Q4 2024 Albemarle Corp Earnings Call
Speaker Change: Hello and welcome to Abermiles Corporation's Q4 2024 earnings call. I will now hand it over to Meredith Bandy, Vice President of Investor Relations and Sustainability.
Speaker Change: As a reminder, some of the statements made during this call, including our outlook guidance expected company performance and strategic initiatives may constitute forward looking statements. Please note the cautionary language about forward looking statements campaign contained in our press release and earnings presentation, which also applies to this call.
Cat: 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 will turn the call over to cat.
Speaker Change: Yeah.
Speaker Change: Yeah.
Speaker Change: Thank you Meredith.
Speaker Change: For the fourth quarter, we reported net sales of $1 2 billion and an adjusted EBITDA of $251 million with year over year EBITDA improvements in all of our business segments.
Speaker Change: Turning to the full year of 2024.
Speaker Change: We achieved an adjusted EBITDA of $1 1 billion in line with our outlook considerations due to significant productivity and cost improvements higher volumes and strong contract performance.
Speaker Change: Energy storage segment delivered a 26% year over year increase in sales volumes, surpassing our initial guidance of 10% to 20% growth driven by successful project ramps and increased spodumene sales.
Speaker Change: We also generated $702 million in cash from operations with an operating cash conversion rate exceeding 60%.
Speaker Change: Which is above our target of 50% and in line with our long term objective.
Speaker Change: Albemarle continues to act decisively across four key areas opt.
Speaker Change: Optimizing our conversion network.
Speaker Change: Improving cost and efficiency.
Speaker Change: Reducing capital expenditure and enhancing financial flexibility.
Speaker Change: We will touch on each of these areas in more detail later in the call.
Speaker Change: As part of these initiatives today, we're announcing new measures to further optimize our global conversion network.
Speaker Change: Including placing the Chengdu lithium conversion facility into care and maintenance by mid year of 2025 and shifting capacity at our chins lithium conversion facility somewhat from hydroxide carbonate.
Speaker Change: As we did last year, we are providing our outlook based on a range of lithium market prices, including a new $9 per kilogram scenario and updated 12 to $15 per kilogram and $20 per kilogram scenarios.
Speaker Change: Compared to 2024, we have improved our outlook across these ranges due to our ongoing efforts to enhance productivity and reduce cost.
Speaker Change: Additionally, we have further decreased our full year 2025, capex outlook by an additional $100 million and.
Speaker Change: And we know the spin we now expect to spend in the range of $700 million to $800 million.
Speaker Change: Thanks to these and other measures we now have line of sight to achieve breakeven free cash flow in 2025.
Speaker Change: Now I'll turn it over to Neil who will provide more details on our full year and fourth quarter performance outlook considerations and market conditions, then I will conclude our prepared remarks with updates on our long term competitive position strategic framework and execution.
Neil: Thank you Kent and good morning, everyone I will begin with a review of our fourth quarter and full year 2020 for performance on slide five.
Neil: In the fourth quarter, we reported net sales of $1 2 billion, which represented a year over year decline, primarily due to lower lithium market pricing.
Neil: Fourth quarter, adjusted EBITDA was $251 million, an increase year over year, driven by improvements across all three businesses as well as reduced corporate costs.
Neil: Note that last years adjusted EBITDA included a $604 million lower of cost or market pre tax charge.
Neil: Earnings per share for the fourth quarter were 29.
Neil: Adjusted earnings per share reflected a loss of $1 <unk> excluding.
Neil: Excluding gains on asset sales reduced restructuring charges and discrete tax items.
Neil: For the full year 2024, net sales were $5 4 billion marking.
Neil: Marking a year over year decrease primarily related to lower lithium pricing, partially offset by robust growth in lithium volumes.
Neil: Full year EBITDA reached $1 1 billion in line with our outlook considerations.
Neil: Slide six shows the drivers of our year over year EBITDA performance. Our Q4, adjusted EBITDA of $251 million surpassed last year's result, due to higher volumes productivity and lower Cogs.
Neil: The EBITDA volume benefit was driven by higher volumes in specialties and the conclusion of the marble JV marketing agreement at the end of 2023.
Neil: The Cogs improvement was split between lower spodumene cost and reduced lower of cost or market adjustments.
Neil: These benefits were partially offset by lower pricing and pre tax equity income mainly from reduced lithium spodumene market prices.
Neil: As Kent mentioned adjusted EBITDA improved year over year in all three business segments, and we also reported lower corporate overhead costs.
Neil: Moving to slide seven we present, our outlook considerations for 2025.
Neil: As we did last year, we're providing ranges of outcomes for our energy storage business based on recently observed lithium market pricing, including year end 2024 market pricing of about $9 per kilogram lithium carbonate equivalent or LTE.
Neil: The first half of 2024 range of $12 to $15 per kilogram LTE.
Neil: In the fourth quarter 2023 average of about $20 per kilogram LTE.
Neil: Within each scenario, we have provided range is based on expected volume and mix, we anticipate that energy storage volumes will be slightly higher year over year.
Neil: All three scenarios reflect the results of assumed flat market pricing across the year in conjunction with energy storage as current book of business.
Neil: These scenarios illustrate the improved stability of our energy storage business.
Neil: Given our extensive resource positions worldwide and our cost and productivity actions, we can sustain margins, even with lower year over year lithium pricing.
Neil: Additionally, we have maintained significant operating leverage with potential to benefit if pricing increases for example, if market pricing were to average $12 per kilogram LTE similar to last year, we would expect to see margin improvement rising from the mid 20% range that we delivered in 2020.
Neil: <unk> to the mid 30% range.
Neil: Moving to slide eight we present modeling considerations for specialties kitchen and corporate.
Neil: Specialty is 2025 net sales are projected to be one three to $1 $5 billion with.
