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spk00: Good day, and welcome to the fourth quarter Albemarle Corporation earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star then 1 on your touchtone telephone. If anyone should require assistance during the conference, please press star then 0 to reach an operator. As a reminder, this call is being recorded. I would like to turn the call over to Meredith Bambi, Vice President of Investor Relations and Sustainability. You may begin.
spk09: All right. Thanks, Michelle. Thank you all, and welcome to Albemarle's fourth quarter 2021 earnings conference call. Our earnings were released after close of market yesterday, and you'll find our press release and earnings presentation posted on our website under the Investors section at albemarle.com. Joining me on the call today are Kent Masters, Chief Executive Officer of and Scott Tozier, Chief Financial Officer. Our GBU presidents, Rafael Crawford, Netha Johnson, and Eric Norris, are also available for Q&A. As a reminder, some of the statements made during this call, including outlook, guidance, expected company performance, and timing of expansion projects, may constitute forward-looking statements within the meaning of federal securities laws. Please note the cautionary language about forward-looking statements contained in our press release and earnings presentation. That same language applies to this call. Please also note that some of the comments made today refer to non-GAAP financial measures. A reconciliation to GAAP financial measures can be found in our earnings release and the appendix of our earnings presentation. Now, I'll turn the call over to Kent.
spk15: Thanks, Meredith, and thank you all for joining us today. On today's call, I will highlight our quarterly results, recap our 2021 successes, and update you on our expansion plans. Scott will provide more details on our financial results, outlook, and capital allocation priorities. And finally, I'll walk you through our 2022 objectives. 2021 was a transformative year for Albemarle. Our strategic execution and ability to effectively manage the challenges of the global pandemic enabled us to capitalize on the strength of the lithium and bromine markets and generate results that exceeded expectations. For the year, excluding our fine chemistry services business, which was sold in June of 2021, we increased net sales by 11% to $3.3 billion, which was in line with our previous guidance. Adjusted EBITDA grew 13% in 2021 to $871 million, surpassing the upper end of our guidance. Looking ahead, our outlook for 2022 has improved. based primarily on favorable market conditions for lithium and bromine. We expect adjusted EBITDA to grow between 35 and 55 percent versus 2021, excluding fine chemistry services. To continue driving this growth, we are focused on quickly bringing capacity online with accelerated investments. La Negra 3 and 4 is currently in commercial qualification. and we expect to start realizing first sales from this facility in the second quarter. In November, we achieved mechanical completion of the first train at Kimberton. The construction team is now dedicated to the second train, and we will be able to leverage our experience from train one to improve efficiencies and timeliness of this project. And we recently signed a non-binding letter agreement to explore the expansion of our marble joint venture, with increased optionality and reduced risk. Now looking at slide five, we introduced this slide early last year to lay out our 2021 objectives designed to support the four pillars of our strategy, to grow profitably, to maximize productivity, to invest with discipline, and to advance sustainability. I would like to thank our teams for their extraordinary efforts. Virtually all the goals we set last year we were met or exceeded despite challenges related to severe weather, supply chain issues, and the ongoing effects of the pandemic. The focus of our people around the world is what drove our strong gear and underscores our ability to deliver on our commitments. These accomplishments have also set the stage for us to take advantage of the growth opportunities ahead. Just as important as driving growth is an ongoing dedication to strong ESG values. I'm very proud of what you see on slide six. Since I became CEO in 2020, one of my main priorities has been continued improvement in sustainability. I'm pleased to see that these efforts are increasingly being recognized externally, but it certainly isn't a new initiative for Albemarle. Sustainability is not just doing the right thing, but also doing it the right way. For example, The lithium market is expected to see significant demand growth in the coming years. As a leader in lithium production, we expect to be an example and help define the standards of sustainability in this market as it goes through this fundamental shift. Now turning to slide seven and more on the lithium market outlook. Based on our current market data, EV trends, and regular interactions with our customers, we are revising our lithium demand outlook upwards once again. We now expect 2025 lithium demand of approximately 1.5 million tons, up more than 30% from our previous estimates. Beyond 2025, we anticipate continued growth with lithium demand of more than 3 million tons by 2030. EV sales growth is accelerating as consumers become more energy conscious, governments incentivize clean energy, technology improves, and EVs approach pricing parity with internal combustion vehicles. In 2021, global EV production nearly doubled to over 6 million vehicles from 3 million in 2020. By the end of the decade, EVs are expected to account for close to 40% of automotive sales. When you look at last year's growth rate of nearly 50% and the auto industry's ambitions for a rapid transition to EVs, it's easy to see why demand expectations are so bullish. However, meeting this demand will be a challenge. Turning to our Wave 2 projects on Slide 8, La Negra 3 and 4, which will add conversion capacity for our Chilean brine resource in the Salar de Atacama, is currently in the customer qualification process. We anticipate incremental volumes and revenue contribution from this project in the second quarter of this year. While there are significant changes taking place to the political landscape in Chile, we do not anticipate any material impacts to our business. We support the Chilean people's right of