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spk13: Hello and welcome to Albemarle's Q2 2024 earnings call. I will now hand it over to Meredith Bandy, Vice President of Investor Relations and Sustainability.
spk00: Thank you and welcome everyone to Albemarle's second quarter 2024 earnings conference call. Our earnings were released after the market yesterday and you'll find the press release and earnings presentation posted to our website under the investor section at albemarle.com. Also posted to our website is yesterday's additional press release announcing our initiation of a comprehensive review of our cost and operating structure, which we will also reference during our comments today. Joining me on the call today are Kent Masters, Chief Executive Officer, Neil Chure, Chief Financial Officer, Netha Johnson, President of Specialties, and Eric Norris, President of Energy Storage, are also available for Q&A. 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 contained in our press release and earnings presentation, which also applies to this call. Please also note that some of our comments today refer to non-GAAP financial measures. Reconciliations can be found in our earnings materials. And now I'll turn the call over to Kent.
spk18: Thank you, Meredith. During the second quarter, Albemarle continued to demonstrate strong operational execution. We recorded net sales of $1.4 billion and sequential increases in adjusted EBITDA and cash from operations, thanks in part to successful project delivery, productivity and restructuring initiatives, and working capital improvements. We continued to capture volumetric growth, driven by our energy storage segment, which was up 37% year over year, highlighting successful project ramps and spodumene sales in that segment. For example, during the quarter, we achieved first commercial sales from May Sean, ahead of our original schedule by approximately six months. During the second quarter, we also delivered more than $150 million in restructuring and productivity improvements, consistent with our efforts to align our operations and cost structure with the current market environment. We are on track to exceed our full year targets on this front by 50%. Looking to the rest of this year, our operational discipline allows us to maintain our full year 2024 outlook considerations. Notably, we expect our $15 per kilogram lithium price scenario to apply even assuming that lower July market pricing persists. This is due to higher volumes, cost out and productivity progress, and contract performance. We've made great progress in strengthening our competitive position and enhancing our financial flexibility. However, industry headwinds that began last year have persisted longer than the sector anticipated, making it clear that we must proactively take additional steps. Building on the actions we announced this past January, we announced yesterday that we are taking a comprehensive review of our cost and operating structure with the goal of maintaining Albemarle's competitive position and driving long-term value. As part of the initial review, we announced the difficult but necessary decision to immediately adjust our operating and capital spending plans at our Kimmerton site in Australia. These actions showcase our deeper focus on cost and operating discipline. There's no question that the global energy transition is underway. However, the pace of the industry changes are dynamic and we must remain agile as well. Later on the call, I will spend some time diving deeper into the cost and asset actions that we continue to take in this environment to maintain our competitiveness. And I will also highlight the strategic advantages that remain proof points of Albemarle's competitive and operational strengths. I'll now hand it over to Neil to talk about our financial results during the quarter.
spk01: Thanks, Kent, and good morning, everyone. Beginning on slide five, let's move to our second quarter performance. In Q2 2024, we recorded net sales of $1.4 billion compared to $2.4 billion in the prior year quarter, a decline of 40%, driven principally by lower pricing. During the quarter, we recorded a loss attributable to Albemarle of $188 million and a diluted loss per share of $1.96. This result included an after-tax charge of $215 million, primarily related to capital project asset write-offs for Kemerton IV. Adjusted diluted EPS was $0.04 per share. Moving to slide six, our second quarter adjusted EBITDA of $386 million was down substantially versus the year-ago period as favorable volume growth was more than offset by lower prices and reduced equity earnings due to soft fundamentals in the lithium value chain. Compared to the first quarter, second quarter adjusted EBITDA rose 33%, driven by higher sales volumes across all businesses and higher income from increased Taliesin JV sales volumes. As a reminder, on last quarter's earnings call, we said that we expected an approximately $100 million sequential lift to our EBITDA from higher than normal offtake by a partner at the Taliesin JV. And that's what we saw in the quarter. Turning to slide seven, as we've done in prior quarters, we are providing full-year 2024 outlook considerations based on historically observed lithium market pricing scenarios. The price scenarios shown represent a blend of relevant market prices, including both China and ex-China pricing for lithium carbonate and hydroxide. The numbers you see here on the slide have not changed since our last earnings call. What is new is what Kent mentioned at the top of the call. We now expect the $15 per kilogram price scenario to be applicable, even assuming lower July market pricing persists for the balance of the year. We are able to maintain this scenario due to the success of our enterprise-wide cost improvements, continued strong volume growth, higher sales volumes at our Taliesin JV, and contract performance in energy storage. Moving to slide eight, we continue to prioritize our financial flexibility and strong liquidity to navigate the dynamic market environment. We ended the second quarter with available liquidity of $3.5 billion, including $1.8 billion of cash and cash equivalents and $1.5 billion available under our revolver. Our net debt to adjusted EBITDA was 2.1 times, which was well below the quarter's covenant maximum of five times. We continue to add new liquidity resources, such as our AR factoring program, and from a long-term debt perspective, we are well-positioned and have no significant maturities due until late 2025. Turning to slide 9, which shows our improved operating cash flow performance and considerations. Our focus on cash generation and efficiency continues to drive important benefits. Our operating cash flow conversion in the second quarter was 94%, which was unusually high primarily due to increased Taliesin dividends. We also continue to drive volume growth, cost and productivity improvements, and working capital efficiencies, all of which contributed to our cash conversion. As we look forward, we now expect our full-year operating cash conversion to be approximately 50%, which is at the higher end of our historical range. I'll now hand it back to Kent.
