雅保公司 (ALB) 2010 Q3 法說會逐字稿

Good day ladies and gentlemen and welcome to the third quarter 2010 Albemarle Corporation earnings conference call. (Operator Instructions) As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to your host for today, Ms Sandra Rodriguez, Vice President Investor Relations and Communications. Please proceed, Ms. Rodriguez.

Thanks, Jeff. Good morning everyone and thank you for joining us today for a review of Albemarle's third quarter results, which were released after the market closed yesterday. Our press release contains preliminary results for the quarter, that are subject to further review by the Company and our Auditors, as part of our quarter end review process. Please note that we have posted our earnings presentation, as well as non-GAAP reconciliations, on our website under the Investor Relations section at www.albemarle.com.

As with every conference call, I must caution that remarks today contain forward-looking statements. Factors that could cause results to differ from expectations are listed in our Annual Report on Form 10-K. Joining me today are, Mark Rohr, Chairman and Chief Executive Officer, Luke Kissam, President, John Steitz, Chief Operating Officer, and Richard Fishman, Interim Chief Financial Officer. At this time I'll turn the call over to Mark.

Thank you, Sandra and good morning everyone. I appreciate you joining us today for the third quarter 2010 call and look forward to your questions in a few minutes. I would like to begin with comments on some of our recent initiatives, before sharing highlights on the quarter. John will follow with some specifics about performance in each segment. And we'll also highlight a few key trends for you. Luke will then give a brief update on the Company's strategic efforts before I wrap up with our views on next quarter and next year.

Building on our unique position at Polyolefin Catalysts, we recently announced our intention to build a research and development and manufacturing facility in South Korea, to position the Company to capitalize on the material growth opportunities in Asia. R&D lab and pilot plan assets are nearing completion, allowing our team to quickly provide catalyst samples for qualification trials with local customers. We're very excited about this first investment in South Korea. We also recently introduced a new Polymer Chain Extender, ETHACURE 90, which greatly improves the processing capability of our polyurea and polyurethane spray coating systems in applications such as truck bed liners and industrial coatings for concrete and steel. We see great prospects for this proprietary product and supportive infrastructure spending around the globe.

Those of you who know us realize that Bromine has been part of Albemarle's business for nearly 25 years. Demand for this element remains strong and global supplies have shrunk, creating a very tight market. To help manage this situation, we're working daily with customers to see if their needs are met, while aggressively moving to de-bottleneck our facilities at Arkansas and Jordan. We'll complete the Arkansas additions by year-end and we expect to complete the Jordan addition by the second quarter of 2011. Beyond 2011, we have Bromine reserves that can be brought on line as needed.

Raw materials and energy spending were up approximately $15 million in the quarter, compared to a year ago. And we expect our full year spend to be roughly $67 million, up over 2009. There are clear signs of inflation showing in the Petrochemicals chain, as well as with Select Specialties. And they're working their way into the market. Recently there's been a lot of news about rare earth elements, which are one of the key raw materials used in advanced FCC Catalysts. China controls nearly 95% of the production of rare earth elements. In July, the Chinese government cut export quotas on rare earths by 72%, for the second half of the year. Capping shipments at roughly 8,000 metric tons, down from 28,000 tonnes for the same period a year-ago. As a result of these actions, rare earth prices have increased by more than five times, in the second half of this year. Our purchasing team has been able to secure quantities needed to meet our production requirements, albeit at materially higher prices. To help offset these headwinds, we've initiated cost pass-through's across our FCC product lines. These additional costs are being accepted in the market place, helping us sustain FCC margins.

Now moving to our quarterly results. I'm very pleased to report that Albemarle achieved record earnings of $1.02 per share, a year over year increase of 79%. Operating profit of $121 million nearly doubled and net income improved by roughly 80%. Net sales for the quarter of $585 million were up 14%, compared to third quarter 2009, primarily driven by volume improvement of 11% and pricing of roughly 5%, partially offset by unfavorable foreign exchange impacts. Consolidated gross margins for the quarter improved 760 basis points year-over-year to 34%. And EBITDA margins were up nearly 900 basis points year over year to 26%. Further improvements in liquidity were supported by strong cash flows from operations, unit cash and equivalents of $425 million at September 30 and record EBITDA for the quarter of $151 million.