self-determination and applaud the peaceful leadership transition in that country. Our team has already begun building relationships with the incoming administrations. As I mentioned earlier, Kimerton 1 reached mechanical completion late last year and is currently in the commissioning phase. This puts us on track to begin first sales in the second half of this year. Kimerton 2 remains on track to reach mechanical completion by the end of this year. The OEMs and battery manufacturers have been investing heavily in growth, including commitments in North America and Europe. and the lithium industry must do the same. Turning to slide nine, we provide an overview of how Albemarle is investing to support downstream growth. Since our investor day, we have accelerated and further defined our wave three projects, including the announcement of three strategic investments in China. This wave of investments will provide Albemarle with approximately 200,000 tons of additional capacity That's up from 150,000 tons of capacity originally planned for Wave 3. We've also continued to progress our growth options for Wave 4. Based on discussions with our customers, we are analyzing options to restart our Kings Mountain lithium mine and the potential to build conversion assets in North America and Europe. Our vertical integration, access to high-quality, low-cost resources, Years of experience bringing conversion capacity online and strong balance sheet provide us with considerable advantages. I'm on slide 10 now. In China, we expect to close the acquisition of the Chenzo conversion facility in the first half of this year. This transaction is progressing well, and we continue to work through the appropriate regulatory reviews. The Chinzo plant is currently being commissioned, and we have begun tolling our spodumene to assist with that process. We continue to progress the two greenfield lithium conversion projects in Meishan and Zhangjigang. We have started site clearing at Meishan and expect to break ground at Zhangjigang later this year. We expect mechanical completion of both projects by the end of 2024. The restart of one of three processing lines at the Wadjanah mine is going well, with first spodumene concentrate production now expected in the second quarter. At Greenbushes, Taliesin continues to ramp production from the CGP2 facility to meet design throughput and recovery rates. In addition, the tailings project at Taliesin is on track. Before I turn the call over to Scott, I'd like to highlight our bromine growth projects on slide 11. Our bromine business is investing in innovation and capital projects to take advantage of growth opportunities. We expect new products to make up more than 10% of annual bromine revenues by 2025, up from essentially a standing start. The first of these products to launch is Satex Alero, our next generation polymeric flame retardant. We first discussed Satex Alero at our investor day last year, and I'm excited to say that we have achieved first commercial sales in January and expect to scale production throughout the year. We've also invested in a resource expansion at the Smackover Formation in Arkansas, and we continue to grow our conversion and derivative capacity in both Arkansas and Jordan. With that as an overview, I'll turn the call over to Scott to discuss recent results and our outlook.
spk08: Scott?
spk15: Scott, you might be on mute.
spk12: Hello? Can you hear me now?
spk15: Yeah, we hear you.
spk12: Okay. Sorry about that. I was on mute. Thanks, Kent, and good morning, everyone. I'll begin on slide 12. For the fourth quarter, we generated net sales of $894 million. which is an increase of $15 million compared to the prior year quarter. This was driven by higher sales from lithium and bromine, partially offset by the loss of revenue from our fine chemistry services business, which was sold in June 2021. Excluding FCS, we grew by 11%. The fourth quarter net loss attributable to Albemarle was $4 million. reflecting an increased cost estimate to construct our Kemerton lithium hydroxide plant due to anticipated cost overruns from the impact of pandemic-related issues on the supply chain and labor. Fourth quarter adjusted diluted EPS of $1.01 was down 14% from the prior year. The primary adjustment to EPS is the $1.13 add-back of that Kemerton revision. Let's turn to slide 13 for more detail on adjusted EBITDA performance. Excluding FCS, fourth quarter adjusted EBITDA was up 12% from the prior year. Lithium results remained strong, driven by higher volumes as well as higher pricing. Bromine results were roughly flat year over year, reflecting strong performance in late 2020 and repeating it in 2021. And catalysts improved in the fourth quarter as refinery markets continued to rebound and the business saw benefits from the one-time items. Our second half sales grew 13 percent from the first half of the year, following relatively flat growth since mid-2020. This acceleration of growth is expected to continue into 2022. On slide 14, You can see we are expecting both volume and pricing growth in all three of our business units in 2022. We expect net sales of between $4.2 to $4.5 billion and adjusted EBITDA in the range of $1.15 to $1.3 billion. This implies an adjusted EBITDA margin of between 27 and 29 percent. Adjusted diluted EPS and net cash from operations are also expected to improve year over year. We anticipate healthy growth in adjusted EBITDA in all four quarters this year, and we expect Q1 to be the strongest quarter for several reasons. All three GBUs are expected to benefit from lower cost inventory sold at prices that have been raised in anticipation of inflation. In the first quarter, lithium also has the benefit of strong shipments from our Taliesin joint venture to our partner, as well as a one-time spodumene sale of material produced at Wajina on initial startup in 2019. And finally, going forward, higher spodumene transfer pricing increases are going to increase our cost of sales and only partially be offset by higher Taliesin joint venture income. which is included in our EBITDA after tax, and this creates a tax-impacted EBITDA margin drive. As Kent mentioned, CapEx is expected to increase to the $1.3 to $1.5 billion range this year as we accelerate lithium investments to meet increased customer demand. The key actions to meet or exceed this guidance include, first, Successful execution of our lithium project startups. Second, closing the