spk18: Thanks, Neil. Turning to slide 10 for more details about the actions we announced yesterday to streamline our operations, build on the cost-out and productivity actions we already have underway, and maintain Albemarle's competitive position across the cycle. Now on slide 11, I'll first cover the fundamentals in our market. On the demand side, EV registrations are up more than 20% year-to-date through June, led by strong growth in China. However, the pace of growth in Europe and the U.S. has moderated substantially versus the industry's expectations. Across the value chain, we are seeing meaningful mixed shifts. First, stronger growth in plug-in hybrid cells, which is translated to smaller batteries with less lithium per vehicle. And second, we see a continuation in the trend towards more carbonate-based batteries. Both of these developments are still positive for overall long-term lithium demand. However, they highlight the shifting nature of this value chain as it develops and matures. These demand changes are occurring at the same time as we see dynamic conditions on the supply side. We have yet to see significant changes at the mine level as existing and new supplies continue to come to market. And on the conversion side, there is still oversupply, predominantly in China. At current Chinese spot pricing, we believe and are hearing from the market that many non-integrated producers are unprofitable, with some operating at reduced rates or idling production. And we're hearing that even producers who are integrated into cathodes or batteries are under pressure. Moreover, current pricing is well below the incentive pricing required for Western greenfield lithium projects. At the same time, geopolitical developments are also adding uncertainties to our business. This includes escalating trade tensions and ongoing armed conflicts. Challenging Western supply chain dynamics are also at play. Notably, the IRA's 30-D consumer tax credit has yet to benefit upstream producers like Albemarle. And specific to our position, as written, the final U.S. Department of Energy Foreign Entity of Concern, or FEOC, rule will impact the eligibility of our Australian product, and we suspect that others could be impacted as well. While current dynamics add challenging uncertainties, there is no question that the energy transition remains well underway and the long-term growth potential of our end markets is strong, as you can see on slide 12. The global EV supply chain is on track to achieve the critical $100 per kilowatt hour tipping point where EVs are at cost parity with internal combustion engine vehicles. The Chinese industry has likely surpassed that target, with the rest of the world not far behind. Taking all these changes into consideration, we continue to anticipate 2.5 times lithium demand growth from 2024 to 2030. Additionally, we see battery size growing over time, driven by technology developments and EV adoption. These factors all translate to significantly higher long-term global lithium needs. Turning to slide 13, in January, we announced a series of proactive actions to preserve growth, reduce cost, and optimize cash flow. Our teams have successfully executed on many of those actions, including ramping in-flight projects at Chinzo, Meishan, and the Salar on or ahead of schedule, delivering cost-out and productivity actions, and we are now tracking to deliver 50% ahead of our initial targets. reducing 2024 estimated capex by between $300 and $400 million year over year, and enhancing our financial flexibility, including improving cash generation and conversion. While these steps have served us well, the industry dynamics I just described require us to do more to ensure our competitiveness across the cycle. Building on the actions we announced in January, we announced yesterday that we are embarking on a comprehensive review of our cost and operating structure, pushing deeper into our playbook to further pivot and pace to maintain our leading position. We're focused on the four key areas you see on the slide. Optimizing Albemarle's global conversion network to preserve our world-class resource advantages, improving our cost competitiveness and efficiency, continuing to reduce capital expenditures and future capital intensity, and enhancing Albemarle's financial flexibility. The middle section of this slide highlights that we've already taken the next set of actions across these four focus areas, and the bottom of the slide details additional opportunities that we'll closely evaluate as part of the process. The comprehensive review of our cost and operating structure has just begun, and we plan to provide additional details with our third quarter earnings. That said, we took the difficult but necessary decision to bring forward the first step in the review, which is to further optimize our Australian network, as we show on slide 14. As one of the first steps in this comprehensive review, we announced yesterday immediate adjustments to our Australian lithium hydroxide footprint. These changes follow our previously announced decision not to proceed with the construction of Kimmerton Train 4. Specifically, we will idle production at Kimmerton Train 2 and place the unit in care and maintenance. Additionally, we will stop construction activity on Train 3. Notably, we estimate that stopping construction on Train 3 will save at least $200 to $300 million of capital spending over the next 18 months. These changes allow us to focus on optimizing and ramping Kimmerton Train 1 to preserve optionality and diversity across both product type and geography. In the coming weeks, we'll be identifying other ways to optimize our global conversion network with a focus on the highest priority and highest return options. Our global portfolio of conversion assets and our extensive polling network provide the flexibility to maximize the value of our high quality resources and to provide either carbonate or hydroxide to meet the needs of our customers as their demands and technologies evolve. Turning to slide 15. As we deliver these initial savings and begin the next phase of our review, our operating model, the Albemarle Way of Excellence, remains the standard by which we operate. By executing our operating