Neil: <unk> EBITDA of $210 million to $280 million.
Neil: Catch in 2025 net sales are projected to be one to $1 1 billion.
Neil: With adjusted EBITDA of $120 million to $150 million.
Neil: The corporate outlook shows a planned decrease in capital expenditures, which are now expected to total $700 million to $800 million in 2025 down from $1 7 billion in 2024.
Neil: Corporate costs in 2025 are expected to range between 70 and $100 million.
Neil: We are seeing the benefits of our nonmanufacturing cost improvements and the changes in our operating structure corporate costs. In 2025 are expected to decrease year over year, excluding favorable FX and interest income in the prior year.
Adding it all together slide nine presents Albemarle comprehensive company roll up for each energy storage market price scenario.
Neil: Recall that the full year 2024 included approximately $100 million of pre tax equity income from one time additional offtake by our JV partner at Towson.
Neil: Notably assuming a consistent average lithium market price of $12 per kilogram LTE in 2025, we expect cost and productivity improvements to more than compensate for the reduced equity earnings.
Neil: Turning to slide 10 for additional outlook commentary by segment.
Neil: For energy storage, we anticipate volumes to be slightly higher year over year, primarily due to the ongoing ramp of the solara yield improvement project in Chile.
Neil: In addition, we continue to ramp our conversion sites, including May Shawn and camera 10, which helps improved fixed cost absorption and result in reduced tolling volumes.
Neil: Last year, we indicated that about two thirds of our lithium salts volumes were sold on contracts, including both long term agreements with floors and other contracts for.
Neil: For 2025, we'd indicated that 50% of our lithium salt volumes are sold on long term agreements with floors.
Neil: This number now excludes other contracts to help simplify modeling.
Neil: Our contracts continue to perform and we have no significant contract renewals this year.
Neil: We continue to have additional sales on contracts with volume commitments, giving us greater confidence in our volume expectations for this year.
Neil: We foresee a modest volume led recovery in specialties year over year, driven by strength in pharma autos and oilfield applications.
Neil: Finally in kitchen, we expect modest improvements in 2025 results related to product mix cost and productivity improvements and continued execution of our turnaround plan.
Neil: Please refer to our appendix slides in the deck for additional modeling considerations across the enterprise.
Neil: Turning to our balance sheet and liquidity metrics on slide 11, we concluded the fourth quarter with available liquidity of $2 8 billion predominantly comprising $1 $2 billion in cash and cash equivalents and the full $1 5 billion available under our revolver.
Neil: The measures we have implemented to enhance our cost structure and operational efficiency have also increased our financial flexibility.
Neil: As a result of our proactive actions to reduce costs and optimize cash flow. We ended Q4 with a net debt to adjusted EBITDA ratio of two six times favorable to previous expectations.
Neil: For additional information on covenants, please refer to the appendix.
Neil: We have a single upcoming maturity, which is our $372 million Euro notes at 108% due in November of this year given the favorable rate. There is no immediate urgency to refinance and we continue to evaluate our options for managing this maturity.
Neil: Slide 12 shows our focus on execution and converting our earnings into cash evident in improved operating cash flow conversion due to operational discipline and cash management.
Neil: For 2020 for operating cash conversion was 62%, surpassing our target of 50% and aligning with our long term target range.
Neil: This was driven by increased tolleson dividends from higher green bushes sales volumes and inventory and cash management improvements across operations.
Neil: Looking to 2025, we expect our cash dividends from talisman in the year to remain below historical averages at Allison completes the CGP three project at the Green bushes mine.
Neil: Nonetheless, we expect operating cash flow conversion to exceed 80% in 2025 above our long term target range due to ongoing working capital improvements and a $350 million customer prepayment.
Neil: This prepayment relates to a recently signed contract for delivery of spodumene and lithium salt over the next five years at market index prices.
Neil: As you see here our efforts to enhance operating cash flow and cash flow conversion are paying off.
Neil: This focus is evident in our free cash flow expectations. This year. We now have line of sight to breakeven free cash flow for new capacity ramp ups inventory management bidding events cost and productivity measures and other cash conversion enhancements.
Neil: Turning to slide 13, I will provide some comments on the current conditions of the lithium market.
Neil: We are in the process of updating our longer term supply demand forecast in light of recent policy and market developments, we expect to provide a more comprehensive update with our first quarter results.
Neil: Lithium remains crucial to the energy transition and the long term drivers of our business remained strong the.
Neil: The global energy transition is undoubtedly progressing it is a matter of when not if.
Neil: In 2020 for electric vehicle registrations increased by 25% year over year.
Neil: Sales reached a new quarterly record in Q4 with December achieving all time highs for both <unk> and <unk>.
Neil: Sales are influenced by customer preferences, and the availability and cost of different models at.
Neil: As early as next year, we anticipate that consumers will find EV prices comparable to those of internal combustion engine vehicles.
Neil: Global battery costs have fallen below the critical $100 per kilowatt hour pack average, which supports the relative EV affordability.
Neil: Plus evs represent only a portion of the broader picture.
Neil: Grid storage demand is also performing exceptionally well increasing by nearly 50% year over year in 2024, driven by installations in the United States and China.
Neil: Grid storage demand now constitutes nearly 20% of global lithium demand up from less than 5% a few years ago.
Neil: On the supply side, there have been several announced curtailments, both upstream and downstream.
Neil: Non integrated hard rock conversion remains unprofitable and larger integrated producers are facing pressure.
Neil: Our estimates of pressure on the global cost curve are unchanged, we think that at least 25% of the global resource cost curve is either at or below breakeven.
Neil: Slide 14 details 2024 global EV growth by region.
Neil: China's demand was the key global driver by far with demand, increasing 37% year over year, driven by balanced subsidies for battery Evs and plug in hybrids.
Neil: China now represents about 65% of the market demand.