acquisition in China. Third, solid performance at our sold-out plants in lithium, bromine, and FCC catalysts. Fourth, continued strength in our end-use markets and favorable pricing environment. And lastly, solid procurement to combat inflation. Let's turn to slide 15 for more details by GBU. Lithium's full year 2022 EBITDA is expected to be up 65% to 85%, a significant improvement from our previous outlook. We now expect volume growth to be up 20% to 30% for the year with the new capacity coming online, as well as ongoing efficiency improvements. average realized pricing is now expected to increase 40 to 45 percent compared to 2021 due to strong market pricing as well as the expiration of pricing concessions originally agreed to in late 2019. In some cases, as these concessions rolled off, pricing reverted to legacy contracts with significantly higher variable pricing. And as we've been saying, We've also taken the opportunity to work with our strategic customers to renegotiate contracts to more variable rate structures. Catalyst EBITDA is expected to be up 5% to 15%. This is below our previous outlook, primarily due to cost pressures related to high natural gas pricing in Europe and raw material inflation. Volumes are expected to grow across segments with overall refining markets improving. We continue to see volumes returning to pre-pandemic levels in late 2022 or 2023. FCC volumes are already there, but HPC volumes are lagging. Bromine EBITDA is expected to be up 5% to 10%, slightly above our previous outlook, based on strong flame retardant demand supported by macro trends such as digitalization and electrification. Volumes are expected to increase based on the expansions we began in 2021. And as discussed, higher pricing and ongoing cost and efficiency improvements are expected to offset higher freight and raw material costs. Now, turning to slide 16, I'll provide some additional color on lithium volume growth. This slide shows the expected lithium production volume ramp from the new conversion facilities we expect to complete this year. We begin the year with a base load production of 88,000 metric tons in 2021, which includes Silver Peak, Kings Mountain, Xinyu, Chengdu, and Leningrad 1 and 2. And you can see that this is virtually a 50-50 split of carbonate and hydroxide. As our wave two projects come online, output will begin to favor hydroxide. Generally speaking, we expect it to take about two years to ramp to full conversion capacity at a new plant, including approximately six months for commissioning and qualification. Therefore, we expect to reach our full 200,000 tons of conversion production by early 2025. Before I turn it back to Kent, I'd like to update you on our capital allocation priorities, and I'll turn to slide 17 to do that. Our capital allocation priorities remain the same. Our primary focus is to invest in profitable growth opportunities, particularly for lithium and bromine. Strategic portfolio management and maintaining financial flexibility are important levers to support this growth. For example, we have divested non-corp businesses like FCS and reallocated funds to organic and inorganic growth opportunities, like the expected acquisition of the Chinjo plant. The strategic review of Catalyst is progressing well and is on track for us to make an announcement of the outcome in the first half of this year. We'll also continue to evaluate bolt-on acquisitions to accelerate growth or bolster our portfolio of top-tier assets. As always, future dividends and share repurchases are subject to Board approval. However, we expect to continue to support our dividend. Given the outsized growth opportunities we see in lithium, we don't anticipate share repurchases in the foreseeable future. And with that, I'll turn it back to Kent.
spk15: Thanks, Scott. I'll end our prepared remarks on slide 18, outlining our 2022 objectives aligned with our long-term strategy. First, we will continue to grow profitably. This means completing our wave two expansions and progressing wave three expansions to grow lithium conversion capacity and volumes. We'll also focus on safely and efficiency starting up those facilities. Next, we will continue to maximize productivity. and this is even more important in today's environment with rising costs for raw materials. We will leverage our operational discipline to offset inflation through manufacturing excellence, implementing lean principles, and embracing smart technology to improve HSE, cost, reliability, and quality. Our procurement cost-saving initiatives and manufacturing excellence projects will be key to offsetting higher raw materials and freight costs, as we work to achieve adjusted EBITDA margin of between 27 and 29%. We will invest with discipline. As Scott discussed, portfolio management and maintaining our investment grade credit rating are both high priority for us and will continue to be a focus in 2022. Importantly, we plan to complete the Catalyst Strategic Review later this year, which will maximize value and set that business up for success while enabling us to focus on growth. Finally, we will advance sustainability. That means driving progress toward our goals for greenhouse gas emissions and freshwater use and setting additional sustainability targets. We'll also continue to work with our customers to improve the sustainability of the lithium supply chain by completing our mine site certifications, scope three greenhouse gas assessments, and analyzing product life cycles. So with that, I'd like to open the call for questions, and I'll turn it back to Michelle.
spk00: As a reminder, to ask a question, please press star then 1 on your touchstone telephone. If your question has been answered and you'd like to remove yourself from the queue, press the pound key. We ask that you please limit yourself to one question and a follow-up. Our first question comes from David Desselbaum with Cohen. Your line is open.
spk05: Good morning, guys. Thanks for taking my questions today. I was curious if you could talk a little bit about the lithium pricing outlook. You raised your outlook to 40 to 45 percent increase in 22. When you think about that, you talked about renegotiating your fixed price contracts. How do we think about your exposure to spot market fluctuations now as we head into 2023? And I guess in conjunction with that, Would you expect that you would see further pricing increases into 2023 based on your outlook today?