model, we're building a culture of continuous improvement to identify best practices at every point in the cycle. We are on track to exceed our initial goals for restructuring and productivity savings through manufacturing, procurement, and back office initiatives. Much of the better-than-expected performance to date is in manufacturing improvements. For example, optimized pond management at the Solar and overall equipment effectiveness improvements at La Negra have maximized production at one of our lowest-cost assets. These manufacturing benefits in Chile are in addition to the increased efficiency and volume we expect as the Solar Yield Improvement Project continues to ramp. Moving to slide 16 and our capital spending profile. As I mentioned earlier, we expect 2024 CapEx to be $300 to $400 million below 2023 levels. Moving forward, we are evaluating opportunities to further reduce our capital intensity and total capital spending. This will provide enhanced optionality, improve free cash flow, and put Albemarle in a stronger competitive position long term. Our capital spending profile is another element of our comprehensive review, and we'll have more to say about our near-term spending plan on future calls. Moving to slide 17. With all these near-term factors shifting and requiring us to take action, I think it's important to remember that Albemarle continues to have significant competitive strengths. And so I will end with review of our framework and the core advantages we continue to prioritize as drivers of our long-term value creation. Slide 18 provides our strategic framework, which informs our planning and gives us confidence that we will achieve our growth ambition. to lead the world in transforming essential resources into critical ingredients for modern living. This framework defines where we play, how we win, and how we deliver. Albemarle remains uniquely positioned to enable operational excellence during this dynamic period thanks to our competitive strengths, including our globally diverse portfolio of world-class resources, leading process chemistry, deep innovation and technical know-how, customer-centric approach to the market, and responsible stewardship. Each of our competitive strengths will help us right now and well into the future in ways that we summarize on slide 19. First, our world-class resources are arguably the best in the industry with large-scale, high-grade, and therefore low-cost assets. In energy storage, we have access to some of the high-grade resources in both hard rock and brine. In Australia, with green bushes and Wajana, and one of the largest known hard rock assets in the U.S., Kings Mountain. And in Chile, with our long-standing position in the Salar de Atacama. Similarly, in specialties, we are the only producer with access to both of the two best bromine resources globally. In Jordan, on the southeast side of the Dead Sea, the source is the largest concentration of bromine in the world, and in the Smackover Formation in Arkansas, the only source of commercial bromine in the United States. In both of our core businesses, we maximize the value of our world-class resources by converting and flexibly derivatizing into higher value-in-use products in our conversion assets, or in the case of energy storage, through our extensive tolling network. Second, our leading process chemistry know-how is key to achieving further productivity and cost improvements, safely and sustainably. For example, the Solar Yield Improvement Project utilizes a proprietary technology to enable up to 20% higher yield. At Magnolia, we've leveraged advanced process controls to increase production while lowering costs and improving sustainability. and that both the salar and magnolia, we have evaluated a wide range of direct lithium extraction options and are piloting proprietary and third-party solutions in order to be prepared for technology shifts that could be important and more sustainable salai options for this industry. Third, we have a pipeline of high-impact innovative solutions in both bromine and lithium. Our research, testing, and piloting facilities in North Carolina, Louisiana, and Langelsheim, Germany, allow us to participate in differentiated, high-margin segments and support our customers' specific requirements. Fourth, Albemarle's leading industry position as a partner of choice is demonstrated through our growing number of partnerships with iconic pioneering companies. Both our businesses have high net promoter scores with significantly positive gaps relative to competitors, reflecting longstanding successful relationships with major customers. And last but not least, our responsible stewardship, strong values, and high-performance culture are increasingly recognized by leading organizations. For example, we recently earned an Ecovadas gold medal, placing us in the top 5% of global companies and demonstrating our commitment to creating a more resilient world and advancing the sustainability objectives of our customers. In summary, on slide 25, Albemarle delivered another strong quarterly performance in the second quarter, including sequential improvements in adjusted EBITDA and cash from operations. Despite lower market pricing, we've been able to maintain our full year 2024 outlook considerations, thanks in part to enterprise-wide cost improvements, strong energy storage project ramps, and contract performance. However, we understand these positive actions may not be sufficient given ongoing industry headwinds. Our entire organization is focused on delivering operational excellence while positioning the company to capitalize on the incredible long-term opportunities in our markets. That's why we are taking the proactive steps to control what we can control and ensure we are competitive across the cycle. Albemarle is a global leader with a world-class portfolio and vertical integration strength. We are uniquely positioned to win. I am confident we are taking the right actions to maintain our competitive position and ensure we execute with agility today and in the future. I look forward to seeing some of you face-to-face at upcoming events listed here on slide 26. And with that, I'd like to turn the call back over to the operator to begin the Q&A portion.
