Q4 2023 Albemarle Corp Earnings Call
You would like to withdraw your question again prestige star one.
I'll now hand, it over to Meredith bandy, Vice President of Investor Relations and sustainability.
Meredith H. Bandy: Thank you and welcome everyone to Albemarle is fourth quarter and full year 2023 earnings Conference call. Our earnings were released after the close of market yesterday, and you'll find the press release and earnings presentation posted to our website under the investors section at Albemarle Dot com joining.
Joining me on the call today are Kent Masters, Chief Executive Officer, and Neel Shire, Chief Financial Officer, NASA, Johnson, President of specialties, and Eric Norris President energy storage are awesome available for Q&A as a reminder, some of the statements made during this call, including our outlook considerations guidance expected company performance.
Meredith H. Bandy: And timing of expansion projects may constitute forward looking statements. Please note the cautionary language about forward looking statements contained in our press release and earnings presentation that also applies to this call.
Please also note that some of our comments today refer to non-GAAP financial measures reconciliations can be found in our earnings materials and now I'll turn the call over to Kent.
Thank you Meredith.
Kent: Starting on slide four our full year results show continued strong volumetric growth with 2023, marking the highest net sales and second highest E. B S and Albemarle is history.
This highlights the focus and ability of our global team to succeed in a macro environment that remains challenging.
We ended the year with net sales of $9 6 billion up 31% compared to 2022 of which 21% was related to volume growth.
Kent: Energy storage delivered 35% volumetric growth in 2023.
For the full year 2023, Albemarle adjusted EBITDA was $2 8 billion or $3 $4 billion, excluding a lower cost or market charge recorded in the fourth quarter.
In January we announced a series of proactive measures to re phase, our organic growth investments and optimize our cost structure.
Kent: These disciplined action should allow us to unlock more than $750 million of incremental cash advance near term growth and preserve future opportunities.
Today, we will provide our initial thoughts on our full year 2024 earnings to.
To help investors model Albemarle in the current environment, we will introduce scenarios based on recently observed lithium market prices Neil will provide more details on this in a few minutes.
Kent: We remain as confident as ever in the future of Albemarle and ongoing demand for the essential elements, we provide to support modern infrastructure, including mobility energy connectivity and help.
The secular trends of clean energy electrification and digitalization continue to drive growth.
We are uniquely positioned to capitalize on the opportunities in our end markets in particular lithium demand.
Over the past year, we have further strengthened Albemarle is positioned and are committed to navigating the near term dynamics in a disciplined manner to both support and capitalize on these global trends.
Kent: I'll now hand, it over to Neil to discuss our financial results.
Thanks, Kent and good morning, everyone. It's a pleasure to join my first earnings call with Albemarle I've hit the ground running and in the coming weeks I'll be on the road meeting with our shareholders and analysts I'm looking forward to reconnecting with many of you in building new relationships with those of you I haven't yet met.
Speaker Change: Moving to slide five I'll start with a review of our fourth quarter and full year 2023 performance.
Speaker Change: In Q4, we reported net sales of $2.4 billion down 10% compared to last year as lower lithium market pricing was partially offset by increased volumes in energy storage and higher volumes and pricing and catch it.
Speaker Change: As Kent mentioned, we recorded two charges in Q4 that impacted results. The first was a lower of cost or market charge of $604 million and the second was a tax valuation allowance in China of $223 million. These.
These charges were fundamentally related to the fact that in the second half of 2023 lithium market prices fell over a relatively short period of time.
In the case of the LCM charge market prices reached a level such that our cost of inventory, especially spodumene, which we purchased at a market price from our callison JV was above the market price of the final lithium salts, which resulted in us writing down the value of our inventory in accordance with GAAP.
Similarly in the case of the tax valuation allowance the rapid decline in market prices led us to recognizing losses in China as we process the higher cost spodumene in inventory.
Speaker Change: In China, we are only allowed a five year carry forward period to utilize these losses.
In accordance with GAAP, we recognized a valuation allowance against the losses.
The company's full year results, excluding those charges met our previously announced expectations.
Net sales of $9 $6 billion were up 31%, primarily driven by volume growth adjusted.
Speaker Change: Diluted EPS, excluding both charges was $22 and 25 roughly.
Speaker Change: Roughly flat year over year.
Looking at slide six fourth quarter, adjusted EBITDA was $289 million, excluding the lower of cost or market charge. This primarily reflects a decrease in energy storage adjusted EBITDA, driven by a lower lithium market pricing, which more than offset higher volumes.
Specialties, adjusted EBITDA declined $64 million, primarily due to lower sales volumes and pricing, reflecting ongoing demand weakness in key end markets.
Catching adjusted EBITDA increased $34 million as higher sales and higher pricing more than offset increased raw materials cost.
Speaker Change: Turning to slide seven before I transition to forward looking information I wanted to take a moment to review our adjusted EBITDA definition, and Sharon update that we plan to make.
Speaker Change: Effective with Q1 2024, we are updating our definition of adjusted EBITDA to include Albemarle share of the pretax earnings of our Towson joint venture.
There are a few important reasons for this change.
First the updated definition better reflects our vertical integration with talismans Green bushes mine, one of the world's largest highest grade and lowest cost lithium resources.
Second it smooths the impact of price variations in inventory timing that obscure the underlying profitability of our full chain integration.
And finally this definition is consistent with the amendment to our revolving credit facility, which I'll discuss later on the call.
Speaker Change: As a reference point on this slide we've given you both the energy storage and Albemarle full year 2023, adjusted EBITDA under the previous an updated adjusted EBITDA definitions.