spk07: Morning, David. This is Eric Norris. So our pricing outlook, let me start first with the composition, what we see in 2022. We have, as Scott and Ken indicated in their prepared remarks, moved our pricing structures to be more variable, about upwards of close to 50%. of our existing battery-grade contracts have a variable component to an index with a price and a ceiling. Those indices are not what you would see in China. Those are indices based upon global, publicly available indices such as benchmark minerals, fast markets, and the like. The remaining 10 percent of our business is spot in China, so that is going to be exposed to what you see. And the rest is largely, at this point, fixed. Although, as Scott indicated, as we continue to approach customers and they seek to add to their volumes through our expansions, we are, in those discussions, asking them and considering moving to more variable with them as well. So, we have, you know, bottom line, increased our exposure to pricing upside, but I think you need to consider that the contracts that we, or excuse me, the indices we're using largely are the global indices, not the China indices, where you see much higher price in the China market than you do globally. So in terms of the outlook going forward, I mean, I would say that we expect it really comes down to what China pricing does. It is the lead, sort of the tip of the spear, where that goes, the indices follow globally. Those global indices are about half, in some cases, of current China prices. So there's probably room to go in those indices, but there's... prices where they are in China, one could only speculate where they would go. And could they go down? We don't know. So there'll always be some variability on that 10% of our business that's in China.
spk05: Appreciate that. And thanks for the color there. My follow-up is just on the capital raise, a $200 million increase this year to the budget. It sounds like that's accelerating some of the conversion assets in China. Could you just give a little bit more color around that and And when do you expect to see some of the volumetric impact relative to your original outlook?
spk15: Okay, so I'm not sure volumetric impact. So you're talking about our Wave 3 expansions when we see those volumes coming on?
spk05: It sounds like the timing has now accelerated around Wave 3. So I guess if you were to look at it based on your original vision that you laid out of the investor day, How much time are you pulling forward with that additional $200 million around the conversion assets?
spk15: Yeah, so we brought it forward because of the Meishan, Zhang Zhigang, the acquisition at Zhang Zhigang. So that was not original. We were hoping to do an acquisition that hadn't planned, didn't have that nailed down at the when we did the equity raise and the comments that we made then. So that's brought it forward, and we've increased the capacity about 50,000 tons in that wave. So the time frame has been pulled a bit forward because we've confirmed that acquisition, and then we've increased that wave by 50,000 tons. And as we said before, the two greenfields we think will be on by the end of 2024. Thank you all.
spk00: Our next question comes from Bob Quirk with Goldman Sachs. Your line is open.
spk14: Thank you. Good morning. Kent or Eric, I was wondering if you could talk about your strategy on contracting to customers, you know, in a growing and very tight market. Is there an approach to not contract all your volume to ensure your customers can get deliverability? Do you want to have, you know, as much as possible, you know, fixed volume obligations? How do you think about that?
spk15: Yes, I was just at a high level, and Eric can give you a little more detail on it. But I think we've talked about it. We want to have a portfolio across the range of those projects. So we're not tying up all the volume on long-term fixed contracts, but we do want to have that element of it. It's becoming probably a bigger part. We're probably fighting to make sure that we keep the portfolio the way we envision it.
spk07: Yeah, I don't have much to add, Bob. You heard how I answered David's question just before you on the mix. We've seen and influenced that to have up to a half on some sort of variable price that has some floors and ceilings, a bit of spot, and then the rest fixed. And we still strive to have, as we grow the business and add capacity, an amount that we can play in the spot markets and that gives us access to flex with our contract customers as they grow as well. Strategy still remains to be a partner to our customers and to seek those partnerships for their long-term growth, and that's becoming, in this market, a very important topic, that security of supply.
spk14: Can I ask a follow-up? What was the reason and what are the ramifications of changing your Marble agreements?
spk15: Yeah, so we're in the middle of that, so I don't really want to front-run discussions that we're having with our joint venture partner. But, I mean, it's really about expanding it to giving us more reach and mitigating some of the risk that we see in the marketplace by sharing it with a partner. Got you.
spk00: Our next question comes from Jeff Zakowskis with JPMorgan. Your line is open.
spk16: Thanks very much. When you look at your lithium carbonate, your LCE production from now to 2025, does your cost per ton change very much and in what direction?
spk07: Well, Jeff, as Kent described, Derek, good morning, first off. As Scott described, Wave 3 is hydroxide-based and spodumene-based in that regard. That's a higher cost of production than carbonate production out of chili. So generally speaking, because of the higher cost to produce hydroxide versus carbonate out of brine, the average cost goes up slightly, but that's a function of resource and product mix We continue to drive productivity throughout the portfolio to ensure that we're operating at a low conversion cost to take advantage of the good resources we have.
spk16: And I think Scott said that the first quarter of 2022 would have the highest EDTA total of the year. Why is that, given that lithium production would be much greater in the second half?
spk15: So there are a couple of dynamics happening there. So first is we've been aggressive around pricing given inflation coming through. And in the first quarter, we're selling out of inventory where that inflation has not actually hit our cost base yet. And that's true across all of our businesses. So that inflation catches up to us in the back half of the year, and we've already implemented pricing. So there's a lull on that. And then It's really the same answer on lithium. That's across all the businesses, but particularly in lithium, spodumene prices have gone up dramatically. In the first quarter, we're selling out of inventories which have 21 costs, and in 22, those cost increases come through the P&L. That was the dynamic Scott was talking about where our EBITDA becomes tax-affected because it's minority interest from JV income because even though we're protected from those spodumene prices going up, it shifts from being in our peer EBITDA to minority interest, which gets added to EBITDA, but on an after-tax basis. So those are really the two drivers for why the first quarter is the highest EBITDA level.