spk13: Now move to our Q&A portion. If you'd like to ask a question, please press star five to raise your hand. As a reminder, that is star five to raise your hand. Please bear in mind that in this Q&A session is limited to one question and one follow-up per person. Our first question comes from Alexi Yefermov. Your line's now open. Please go ahead.
spk04: Thanks, and good morning, everyone. This is Ryan on for Alexi. My first question would just be kind of around your EBITDA outlook for the year, right? So I understand that you're kind of maintaining the base case or the low case in the $15 per kilo scenario, even though prices currently are, you know, let's say $11 to $12 per kilogram. Is there, you know, the potential that EBITDA could improve if prices were to recover to that $15 per kilogram scenario here in the back half? I mean, you guys talked a lot about improved costs. So just wondering what you think about that.
spk11: So you characterized what we've said.
spk19: So even after we've moved that from 15 to, say, 12 to 15, and then we commented on even at July prices, those hold for the rest of the year, we'll make that forecast. And so, there's a chance it could be higher if prices moved up. There are a number of reasons we're able to hold that forecast. It's around the volumes that we're selling, contract terms, things like that. So, it could move up if prices are stronger. It's not collared, so to speak. So, if Things work in our direction. It could be a number of different things. It could be higher than that.
spk11: But that's the best visibility we have at the moment. Okay. Helpful.
spk04: And then I know it's early, but, you know, just kind of initial expectations on volume growth for maybe 25 and 26, just after these actions that have just been, you know, being taken at Kemerton now. Thanks.
spk11: Yeah, so, okay, you're right. It's early.
spk19: But I think our volume and what we indicated in the beginning of the year, our volume growth shouldn't be significantly different than that. I mean, we are changing some of our – we're taking out conversion capacity, but we still have the resource that should align to that.
spk11: So it's not significantly different than we had indicated at the last call. Our next question comes from Steve Byrne.
spk13: Steve, your line's not open. Please go ahead.
spk20: Yeah, thank you. Kimerton has some more meaningful freight costs than some of your, you know, Chinese conversion, but roughly what is the cash margin for Kimerton to, and where would you put it on the cost curve?
spk11: What quartile?
spk19: Yeah, so I guess, I mean, we've never put any of our assets and given that type cost out there. So it is, I guess it's a combination of, so you're talking about two. So three is really about some of the money that we're spending and growing that. And Kimberton one and two gives us a couple of things. So it's closer to the resource, but it gives us diversity, just geographic diversity. So we would have, chile we would have we have australia one and two help us with that we have china and then we still aspire to have uh conversion in the u.s at some point if prices come back to that so i'm not going to give you what our marginal cost is or our cash cost is at kimberton but that's some of the thinking that that goes into the decisions we've made okay it seems like there's more than just a cost cut it's a supply cut um
spk11: But with respect to the roughly $1 billion... Sure. Go ahead, Ken. No, I was just going to say that it is on conversion. It is capacity cut on conversion. The resource is still available.
spk20: Right. Understood. The billion-dollar charge in 3Q, can you... Put that into buckets, and how much of it is cash?
spk06: Yeah. Hi, Steve. Good morning. This is Neil. So let me answer the second part of your question, and maybe the two kind of go together. So roughly speaking at this time, we've only had a very small group of people working on this, so we'll obviously refine this number quite a bit in the third quarter. But you should think about of that roughly billion-dollar charge we announced today, somewhere at least 60% of that is non-cash. And similarly, you can expect that kind of on that order represents what's already on our balance sheet that we're writing off. And then we'll give you a better assessment when we get to third quarter in terms of how much of the rest of that is actually cash.
spk11: But I'd say at least 60% is non-cash.
spk13: Our next question comes from Patrick Cunningham. Patrick, your line's open.
spk11: Please go ahead. Hi, good morning. Thanks for taking my question.
spk03: I'm maybe just trying to square, you know, the comments last time, you know, cash conversion expectations expected to be well below historical averages versus the strength in the outlook here. You had the $400 to $600 million in headwinds. Was there any improvement in some of those items, whether it's deferral of discrete tax items or other things, some of the working capital ramp for projects? I'm just trying to understand cash drag for the remainder of the year.
spk06: Yeah. Yeah, this is Neil again. So, yeah, thanks for asking that question, because we are, as we said in our considerations in the prepared remarks, we're taking that range now up to a 50 percent conversion, which is towards the high end of our historical range now. And there's I'd say there's two things that I would point to that where we're doing better than expected. The first is from a dividend perspective from our equity companies, that was certainly better than we expected coming into the year. You heard in our prepared remarks and you know about the additional offtake that we saw at Taliesin, so that definitely boosted dividends in the second quarter and helped our cash conversion. And then the other part is, yes, on the working capital side, we are highly focused on it. And we have a lot of initiatives around this. And we're seeing some of those come through already in the first half of the year and are continuing to work on that in the back half of the year. So working capital was another nice tailwind to cash in terms of the release of cash from from that.