Neil: Europe had the weakest demand due to reduced subsidies and economic challenges, but potential price cuts in emissions targets may boost growth in 2025.
Neil: North America grew 14% year over year with U S trends, improving due to more model availability and affordability.
Neil: Overall these trends reinforce confidence in the industry's long term growth potential but continue to highlight that the regional dynamics are important factors to consider as the industry expands.
Kent: I'll now hand, it back to Kent.
Kent: Okay.
Kent: Thank you Neil.
Speaker Change: Moving on to slide 15, I will discuss the major initiatives, we are implementing to reset our cost structure.
Speaker Change: These measures will enable us to sustain our leadership position and be competitive across the cycle.
Speaker Change: Moving to slide 16, it is essential to place on our recent initiatives within the context of the measures we have been implementing over several quarters as we navigate the current business environment.
Speaker Change: This year, we are optimizing our conversion network, including new actions Chengdu and Chin Zoe.
Speaker Change: Improving cost and efficiency with significant progress toward our $300 million to $400 million target for cost and productivity improvements.
Speaker Change: Reducing capital expenditures as we refine our 2025 execution plans and enhancing financial flexibility.
Speaker Change: Taken together, we now have greater confidence in our ability to achieve breakeven free cash flow as early as this year.
Speaker Change: Price levels.
Speaker Change: Our initiatives are comprehensive and designed to sustain our long term competitive advantages in response to market conditions.
Speaker Change: The dynamic environment persist, we are continually adding to our list of potential actions. So that we can adapt as necessary.
Speaker Change: Turning to slide 17 for additional details.
Speaker Change: The shifting market underscores the need for a globally diversified conversion network with product flexibility.
Speaker Change: As previously mentioned, we are optimizing production from both our carbonate and hydroxide assets achieving record production at the La Negra lithium carbonate plant in Chile, and the May Shawn lithium hydroxide plant in China.
Speaker Change: As we have reviewed our converged network for improvement opportunities. We have made the decision to place our Chengdu plant on care and maintenance due to market conditions and shifting product mix.
Speaker Change: Chengdu is a relatively small plant with a capacity to produce approximately 5000 tons of lithium hydroxide annually.
Speaker Change: We will continue to service those customers through the ramp of newer larger plant in Chile, China and Australia.
Speaker Change: This approach will enable us to provide high quality secure supply to our customers, while driving network efficiencies and better leveraging our scale.
Speaker Change: Moreover, we have identified a highly capital efficient projects that kenzo to ship conversion capacity, partially from hydroxide carbonate in response to strong market demand.
Speaker Change: And Australia performance of our <unk> lithium hydroxide facility continues to improve and the site recently commenced its first battery grade commercial sales.
Speaker Change: On the resources front, we are focused on preserving and maximizing the value of our advantaged low cost resources.
Speaker Change: The lower yield improvement project has exceeded 50% operating rate milestone and is progressing towards nameplate capacity.
Speaker Change: We are leveraging our Brian expertise.
Speaker Change: For example in hydro geological mapping.
Speaker Change: To maximize recoveries at every stage of the resource at.
Speaker Change: That green bushes CGP three is expected to produce its first ore in the fourth quarter of 2025, providing additional feedstock for increased lithium salt volumes in 2026.
Speaker Change: The <unk> team together with our JV partners has undertaken technical studies to optimize green bushes operation over the life of the mine.
Speaker Change: Please refer to slide 18 for more details on cost and capital considerations.
Speaker Change: Okay.
Speaker Change: We've achieved over 50% of the $300 million to $400 million.
Speaker Change: Cost improvement announced last quarter as we moved quickly to execute on our plans.
Speaker Change: Our goal is to reach a full run rate by year end.
Speaker Change: Simply sooner.
Speaker Change: Additionally, we are reducing 2025 capital expenditures by $100 million to $700 million to $800 million down.
Speaker Change: <unk> down more than 50% from 2024.
Speaker Change: This result stems from a more detailed review of our projects.
Speaker Change: Full year 2025, Capex will focus on core assets with priorities on health safety environmental improvements and cost reductions.
Speaker Change: Moving to slide 19.
Speaker Change: Actions being taken are intended to preserve Albemarle has competitive advantages and position the company for long term value creation as outlined by the strategic framework on slide 20.
Speaker Change: Our strategic framework continues to guide how we operate Albemarle as we lead the world in transforming our central resources into critical ingredients for modern living.
Speaker Change: Our vision is still the same we want to lead with impact can be purpose driven.
Speaker Change: The markets we serve are unchanged.
Speaker Change: Our core businesses have enormous secular growth opportunities across mobility energy connectivity and health, including the energy transition electrification population growth and shifting demographics.
Speaker Change: I want to feature on that next drove boxes, which highlights our strategic and competitive advantages and they are highlighted in more detail on slide 21.
Speaker Change: First our industry, leading resources are unmatched with large scale high grade and therefore low cost assets.
Speaker Change: This core advantage is enhanced through our innovation and advanced process chemistry capabilities. We've used this for growth in the past and now are increasingly aiming these capabilities towards cost savings and incremental growth opportunities.
Speaker Change: Customer Centricity is key we stay focused on both the customer and end user integrating from the resource to the final product.
Speaker Change: Close collaboration with customers lets us understand market trends and technology shifts.
Speaker Change: <unk> us to adapt and our dynamic markets. We continue to get positive feedback that our customers seek to work with Albemarle for our capabilities scale and reach.
Speaker Change: Lastly, our commitment to people and planet stewardship is fundamental and underscores our value proposition by supporting our team and promoting sustainability across all our business lines and in the communities where we operate.
Speaker Change: There is no question that while our strategic framework has not changed our execution has certainly adapted we have implemented several key initiatives to enhance our operational efficiency and agility.
Speaker Change: Our commitment to innovation is evident in the strategic investments we've made in research and development.