Speaker Change: We will report under the updated definition in 2024, therefore, all of our comments and numbers regarding 2020 for modeling considerations are based on this new definition.
Speaker Change: Turning to slide eight.
Speaker Change: To help investors model Albemarle earnings under different price scenarios, we have provided ranges of outcomes for our energy storage business based on three lithium market price scenarios that were observed in the back half of 2023.
First year end 2023 market pricing of about $15 per kilogram of lithium carbonate equivalent or L. C E C.
Second <unk>.
Speaker Change: Q4, 2023 average market pricing, which was about $20 per kilogram of L E and third.
Speaker Change: Second half 2023 average market pricing, which was about $25 per kilogram of L. E.
Within each scenario the ranges are based on our expectation to increase energy storage volumes by 10% to 20% in 2024 compared to 2023.
Speaker Change: All three scenarios assumed flat market pricing flowing through energy storage as current book of business.
These scenarios demonstrate the resilience of our energy storage business.
As you would expect given our strong resource positions around the world. We can maintain solid margins, even with lower year over year lithium pricing, which are further bolstered by our organic volumetric growth and the normalization of temporary inventory timing impacts.
Moving to slide nine.
Speaker Change: Here, we provided modeling considerations for specialties catching and corporate.
We expect specialty is 2024 net sales of one three to $1 $5 billion and adjusted EBITDA of $270 million to $330 million.
Speaker Change: Catch in 2024 net sales are expected to be one to $1 $2 billion with adjusted EBITDA of $130 million to $150 million.
Speaker Change: The corporate outlook reflects our planned decrease in capital expenditures, which we expect to total $1 six to $1 $8 billion in 2024 down from $2 $1 billion in 2023.
Corporate costs in 2024 are expected to be between 120 and $150 million corporate costs. In 2023 included interest income that is not expected to recur and therefore, excluding this factor corporate costs are relatively flat year over year.
Adding it all together on slide 10, we provided here the full rollout of Albemarle under each of the energy storage price scenarios.
Turning to slide 11, I'll provide some further detail on the trends that underpin each segment's outlook.
Speaker Change: In energy storage approximately two thirds of 'twenty 'twenty four estimated volumes are expected to be sold on index referenced variable price contracts.
The remaining approximately one third of volume is expected to be sold on short term purchase agreements.
This is a modest change from our past mix and reflects our positioning in this lower price environment, we could potentially add additional long term contracts, but we will only entertain that if the pricing and other terms reflect long term industry fundamentals.
Energy storage volume is expected to be weighted towards the second half of 2024, as our own capacity expansions ramp and as we experience normal seasonality.
Specialties results are also expected to be back half weighted the specialties outlook reflects continued softness in opaque demand conditions in consumer electronics, and elastomers end markets, partially offset by strong demand in oilfield services agriculture and pharmaceuticals.
We continue to actively monitor the situation in the middle East and in particular, the Red Sea and are working with our partners to facilitate safe efficient and cost effective transport of our products to customers to date operations continue largely as normal, though we are experiencing some shipping delays and tighter availability.
Ability of processing materials.
And catch and we are optimistic about increased volumes driven by high refinery utilization as well as higher pricing primarily in clean fuel technology products.
Catch and made good progress against this improvement plans in 2023, and we are expecting another year of improvement in both net sales and adjusted EBITDA.
Speaker Change: Moving to slide 12.
We continued to deliver a volumetric growth with line of sight to a growth CAGR of about 20% from 2022 to 2027.
Our expected 2020 for volume growth reflects projects that are at or near completion, and which we have prioritized as we reduced capital spending in other areas.
This includes commissioning and startup of the May Shawn lithium conversion facility.
Completion of commissioning activities at the camera written lithium conversion facility.
An ongoing expansions at silver peak linear Agra and change out.
Our long term expected lithium sales volumes are mostly unchanged as we continue to utilize flexible tolling arrangements to bridge to full capacity at our conversion expansions as well as pay supply to current market conditions.
Turning to slide 13.
This is an update to a slide we provided last quarter, which explains how energy storage margins are impacted by JV accounting and the inherent timing lag that occurs from the mine through our conversion processes.
And second the Towson JV partners recently agreed to change the spodumene pricing to N minus one or a one month lag versus the prior use of a three month lag.
That said these changes will not completely offset the inventory lag, particularly in a period where prices have significantly changed and therefore, we expect our first half 2020 for margins in energy storage to be impacted by the lag as we process higher cost spodumene inventory and by expected.
Speaker Change: Reduced sales from callison to our JV partner.
Importantly, when we look beyond these temporal impacts we estimate that energy storage could exit the year at a margin of approximately 30% assuming constant current market pricing and a return to normal shipments from the Dallas and JV.
Speaker Change: Turning to slide 14, and our financial position.
As a rapid action in recent months has shown we are committed to maintaining a solid investment grade credit rating and enhancing our financial flexibility as we navigate the lower price environment.
With our earnings release yesterday, we announced that we have completed an amendment to our revolving credit facility to ensure ongoing financial flexibility.
Speaker Change: The amendment uses the revised adjusted EBITDA definition consistent with the definition that we will use for financial reporting going forward I'm happy to share that we had unanimous support from our bank syndicate for the amendment.
This action along with all of the steps we are proactively taking as a company to modify our cost in capital spending demonstrates our focus on maintaining financial flexibility adapting with changing market conditions and exercising our investing discipline.
