a good amount of the battery production still is in Asia.
Course cars are produced various points around the world. So it's just the length of the supply chain.
We are we see that lag, but recall, we're well positioned we're able to supply anywhere in the world. So we look.
We are well positioned to grow with the industry, but that lag is likely to remain there given the length of the supply chain.
Got it Okay that helps and then also just as a follow up.
When I think about.
Lithium recycling can you give me an idea of what kind of assumptions you guys have made around recycling and perhaps the potential impact on your business.
Any at all.
Yes.
Recycling is a phenomenon that follows.
The end of life of batteries and further still won't have to factor in potential reuse of batteries and given the 10 year lifecycle that is warranted on most batteries produced for automotive production.
Kind of lag you are looking at so batteries being produced today wouldn't even be considered for recycle until 10 years from now when we look at that that means that we see recycling, becoming important as the decade wears on but still by the middle of the decade being fairly small small amount of <unk>.
<unk> needed.
In the supply chain, and maybe reaching a double digit amount of low double digit amount of possible coming back into the stream by 2030.
Your next question comes from the line of David Begleiter with Deutsche Bank.
Hi, This is David upon here for David I guess first can you talk about is our feedstock sourcing strategy for that 150 K.
Talent of lithium hydroxide capacity, you're adding in China.
I'm sorry, so that was the feedstock strategy for the.
150, new projects in China.
There'll be there'll be fed with our.
Spodumene coming out of Australia.
Okay, and then secondly are there any incremental headwind or tailwind.
Your <unk> guidance, you provided at the Investor day, especially for bromine and catalysts or do you still stand by those guidance.
Yes, we haven't we haven't updated our guidance.
Investor Day, So we're going through our annual operating plan process right. Now in fact next meeting is next week.
We'll give you a more definitive guidance in our fourth quarter earnings call.
Sure.
Your next question comes from the line of Joel Jackson with BMO capital markets.
Hi, This is Brian Murphy on for Joel Thanks for taking my question.
Just back on the pricing discussions in 2018 and can you just give us a little bit more color on how those discussions with your lithium contracts.
And then our pricing mechanism going to be similar in 2021 or is there more <unk> benchmark pricing.
So.
Generally speaking <unk>.
<unk>, we're having with our customers are for price increase next year and.
And that aligns with the guidance I gave in our remark just a few moments ago.
We have a book of contracts, we've had under under our under our and our basket I should say for some years now.
Our going back either to while those are the fixed portion of those contracts is going back to the original long term agreement, which is significantly higher in some cases than the average price that we're seeing for 2021.
And then there is many of those contracts have a variable component and there is no one.
Contract that looks exactly like the other but that variable component will also see increases some of those variable components are tied to indices others are just.
And an annual increase nomination that's possible or Max increased nomination.
Finally, we have a good deal of.
<unk> technical grade contracts, where we will see rising prices based upon an adjustment to the rises we've seen this year as we roll into next year.
The last piece would be our China spot business and that's hard to say that we'd see a pretty big increase on that next year because prices are already extraordinarily high in China right now, but we'll continue to see possibly some some upside on a year over year basis, particularly in the early part of the year next year on that so those are all the components that are that are driving.
Our increase in the types of discussions, we're having with our customers, which will give us nice leverage upside leverage to the improving market conditions.
Okay. That's really helpful. Thank you and then I guess just given the large upswing in LSP demand recent test the commentary with that background just want to understand how you're thinking about investments into carbonate versus hydroxide theme.
Your incremental investments there.
Looking focus on hydroxide correctly.
We see.
We monitor this very closely we have a lot of analytics suite and customer dialogues up and down the supply chain from Oems I'll buy that back through the battery and cathode producers to assess those trends, but we believe and has been confirmed in our discussions with customers is while there is an uptick in <unk> has also been an uptick in vehicle production.
Outlook as well for electric vehicles, and we're LSP is occupying our sweet spot is in the lower lower cost range lower lower costs and lower driving range portion of the vehicle mix for some automotive producers that'll be a larger percentage of their mix and others.
Bottomline, we see strong growth in both of those those products, albeit we see still the growth rate in hydroxide will be higher over the over the coming five years.
And hence we feel we're extremely well positioned we're bringing on 40000 tons of carbonate capacity as we speak.
And we have the hydroxide expansion strategy. In addition to the camera and ramp that they can't earlier described.
And feel we're well positioned to meet both LP demand and rising high nickel demand or for cathodes.
Your next question comes from the line of Jeff Zekauskas with JP Morgan.
Yes.
Thanks very much.
You've described your lithium prices as perhaps being up 15% to 20% or more next year.
Is the 15% to 20% representative.