Speaker Change: We are exploring cutting edge technologies and sustainable practices to ensure that we remain at the forefront of the industry.
Speaker Change: This includes developing next generation polymeric flame retardants and optimizing lithium conversion to meet shifting market demand.
Speaker Change: Innovation is also core to preserving our resource advantage with projects like the Solara yield improvement project in Chile, and an innovative process upgrade in Jordan that we called Nebo, both of which allow us to increase production more sustainably without incremental Brian pumping.
Speaker Change: We're also driving out cost and reduce capital intensity.
Speaker Change: For example by leveraging by leveraging advanced data analytics and digital tools, we are improving our ability to monitor and optimize production processes in real time.
Speaker Change: Throughout these changes we remain dedicated to safety sustainability and operational excellence aiming to create long term value for our stakeholders, while fostering a more sustainable future.
Speaker Change: In summary on slide 23.
Speaker Change: Albemarle delivered solid 2024 performance, while acting decisively to preserve long term growth optionality and maintained the company's industry, leading position through the cycle.
Speaker Change: Our full year 2025 company outlook considerations build on the progress we've made to drive enterprise wide cost improvements strong energy storage project ramps and contract performance.
We are focusing on taking broad based proactive steps to control what we can control and ensure we are competitive across the cycle.
Speaker Change: Albemarle remains a global leader and I am confident we are taking the right actions to maintain our competitive position and to capitalize on the long term secular.
Speaker Change: Secular opportunities in our markets.
Speaker Change: I look forward to seeing some of you face to face at upcoming events listed here on slide 24.
Speaker Change: And with that I'd like to turn the call back over to the operator to begin the Q&A portion.
Speaker Change: We will now move to our Q&A portion if you would like to ask a question. Please press star side to raise your hand as a reminder, that staff I have to raise your hand also please bear in mind. This Q&A session is limited to one question and one follow up per person.
Speaker Change: Our first question is from Patrick Cunningham.
Patrick: Patrick Your line is open.
Patrick Cunningham: Hi, Good morning, Thanks for taking my questions. I guess my first question is on the contract mix that remaining 50% piece not on long term agreements is should we assume most of those follow spot mechanism and then was there any significant tranche of those long term agreements that came up for renegotiation reach.
Patrick: Singly and had any didn't.
Patrick Cunningham: <unk> reset in Florida.
Patrick Cunningham: Yes so.
Patrick Cunningham: Your comment about the other 50% pretty much at index is that's a good assumption.
Patrick Cunningham: And the shift that we've moved we've reported previously that it was about two thirds on contracts. So now we're reporting contracts only with floors. We had some long term contracts that didn't have floors and we pulled that out of that definition now so that 50% has floors I don't think we've had any we renegotiated.
Patrick Cunningham: In the near term recently or that have come up.
Speaker Change: Understood that's helpful and if I'm reading the chart correctly. It seems like most of the Capex reduction it was capex previously devoted to the resource space. So where are you cutting back investments in resources and given the current program. How quickly can you repossession and invested additional brownfield said.
Speaker Change: Maybe support higher volume growth 2027 and beyond.
Speaker Change: Yeah.
Speaker Change: Yes, so I'm not I'm not sure.
Speaker Change: Sure that's right.
Speaker Change: If you go back the capital we've pulled back a lot of it was conversion initially and then we've gotten a little bit more focused and we have pushed out on some resources and we're getting very focused on kind of the highest quality lowest cost resources and we're not out pursuing as many resources as we were at one time so.
Speaker Change: I think the big piece, if you look at the capital that we've cut out from our plans a big piece of it was.
Speaker Change: On conversion at least initially and then now we're getting a little bit more focused on operation sustaining capital and we have cut back on resources as well.
Speaker Change: I think when we.
Speaker Change: We've said a number of times that we can.
Speaker Change: We think we can grow at 15% kind of CAGR over a period from 22 to 27.
Speaker Change: Running out of things.
Speaker Change: I'm, a little bit so those growth rates come down after 2007.
Speaker Change: A lot of that most of that it's about resource.
Ralph Coffman: Our next question is from Ralph Coffman with Bank of America. Your line is open.
Ralph Coffman: Thank you.
Ralph Coffman: Could your actions, including cutting capex and pricing Chengdu under care and maintenance influence the broader market.
Ralph Coffman: Your actions adjust further if pricing stays at the low end of the scenario analysis.
Speaker Change: So I think you said that we think our.
Speaker Change: Actions at Chengdu will influence the market so no.
Speaker Change: I don't think so we're doing that because of market conditions and product mix that we have an opportunity.
Speaker Change: Two shifts some product from hydroxide, the carbonated Chetan Zoe and then.
Speaker Change: 10, due us as one of our smallest facilities, which is why it's probably not that wouldn't influence the market that much and then we make up that capacity because we're still ramping up.
Speaker Change: There are larger assets that venue kenzo.
Speaker Change: Small investment and then may shot in camera tender as well.
Speaker Change: Got it and.
Speaker Change: Would you be able to explain the wide range and the tax guide for 2025.
Neil: Yes, hi, good morning. This is Neil yes. So the wide range is really driven by the variety of scenarios that we have.
Neil: On the page or in the deck here.
Neil: One of the reasons why we had.
Neil: Kind of.
Neil: Odd tax rate in the fourth quarter and really in 2024 overall is that.
Neil: As you've seen over the last few quarters, we've been reporting losses in a couple of jurisdictions where.
Neil: We took tax valuation allowances. So therefore, we didn't.
Neil: Get to recognize the tax credits and our tax expense line does two jurisdictions in particular, our China, and Australia, where we have some particulars that require us to take those tax valuation allowances.
Neil: So why there is a wide variety of on the tax range is it's really about where the lithium prices in that influence on our pre tax income obviously at the at the lower end of the range. What our guidance has said is go to a tax rate very similar to what we did in 2024.