Speaker Change: With that I'll turn it back over to Kent to provide more details on our actions to preserve growth reduce costs and optimize cash flow.
Kent: Thanks, Neal and now turning to slide 15.
In markets as dynamic as hours growth companies must be able to pivot and pace with disciplined decision, making and focused execution. This is especially true for Albemarle as a trusted leader in the markets we serve.
At Albemarle disciplined growth means carefully prioritizing capex timelines when pricing moves higher and re phasing when the market shifts.
Kent: As we look to 2024 and the current market dynamics, we've identified certain strategic investments in projects across the enterprise.
That do not need to grow as fast in the short term.
In short the returns for new projects are not there at these prices, which we believe are well below reinvestment levels.
As a result, we are reducing our capex in 2020 for about $300 million to $500 million.
Kent: <unk> 2023 by refocusing our energy on the large high return projects that are significantly progressed near completion or in startup.
Additionally, we are aligning our opex to slower pace of investment we are taking action to reduce cost by nearly $100 million and we expect to realize more than $50 million of these savings in 2024.
Kent: Our actions include reducing head count and lowering spending on contracted services.
Kent: We also continue to evaluate and execute the sale of non core investments. For example, we recently monetized our lie Intown holdings, given our decision to withdraw our nonbinding offer.
Kent: At the same time, we are pursuing additional cash management actions, including optimizing our working capital.
Kent: This includes initiatives focused on shortening the time from the mine to the customer and our supply chain.
These measures together are expected to unlock more than $750 million of cash flow in the near term.
This disciplined approach to managing the current market downturn reflects the actions that we must take to preserve our financial flexibility and re pace our investments.
The actions, we're taking today will position Albemarle to emerge stronger to the benefit of our shareholders partners employees and the communities in which we operate.
Kent: Moving to slide 16.
Kent: The specific re phasing decisions within our 2020 for Capex plan include continuing critical health safety, environmental and site maintenance projects commit.
Kent: Commissioning the Mesa on lithium conversion facility, which reached mechanical completion at the end of 2023.
Kent: Completing commissioning activities for trains one and two at the Kimpton lithium conversion facility and prioritizing construction on train three of the <unk> expansion project.
Kent: And prioritizing permitting activities at the Kings Mountain Spodumene resource.
We continue to have significant optionality for long term organic growth at the same time, if pricing remains below reinvestment economics, we will be disciplined and hold capital at or below current levels for the foreseeable future.
Moving to slide 17.
Kent: The Albemarle way of excellence remains the standard by which we operate and continues to serve us well in 2024.
Kent: Here, we provide more details on operational discipline, a key pillar of our operating model, especially given the current environment.
In 2023, we realized productivity benefits of more than $300 million well.
Kent: Well ahead of the initial target of $170 million and we've identified.
<unk> plans that target another $280 million and productivity benefits this year.
In manufacturing, we continue to implement initiatives on overall equipment effectiveness, including improvements to recovery in utilization with expected benefits of $80 million.
In procurement, we are targeting benefits of $150 million by pooling corporate spend and continuing our strategic sourcing to recognize lower raw material pricing.
And finally after restructuring certain back office functions and with re prioritize projects, we expect to realize $50 million of productivity improvements.
Kent: Slide 18 demonstrates the adjustments we've made to our capital allocation priorities as we navigate the dynamics of our key end markets. Our four capital allocation areas remain the same with shifts in how we prioritize as Neil highlighted earlier, maintaining our financial flexibility in this environment.
As a central area of focus.
We'll continue to selectively invest in high return growth, but we'll be patient and disciplined.
We expect minimal M&A in this environment as we primarily focus on organically accelerating growth at attractive returns.
As we have mentioned before we will continue to actively assess our own portfolio to identify opportunities to create value.
Kent: Moving to slide 19.
While the pricing environment has softened for the moment, we should not lose sight of the fact that we continue to see significant long term growth and demand for limited supply.
Kent: This updated forecast is about 10% below our previous forecast from early last year and it now reflects recent OEM announcements more moderate battery size growth and inventory destocking.
At the same time global <unk> penetration is expected to grow significantly, resulting in anticipated two and a half times lithium demand growth from 2024 to 2030.
In 2024 alone, we expect demand growth of 28%.
To put it another way, we expect that this industry needs more than 300000 metric tons of new LTE capacity every year.
Yeah.
And our view incentivizing producers to meet this demand requires long term pricing at or above reinvestment economics, and certainly above current market pricing.
At today's prices the economics for new Greenfield projects, particularly in the west are not supported.
Kent: We expect near term supply to be relatively balanced with demand and you see that adjustment starting to happen with recently announced production curtailments and project delays, including our own.
As a leader Albemarle remains well positioned to capitalize on the long term growth trends, we see in front of us.
Kent: But we'll be disciplined in how we capture our share of it.
Slide 20 shows our durable competitive advantages in how Albemarle can win as we navigate near term conditions.
We are vertically integrated with a globally diversified portfolio of world class low cost resources and industrial scale conversion assets.
Albemarle has leading process chemistry that allows us to build and operate large scale assets safely and efficiently.
As a leader in the markets. We serve we are a partner of choice to strategic customers and stakeholders that seek to drive innovation and growth.
For example, we recently signed a multi year supply agreement with BMW, which takes effect in 2025.
That agreement will also allow both companies the opportunity to partner on technology for safer and more energy dense lithium ion batteries.
And last but certainly not least.
We are committed to operating sustainably with industry, leading ESG performance and partnering with customers and suppliers to benefit the entire supply chain.