spk11: Understood. Very helpful.
spk03: And then just generally on how we should think about 3Q sequentially for energy storage, can you help us triangulate how much lower volumes will be sequentially based on some of this one-time benefit, where we should stand for pricing if we kind of hold at July averages here?
spk11: And then is the remaining sensitivity in your numbers mostly around volume or is there something else?
spk06: Yeah, so I can maybe take the second part of that. We are obviously, from a volume perspective, we're obviously tracking toward the higher end of the 10% to 20% volume growth range that we gave you at the beginning of the year. And I think at this point, for the visibility we have, we're probably going to keep tracking towards the high end of that range. So I wouldn't say our earnings corridor or our outlook considerations are really driven by volume per se. It's really a around the pricing range that we've given you, that kind of $12 to $15 range today.
spk19: Yeah, just the first part of the year was strong from a volume standpoint. And by the upper end of that range, 20%, Neil's saying it's going to be less year-on-year growth in the second half. But that's just because it's so strong in the first half. And we've had a mix of spodumene sales in there as well that's pulled some of that forward.
spk13: Our next question comes from Vincent Andrews. Vincent, your line is now open. Please go ahead.
spk08: Thank you, and good morning, everyone. Last quarter, you had a slide on capital allocation priorities, and it had a couple of things in it I just would like to revisit. One was a commitment to an investment-grade rating. The second was your ultimate long-term net debt to adjusted EBITDA target of less than two and a half times. And then thirdly, the continuation to support and grow the dividend. How are you thinking about those three things as part of the comprehensive review?
spk19: Yeah, I don't think our views changed, right? So that'll, you know, as we go through this, I mean, we'll reiterate that, but I suspect it will stay the same.
spk08: And as a follow-up, could you speak a little bit about the factoring and how that process works for you and how we'll see it, I guess, in the working capital results?
spk06: Yeah, so, Vincent, to your question, that's right. We put in place an AR factoring program. It's an initial program. We'll continue to evaluate that and add to it as we can as we go along. But, you know, essentially that factoring program is currently untapped. We will use it when we need liquidity, if and when we need liquidity. And so basically at that point, that's when you'll see it and we'll talk about it. But at this point, it's an untapped resource available to us.
spk13: Our next question comes from Chris Parkinson. Chris, your line is now open. Please go ahead.
spk11: Hey, good morning. This is Harris Fine. I'm for Chris.
spk15: So, you know, we walked through that the $15 per kilo scenario still holds at $12. I guess how much of that is because of higher talisman shipments and cost improvements? And I guess, like, where would EBITDA be absent those items if we were just isolating the contract component and just kind of trying to get a sense of what that looks like if prices go down to, let's say, $10 per kilo? through the back half of the year?
spk19: Yeah, so we've said at July pricing, it basically holds the same, right? So it's 12 to 15 on the slide, but we've said in the remarks that July pricing, it holds. If July pricing extends throughout the balance of the year, it still holds. So you can work out exactly what that number comes to. And there are a number of pieces that allow us to do that. So it's the The volume mix, it is a little bit of additional volume from Taliesin. It's our contracts. It's a lot of things. It's the cost savings things that we're putting in place. So it's a number of things that go into making that statement true. So it's not one particular thing.
spk06: Yeah, maybe just to add on to that, you know, just a reiteration that those outlook considerations we provided were always a view on the average pricing across the year. And so with the last couple of earnings releases we've given you, you obviously know the sales that we've had in energy storage, and we've given you the volumes that we've sold. So you can look at what our average realized price has been. It's been above $15. dollars for the first half of the year. And so, you can take your whatever lithium price you'd like to in the back half of the year and do the averaging, but that That's why we say when you take July pricing and roll it forward, it falls within that range that we've given you. With regards to Taliesin, I think the best way to answer that is just to go back to what we've said before. We told you that in the second quarter, we expected about a $100 million sequential lift related to the Taliesin offtake, the additional Taliesin offtake, and that's exactly what we saw. So maybe that gives you an idea of how to think about that part of your question.
spk15: Got it. That's helpful. And then for my second question, in slide 12, you show that the global average EV is on track for cross parity with ICE in the next year or two. It'd be nice to hear your take maybe on what you make of some of the recent challenges that Western OEMs are having in making a profitable EV and also the fallout from European tariffs on Chinese EVs, kind of how that
spk19: is playing into your demand outlook okay so the i mean the cost on the the cost curve that you see i think said on slide 12 i mean that that's a curve that we've been that the industry has been looking at for some time that 100 per kilowatt hour has been a benchmark or a tipping point we call it uh that people have been looking for and and we're below that in china today Now, some of that, fair enough, because lithium prices are low, but the majority of it is just on the experience curve, the technology, and the battery technology. So, we think that maintains itself, and then the rest of the world will follow China. They've hit that hurdle. It's not there in the West yet, but we believe that it comes shortly. I don't think I want to comment on the OEMs, cost position. I think a lot of it goes into it, including batteries is a big part of it, but it's the rest of the vehicle as well. But I'm not going to get into comment on auto cost positions. But I think the battery technology is hitting those benchmarks we've been looking for for a long time, and it's only going to get better.