Neil: The higher end of the range you can you kind of come more to our run rate kind of statutory rate that we have based on our geographic mix.
Speaker Change: Our next question is from Ben Isaacson from Scotiabank. Your line is open.
Speaker Change: Hi, Good morning. This is <unk> on for Ben.
Speaker Change: So you've discussed a line of sight to being free cash flow breakeven in 2025. So is that is achieving that really just a case of all of the dominoes falling in places or anything that could put this at risk beyond just pricing collapsing.
Speaker Change: Well I, just we have to execute against our plan right. So that is our plan to do that we have to execute against that and our pricing would be would be one of those but we have pretty aggressive plans you've see the actions that we've taken.
Speaker Change: I think we've executed pretty well against it so far so, but we just need to execute to accomplish that.
Speaker Change: Perfect and then as a follow up at this stage with all of the kind of revised plans that you've laid out do you foresee any need for a capital raise in 2025.
Speaker Change: And if so is there any sense of what magnitude or what form that could look like I know last year you folks did.
Speaker Change: The preferred convertible.
Speaker Change: Is that kind of no longer in the picture given all of these actions that you've planned.
Speaker Change: Yes, so we're taking all these actions so we don't do that right. So and we are again as I said, we have to execute against that but we see ourselves being free cash flow positive through the year and we don't have plans to do an equity raise.
Speaker Change: Our next question is from David Begleiter from Deutsche Bank, David Your line is open.
David Begleiter: Good morning.
Speaker Change: Kent on your realized lithium prices in Q4, what was the difference is spread between your spot sales and your contract sales.
Speaker Change: So we don't normally report on the exact pricing and particularly on our contract piece, so I'm going to decline.
Speaker Change: Respond to that.
Speaker Change: Understood.
Speaker Change: I believe back in Q4, you were you were saying that roughly 10% to 12% of global lithium supply was shutdown or curtailed due to lower prices.
Speaker Change: Is that still a good estimate or has it moved up or since then.
Speaker Change: Yes, So I think we were saying about 25% we believe is underwater.
Speaker Change: We still think Thats the case.
Speaker Change: But how much is actually curtailed.
Speaker Change: Or shut down so probably about probably about it's about half of that 25% I would say and I think that both of those numbers still hold.
Speaker Change: Thank you.
Speaker Change: Our next question is from Jeff Zekauskas from JP Morgan Jesse Your line is open.
Speaker Change: Thanks very much.
Speaker Change: On slide seven where you provide different scenarios is the meaning of the slide that you or if there were no change in lithium prices today.
Speaker Change: The energy storage adjusted EBITDA would be between six and $7 billion or because of your contract prices, it's more complicated than that.
Speaker Change: Yeah.
Speaker Change: Yes, Hi, Jeff This is Neil.
Neil: My answer is probably going to be towards the latter part of how you described it that.
Neil: The prices that you see at the top of that slide our observed market prices not our what our realized prices are but market prices.
Neil: Numbers below that then is if you take those market prices and move that through our book of business you get these kinds of EBITDA ranges.
Neil: Okay, Great and then what you do on the right hand column is you have some assumptions.
Neil: And you say.
Neil: We assumed spodumene market pricing average is 10% of the LTE price.
Neil: But arent spodumene prices already.
Neil: All of that.
Neil: And <unk>.
Neil: You say.
Neil: You assume full pallets and sales volumes are you currently receiving full telephone sales volumes and what does that mean, what has to happen for you to receive bolthouse and sales volume.
Neil: Okay.
Speaker Change: Yes, Jeff let me take the second one what we mean by full pallets in sales volumes is that all of the partners at <unk> are taking their full allocation that is the assumption that we've made that hasnt always been the case. If you go back over the years, but our assumption going forward as that's the case.
Neil: Where we sit right now promptly.
Neil: That is also the case right now.
Neil: We're taking our full allocation in this environment with regards to the spodumene average of.
Neil: 10% of LTE price look to your point it has moved around over time.
Neil: Anywhere from in the 5% to 10% kind of range. So what we wanted to do was at least just put a mark in terms of how we've done these considerations and we picked 10% because that was something that we sort of recently observed in 2024, but to your point it can and it does shift around with the market dine.
Neil: <unk>.
John: Our next question is from John <unk>, John Your line is open.
John: Thank you I believe <unk> guided for essentially flat 2025 volume at Green bushes can you confirm that and.
Speaker Change: And then where is your growth the 5% to 10% growth for 2025 coming from.
Eric: Good morning, John It's Eric that's correct <unk>.
John: To us.
Speaker Change: Fully utilized which was the last expansion of <unk> in 2020 for CGP three does not come on until the very end of this year. So there is no growth capacity at <unk> until that comes on that sort of the.
Speaker Change: As you know and appreciate the lumpy nature of bringing on capacity or <unk> or.
Speaker Change: Zero to 10% guidance on growth is all coming out of Chile, where the solar project continues to ramp and drives our debottlenecking effectively negra plant to March towards nameplate.
Speaker Change: And then on slide 18, you're targeting sustaining capex of 4% to 6% as a percent of sales the right way to think about targeting sustaining capex given the volatility that you get in pricing.
Speaker Change: Yes, yes.
Speaker Change: That's the right point, so when you say that on a on a stabilized market right. So.
Speaker Change: It's aspirational at the moment for us because we're not there but we're also.
Speaker Change: As the bottom of the market. So it's a good benchmark.
Speaker Change: We say mid cycle pricing is where we go to that we're not we're not at that level today, we still have some work to do around that.
Speaker Change: But we are we're getting focused on it and we wanted to have a benchmark out there that we can aim at.
Speaker Change: Our next question is from Joel Jackson from BMO capital markets. Joe Your line is open.