As Albemarle adapts to the market dynamics, both present and future. We are confident in our ability to deliver on our strategy and drive value for shareholders.
Speaker Change: With that we'd like to turn the call back over to the operator to begin Q&A.
At this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad.
Speaker Change: Please bear in mind. This Q&A session is limited to one question and one follow up per person.
Speaker Change: Your first question comes from the line of Stephen Richardson from Evercore ISI. Your line is open.
Hi, Good morning, I was wondering get a clarification on slide 12, which is always very helpful. In terms of sales volumes could you comment on what were your fourth quarter sales volumes and what do you expect Q1 to be.
Speaker Change: Neil you want to think.
Oh sure.
Hi, there good morning, Stephen So if I heard your question right you were looking for volume growth that we had in the fourth quarter as well as our volume growth that we expect in the in the first quarter. So we havent.
Speaker Change: With regards to 2024, we havent given the specific volume growth numbers.
Across specific quarters in 2024, as we mentioned, we expect 10% to 20% growth in the year in 2024 and really the growth trajectory in the year will be dependent on how quickly we can ramp up.
Our existing assets that are in startup at the moment.
Speaker Change: Thanks.
Maybe just a follow up specifically on assets.
The the 10-K, which hopefully you just filed suggests just looking at those numbers that the the Atacama was flat year over year is can you just give us an update on the <unk> expansion and what the status is in Chile, right now in terms of incremental volumes.
Yes, so I can start Eric can fill in a little bit so at the solar we were operating at capacity, we've done expansions at La Negra, we need Brian to feed that so that expansion is complete but we need the brine from the salon to feed that and then we.
Commissioning of the slower yield project, that's a project that will provide the additional brine, but once we do that it has to work its way through the brine system and then we can that'll end up feeding.
Negra project and I think that's probably Eric a six month lag roughly from a solar perspective, yeah, I mean for for Virgin Brian that we pump. It's I think the rule of thumb, it's been more like 18 months, but for the SLR yield at six months, we commissioned that in the middle of last year, that's enabling Steve the growth that we will see in that 10% to 20% range a bit.
Speaker Change: Chunk of that is coming out from carbonate.
Chile, similar negra plant enabled by our yield.
Speaker Change: Perfect. Thanks very much.
Your next question comes from a line of Colin Rusch from Oppenheimer. Your line is open.
Thanks, So much guys can you talk a little bit about what youre looking for as triggers for either <unk> or re accelerating some of the capex investments for the balance of the year.
Yes, so I mean.
Colin Rusch: To be blunt I think that's going to be about pricing levels that we see in the trends that we see so we see demand there the volume growth in the in the industry is there and when can we start seeing some projects come out.
Operating projects as well as projects on the books like the ones that we described so for us to kind of Reaccelerate. It will we will need to get a better view of what pricing is in the long term view of that as well so.
But we think what the prices today are unsustainable they are below operating.
Cash levels of some assets that are currently operating and Theyre definitely below reinvestment levels are as we said, particularly in the west and Theres not a particular price that kicks up necessarily a range of projects off its all individuals depending on the resource where its located what the cost position is of that.
<unk> is an asset where that's located so theres not one number that we will look at but we will look at it project by project, but it has not got a spot prices hit a number that's not going to necessarily turn us into back into investment mode. We need to have a view that that's a long term number that would that.
We can rely on through the life of that asset.
Thanks, so much.
You've talked about inventory levels for the industry in the past.
Wanted to get an updated view on what you think is a normalized inventory level for the channel to keep things healthy and moving in and what you are seeing right now in terms of inventories on hand after the channel.
Hi.
Hi, its Eric we've spent a lot of time looking at inventory and Theres been a drawdown in fact, that's been on and off throughout all of last year and into this year at the top of that of the supply chain upstream looking at lithium salts and even the next level cathode production, we feel that inventory is normalized the draw down we're seeing now are harder to predict can understand because it's.
Less visible to us is that the battery cell battery module and easy level.
There are a lot of reports out there that vary on that it's not a highly quantitative or a highly known number.
Colin Rusch: But we think there's probably a couple of months excess.
As we exited last year that will be drawn down this year, that's going to affect apparent demand. So that's why our demand forecast the difference if you look at.
Why Cameron, which slide it is lithium supply side towards the back of the deck between lithium demand growth and EBIT growth and that is that draw down effect happening at the battery and EV level.
Speaker Change: That's super helpful. Thanks, So much guys.
Your next question comes from the line of Steve Byrne from Bank of America. Your line is open.
Yes, maybe just continuing on that discussion, where where is it that you see the glut of inventory that is driving spot prices down.
It is this spodumene inventories converters that that is really where the collateral materials.
Thanks, Steve.
I'll repeat what I said before it is not upstream.
Not seeing large inventory levels, we're actually seeing projects spodumene projects go into care and maintenance or several.
And Canada or excuse me in Australia, There's one in Canada and then some.
Others that are questionable that we're watching closely.
Speaker Change: That as well as well as the direct consumer for US, which is the cathode companies with very high visibility of that that was at one point fairly high a year ago. It has since come down inventory that we're seeing is further downstream as I was saying earlier, it's in the battery and EV level of supply chain.
And that is that is affecting.
Parent demand tied to the lithium industry, albeit evs are growing quite healthily above 30%, we see for the year going forward.
And what are you what would you say is driving the spot price of hydroxide to be meaningfully lower than carbonate in China in <unk>.
Speaker Change: And does it make sense for you to cut your operating rates to tighten that market up and driving an inflection.
Okay.