Polymer Solutions posted exceptional results again this quarter, delivering record segment income for the third consecutive period, on strong volumes and pricing. Net sales increased 18% year-over-year to $232 million. Segment income for the quarter was $58.5 million, a 125% increase from where we were a year-ago and a 24% sequential increase. Segment margins for the quarter were 25%, compared to 13% a year-ago, a vast improvement of 1,200 basis points.

Fine Chemistry's solid performance in the quarter results in net sales $138 million, up 7% from the third quarter of 2009. Segment income improved 16% year-over-year to $16.5 million, driven primarily by strong volume and pricing in our Performance Chemicals Division. Despite persistent weakness in clear brines, our Bromine production rates continue to be at maximum levels, to satisfy the demand for this product and the Bromine derivatives.

Our Catalyst business delivered outstanding results in the third quarter. Net sales for the quarter totaled $214.8 million, up 14% from the third quarter of 2009. Catalyst reported its third consecutive quarter of record segment income of $69 million on margins of 32%. These results were driven by a combination of higher volumes, improved pricing, and higher production rates across our Polyolefin Refinery Catalyst portfolios.

I expect you can appreciate how proud we are of these results. It's a reflection of the strength of our technology and developing unique products and services that drive value for our customers. The results were not easy to achieve, however, we are confident that our performance this quarter is indicative of the ongoing earnings potential of Albemarle. In a few minutes, I'll comment on our business views looking forward. Let me first turn it to John Steitz, to provide more details on the performance details of each business segment.

Thanks, Mark and good morning everyone. Again this quarter, we saw strong year-over-year volume and profit growth, across all three segments. We see positive trends in the end markets we serve and our order book looks good, as we close out the year. We expect those trends to continue and have positioned each of our businesses for growth in 2011. With that said, I'll go over each segment's performance.

Starting with Fine Chemistry. Increased volumes and better asset utilizations drove top and bottom line double-digit improvements in Fine Chemistry, compared to last year. We posted segment income margins of 12% for the quarter. Year to date, Fine Chemistry margins are up over 300 basis points, compared to the same period last year. As expected, our Bromine production rates were near maximum levels in the quarter, as demand for our derivatives remains steady. Momentum carrying into the fourth quarter is stronger than we had earlier anticipated. It's still early to tell the extent of normal year-end contractions, but our current view is showing trends similar to the fourth quarter of last year. The added capacity from our de-bottlenecking actions in Arkansas and Jordan will help satisfy demand growth expected in 2011. Our pricing initiatives in Bromine have been successful and are capable of offsetting current and potential future cost increases. Average global Bromine prices are reaching record levels, reflecting the value and use across a growing range of new applications.

Recent developments in our mercury control markets are very encouraging. And we're positioned to provide these markets with sensible, sustainable solutions to meet new regulatory demands. In China, it was announced by the Ministry of Environmental Protection that China should integrate prevention and control of mercury emissions of coal fueled power plants into their 12th five-year plan. This would initially include the larger power corporations carrying out trials on mercury reduction in their coal-fired power plants in Beijing. Albemarle expects to participate in some of these trials, as early as next year. Additionally in the United States, we're working with Portland cement producers to provide our concrete-friendly sorbent solution, C-PAC, a waste reducing solution for the new cement MACT mercury emissions standard. We're excited about these opportunities to further expand our Bromine offerings.

There's also positive news impacting our completion fluids business, which has been drastically down in the Gulf of Mexico. Last Tuesday, the Administration lifted the six-month moratorium on deepwater drilling in the Gulf of Mexico, that was imposed after the oil spill. While we're seeing volumes steadily improve outside of North America, we anticipate our completion fluids business in the Gulf of Mexico to slowly gain traction, as deep water drilling resumes.

Our Life Science businesses continue to deliver solid results . And we expect those trends to continue as product development opportunities accelerate. You may have seen last week the US Department of Health and Human Services awarded SIGA Technologies a contract establishing a supply chain for their critical smallpox drug. As previously announced, Albemarle was selected by SIGA to manufacturer the active pharmaceutical ingredient for their ST-246. Our past experience, reliability and overall CG&P manufacturing capabilities best position Albemarle to partner with SIGA to meet their ST-246 API requirements to fulfill the obligations of the stockpile contract with BARDA, or the Department of Defense.