Joel Jackson: Hi, Good morning, everyone I wanted to follow up a little bit on Ben's associates. Prior question. So can you talk about what if we go into 2026.
Joel Jackson: How much of the half of euro sales here that our contact with floors. Two we expect the floors that you renegotiated.
Joel Jackson: And.
Joel Jackson: How do you think with the balance sheets.
Joel Jackson: Average spot prices stick around where they are and we are renegotiating floors for 2026.
Joel Jackson: Yes.
Joel Jackson: Look we provided guidance for 'twenty five 'twenty six but the way our contracts work is they.
Joel Jackson: They don't usually end and then get renegotiated they get adjusted over time as our customer wants something we want something they they have adjusted how they worked.
Joel Jackson: Overtime.
Joel Jackson: We expect that to happen I mean, you see our portfolio of contracts, it's become a little bit more.
Joel Jackson: Spot oriented in the recent past us because China is the biggest market its a spot market. It's growing we've got new capacity coming on there. It may Shawn ramping so that's really why that has shifted.
Joel Jackson: Contracts typically don't just come to an end.
Joel Jackson: We negotiate terms somewhere along that and extend them out a year or two and we've done that over time and I suspect that's how it's going to play out going forward.
Speaker Change: Okay, and then talking about <unk>.
Speaker Change: <unk> in your estimates of quarter of lithium suppliers underwater maybe that's curtailed we just it seems like <unk> is bringing back some lepidolite production. The last bunch of week. There are some maybe some irrational behavior going on though.
Speaker Change: Some of those mines are downstream cathode and battery so I mean.
Speaker Change: It seems like there are actors in this industry.
Speaker Change: Our median manipulating price maybe you don't have the same.
Speaker Change: Objectives as Albemarle in other public companies I mean, how do you act in this market and is there any hope for material recovery, if such behavior by such actors continue.
Speaker Change: Okay. So don't know if I can comment on on all of that I would say that we're pretty focused on making sure. We can compete at the bottom of the cycle and so when you see us taking actions.
Speaker Change: <unk> targeted at that so the capital that we've pulled back on our growth to reduce capital as a result of that driving cost out of that business getting more focused on cost not as much on growth.
Speaker Change: And making sure that we can compete at that cycle and then pivot when the market comes back to take advantage of.
Speaker Change: More growth at higher price.
Speaker Change: That's the approach that we're taking.
Speaker Change: Our next question is from Vincent Andrews with Morgan Stanley Vincent Your line is open.
Vincent Andrews: Thank you I wanted to follow up on the $350 million customer prepayment in just a clarifying question to start off with which would be I assume that's included when you talk about the 80% conversion as well as being.
Vincent Andrews: Free cash flow neutral this year I assume youre, including the $3 50, and all else equal then does that mean next year cash flow would be $350 million less.
Vincent Andrews: So Vincent on the this is Neal on the first part of your question you are correct. So the $3 50 is included in our cash conversion number of 80% for 2025.
Vincent Andrews: And with regards to looking over to 2026.
Vincent Andrews: Let me just give you maybe two things to think about here you are correct that that 350 million won't recur again in 2026, but also remember that there are a lot of other things from a cash standpoint that will actually start to bear.
Vincent Andrews: Benefit us in 2026 and beyond one of the key ones that I'll point out is that.
Vincent Andrews: From a <unk> JV perspective, right now there are obviously going through a large investment program that program is going to be done at the end of this year. So we would expect even in this low environment. As you would expect talent is a very competitive asset. So we would expect a return to.
Vincent Andrews: Dividend payouts from from the JV as we get into 2026.
Speaker Change: And then just as a follow up on your cash flow statement for starters. Thank you for the increased disclosure on working capital.
Speaker Change: But I have a reconciliation question do you have a new line item that says inventory net realizable value adjustment and this year, it's a negative $500 million last year. It was a positive 604. So I'm just wondering does that line reconcile somewhere else within cash flow from operations or what is that or any more detail you can provide would be helpful.
Vincent Andrews: Yes, so that that line Vincent is predominantly going to be a reflection of the lower of cost or market.
Vincent Andrews: Adjustments that we took in fourth quarter of 2023.
Vincent Andrews: And so that's why you see those adjustments and so that.
Vincent Andrews: That's the best.
Vincent Andrews: Most of that line is related to that.
Speaker Change: Our next question is from Alexia <unk> from Keybanc Aleksey. Your line is open.
Speaker Change: Thanks, Good morning, everyone.
Speaker Change: If you look at your Capex, you're talking about maintenance level.
Speaker Change: Assuming market prices don't change can you get to that maintenance level.
Speaker Change: 26, and would you be willing to do so under these conditions.
Speaker Change: Yeah, so I'm not going to make a commitment for capital for 2006, but those are our aspirations is that we want to get too.
Speaker Change: Maintenance capital at that particular level. So we still have in our capital opportunity growth opportunities I'd say growth or cost saving opportunities smaller investments. So the cinzano investment that we talked about on the call is a good example of that low single digit millions of dollars, we were able to shift from hydroxide.
Speaker Change: Decarbonate about 10000 tons a year.
Speaker Change: That's a great return project and pretty low capital. So we continue to look for those those tend to be more <unk>.
Speaker Change: Focused on cost savings now and maybe incremental growth.
Speaker Change: Like what we're doing at.
Speaker Change: At CIT, so, but the 4% to 6% at mid cycle. That's an aspiration that we work too and we continue to focus to try and drive to that whether we get there 26 or not.
Speaker Change: Not laid out plans and that detail for 2006, I can't answer that.
Speaker Change: Thanks Curt.
Speaker Change: CGP three it's an important project for your cash flow this year and next year, especially any comments on risk assessment for delays cost overruns that kind us say, thanks, how does the project going from your point of view.