Well look at that I'll answer the price question, maybe can't might like to comment on on the broader supply question on the price question I think what Youre seeing in China is particularly now let's remember China's almost three quarters, two thirds to three quarters of lithium supply.
Is consumed in China. So it's very much a market with things are set and the trend there has been strongly towards in the past year towards carbonate.
For L F P production.
That is that trend is the opposite in other parts of the world that are developing like Europe, and North America, Although we are seeing RFP interest.
Speaker Change: Those two products are starting to balance out looking to be closer to 50 50 in their mix. Although we have to watch it will move with time as technology and scale economies develop but that that is causing that neared that near term.
Speaker Change: We're putting things upside down because historically hydroxide has been higher than carbonates in the near term we are seeing that at flip.
We would expect that to revert over time as the industry grows do you want to comment on Y mobile again, yeah, I mean, I don't know behaving much to add to that I mean, I think we're we supply of hydroxide and carbonate we tend to supply carbonate from Chile. So that is that capacity is growing as we just talked about little bit earlier, so we'll apply that into the MSP market.
And then so we're trying to be balanced between hydroxide and carbonate and catch those growing trends, it's a little bit more.
Skewed toward carbonate at the moment, but we think hydroxide catches up to that and then your question about should we lower rates to kind of bring that back into balance so.
We're still ramping up and we still see growth in the market.
20% a year were 10 to 20 for us this year and the market's a little bit stronger demand. So think that demand catches up without us having to adjust operating rates, we're still trying to to commission plants and catch up to that.
Thank you.
Your next question comes from the line of Josh Spector from UBS. Your line is open.
Yes.
Joshua Spector: Hi, good morning, So a couple of questions around here for your pricing scenarios. So when you talk about $15 a kilogram on the Asia markets.
It's implied that scenario in terms of Albemarle realized pricing and really getting towards kind of the impact of floors, if that's meaningful or not or if anything's changed in that regards.
Yes, Josh it's a bit of a complicated picture because as you may know there are varied price indices out there. There is some effort for China, and then Theres some for outside China, those inside China tend to be a 10.
10% to 15% lower just because of the structural differences VA T and some other aspects that drive that.
But in any event as you look at an average price across the two.
We're going to be higher than than the index generally for a couple of reasons as price, particularly as prices go low one has floors.
Joshua Spector: It's where our prices a little more sticky even though it is linked to the index and then the other is our mix we tend to be more biased outside China than in.
Joshua Spector: That being said, where the price goes is that that will be the trend that our that our ASP or average selling price follows.
Yes.
Your EBITDA.
The ranges for 15 versus 'twenty versus 25, it's the same change in EBITDA between each range. If they were floors in the high teens low twenty's one at the increment from 15 to 20 would be a bigger step up in 2020 five I guess, what would I be missing in that math.
Josh.
Might need to look at the math youre doing because actually the transitions between those different scenarios are a little bit different and actually if you do some averaging math in those scenarios youll see how we have a little bit different jump between the three different scenarios.
Josh: Okay I'll follow up on that offline. Thanks.
Josh: Okay.
Our next question comes from the line of Jeff Zekauskas from Jpmorgan. Your line is open.
Thanks very much.
Jeff Zekauskas: And a question on your specialties forecast.
Jeff Zekauskas: So for next year are you.
At the midpoint you assume EBITDA, it's about the same.
And revenues were about flat.
And last year in the first quarter I think our specialties EBITDA was something like $1 62 and May be you finished the year at something close to 30.
How can you get to flat.
EBIT as a base case.
Okay.
Yes, Hi, Jeff This is Matt, but I think if you look at the way we're projecting the way pricing plays out throughout the year, you're right first quarter will be a little bit challenging on a year over year comparison standpoint can we still saw the numbers you saw which was about a 6% growth in Q1 last year, but to decline from that was really really steep driven by <unk>.
Jeff Zekauskas: Pricing.
But if you play that out on an annual basis for US. We think we can get back to where we were last year with maybe some upside or downside based on the ranges. We provided with the pricing we expect to see going forward and as Neil stated that really use about a second half ramp in market volume in market pricing that we see coming and it is really driven.
By how we look at the forward indicators with semiconductors, which for US is a good proxy for electronics already up 25% in the first quarter alone.
Okay and then for my follow up can you talk about what you're either cash flow expectations are this year or free cash flow expectations.
For 'twenty for Us yes.
Speaker Change: Yes, hi.
Speaker Change: Sorry, Jeff.
Sure.
Sorry, So this is Neil Jeff good morning.
Neil: So yes, we have obviously several things that are in motion right now with regards to our cash flow and I just wanted to put a finer point on on what we're working on with regards to operating cash flow. Obviously, we've already mentioned that we are working hard on aligning our our own opex to the.
Neil: Current pricing.
Neil: Pricing in the market. We're also working on several operational things from a working capital perspective, you should expect in a deflationary environment that we should continue to release cash from working capital.
And Additionally, we're looking for other levers that we can pull to further reduce inventory in our network. For example, investors are well aware that we have a long time between the mine and the customer in our natural supply chain. So we're looking for ways that we can we can reduce that in harvest cash from there and then of <unk>.
From a free cash flow standpoint, we're reducing capex is as Kent mentioned earlier. In addition to that we also have a what I call non operational cash flow items that we're working on this is things such as looking at what we can do with our working capital balances and generating financing from that.
Now all of that said I realize that you know.
Some people may want a rule of thumb of how to think about this so if you think about things from a cash conversion standpoint, and obviously it will depend on what your lithium scenario is but our cash conversion. If you look over the last three or four years. This company has averaged a conversion of about 50% plus or minus <unk> <unk>.