spk16: Great. Thank you so much.
spk00: Our next question comes from PJ Juvicar with Citi. Your line is open.
spk01: Yes, good morning. How quickly do you see the Wajina ramp-up And is that limited by available conversion capacity in Australia and China? And then talking about conversion capacity, your potential North American-European conversion capacities in Wave 4, what does it take to move it to Wave 3?
spk15: I'm going to take the second question first and then probably punt to Eric for the first. So what we've defined, I mean, The waves are really just those are our definition of projects. So nothing else is going to change. It's not going to move North America from four to three because three is defined, and we're well into execution on those projects right now. And we're still defining exactly what we will do in wave four. But we look to accelerate those, but they'll still remain in wave four.
spk07: And, PJ, on your first question about Wajna, we are only, with our joint venture partner, ramping up the first train of Wajna, which is 50,000 tons of 6% spodumene, a little over 30,000 tons on an LCE basis. We look at the China growth and conversion capacity in hydroxide from Wave 3 that Kent described as the output or, excuse me, the consumer for that material. As a side note, You know, spodumene tends to come on pretty quickly. It's a different kind of plant operation than a conversion, chemical conversion plant, which tends to ramp over two years. A spodumene plant can come up within six months. Plus those trains are already built. Plus the trains, yes. Fair point. Plus trains are built and they're just being restarted. So we would expect by mid-year to see spodumene flowing from that and put it into the assets that we talked about in Wave 3 and the balance we'd consider looking at tolling. for the balance. And then as we continue to progress Wave 3 and other expansion activities, we'd look down the road. We've made no decisions yet on the second and third train at Washington, but those would be for down the road, giving us plenty of dry powder, so to speak, to support our growth as we continue to build our conversion capacity.
spk01: Great. And you got it to lithium volume growth of 20% to 30%. which I would think is in line with where the industry is growing. But you have so much new capacity coming online in 2022, first half and second half. So would I have thought that your volumes would grow faster than the industry? Any reason why it's not growing faster than the industry?
spk07: Well, certainly we'd like to continue to maintain our position in the industry and grow with the industry. And you're right, with this growth guidance, we are doing that. But underneath that are the practical realities of capacity limitation. So The guidance we've given PJ speaks to, you know, we give you dates of when we think these plants will come online, and we first have that first qualification sample. We have a six-month period before it can be qualified, and then we have about a two-year ramp to ramp that. When you back-calculate that math, that's on our fixed base of 88,000 tons last year. That is the growth increment you get. So it happens to correspond to market growth, but it's going as fast as we can on our capacity expansions.
spk01: Understood. Thank you.
spk00: Our next question comes from Christopher Parkinson with Mizzou Health. Your line is open.
spk10: Great. Thank you very much. Just two quick questions. Just the first would be, you know, for the Western OEMs, let's say all in on the EV front, just what's your assessment of their own perceptions just regarding some of the newer competitor supply editions? and how that product will or potentially will not be accepted in the marketplace in the ultra, let's say, near-to-intermediate term. Any color will be helpful. Thank you.
spk07: Yes, so good morning, Chris. So by that, you're referring to Western OEMs' view of new lithium competitors coming into the market who are trying to bring capacity to market? Look, I mean, I think you'd have to ask their view on things. I will say this. Security supply is A very, very big concern in the market. I think that's why in a pure spot market like China, you see prices that are, you know, an order of magnitude higher than they were a year ago. It's folks trying to get supplied at any price. So that is true, certainly in China, given those prices, but that same sentiment is true here in the U.S., particularly as Western OEMs, or in Europe as well, underwrite big investments. So They are looking for lithium wherever they can get it. I think the offering that Albemarle brings, and it's part of our dialogue with them, is we have the resources, we have the execution capability, and we're reliable in bringing on supply. So we're an attractive partner for them in those dialogues, and we're in the middle of all those discussions now as we bring on this new capacity and look into the future to bring on future capacity particularly as Kent referenced, as we look to localized capacity in North America and Europe.
spk10: That's helpful. Just a quick follow-up, just, you know, what would just be your latest thought process? You know, on the demand front, you already hit on a few things, but just in terms of battery technologies, energy density, just any color on what you've seen in terms of new model launches and potentially advancing, you know, high nickel cathode chemistries would be very helpful. Thank you.
spk07: Yeah, so on battery chemistry for electric vehicles, we still see over the 5- and 10-year view, or I'll put it another way, over the 2025 and 2030 view that we've characterized in our growth charts in the earnings deck, we still see nickel, high nickel being the key to higher range. And we further see innovations on the anode side in steel, pre-lithiation and new technologies that will further allow more energy density and cost effectiveness of those nickel chemistries with that parity up to internal combustion engines and coming in within that 18 to 24 month period. That being said, it's pretty clear and our projections would show that LFP for lower energy density, for lower range vehicles, lower cost vehicles is going to remain a segment of this market not only now, but through this 10-year period. And it's a double-digit percentage over that period of time, a low double-digit percentage, but a double-digit percentage of the market. But most of the growth will be hydroxide. Thank you very much.