Moving on to Polymer Solutions, we saw strong profit growth in flame retardants and in stabilizers and curatives this quarter. Full brominated and mineral flame retardant volumes increased year-over-year and earnings of those businesses more than doubled. The steady positive trends we've seen in electronics over the past six quarters, were not only from recovering demand but also from a broadening demand, especially from expanding economies in Asia. IPC's latest printed circuit board book to bill ratio stands at 1.07, as of August. A positive indicator for the next three to six months. From our vantage point, we see Bromine derivatives supply remaining tight, as global demand for electronics remains healthy, particularly in emerging markets. Our pricing initiatives implemented across the chain earlier this year are expected to offset higher raw material costs and help strengthen our global Bromine derivatives franchise. Similar trends in our stabilizers and curatives business drove the division to record profits in the third quarter and generated above segment average margins in some product lines. This success was complemented by our ongoing participation in China's high speed rail project.

Moving on to Catalysts. Our Polyolefin Catalysts business posted very good results in the quarter, with strong volume and revenue improvements compared to the same period in 2009. Improved production rates, strong volumes and favorable sales mix drove Polyolefins profitability up significantly over the third quarter of last year. We're very excited about the growth prospects for this business, especially in Asia and the Middle East. Over the next three to four years, we expect strong growth in this sector, as we position our leading single side Metallocene business in the center of the world's fastest growing Polyolefins market.

Our Refinery Catalysts business delivered solid results this quarter, posting nice sequential and year-over-year top and bottom line gains. FCC had a good quarter with volumes improving, as global fuel demand increases. The DOT's latest traffic volume trends show an increase in miles driven, a positive indicator for this segment. With the FCC market returning to more healthy levels, we're working hard to achieve pass through of critical rare earth cost increases, consistently around the globe.

Good results in our HPC business, as global refining utilization rates steadily increase and refining crack spreads are slightly improved, mainly outside of the US. Our teams continue working closely with Refiners, providing unique catalyst solutions that address performance, demand and cost sensitivity. Growing global opportunities position our Refinery Catalysts well, as we close out the year and head into what is expected to be a stronger 2011. We're seeing the beginning of what we believe to be a deteriorating and more unpredictable quality of crude. As oil consumption increases globally, the supply squeeze may result in a more robust HPC market, driven by a more sour and heavy crude slate. With that, I'll turn it over to

Thanks, John, and good morning everyone. In July we talked about the momentum that we saw in the first half of 2010. Our third quarter results demonstrate how we're expanding on that momentum and making considerable progress on many fronts in restructuring our organization for continued cost performance, while retaining the agility and innovation that has driven our success.

At our Investor Day in 2009, we talked to you about a strategic restructuring that we were embarking upon. It was based upon a total review of our existing business strategies, a fresh look at growth opportunities in each sector and an assessment of the asset base needed to implement those strategies and capture that growth. Step One was our Plan C initiatives to reduce our fixed costs by $160 million from what they were in 2008. As a part of that effort, we divested underperforming assets such as our Port de Bouc, France and Teesport, UK facilities. Improved the efficiency of transactional process by, utilizing lean manufacturing concepts. Opened a shared service center in Budapest, Hungary. And implemented an organizational restructuring of people across all of our European and US sites. While our business team strategies are driving top line volume and pricing gains, these efforts are also contributing to our bottom line. Our restructuring actions in Europe are progressing as planned, and we continue to add more services to our Budapest service center. In short, we're on track to achieve our $160 million goal, by the end of 2010.

In Step Two of our strategic restructuring, we focused on expanding our global footprint. We've previously talked about our TEA joint venture with SABIC and Mark talked earlier about our investment in Polyolefin Catalysts in South Korea. I'm happy to announce that our R&D facility and pilot plant at our Korean site are operational. And, just yesterday, we broke ground on a commercial production unit at that site. We expect to continue moving more aggressively into emerging markets going forward.

Over the last few months, we've started an earnest review of our corporate strategy to identify our road map of future growth. Utilizing the work that put us where we are today as a foundation, we're focusing on our core capabilities on what we believe are our greatest competitive advantages and identifying opportunities, that allow us to exploit those capabilities in a way that offers the highest return and maximizes our enterprise value. We're talking to customers and partners, reviewing our successes and failures and analyzing how we stack up against our competitors in the various markets in which we participate. The goal is to have a clear definition of our core capabilities, and a road map for us to use, to realize the full potential of our core, be it through organic growth, expanding our existing technologies into adjacent markets, in which we don't currently participate, or through external opportunities. At our next Investor Day in 2011, we expect to share this work and our corporate strategy with you.