spk13: Our next question comes from David Begleiter. David, your line's not open. Please go ahead.
spk09: Thank you. Good morning. Kent, what does the Kemerton capacity curtailment mean for Wajana production, if anything?
spk19: I don't think it means anything for Wajana production. As we had said, we're taking conversion capacity out, and the resource piece we continue to operate from both Greenbushes and a Wajana standpoint. It's not really related to Kemerton.
spk09: Very good. And just on what's happening in China, how much lapilli production do you think is shut down? And has that number changed at all in the last couple of months here?
spk02: David, this is Eric. Good morning. I would say in the last couple of months it hasn't changed materially. There's some that's come off a bit. I'm going to guess tens of thousands of tons or less. that is related to where we are on the cost, where price is gone. I think Kenton's remarks talk about the considerable pressure that anybody who is, particularly anybody who's not integrated and buying either spodumene or lapelite is under. And in fact, most are operating at a loss if they're not fully integrated inside of China. Um, and so that's a factor. Another thing that happens this time of year is seasonal production of brine starts to ramp up in Western China. And so that's rising to sort of substitute that, that, that, that drop in the petalite. Um, I think overall though, we're seeing rising inventories of, of, of lithium salts. So that is, that is a concern to watch. And obviously the price pressures I talked about. So I think, uh, We'll have to see how the industry responds. Obviously, there's a need for some caution in the market, given where we see demand versus supply.
spk13: Our next question comes from Steven Richardson. Steven, your line is now open. Please go ahead.
spk21: Hi, good morning. I was wondering, Kent, appreciating that the review is ongoing, but I was wondering if you could talk a little bit more about your efforts on defining and lowering your sustaining capital. It seems like from the slide that you put forward on 16 that you're suggesting that sustaining capital is a little bit lower than it was previously and that there's a range here of minimum required capital that's sub a billion. And I guess in an environment where current prices are sustained into 2025? Do you envision corporate capex below a billion dollars next year? Is that a feasible number?
spk19: Yeah, so we are – I mean, look, we're going through this. We'll be cautious around that, right, to see what we can – as we are operating, we're not growing as fast. We're ramping some of these assets, but we have a view of sustaining capital, and we're challenging that. So we're going to push on that. We'll be rigorous about it and not take risk, but we're going to be more aggressive around that than others. It's a big piece. A lot of these assets are still ramping. and they're pretty new. So we've been conservative on our estimates around the sustaining capital. So we're going to dig into that and change our approach a little bit, but we see that as an opportunity.
spk21: Okay. Appreciate that. And maybe just a follow-up, if you did indeed kind of reduce a lot of your growth CapEx and appreciate that you're outperforming growth on the ramping assets this year. Would anybody be willing to hazard a guess as to if you, you know, on this plan, what kind of remaining growth do you think you'd have in the program in 25, just in terms of thinking about, you know, Solar and just the different projects that are out there that are still in flight in terms of growth? Would that be still, you know, is it safe to assume you'd still be growing absolute volumes into 25 just based on those ramps?
spk19: Yeah, no, I think that that's right. And I go back to the comments we've said earlier. So what we had said previously in the call or in the, previous quarters call and around the changes we did in January, we've got a couple of years of growth in the assets that we have on the ground and ramping. So we'll continue to do that at 25 and into 26. But then it starts to, without further investment, we start to maximize on that. And Kemerton doesn't really change that. Again, the resources is there and the investments that we've made in there continue to ramp up. But it's the conversion capacity actually changing Kimberton gives us a little more flexibility on product mix, but it limits us a little bit more.
spk11: We're less diverse geographically around that, and that's the tradeoff we're making.
spk13: Next question comes from Lawrence Alexander. Lawrence, your line is now open. Please go ahead.
spk17: Good morning. Two questions. First, can you just give a sense, not so much about kind of the next round of restructuring, but how you think about the longer-term objective. I mean, if, for example, prices were to just stay at the current range, where would you expect energy storage margins to go over four, five, six years, however long it took for you to right-size? Or how much do you think you can bring down the cost structure? So that's the first one, just how you think about the longer term objectives for the business if market conditions do not improve. And secondly, can you just give a bit of a spotlight comments on sort of the state of play for DLE projects in Latin America? What do you need to see either in terms of partnerships or government support for anything to move forward in current conditions?
spk11: Okay. So, the first one on the restructuring.