Speaker Change: Yes, I think we are I think we are on schedule and around budget I don't know exactly what they are right on budget or not but it's pretty close from a budget and a schedule perspective.
Speaker Change: Our next question is from Kevin Mccarthy at that Research partners. Kevin Your line is open.
Kevin Mccarthy: Yes, Thank you and good morning, Kent, you talked a little bit about the grid storage growth in your prepared remarks can you comment on your outlook for 2025.
Kevin Mccarthy: In that end market and is your share in grid storage higher or lower or about the same as it is in.
Our customers in the <unk> arena.
Kevin Mccarthy: Yes, so the grid storage has been one that's been a positive surprise for us for a few years now.
Kevin Mccarthy: It's been it's been growing I think it was I think it was up almost 50% this year.
Kevin Mccarthy: And some weeks, we anticipate that.
<unk> to grow and a couple of years ago, we probably would have thought lithium may not be the best solution for grid storage, but I think the way battery cost have come down and the popularity of LSP. It looks like grid storage is going to be lithium based and MSP based going forward. So it's a good opportunity and it's on it's kind of I think everywhere for the.
Kevin Mccarthy: U S is starting to play out you'll see that in Europe, and then China has been really strong around that so it's a it's a positive it's a bright spot and it's offset a little bit of the.
Kevin Mccarthy: Little less growth than we saw in <unk> and some of the shifts between plug in hybrids and evs as well so it's covered that and build it nicely.
Kevin Mccarthy: And Kevin answer the market share first of all it's largely an LSP market.
Kevin Mccarthy: So if you look at our share and LSP on Evs ph, Evs et cetera can be similar to our share in grid storage. It's the same companies.
Kevin Mccarthy: It deep into back into the supply chain that are providing the cathode and battery materials into that so thats what determines our shares those relationships not necessarily the end markets.
Speaker Change: Understood and then secondly, if I may.
Speaker Change: Ken is the tariff regimes continue to evolve here are you managing the company any differently today than you were.
Speaker Change: Last year.
Speaker Change: As it relates specifically to tariffs.
Speaker Change: So we manage the company differently look we're paying very close attention see what happened is evolving a lot sure no one knows exactly what the final impact.
Speaker Change: Impact will be but the direct impact on Albemarle is not going to be that cigna.
Speaker Change: Significant we're not we don't ship from China to the U S.
Speaker Change: Significantly there is some but it's not a big part of our business it will impact our customers more than.
Speaker Change: Then it will impact us directly so the knock on effect of US is something we're really paying attention to.
Speaker Change: Our next question is from Laurence Alexander from Jefferies. Laurence Your line is open.
Laurence Alexander: So a couple of questions first on the energy storage how much of your capacity is under long term contracts.
Speaker Change: Compared to the EV market.
Speaker Change: Well I'm, sorry, you said.
Speaker Change: That was a fixed storage question, yes, the energy storage side of your business how much of that is under long term contract.
Speaker Change: It's about 50%, yes, it's the same Lauren staff the other 50%, we talked about 50% being under floor based contracts.
50% that's not us.
Speaker Change: Mechanism at spot contracts. It makes some contracts that are shorter in duration and spot.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Yes, just to clarify there so what we when we.
Speaker Change: The 50%. So those are long term agreements and we have floors on those agreements. There are some other longer term agreements. We don't have floors. So were now categorizing that but not in the same category as spot.
Speaker Change: Okay perfect.
Speaker Change: For the 350 million of cash inflows just to be clear.
Speaker Change: The net effect for you that the EBITDA related to that would show up in 2026 or 27.
Speaker Change: But then the cash conversion suffers or is there also an EBITDA.
Speaker Change: Is there also an impact on the EBITDA bridge.
Speaker Change: Yes, Laurence I think I think you are circling on kind of the right mechanism here. So we have taken the prepayment upfront.
Speaker Change: <unk> already received it here in the first quarter, you'll see that with our first quarter results.
Speaker Change: And then we satisfy our obligation through product deliveries over actually the next five years.
Speaker Change: So and Thats at prices that are indexed to market. So you are right. We will then recognize EBITDA in increments as we make those deliveries, but it is over the course of the next five years.
David Begleiter: Our next question is from David <unk> at TD Cowen David Your line is open.
David Begleiter: Thanks for I get into my questions.
David Begleiter: I was hoping to follow up just on the plans at Shinzo to convert some of the capacity to carbonate versus hydroxide.
David Begleiter: Mainly just being.
David Begleiter: This decision really just to capture the discrepancy in margin or do you have.
David Begleiter: A very differentiated views now over time on just the appetite for hydroxide are you seeing customer resistance.
David Begleiter: For hydroxide volumes in the market.
David Begleiter: And then Youre seeing this this pivot as necessity to sell product at this point and are there further plans should we expect for their plans to pursue more conversion from hydroxide or carbonate.
David Begleiter: Yes so.
Speaker Change: Look it is.
Speaker Change: The hydroxide Theres a market hydroxide, it's growing carbonite is growing faster so there's a stronger demand for carbonate.
Speaker Change: And this was a kind of a unique opportunity for us because the plant was designed it in this way and we but we add.
Speaker Change: There's a few things we have to execute against to take advantage of that and its very small capital as I've said before it's low single digit millions in order to make that shift it gives us more flexibility in the market the market stronger around carbonate now. So we can take advantage of that over time, we can ship. This back either way once we make this investment will be able to go.
Speaker Change: We could go back to hydroxide, if we wanted to or stay on carbonate at the moment. It makes more sense to be on carbonate. It's about the market and the fact that this was designed and upfront and we had to kind of finish some work in order to leverage the capability.
Speaker Change: Okay.
Speaker Change: Beyond sort of this year and then next you wanted to lean more heavily into carbonate.
Speaker Change: There is there a tolling capacity available in China that would enable you to do that or would that have to be a.