spk00: Our next question comes from Alex Yefimov with KeyBank. Your line is open.
spk11: Thank you. Good morning, everyone. I think, you know, as I look at your pricing guidance for lithium segment, it was very strong. If I even assume some level of cost inflation, that this cost number to get to your EBITDA and EPS guidance ends up being very high, you know, based on my model at least, maybe as high as 40% or more per ton. Is there anything else, you know, beyond the spodumene and talisman dynamics that you already described in terms of cost that we should keep in mind for 22?
spk15: So, I mean, I think you have to appreciate we're bringing on new plants, and when we bring them on, they're not loaded, right? So there's a lot of – so we're doing multiple facilities doing that. So there's high fixed costs associated with that with lower volumes, but – Other than that, I mean, the pricing movements are pretty aggressive and pretty consistent. We've moved our portfolio quite a bit. We've been talking about that, and we've more or less done that. We're more exposed to the market than we have been in the past. But I think you have to keep in mind that fixed cost piece about bringing on new facilities that are not loaded.
spk11: Okay. Uh, appreciate it. And then I wanted to, um, to follow up on the pricing side, I guess, given the approximately 50% of your volume have these indices or would any of these indices reset during the year? And could you end up above the 45% sort of upper bound of your lithium guidance price guidance?
spk07: Let's see. Hi, it's, it's Eric. I, I can answer that. Uh, it's, um, They are all based on indices that continue to move. The recent movement has been upward in the past three months. Again, sort of the tip of the spear being China prices, which are significantly higher. Where the market goes long-term, we don't know. If there is a downward sort of correction in China prices, that'll hit the China spot volumes we have. However... These indices for the large part of our business, it's variable fixed ceiling floor, those are well below those spot prices. It's very hard to say. If the prices remain high, we could definitely be to the higher end of our range on price.
spk15: And I think part of your question was about are they fixed through the year, so they aren't. That move of the market can move during the year.
spk11: I understand. Thanks a lot.
spk00: Our next question comes from Steve Richardson with Evercore. Your line is open.
spk13: Hi, good morning. I was wondering, again, just back on the capital piece, Scott, could you give us any more color just in terms of how much is cost inflation versus pull forward? I appreciate that you kind of addressed this a little bit earlier, but it is something that continues to come up in our conversations and would be helpful. And then on the cost piece, just on the previous question, appreciate that you're dealing with a lot of fixed costs in terms of some of these new project starts. But could you maybe tease out, you know, at least in terms of your unit cost, how much is, you know, process-related, you know, in terms of, you know, just general costs associated with the process versus what you're seeing in terms of this mismatch between volumes and, you know, fixed costs versus variable costs?
spk15: Yeah, so let me take the first part of your question, Scott, and then I'll kick over to Scott to talk about the margin piece and the conversion cost. So looking at the change in our capital forecast, it's at least half accelerations. I mean, we have had additional costs executing projects in Western Australia during the pandemic has been a challenge for us, and we've had additional costs as well as extending the projects on that. And we also see inflation impacting the projects that we're kicking off now that we didn't see a year ago. So it's probably, I don't know how accurate we can be around that, but it's probably half acceleration and half additional costs associated with inflation and pandemic costs. And Scott, I'll kick to you for the margin question.
spk12: Yeah. Hey, Steve. As you look at the lithium margins going into this year, the two factors are the plant startups and not being at full capacity. And that's probably a $100 million drag in the year, somewhere in that range. And then the impact of the spodumene prices going up and changing the dynamic between cost of sales, so increasing our cost of sales, but also increasing our equity income on an after-tax basis, that's probably north of $200 million. So those are the two biggest kind of movers as you're looking at the lithium margin.
spk13: Great. Thanks. I appreciate the additional clarity. And one follow-up, if I may, just for Eric on the lithium outlook on the demand side. The 1.5 number is obviously huge relative to where the market had been, and I see the logic on the demand side. Can you address your view, like the industry's ability to hit this from a supply perspective, and at least how does this play out? Do we just end up seeing ever higher incentive price to bring marginal projects to bear, or Do we have a limiting factor here in terms of, you know, the supply side's ability to hit that number? And certainly the $3 million in 2030 is a huge number as well.
spk07: Okay. I would say, Steve, that it's going to take – it's a hard run, right? It's going to take everybody being ourselves and our competition being successful at hitting their milestones in order to provide that – to meet that supply. So it's an all-out effort to get there. So I don't want to sugarcoat it. I think it's the reason the industry is so tight is because there's a view it takes a while and it doesn't go as expected. In terms of price, I don't have a crystal ball. I never would have predicted a $65 carbonate price, so I don't know how to think about where that would go in the future. It does reflect that hard slog I just referred to, I think. that everybody's got to step up and execute well in order to meet that demand. Thank you very much.
spk00: Our next question comes from Joel Jackson with BMO Capital. Your line is open.
spk06: Hi. Good morning, everyone. You know, some years ago, you guys had talked about kind of a 40% EBITDA margin for lithium as kind of being what I think you might get over the course of the cycle. We're now at a 34%, 35% range over the last three years through much different pricing scenarios every year. And you talk about now fully loaded plants and how that may affect margin. You're going to be, of course, prepping on plants indefinitely for a long time. So should we be thinking about this as the right cost base going forward, this margin as the right kind of base going forward for lithium?