10%.
So that's a that's one example that you can use to think about how to model our operating cash flow.
Great. Thank you very much.
Your next question comes from the line of Vincent Andrews from Morgan Stanley. Your line is open.
Vincent Stephen Andrews: Thank you very much and good morning.
Just following up on that just looking at the balance sheet at the year end.
Your receivables are up year over year. Your inventory is up year over year. Your payables are about about flat and that's in a obviously in lithium price ended the year much lower.
At the end of 'twenty three than it did at the end of 'twenty two so what what's the what's the bridge on that.
That caused that working capital to build despite the lower prices.
Yes, good morning, Vincent So it's a few things I think one of the important ones with regard to inventory is remember that we have.
Several assets that are in startup. So there has been a natural build in inventory through 2023, and you will continue to see that to some extent in 2024, as we build that inventory and work through the commissioning and startup of these.
Vincent Stephen Andrews: These new facilities that we have around the world remember too that there is a there's a timing aspect to this as well and so you have the timing of shipments and how that flows through our working capital and so when you look at it at an end of year Punctual period, you won't necessarily see that the impact of the timing of those shipments and so.
When we take a snapshot at the end of the year it might not.
Accurately reflect sort of the lag that we have in our in our supply chain.
But you know.
Just.
A link your question Vincent also to what Jeff just asked.
As you think about whatever your lithium price scenario is and as you think about working capital cash release in 2024.
Depending on the scenario that you pick if you use the scenarios we put in our deck. We're looking at a sales decline of somewhere between $2 billion to $4 billion, depending on the scenario and historically, we use a rule of thumb here at the company that working capital is around 25% of sales. So you should expect in 2024 that we can re.
<unk> cash to the tune of $500 billion to $1 billion, depending of course on on how those scenarios.
Evolve in 2024.
That's very helpful. Thank you and Ken can I, just ask you to refresh us on.
Return on invested capital you're looking for when you put capex or can the energy storage business and I don't know if I had to find a differently by geography, but just sort of what those what those are rough hurdle rates are and if they have evolved at all over the last few years given the price movement.
Yes, so we I mean, we've kind of have a benchmark that we used to we're at we say at trough pricing, we want to get our cost of capital and double that at kind of the mid cycle pricing. So now.
That was numbers have moved around on us, but that's kind of our still our aim but we do projects is when we look at it at what we believe is trough pricing that that would generate our cost of capital and then.
Kind of twice that.
Mid cycle pricing at.
Bridge pricing.
Thanks, very much guys.
Vincent Stephen Andrews: Your next question comes from the line of David Begleiter from Deutsche Bank. Your line is open.
Thank you good morning, and welcome aboard.
Kenton, Eric Andrew storage EBITDA guidance, even if you were to mark to market that guidance to current prices and assuming no change in pricing for the rest of the year.
How much lower would your EBITDA guidance be for energy storage.
Yeah, Hi, David Good morning look I think we've provided the numbers here for people to interpolate as they would like to between these different lithium price.
Scenarios and so you can do your interpellation based on what you think the market prices at the moment the only caution that I would give you as you think about a lower price scenario, which I think is where your question is getting at is and you can see this in our in our scenarios as you get to these levels. It's not unreasonable to think you are.
Vincent Stephen Andrews: Bumping into some of the floors that we have in our contracts and those are at varying price levels.
But you will see that in the math of our scenario. So I wouldn't necessarily take that interpellation, one for one if youre, if youre going down further than the scenarios we've given.
Understood and Eric just on our pellet production in China, how much do you think has been shut in and how much do you expect to be shut in or why is it had been at wise have not been more shut in up till now for the pellet production in China.
Eric: Well thanks for the question David.
A couple of things I'd say, it's it's when we look at shutting capacity or capacity that's exited the market in general and then a big chunk of it is the pad life, but some of it. It's also non integrated spodumene and some of it is spodumene itself that's come offline.
It's about to come offline because it's very high cost is above current spodumene costs even more.
Or are prices rather.
Eric: It causes above current spodumene prices.
That is about 200000 tonnes in total that has come off the perlite is probably.
Okay.
Close to maybe a third to a half of that somewhere in that range. The non integrated Lepidolite production has come off some of the integrated with a pet a light production that is a weaker grade is well below.
Well at prices well below the cash cost of that.
It's it's it's it's very hard for us to we know that we know we know what the economics are we can't necessarily understand why some of it's there.
That's still operating because otherwise it should it should be should.
It should be our math tells us it should be coming offline. So that we can't quite understand what's going on there, but theres still quite a bit there's still some capacity in the market. That's why like I said at current prices our cost as well above those prices.
Thank you.
Your next question comes from the line of Joe Jackson from BMO Capital markets. Your line is open.
Eric: Hi, guys I'm not sure it was Joe Jackson.
So.
And last question, but some of your sales guidance for energy storage.
If I take your guidance of $15000 a ton.
Joel Jackson: Fifth 10% to 20% more volume than the 150000 tons you did any stores last year that would imply sales just a bit below $3 billion, maybe $2 9 billion for energy storage for this year Youre going to I think $3 3 billion something like that what is the for a $500 million difference in sales is that an accounting thing spodumene can you explain.
<unk> please.
Hi, there Joel no. It is not an accounting thing.
I am wondering what volumes youre using because the ranges that we set here in our scenarios are based on the range of volumes that we've put here on the slide slide <unk>.