Speaker Change: A more significant investment on your part.
Speaker Change: Now Theres tolling capacity that's available.
Speaker Change: We've taken advantage of that in the past.
Speaker Change: And it gives us flexibility in our supply chain.
Speaker Change: And then the growth you see from us in Chile, as well at La Negra.
Speaker Change: <unk> has allowed us to grow with that market, particularly around kind of on the back of the work at la Negra, but particularly slower yielded in the SLR.
Speaker Change: Our next question is from Benjamin <unk> with that Benjamin Your line is open.
Benjamin <unk>: Hi, Thanks for taking my question I wanted to follow up to an earlier question.
Speaker Change: Yes.
Speaker Change: And maybe frame it slightly different.
Speaker Change: There is capacity coming offline utilization going down.
Speaker Change: Yes.
Speaker Change: Demand going up previously.
Speaker Change: For reasons.
Speaker Change: A couple of years ago.
Speaker Change: At the same time with all of that happening.
Speaker Change: Which should indicate prices going up prices have been coming down so can you talk to.
Speaker Change: Help us understand why that is.
Speaker Change: Anything that would change.
Speaker Change: And then my follow up question is I do see a lot of reports around recycling.
Speaker Change: China, It seems like that's becoming a bigger.
Speaker Change: A bigger industry there I'm just wondering your thoughts around the impact of that on <unk>.
Speaker Change: Well thank you.
Speaker Change: Yeah.
Speaker Change: Yes, so there, but there are a lot of moving pieces in your question, but also in the market right. So it is I mean, there is there is capacity that has come off higher cost capacity. There is new capacity that has come on there is excess conversion that fits in China.
Speaker Change: As well and then the recycling part I mean recycling has been growing over time, we've actually with prices come down we've seen recycling drop off a little bit in China because of it.
Speaker Change: There's just not economic given where prices are for new material.
Speaker Change: All of that is going to work its way has to work its way through the system.
Speaker Change: It's a dynamic market. It is hard to say, but I would anticipate higher cost assets coming out, particularly we've got we're still growing this market's still growing 20% plus right. So it's just not quite as.
Speaker Change: Higher growth rates as we had anticipated, but it is still growing significantly and.
Speaker Change: Kinda is the main driver of that but North America, and Europe are kind of coming from there. So theres going to be growth in this market for a long period of time and capacity comes on in chunks and you get an imbalance prices are going to be down I don't know that I can explain it more than that it's very opaque market and particularly because a lot of it happens in China, but it.
Speaker Change: As.
Speaker Change: It.
Speaker Change: <unk> basically on the supply demand.
Speaker Change: Okay. Thank you.
Speaker Change: Our next question comes from Josh Spector with UBS, Josh Your line is open.
Speaker Change: Yes, hi, good morning, I wanted to just ask on the prepayments that you got is there any requirement there to make further investments. So there is some preemptive expectation around capex spending or was that just.
Speaker Change: Something you decided to do given your needs for cash and the customer focus of the volume.
Josh Spector: Yes, Hi, Josh No Theres no further.
Josh Spector: Requirement on our side, we have everything we need to be able to satisfy that contract and.
Speaker Change: I would just say the last part of what I would say it a little bit differently, we have discussions with customers. All the time, we've done these kind of prepayments actually in the past and this was just a unique opportunity that came across our desk and it was one that we went after so.
Speaker Change: I think it's just a sign of how we work with our partners in many different ways.
Speaker Change: Understood. Thanks, and I guess just to follow up on some prior questions just specifically with the <unk> restart heard some mixed things around supply maybe being temporarily tighter.
Speaker Change: Is there cost being more in line I guess closer to where the market prices have moved towards driving their restart do you guys have any view internally about why that's happening against the low price environment.
Speaker Change: No look I would say I mean.
Speaker Change: We had modeled more looked at like coming in so we werent.
Speaker Change: Weren't exactly targeting this particular asset to be the one that that came back on but we had lepidolite volume.
Speaker Change: China is a strong market is growing they're short of resource is not surprising they're trying to get more domestic resource. So I think it's.
Speaker Change: I mean, I think it's no more complicated than that.
Speaker Change: Okay. Thank you.
Speaker Change: Our last question comes from Amtrust Hassan Us from Barra back Andreas Your line is open.
Speaker Change: Thank you.
Speaker Change: The.
Speaker Change: Lithium volumes, how much of feet would be spud domain sales and how much would be in lithium salt sales.
Speaker Change: Are there any it seems like I'm pulling volumes left.
Speaker Change: Thank you.
Speaker Change: So I.
Speaker Change: I don't have that split, but it's mostly salt.
Speaker Change: The spodumene sales that we do R. R.
Speaker Change: Really more for transparency in the market understanding that we do so.
Speaker Change: Some of that other than we've shifted a little bit from a prepaid perspective that spodumene in that.
Speaker Change: Theres not a lot of that in 'twenty five.
Speaker Change: Yeah.
Speaker Change: Yes, it's under.
Speaker Change: 10, 15% of total Lcs this year roughly in that order of magnitude, it's basically the production coming out of Washington.
Speaker Change: Thank you very very helpful.
Speaker Change: Thank you that's all the time, we have for questions I will now pass it back to Kent Masters for closing remarks.
Kent Masters: Okay. Thank you. Thank you operator in conclusion, Albemarle strong operational execution and strategic framework have positioned us to successfully navigate dynamic market conditions and maintain our long term competitive edge, we are dedicated to delivering value for our stakeholders and driving sustainable.
Speaker Change: Growth.
Speaker Change: Thank you for joining us today, and we look forward to continuing on our journey together.
Speaker Change: Safe and take care.
Speaker Change: This concludes today's conference call. Thank you for your participation you may now disconnect.
Speaker Change: Okay.
Speaker Change: [music].