spk15: I think what we've said in the past in the long term is we stand by that. So I think we've got One of the things you have to understand is as spodumene prices go up, that impacts our EBITDA margin because of the nature of the JV. So EBITDA effectively becomes tax-affected to some degree because of the product we purchased from Taliesin, and that won't be different with marble going forward. So that has an impact. on the pure EBITDA margin, but it still flows through the P&L once you get fully to the bottom line. So I think, kind of to answer your question, we still stand by the guidance that we've provided in the long term. We still think it's in that range.
spk06: My next question is, it's great to have a 3 million ton demand forecast for looking for 2030, but let's be honest, we're never going to get there. There's not supply out there. Even if there's supply, we're not going to get there in eight years for 3 million tons, right? You've got to have new resources. You've got to have new technology, DLE, whatever. You have to have lots of assets that aren't producing now in lots of strange places, new feedstocks. So we're never going to get to 3 million tons. Would you agree with that? And if that's the case, what's going to happen? So does that mean the EV acceleration has got to come down, OEMs have to change their plans, or do I have it wrong?
spk15: Eric said it before, that it's a slog, but it's doable. I think the industry has to be aggressive and has to execute well. And I think you're seeing that we're getting through some of those growing pains. We think we're probably as experienced as anyone at doing these large conversion facilities and bringing on new resources. But it's a combination of resource and conversion capacity. It is a stretch, and it does require some new technology. and operating in some places where historically the lithium industry hasn't done that, but it's not impossible.
spk06: Thank you.
spk00: Our next question comes from Vincent Andrews with Morgan Stanley. Your line is open.
spk04: Thank you, and good morning, everyone. Kent, just wondering if you could mark the Wave 3 total capex for us. I think you originally cited it at $1.5 billion, and I think you mentioned half of the increase for 2022 was related to inflation, but it seems like maybe some of that was transitory if COVID indeed calms down. So how would you tell us to think about Wave 3 now versus the original 1.5?
spk15: Yeah, well, it has stretched a little bit because we've accelerated and we've had inflation. So that inflation, if it goes away in three years, doesn't matter because we're building the projects in the next couple of years. So there is some impact on that. So we've accelerated because there's additional capacity associated with that. So that is, say, half of the difference and the other half is inflationary. So you've got to add that on. And even if it goes away, we're not going to be necessarily in Western Australia, but they're still going to be, and we see our forecasting says inflation in the capital equipment that we're buying in the next year and two.
spk04: So if we thought of something like it was going to be like a $1.8 to $2 billion now instead of $1.5, is that good for a ballpark number?
spk15: I want to start estimating what the projects are going to turn out to be, but it's up definitely from $1.5. part of that is the acceleration, so I'm kind of focused on the inflation part, but overall that's probably not a bad estimate.
spk04: Okay, thank you. And just on the SLARD Autocomma technology project, can you just talk to us about what milestones are left to hit on that so that you'll be confident that you'll be able to execute it?
spk15: Yeah, so we're just getting going into the real execution phase of that particular project, but it I don't know that it's not as complicated a project as a conversion facility. So I think we feel pretty good about executing on that. We've lost a little bit of the float we had in the schedule, but that's it. We're still on plan and on the schedule that we had, but we have lost a little bit of the contingency from a time standpoint that we originally had built in.
spk04: Okay, very good. Thank you. I appreciate the answers.
spk00: Our next question comes from Kevin McCarthy with Vertical Research. Your line is open.
spk17: Yes, good morning. A couple of questions on your catalyst business. First, I think you had announced some price increases in early January. Can you talk about the magnitude and the flow through with regard to realization of those increases and also related to catalysts? Any update on your level of confidence with regard to the ongoing strategic review?
spk15: Okay, so I'll – sorry, Rafael. Let me touch on the strategic review and then let you talk about pricing. So, I mean, we're going through that process, and it's going well. The timing, we had said we think we'll have an answer by middle of the year, and I don't really want to front-run it or comment too much on it beyond that. Rafael?
spk03: Yeah, sure. Thanks, Kent. Kevin, as you saw, we announced a price increase in January. That's really to help offset the inflation that we've seen starting in the second half of 2021 into this year, particularly around natural gas. So that's building momentum. So I think we'll see north of $10 million worth of pricing in our forecast. Again, that's really to offset what we've seen on raw materials. As you know, Kevin, we produce performance products, so we create a lot of value for our customers. We think our pricing is justified. It's mostly around FCC catalyst where we're in a near sold-out position right now. All that being said, we've got a lot of confidence in what we shared as our long-term forecast for the business investor day. We think some of the raw material headwinds will be covered with price over time, and we'll be on track to deliver what we said.
spk17: Thank you for that. And then second, Kent, I think you mentioned in your prepared remarks that you've begun to build some relationships with the incoming administration in Chile and Can you talk through what has changed in that country, I suppose politically, but also there's an ongoing effort to rewrite the Constitution? What in your mind will be fixed or remain the same? What are you watching in terms of potential changes, and how are you thinking about it in terms of capital allocation moving forward, uh, beyond La Negra three in country versus, you know, alternatives you may have in Australia, China, uh, U S or other countries.