spk19: So, our goal is to put the company within the cost structure and the supply chain that we can compete at the pricing that we see today, and if it stays that way long-term. So, that's the hypothetical question you're asking, but that's what we're planning for. And we don't know when prices are going to rebound. We know they're We think a lot of players are operating below cash costs, we think they have to come up, we just don't know when. So, we're going to structure the company to operate and be competitive and profitable in that range. So, what the margin looks like, I'm not going to hazard a guess on that, but we're going to put ourselves in a position to be profitable and being able to compete where prices are today. yeah so that's that first question and the second one dle um and you said in south america i'm going to talk about our view of dle and our projects not so much the industry i mean i don't know i mean we are We're working on DLE. We've got two projects, both going into pilot phase. We've done a lot of work around that for quite some time. One focused on the brines we have at the Smackover Formation at Magnolia in Arkansas in the United States where we process bromine. We can take that stream and process that, so we have a pilot that is in startup at the moment. around that and then we'll do a similar pilot at the salada atacama uh one i think we've said this in the remarks one of the uh technologies is proprietary the other is kind of commercial so we're doing it in a couple different ways but i think the key to the i mean dle is the whole system not just the extraction piece there's a lot of focus on the adsorption or or uh uh solvent extraction, whatever technology you use to actually get the lithium molecule out. But the real art in it is the overall system and the integration and making it operate consistently day in, day out. You can do it in the lab. A lot of people can do it in a lab. You need to be able to do it in the field and do it all the time. And we're doing scaled pilots that will prove that out. And so we'll see. And what do we need from a government standpoint around that? I mean, for us specifically, I don't think we're looking for government necessarily. I mean, funding would help that, but we're moving both of those projects forward. And it's important technology for the industry and for us, for us to really leverage the lowest cost resource in the world, the Florida Atacama, and get growth from that, we'll need DLE. So it is important.
spk11: But we're not waiting on governments to help us fund it or do anything like that. We're moving forward.
spk13: Our next question comes from Kevin McCarthy. Kevin, your line is now open. Please go ahead.
spk10: Thank you, and good morning. Kent, in your prepared remarks, I think you commented that you're seeing an ongoing trend toward carbonate-based batteries. Can you discuss why that's the case and whether that trend is intensifying or not? And does it have any bearing on your decision to idle Kemerton 2?
spk11: Okay, so I'll go at a high level.
spk19: If it gets deeper, Eric will jump in. But, I mean, this is – I mean, it is – carbonate is usually the preferred chemistry for LSP technology, and there's been a shift toward LSP. And I would say that's the preferred technology in China. And because China is on such a growth rate and the West is slowing down a little bit, there's more of a shift, a little bit of a portfolio mix toward carbonate. Now, the West is looking at carbonate or LFP as well. Therefore, our view from a year or two ago, we always expected a mix. It was a little more hydroxide heavy. Now, it's probably carbonate heavy in that view. And then, but that product mix, I mentioned product mix earlier when I was talking about Kimerton, that does play into that. Kimerton is hydroxide, and we can toll that same resource for carbonate if we need to, and that gives us more flexibility. So it was a consideration in our decisions around two and three.
spk10: Thank you for that. And then as a follow-up, what would you need to see specifically to make a decision to restart Kemerton 2? And how quickly might you be able to do that? And is there a meaningful cost to restart?
spk19: Yeah, so there's a cost to put it in care and maintenance, right? And it would be a cost to come back, but I don't know that it's not dramatic. It would be ordinary course, I think, if we brought it back. There's a number of things we have to do. Part of the decision about focusing on train one and not two is to really optimize that asset, get it to work. We've all – we struggled with – workforce in Australia, and we struggle to ramp the two of them together. So we're going to focus on one, ramp that up, and make that really operate, really understand the technology and process. And we think we can bring it back faster and more efficiently to train two when the conditions make that right. So we've got to do a few things before we would do that, which get the plant to operate, really understand the technology and the process chemistry that's unique to Kimmerton, And then we can bring that to train too. It will be, but we'll need the market to improve before we do that. And then there would be a timeframe in order to bring it back. So it's not going to turn on on a dime, but we'll plan for that. And it's not dramatic from a cap, not big from a capital standpoint, but there would be costs to bring it back on. And we'd have to bring people back on to do that as well.
spk13: Our next question comes from Colin Rush. Colin, your line is now open. Please go ahead.
spk05: Thanks so much, guys. As you're working through enforcing these contracts, can you talk about some of the dynamics with the customers and any sort of compromises that you might be making, adjustments? Historically, you kind of enforced some pricing and you reallocated volumes. Just want to get a sense of how those dynamics are playing out.
spk02: Yes. Good morning, Colin. It's Eric. As you point out, it's obvious with where market pricing is going. It is a discussion certainly around helping our customers remain competitive through this period of time, while at the same time respecting the contracts we have and the thresholds that we have there in order to continue to invest on their behalf. I would tell you that all of these contracts are performing to date, and it's our expectation that we'll continue to do so, and we'll keep working with our customers. There are things we can do in terms of source. Some of these contracts have a little bit of flexibility, and we can work around spodumene supply versus salt supply. We can look at sourcing points that are different. That helps them with their supply chains while at the same time respecting the core fundamentals of our contracts. So that's basically the nature of the discussions today.
spk05: Thanks so much. And then just a little bit more on the technology side, as we see more silicon-based anodes, whether it's increased levels of doping or silicon anodes completely, the challenge of lithiation is pretty substantial. Can you talk a little bit about how much leverage you're getting out of the R&D Center and helping folks figure out process and approaches to that lithiation challenge?