Given market conditions could it be up 30.
Okay.
Well I think it depends as you might think.
Thank Jeff on market conditions, there is a portion of our business.
That is exposed to market pure market conditions, the majority of our business even while there is under these long term contracts. There is a variable component that the anchor around that is going to be on the fixed price, which is also going up.
Cause of VX exploration. Many concessions we gave so at this point, it's probably too early to say, what we think about price.
The above 15% to 20% because our guidance was at least 15% to 20% right. So we'll have to provide you as the as the quarter, whereas on in the discussions continue that guidance as we get into the February call. The earnings call that we'll have in February.
Okay.
Sure.
For my follow up when I look at quoted bromine prices in China.
Maybe since August they are up 60%.
Something like that.
Is that a representative price for what's going on in the market or it's not a representative price or can you speak to bromine pricing in Asia.
Where it's been and where you see it going.
What's driving it.
Yeah, Jeff This is <unk>.
So.
Reflection of a couple of things first of all demand is up.
Clearly across the market and raw material pricing are up to produce the brominated products that are being required. So what you're seeing is that's what's driving.
An inordinate amount of price increase in the Chinese spot price.
Your next question comes from the line of Ben <unk> with Bank.
Thank you guys good morning.
One of the things.
We're thinking about it.
But love to hear your perspective was.
<unk> materials.
Maybe being a bottleneck for us.
<unk> production.
Sales.
How you guys view that as a risk just overall.
B.
With your reserve copper.
Nickel.
And then how will customers I guess.
Approaching you.
Okay.
Painters.
The security of the supply chain does that.
Scale.
Diversity of resources.
I'll give you on that.
Overall, the people, we're trying to drop off.
Thank you.
So let's talk a little about lithium.
<unk> nickel I don't know that.
We will want to weigh in on that but on.
I'll make a few comments and then Eric.
Erik can add some detail to it but I.
We are investing heavily to kind of keep up with that demand and maintain our share which has been our strategy and so we're investing along with our customers and security of supply has always been a key part of our value proposition.
From Albemarle to their customers and particularly around lithium and as you mentioned the diversity of resources the diversity of locations, where we produce.
Have carbonate and we have hydroxide today and then we will continue to evolve those chemistries as the market shift over time. So I think the network that we build is really a lot of that is focused around security of supply and part of the key value proposition that we talk about constantly with our customers.
Hey, Ben I would just add on the lithium side material risk. There is enough material is enough lithium out there. The issue is the investment required to get there and the and the fact that it's going to be at a higher cost right. The cost curve as upward sloping as you go to lower quality lithium resources that are out there.
The discussions we're having with our customers are ones of.
Deep deep desire for commitment and partnership.
That's both the existing ones, we've had and as we bring on new capacity new ones that we would look to target and thats at various points in the value chain, but I would tell you the most significant arden.
Discussions around security or the closer you get to the automotive OEM and so.
Our track record of executing gives us that advantage for sure.
Thank you.
I think that's where the discussions land is us being sort of a base load partner for many of these these these are automotive and battery firms. So I do think there is an advantage we have for sure.
Thank you guys.
Not to get too.
Ahead of ourselves here, but are you at a point that you are allocating.
Customers, so you're picking your customers.
Could you or is it not.
Thanks, guys.
So I would say that's the merit of the partnership and why we have the discussions we do because any one any volume who is not committed to us.
And our long term way, so that could be a spot buyer on the battery side that could be a tech grade buyer on the industrial side.
Does risk not getting the volume that they would like as we roll into 2022.
So that's the basis for the partnership discussions that we're having is that desire for security of supply given given the points in time in the supply in the coming five years, where things will be Titan they are quite tight right now.
Your next question comes from the line of Vincent Andrews with Morgan Stanley.
Hi, This is Andrew I'll stay on prevention. Thank you for taking my question just back to the Huntsman arbitration curious what other alternatives are there in terms of this.
Discontinued classes I know you mentioned youre starting to have discussions around settlement.
So what other kind of from a legal perspective, what other alternatives are there and then how should we think about the timing of all of us.
Well I think so.
It's a range right and we're not going to get into too much of that is an active process. So it is either through the arbitration process or from discussions that we've initiated that we would be able to look that we could potentially reach agreement and resolve that matter, but it's a pretty those are the options and thats the timeframe is pretty wide.
Understood and then as we think about commerce and your ability to fulfill those contracts I guess, particularly in chemical too given.
Given the longer delay.
Will those be fulfilled through more tolling or how should we think about kind of the volume and how that will be.
That will be.
I guess, Alex I guess in terms of as we think about next year of 2023 will that be kind of.
Less volume overall, or just kind of lower margin from tolling.