Speaker Change: Eight in our deck.
And so we adjusted the range is based on that so there is definitely no accounting noise in that revenue number.
Additionally, I should say this too maybe this explains it just remember that for energy storage in total there are other products that are in energy storage that don't necessarily move one for one with lithium market price. So maybe that's another piece of what is.
In your math as well yes.
Okay fair enough.
Just wanted to also.
Ask you about the U S strategy. So you know as this industry was really looking at regional supply chains and you really were going to go after Kings Mountain and U S. Mega flagship put those plans on hold they are still doing the permitting of course at Kings Mountain.
It takes a while sometimes get nice permanent in the states.
Is this how important is this U S strategy, you're going to be is there something maybe.
Speaker Change: That will have to reassess COVID-19.
D O D with someone different funding options help revive some of this I can seem like a bit of a damper here on some of the.
Jack as well.
Political in the industry.
Speaker Change: Yes, no I think theres, a theres a big impact on that on building that.
We say in the west so culp.
Speaker Change: Europe, and North America, but focuses.
We were a bit more focused on North America, we have access to a great resource at Kings mountain, but where prices are today, the economics aren't there for those projects. So, but we continue to progress as you said the permitting the kind of real long lead time items that are not real capital intensive and anticipation of prices coming back to where we'd be able to do that.
Investment or.
Some supporters another way that we maybe could do those but they've been pushed out I mean are at richburg.
Now we haven't thought of cancel a project that's been delayed so we're still doing some of the long lead time permitting there, but no construction and we stopped engineering work on it and Kings Mountain, we're progressing with the permitting because that's the long lead time, we hope to work out a solution, but it requires.
Better pricing in order to execute on those projects and those are prop.
Those are kind of the.
Two of the best opportunities to start the supply chain, we need a lot more support not just we can't do it ourselves, but that would be the first projects, we would bring to market in North America and.
Speaker Change: And probably as others as well, particularly around resources.
Our next question comes from the line of Mike Sison from Wells Fargo. Your line is open.
Michael J. Sison: Hey, good morning.
Could you just remind us given your new Capex plan.
Michael J. Sison: Whats pastille enlist in 2024, and then could you give us an update on how you think that will unfold in 25% 627, and so where do you think youll be in capacity to offer to the market over the next several years.
Michael J. Sison: So depending on where we land in Zurich, depending on where we land in that range of 10% to 20% you're talking something can be close to it's going to get close to 200990 200000 tonnes at the top end.
Michael J. Sison: And that is being driven just to be specific by more production out of Chile, which we discussed earlier.
Realizing some of the efficiencies of the Saar yield project and Debottlenecking capacity downstream for La Negra to drive that growth. It's also being driven by increased spodumene production out of Australia, and the ramp of camera 10, chins, though as well.
Where it may Shawn is more about 25 item at them for the time being but that plant is ramping nicely for it for that period of time that then brings me to how you think about the future.
Cameron one and two will continue to ramp as you go into 'twenty five may Shawn will start to ramp in 'twenty five and 26. The interesting thing about our near term volume picture is we're going to be looking at that sort of 20% plus volume growth for some years to come based upon the investments. We have made already the things that we have idled or paused from an investment standpoint that Ken.
Earlier referenced.
Our or longer term further out.
So really second half a decade in terms of what they were going to deliver so the impact of a slowing those down should prices stay low and I and we not returned to investing those projects will be felt in the latter part of the decade, which is I'll also remind you at a point in time, when we see industry supply already getting tight realm.
Relative to demand so there's some real challenges because we don't see demand slowing down we certainly see weakness in certain parts of the smallest market, which is north America, but on the whole we see a very strong growth in a challenging environment for supply to be able to meet it in the long term.
But we have good growth I would say in the coming years for sure in multiple multiple several years ahead of us and some of that is just the lead time in getting these investments on the books and then executing against.
A number of years to get those out there. So the projects were pulling back on as Eric said impact the back half of the decade.
Got it and just a quick follow up and just because I figured you guys need better off.
Knowing what the potential is for lithium prices I know you don't want to get into specific forecast, but what do you think needs to happen to get pricing back to greenfield.
Greenfield economics.
Well if prices stay where they are you're going to see production come off and projects come off the books and that and that will eventually bring prices up imbalance will happen and then it hoped hoping we're in a cycle where.
Michael J. Sison: <unk> highs and higher lows starts to prevail, but that was what we were anticipating in this cycle that.
This is still higher than the last low so maybe it's just not quite as mature as we had anticipated, but we need to get into lower highs and higher lows. So that there is some consistency in the industry and people can see through to an investment case for new projects.
Not an understatement to say, Mike that if prices stay where they are which is well below marginal cash cost and as.
As we said we thought it would be less volatile.
Is that youre going to see we believe youre going to see enough projects ultimately come off that that that inflection point, where we start to get structurally sort short on supply moves forward from the latter part of the decade into the middle part of the decade.
So that that only.
What that says is excess excessively low prices only aggravate excessively high prices potentially down the road that's the challenge.
And certainly our customers would love to see a much more moderated cycle.
And as the as the market does recover we will look to try to find ways to reduce that volatility in our mix, but certainly we would hope that for the industry more broadly as well.
Got it thank you.
Your next question comes from the line of John Roberts from Mizuho. Your line is open.
Thank you.
Does that lower end of the 2020 for volume growth of 10% include a sequentially flat march quarter or sequentially down March quarter in volume.
And so sequentially from the fourth quarter is that what your question as far as year over year just to clarify when we.