I'm pleased with our overall performance and the progress our organization has made to deliver record earnings, for the past three quarters. Through judicious cost management and sound strategies, we positioned Albemarle to benefit if conditions improved. And we continue to invest and focus on growth, new products, new markets and new applications. We have a clear line of sight for the work that remains to close out this year on track and to position us for continued growth. With that, I'll turn it back over to Mark to wrap up.

Great, thanks Luke. With us today is Richard Fishman, who many of you know has been our Vice President, Treasurer and Chief Tax Counsel. Richard is serving as Interim CFO and I've asked Richard to help me answer questions you may have on our financial results, in just a few minutes.

Our effective tax rate for the quarter is 24.1%. As it stands now, we expect the full year effective tax rate to end at about the same level. US profitability has improved significantly this year, having the effect of pushing us to our expected overall full year tax rate, an increase of roughly 11 percentage points, including specials. Unallocated corporate expense in Q3 was $17 million, in line with our quarterly average for this year. Total year corporate expense is expected to be at the higher end of the $65 million to $70 million range of our 2010 guidance. We generated record EBITDA for the third consecutive quarter, topping $150 million and handily beat last quarter's record of $136 million by over 10%. CapEx for the quarter was $16 million. We expect full year CapEx of roughly $90 million, down marginally from our prior forecasts. Depreciation and amortization in Q3 was $23 million and is on pace with our full year expectation to be near $100 million.

Including the $41 million of debt at JBC, our Jordan joint venture, our quarter end consolidated debt was approximately $766 million, down $28 million from the last quarter and $47 million year-to-date. $397 million of our debt is floating and $369 million is fixed, roughly a 52/48 split. Our weighted average floating rate in September was 1.2%. Our weighted average interest rate for Q3 was slightly below 3%.

Cash flow from operations was $142 million in the quarter. Net working capital increased by $68 million from year-end, due mainly to the business upturn we've seen. Our past due balances continue to be very well managed and controlled. And we've continued to stay focused on inventory management. We ended the quarter with $425 million of cash and equivalents and net debt of $317 million, excluding the $24 million of non-guaranteed debt from JBC Joint Venture. Our debt to cap ratio was 34.9% and our net debt to cap ratio was 19%. Both are down considerably versus the prior quarter, due to debt reduction and strong cash generation.

Looking forward, we do see signs of a moderate seasonal downturn in the fourth quarter. Nonetheless, we expect to end the year strong. While it is too early to provide specifics for 2011, the same fundamentals that have driven our performance in 2010 seem to remain firmly in place. Demand looks robust in Asia and other emerging economies, more than offsetting slow recoveries in the US and Europe. Customer demands for products that help compete -- help them compete and address unique challenges they face have never been stronger, which plays well to our strength. The global fuel demand is once again increasing. And we expect to be able to maintain our margins, through our pricing initiatives, offsetting inflation and rising raw material costs. We also expect new business to drive top and bottom line performance next year.

This quarter is the fourth consecutive quarter of year over year growth and the third consecutive quarter of record performance in Catalysts and Polymer Solutions. The ability of our team to execute and secure opportunities remains in place. And I feel confident we will continue to demonstrate the strong performance expected by our shareholders. With that, I will hand it back over to Sandra.

Thanks, Mark. We would like to open it up for the questions now.

Absolutely. (Operator Instructions) Looks like our first question comes from the line of David Begleiter with Deutsche Bank. Please proceed, sir.

Thank you. Good morning.

Good morning, David.

Mark, can you help quantify the impact of rare earths on FCC margins and profitability in Q4, and perhaps 2011?

Well David, we have worked hard to, with our customers, to see they understand the situation in rare earths. We have worked hard to secure the volumes and materials we need to meet our customers' needs. To be honest, we've lived through this without any disruption to our customers. The margins have not been impacted by this because of the work we've done with our customers, as John noted earlier. And so we've not seen an impact with it. It could have been a pretty tough impact. But we've not seen it.