Well I think Youll see is you will fill that with tolling and with this acquisition that we've done and we expect to get that up to speed.
Relatively quickly I mean, there'll be some we expect to do make rights to get it to our standard and the quality that we want but.
We'll be aggressive around that and those will be the two kind of methods that we use to stay on our plan.
Your next question comes from the line of Kevin Mccarthy with vertical research.
Hi, Good morning. This is Corey Murphy on for Kevin.
I wanted to.
Follow on.
P. J 's question earlier about <unk>.
You said you were starting up one line and it looks like it's going to start production maybe in third quarter of 2022.
Can you help me understand.
What the delays are why the restart process.
It seems to take maybe upwards of six to 10 months and then.
Given spodumene prices.
Why wouldn't you start up or try to startup all three lines are you able to sell the spodumene in the spot market or is it that.
Theres contractual reasons not to.
Well, it's on the selling spodumene is really strategic reasons.
Is that we want to convert it and sell the finished products to customers, where we've made commitments and we have a long term arrangement. So.
We might sell some spodumene here and there, but that's not our strategy.
And then starting up I mean, we're going to do start to first trained in the other it's really meant to be in line with our conversion capacity and then that timeline that you referenced stewarts six or whatever the timeframe is to get it going.
You've got labor issues in Western Australia with face the same things there that we do at Cymric tend to some degree in really the lead time is on some of the big equipment, that's necessary and mining some of the yellow we call it they call it yellow equipment.
That's necessary in operating these mines and the lead time on that.
Understood. That's very helpful and then I just.
Just wanted to ask about tolling as well.
It sounds like Theres more tolling due to labor shortages or labor strikes in Chile.
How would your volume trend without tolling and when do you anticipate rolling off the tolling contracts related to the.
When that growth startup.
I think you had said you were bridging and some capacity with that.
Right, well I would say.
Tolling is a strategy we use for bridging that is correct.
We do that.
We are.
We expect to continue to total next year.
For the purposes of Conagra, but also for the purposes of Cameron.
Look I mean, it's a bridging strategy, but the market is extremely strong right now and because <unk> has been delayed there spodumene that we can take advantage of and as long as we have.
Qualified tolling partner that has that is someone with whom we have a good relationship. We trust our quality, we have a business relationship where we can collaborate together then we will take advantage of that both to bridge and to take advantage of the strong market. That's before us So I think it's.
It's it's a variety of purposes when it rolls off.
It's hard for me to say, but we will have it as part of next year for sure.
Your next question comes from the line of Colin Rusch with Oppenheimer <unk> company.
Got it. Thanks, so much for all of this information I'm curious about the order patterns from your customers.
And this is across the units if youre seeing any sort of double ordering that you can track or.
All of the sell through.
For those individual customers.
It seems like there may be some folks trying to build some inventory or really trying to get prepared for or any other incremental demand that they can make.
Colin and Eric from a lithium perspective, I would say that there is.
We're very.
We touch all aspects of the supply chain.
And so I don't see any double ordering and Furthermore to buttress that remark I would say that the discussions we have with our customers. We know they don't have any inventory they are hand to mouth.
So.
Know that because when with crises existing around the global supply chain you can imagine we're not always able to precisely target the weaker the day at which shipments going to arrive and that causes pain for the customer right.
Yes, it does for us it does for them as well so it's a very tight market is still in lithium.
And Carlin for bromine, we're not seeing any double ordering customers or not.
Trying to build inventory at their sites in anticipation of supply chain disruptions supply chains are tight and things were difficult, but we've been able to manage it to a certain extent to where we can deliver within a window that they can live with so we're not seeing those double orders are customers trying to build up inventory by ordering more than they need right at this time.
Nor in catalyst either Colin.
Okay. Thanks, guys and then just on the lithium content per kilowatt hour are you guys seeing any real trend lines on that certainly as some of these battery chemistries change.
And folks are looking to figure out how to optimize some of the sub.
The materials are you seeing.
Lithium content increase decrease kind of hold steady and where would you think that level right now.
For the most part.
Think as we sit here and look at the year 2021, we've seen any material change certainly we would expect it over a period of years as <unk> enters the equation on the anode side and as further as as progress on solid state or lithium metal anode technology <unk>.
<unk> is definitely going to increase the content as it does obviously the energy density, which is sort of the whole point of those technology innovations.
But I would say as we sit here today I think the technology trends are alive and well, but it's on a on a quarterly basis. During 2021 really haven't seen significant change necessarily in that.
Your next question comes from the line of Ron Vishwanathan with RBC capital markets.
Great. Thanks for taking my question I guess I had a question just on the contracting process here.
What are you hearing from your customers as far as the link.