We start the year out without any growth sequentially.
Yeah, I mean, I think there's going to be a difference between production and sales I think if you look at what happens seasonally with Evs. It is each year is a rapid rise to December and then a drop seasonally in January so.
From a production standpoint will be sequentially up.
From a demand standpoint seasonal the Manhattan plays a role for the whole industry, including us.
Okay, and then on slide nine.
<unk> 19 that has the industry growth in the lithium growth. So battery sizes are getting smaller here in the near term, but it looks like it flips and the assumption here is that.
Full EV start before the end of the decade full electric start outgrowing hybrids again.
Michael J. Sison: Yes.
Yeah, well and it's hard to generalize that John I mean, I think you have to go by region. So what I'd tell you is in China. There was a nice growth in plug in hybrids last year by our reckoning and our estimates are that the estimates we had at the beginning of the year, where we didn't anticipate that that plug in hybrid growth came at the expense of internal combustion engines not.
At the expense of battery electric vehicles in China, which is the largest market is 6% of the market in Europe in the past year, you've seen the opposite trend battery electric vehicles have been growing faster than plug in hybrids.
The U S, which is the smallest market is in a pivot point now or which I.
We'll have to see which direction. It goes it's.
A lot of discussion about how certain automotive producers are struggling with demand and costs to play and so I think theyre looking at plug in hybrids as an alternative.
But it is on the margin the small it's the smallest market. So I think it has the least effect on lithium demand by and large going back to your original question battery size grows may grow out bearing rates year on year on year, but it grows over time.
Michael J. Sison: As we go forward.
Okay.
Okay.
And our final question comes from the line of Kevin Mccarthy from vertical Research partners. Your line is open.
Yes, Thank you and good morning.
Could you comment on the expected quarterly cadence you're phasing of your adjusted EBITDA in energy storage in your $15 per kilogram scenario I thought I heard a comment in the prepared remarks that you would expect to be at a 30% margin by the end of the year. So perhaps you can kind of.
Walk through.
That that margin escalation expectation.
Yes, a couple of things to Kevin. Good morning. This is Neil just a couple of things to think about as you think about the quarterly ramp.
First of all as we mentioned in our prepared remarks in energy storage, we expect most of the volume growth or at least two thirds of the volume growth to occur in the back half of the year as our plants ramp up so remember that we are still ramping these facilities through the first half of the year and then you'll start to see that volume kick in as we get into the into.
Michael J. Sison: The back half of the year, that's that's point number one point.
Point number two is is that as we move through particularly the first quarter. We are still working off some spodumene inventory that is a higher priced and so as we mentioned again in the in the prepared remarks, you should expect that that will weigh on our margins in the first quarter that is just by nature of the <unk>.
Inventory lag that everyone's very familiar with as we process that that spodumene why margins then start to improve as we go through the year and we exit the year at this sort of stronger 30% margin that I mentioned in the prepared remarks is because as things normalize and you have a spodumene.
Costs running through our P&L, that's more indicative of the lithium salt prices you start to see come through the margin strength of our energy storage business, even in this lower priced environment, which you would expect when we're when youre sitting on some of the best resource in the world and so I would.
My counsel here is to think about margins rising as you go through the year in one part because of volume, but also in another part as we work through this inventory lag and then get to the back half of the year.
That makes sense. Thank you for that and then as a follow up if I zoom out the lens and look at your segment margins during the last cyclical trough for lithium they were around 34 or 35% under the old definition of adjusted EBITDA and so my.
Michael J. Sison: <unk> would be if prices persist at the $15 per kilogram scenario.
What do you think the new trough margins could be.
Moving forward into let's say 25, plus is that mid 30% level still representative or indicative or do you think they would be materially higher or lower than that.
Kevin I'll jump in here I mean, I think it's.
Let me tell you the variables. The answer is it's going to be fairly similar we believe because one of the factors one where we are on and again once.
Spodumene prices are indicative of lithium prices. They havent been most of all last year and into the early part of this year just because of the accounting we've talked about the lag we've talked about within Dallas and once they are.
Youre dealing with a margin that's one benefit that gets us back to where we were before when you talk about the last cyclical trough prices were even while they are about where they were lower than where they are now and we're earning a 34% EBITDA margin, but the difference then is <unk> was a small percentage of our sales mix.
It's a much larger percentage now it has a slightly higher cost than Chilean brine.
So that's one thing to note at these prices. The other is is that we didn't have nearly as many plants in the commissioning stage and and these are plants that take couple of years to ramp they have a fixed costs associate with them. That's a drag when you're ramping those plants. The upside benefit of that is without any further capital investment we're going to continue to grow for the next couple of years as I said to Mike earlier.
The downside is it's a drag that brings your margins down. So that's these are the factors that would that would lead us to have that at these prices, which are as I said at its trough.
Above the prior trough amid sort of 30.
<unk> EBITDA margin.
Speaker Change: Very helpful. Thanks, a lot.
Thank you that's all the time, we have for questions I will now pass it back to Kent Masters for closing remarks.
Thank you and thank you all for joining us today.
Kent Masters: Albemarle is the global leader in transforming central resources into the critical ingredients for modern living with people and planet in mind.
Our strategy and path to capitalize on the opportunities of electrification over the coming years is clear and we will continue to operate with a disciplined operating model to scale and innovate deliver profitable growth and advanced sustainability.
Kent Masters: We continue to work to be the partner of choice for our customers can be investment of choice for both the present and the future.
Thank you for joining us.
This concludes today's conference call. Thank you for your.
You may now disconnect.
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