spk02: Well, this remains an area of focus for our growth. And we talk about some of the advanced materials that are lithium-based, looking at pre-lithiation materials that will support the adoption of silicone anodes or silicone-doped anodes, as you point out, for higher capacity batteries that can lend themselves, obviously, to longer battery life or range. And furthermore, there's sort of the next journey, the step on that journey is moving towards a lithium metal anode as well, but that's a solid state or even a liquid electrolyte used with that lithium metal anode. So these are areas of growth. These areas we see, frankly, having a faster adoption in technologies outside of electric vehicles where there's a smaller format battery and perhaps less risk involved in the customer base as a first step. On the one hand, on the other hand, if you speak to some of the more progressive vehicle producers, OEMs who are looking at future technologies, there's a lot of investment they're doing in this area as well. So it's part and parcel of the overall partnership we have with customers. I mean, it's the reason that, relative to the earlier question, maintaining a contract relationship and supporting OEMs us when prices are low and we support them throughout the cycle as well is we've got to respect and have strong contract relationships because they're more than just supply.
spk11: They deal with things like technology as well that you're pointing out.
spk13: Our next question comes from David Deckelbaum. David, your line is now open. Please go ahead.
spk07: Thanks for the time today and for taking my questions. Maybe for Neil, I just wanted to understand, I think the remarks with the Kemerton move, it saves $200 to $300 million over the next 18 months or so. Can you talk about that in the context of where you expect next year's CapEx to be and more just is a billion dollars of sustaining CapEx, is that a reasonable target for what you could get to next year or still have to take sort of a multi-year progression?
spk06: Yeah, I think I'm going to answer this probably very similar to the way that Kent did. So, obviously, as we look at CapEx into 2025 and 2026, this decision that we're sharing today around Kemerton will absolutely factor into lowering our CapEx in those out years. And we've always talked about our focus on doing that in this environment. Just as Kent mentioned to an earlier question, we're working through that with our teams right now. And obviously, we understand what the current environment looks like and that we need to spend a lot of hard time looking at our CapEx spending and where we can bring that down and how we can bring that down as quickly as possible without taking risks. you know, unnecessary risk. So I would just say, like, we're working on that equation now, and we'll have more to share, I think, in the next couple of quarters.
spk07: I appreciate that. And then my follow-up is just on going forward now with CGP3 ramping at Greenbushes and volumes growing there. On the back ends now with Kemerton having less capacity and Is the commercial profile going forward just all going to be reliant on tolling, or do you have flexibility to sell spodum and concentrate into the market? And will you be able to satisfy all of your customer contracts through tolling alone?
spk19: Well, it's not – well, not just totally. So we've got a network of conversion assets today. And so Meishan is up and operating and ramping as we speak. And we've got first sales from Meishan in this quarter. And as we said ahead of schedule, we have multiple other facilities in China that we own and operate for conversion. So Kimberton is a portion of it, of our – hard rock conversion assets. And it will be a blend. We will use some tolling to supplement our conversion assets. But we have significant conversion assets. And the Kimmerton 3 and 4 is just a portion of it. And again, we'll have one operating and two to bring on after that. So it's it's still a significant portfolio of conversion assets that we have. And then we don't want to forget about the carbonate that we bring from Chile as well. So it's a pretty good portfolio of conversion assets. And I would say this is a tweak, not like a big wholesale change in that network with the change at Kimerton.
spk13: Our last question comes from John Roberts. John, your line is now open. Please go ahead.
spk12: Thanks. And who would have thought that Ketchum would be the good performing business here in the portfolio? I'll ask the question on the specialties business. Is some of the weakness in specialties temporary channel destocking or had your channels already destocked like many others have and the weakness you're seeing actually is reflective of the end market weakness?
spk11: Yeah, John, this is Netha.
spk16: We are seeing some in-market weakness. And rather than weakness, maybe not as quick as a recovery as we expected. It's particularly in electronics. You know, we did have vine growth of 9%, but price declined. And if you look at the spot price, which is our only public spot price we have on the market, in Q1, the Chinese bromine spot price was $3.11 per metric ton, and in Q2, it was $2.86 per metric ton, and that explains the pricing. But we are seeing green shoots, and we are seeing that electronics recovery come, continuing strength in oil and gas, pharma and ag. And we expect to see that growth continue, maybe a little slower than what we thought, but throughout the rest of the year and sequential growth in our financials as a result of that.
spk11: That's all the time we have for questions. I will now pass it back to Kent Masters for closing remarks. Okay, thank you.
spk19: And thank you all for joining us today. We continue to adapt and move Albemarle forward to better position ourselves in the current market environment, enhance our company's profitable organic growth trajectory, and create long-term value for shareholders. I remain confident in the long-term secular growth opportunities in our end market and that we are taking the right steps to position Albemarle for value creation.
spk11: Thank you.
spk13: This concludes today's conference call. Thank you for your participation. You may now disconnect.
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