spk15: Okay. So that, yeah, so there's a lot going on in Chile and, and a new administration is not really in place. And we're, we're trying to build our relationship out in front of that with our local team there. Uh, but there had been discussions going on about the rewriting the constitution and, uh, All of them, the mining royalties across multiple industries, those discussions have been happening for the last six months, if not a year. So there's been a lot of discussion. So we're trying to build relationships with the new government, stay close to it. We don't anticipate wholesale change in the direction that the government goes with respect to extractive industries, but we do think there will be changes. Most of that is going to be as you look forward as opposed to on existing businesses, particularly around lithium. So we don't see a wholesale change in the way that the existing business is done in Chile. or our royalties that we pay. As an example, we think they're very progressive, probably the highest in the world on lithium for sure, and probably even in extractive industry. And we think that that will hold and maybe become an example for some of the other resource-based industries in Chile. So we're pretty optimistic about our position in Chile. From a capital allocation standpoint, I mean, we have... We're spending money now there on the solar yield project. We've got La Negra 3 and 4 project is really done, and we're in the process of ramping that up. So we won't really need to make a capital allocation decision vis-a-vis Chile for a while. So we'll have a much better view of what's happening in Chile and what the new administration, the direction that they're going and what the rules of the road are before we have to make a significant capital allocation decision there.
spk17: Perfect. Thank you very much.
spk00: Our final question comes from Chris Katz with Loop Capital Market. Your line is open.
spk02: Good morning. Thank you. So slightly more nuanced follow-up on the pricing and then also the security supply concept, something that Eric mentioned a couple times. So obviously it's an increasingly important theme, I think, and And this is really juxtaposed against these new demand scenarios that you put out this morning, the 1.5 and the 3 million ton demand scenarios by 25 and 2030. So at your analyst day in September, you talked about, you know, just how the industry's demand curve, or sorry, cost curve will be steepening. And even your own portfolio, I would say, you're going to experience that. But as you ramp wave three, Even pulling forward the 50,000 metric tons, you're talking about 200,000 metric tons. That's only 20% of the increased industry demand from now to 2025, it looks like. So in terms of security of supply, we think these customers are just increasingly concerned about their ability to source lithium at reasonable prices. So my question really is, are they coming to a big and well-established and reliable integrated supplier like Albemarle and saying, like, is the pendulum swinging back towards this concept of being willing to pay higher fixed costs in order to ensure that supply? I know you've gone from sort of, you know, those floor pricing contracts to more of a variable structure, but I would think given how acute this potential shortage is shaping up to be, that they'd be more motivated to do that, and is that something you're considering? Just wondering, you know, I was kind of asking a couple other analysts in different ways, but it just seems like there's, you know, this is going to be a tough scenario, and the only answer is going to be for higher prices to induce more supply. Anyway, if any more color around that would be appreciated. Thanks.
spk15: Yeah, so I'm going to take the first shot at that, and Eric, you can fill in if I missed some of the key points, but I'd I guess the first thing is security of supply has always been a key part of our value proposition. And in our view, it didn't get the attention that we thought it deserved in the past. We've always built on having multiple resources, different locations, diversification in our supply base, and the security of supply, Albemarle has a portfolio that is unlike anyone else's in the industry. and that's from both a conversion, geopolitical resource, cost base, brine, rock, you know, everything. So that said, it is getting more attention, and I think the OEMs and the battery manufacturers, but probably the OEMs more than anything else, are paying more attention to that. They're seeing that there may be a structural deficit, or at least they want to make sure they align with the most reliable standards and we're having conversations with different people. They're just conversations about different pricing structures. In the industry, we've shifted our portfolio shift that we've done now. It was really something we started a couple of years ago, put it on hold when prices went so low because we didn't want to renegotiate contracts at a trough, but we've been able to do that now, and that will probably continue to evolve. uh, it's the structure that we have now is probably not the one that lasts for the balance of the industry. So I suspect there are changes in those structures to come. Uh, and a lot of it will be based on security of supply and quality and the ability to bring on projects and deliver what you say you're going to do.
spk02: I could just have one follow up the, um, just on, um, I don't know if Eric, you want to add to that, but, but, um, Also, just on your decision to sell spodumene, because I thought that you'd explained in the past that that would be for captive conversion to hydroxide, but now you've elected to, it sounds like, opportunistically sell some of the spodumene into the market. Thanks.
spk15: Yeah, I wouldn't read into that that that's a change in our strategy. It was opportunistic. and it was a product that we had sitting in inventory that was made several years ago and had just been sitting, and we took the opportunity to sell that into the market because it was just an opportunity, and we took advantage of it. It's just opportunistic. You shouldn't read into that. We've changed our view on selling spodumene in the market.
spk00: That's all the time we have scheduled for today's call. I'd like to turn the call back over to Kent Masters for closing remarks.
spk15: Okay. Thank you, Michelle. And thank you all for your participation on our call today. Our successes in 21 have positioned us well to capitalize on the strength and the markets that we serve. And this coming year is about execution. I'm confident in our team's ability to drive value for all of our stakeholders by accelerating the growth of our business in a sustainable way and to lead the industry by example. Thank you.
spk00: This concludes the program. You may now disconnect. Everyone, have a great day.
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