Length of those contracts in lithium extending out now.
<unk>, seven or 10 years or.
And then when you do those contracts how.
How do you kind of bridge the divide between this huge spot price of $28000 plus per ton and such.
Something more reasonable and more in line with.
Increases from where you are on the contract side.
I guess Im just asking are you have you seen a material rise in the cost curve that would justify.
Contracts going closer to spot.
It's Aaron.
I would say that.
The duration of requests from customers are increasing.
I think we've characterized in the past that on average is about three years and our current mix the new contracts under discussion, which would be slated to supply against.
The China expansions that Kent described our future camera to an expansion sorry, or even down the road expansions, we could have in the U S. Those discussions are either five year plus or they don't even start until 2495. So we are having contract discussions with certain customers who are contracting for increments of time.
Into the future say 23 to 26 or $24 28.
Those are the kinds of durations that people are thinking about and that's largely driven by the investments made on the automotive side.
From a pricing standpoint.
You can imagine because prices are rising.
Certainly a desire on behalf of those buyers to see what they can to not have to pay spot prices, but the reality is that either the discussions either towards a much higher fixed price if they want some stability in their pricing term or pricing against that and establish index. So that it will rise with time now.
I remember the price you gave was a spodumene price when you said $2800 a ton.
The pricing in China is on a U S basis is in high <unk> close to 30 on a delivered basis. When you look at many of the indices around the world.
These people are buying against a blend and so the pricing around that is not quite as high but it's still well into the high teens, if not the low twenty's.
A lot of those pricing indices are so.
We continue to have a discussion with customers.
But those are some of the dynamics at play which are leading us to long term contracts with cigna.
A significantly higher price potential than what we've seen in the past.
Great Thanks for that.
And then I guess just wanted to ask about if theres any risk you see on.
On the political front in Chile.
Yes, just a broad question I guess in the next month or two ourselves.
Well, there's a lot happening in Chile, so theres definitely political risk.
Chile, the rewrite the constitution and things are changing.
And we watch it we watch it closely.
Operate there so.
And we're pretty close I mean, we were close to the government, we see what's happening, but theyre rewriting their constitution there'll be changes in Chile I think.
Clearly wants to participate in lithium industry, they're looking to expand their participation.
The contracts.
Agreements they have with us are very progressive so they participate as prices go up so that's an upside for them. So.
They're going to they want to participate in that economically but.
There is a lot happening in Chile at the moment and we're watching it very closely.
Your next question comes from the line of Matthew <unk> with Bank of America.
Thank you.
So we touched a bit on tolling.
I wanted to kind of delve a little bit.
In total the Mark because I know.
So it's a bridging strategy and maybe we can be opportunistic, but youre sitting on a fair amount of latent capacity at green bushes.
Yes, the read seems to be that converters are struggling to find enough margin supply of spodumene to actually kind of.
Continue to operate in some respect so.
Why not get more aggressive on the volume I have to think.
One prices right now are really attractive but too.
Almost somewhat concerning as it relates to the potential for Overinvestment in overheating in markets and things like that I feel like if you with your volume you might have an ability to kind of regulate this a little bit.
Yes, so ill.
Make a comment Erik can add some color.
We can't just turn a toller on because they're going to our customers. We have to qualify them. So there's a process there and not all of those colors would qualify with our customers. So you can't just turn them on.
Not quite that simple to EBIT, if we had the products. So now were ramping and getting more spodumene going it gives us optionality from spodumene standpoint going forward, but we still have to make sure we choose the ones and Eric talked about it before there are people there told us that we have relationships with that had been previously qualified or currently qualified with our customers. So you have.
To fit in all of those elements into it.
To really ramp it up it would be it's not a.
Six months strategy, it's going to take a little longer to implement that.
Okay anything.
No I think you've handled it well.
Don't think of these converted as a diamond doesn't.
There are people are in the industry, but theres only several that we would consider as being partners are meeting our standards for serving our customers. So thats why theres the lengths involved that in the qualification process. So if there's opportunities we'll take advantage of them, but we're very discriminating in how we approach that from a when it comes to serving our customers.
The key for us.
Again security of supply quality for the customer the customer has to prospects. So we're going with total we have to make sure that product meets our specs and our customers' standards as well.
Yes fair point.
And we almost got there with Jeff's question.
But if you look at Chinese bromine price I know in the past and.
Kind of comments are there.
Maybe it's not correct on an absolute basis, but directionally its.
Consistent with what Youre seeing so.
Given the move should we think of this move is real and capture bohlen any capacity and if so is this a two year process, a one year process or three year process.
It would seem like there's a lot of room to offset higher clearing cost as well, but I'm not sure if that's the case or not.