As we look in 2011, our view is that this is a temporary situation. We see signs that China's going to work their way out of this. We also have activities in the US underway, as you know, and other parts of the world, to provide new sources of rare earths. So, I think we've got it under control, David, and I wouldn't expect it's going to disrupt our business model going forward.

Very good, and just on bromine, next year, given the tightness globally, any reason we wouldn't see another substantial price increase in bromine and the derivatives in 2011?

John, do you want to answer that?

Hey David, John Steitz, and look, first, we're doing what we can to de-bottleneck our plans to make sure we take care of our customers. Bromine is very tight, and I think it offers tremendous value, and we'll continue to drive that value as, as the market opportunities are presented. I would say, I think we're beginning to see a lot higher levels of inflationary trends, and we're seeing some indications of higher prices on some of the derivative raw materials, like BPA is at record levels today. Benzene is heading up and some of the, believe it or not, the derivatives of natural gas, ethane, ethylene we're seeing heading back up too. So, we've got to work hard to stay ahead of that curve as well.

Just last, John. How much capacity are you adding? And what's your bromine? And what's your capacity plan post 2011?

It's in the mid-double-digit range in terms of volume, David, but we've been running very tight, and I think the important point there is in some of the derivatives, we're seeing some really great opportunities to continue to broaden the use of bromine in a wide range of markets. We're getting very excited about that. So we wanted to stay ahead of the supply curve if, if we can.

Thank you very much.

You're welcome.

Our next question comes from the line of Jeff Zekauskas with JPMorgan. Please proceed, sir.

Good morning, Jeff.

Hi good morning, this is actually Olga Guteneva sitting here for Jeff. How are you?

We're good.

Good, quick question on Catalyst. So, year-over-year pricing was not as strong, just less than, I don't know, a little bit higher than flat, so what was the sequential price change in Catalyst?

Well, most of the sequential pricing in Catalyst is related to just metals changes, but HPC was, was overall up a little bit year-over-year, just down a hair sequentially in price. FCC was flat. We got a little bit of help on polyolefin catalysts on pricing. But this is mostly mix related in Catalyst, Olga.

This is the second quarter of very high margins, and I think last time you said that this is probably not really sustainable, but you did it again, so should we think about this level of margins as sustainable going forward? For Catalyst?

Well, I think we've been very clear, Olga that our intention is to operate at this level of performance, but you need to appreciate that as John has noted and Luke has noted, there is seasonality in these products, there's fluctuations, there's mix, each product doesn't get the same net back. So, you can see some hunting around these levels, but we think that this kind of level of performance is achievable and sustainable over a long period of time.

You're not going back to 16% or 15% you had in the prior year?

No we're definitely not going back that far, but we've worked hard to position this as a mid- to high 20s percent average margin kind of business, and we're a little higher than that right now, but that's --each quarter's a bit different. But you should appreciate that the numbers we put out there of the margin and what we expect to do at that level that we communicated in April is what we should be able to do over a long period of time.

Okay. And then, quickly, on bromine prices, so you basically had two price increases back in April, if I remember correctly, and another one in November. So, how far are you in terms of price realization?

Well, in the, in the bromine chain, Olga, we've achieved 100% of the first one, we're working as we speak on, on achieving the second one we announced about a month or so ago. We're seeing a lot of market acceptance to that. And again, supply dynamics, supply and demand dynamics are very tight right now, especially out of, out of China. So, this also transcends into a lot of our bromine derivative pricing, and we're having a lot of success on that side of the coin as well.

Okay. Great, thank you.

Our next question comes from the line of Kevin McCarthy with Banc of America Securities. Please proceed.

Yes, good morning. Mark, I was wondering if you could update us on your priorities for excess cash as well as free cash flow generation. Your net debt at this point is less than half what it was in mid 2009 for example.

Two comments on that. I think we, we've been solvent like with our uses, historically, of cash, Kevin. Starting with R&D, we have a lot of initiatives underway in R&D, and we were pretty flat year-over-year in R&D. We see opportunities to increase that and that activity is underway both -- well, primarily in polymers, with perhaps some even in Catalyst. We're expanding, as you know, our R&D facilities in Asia, that both Luke and John talked about. And of course there's more cash that will go into that. We're building new plants, and you can see that there's, I think from our tone, there's opportunities to do more there, and those opportunities are in every area for us. So, so you should expect in our CapEx budget, as we enter 2011, is going to be higher than it has been historically, if you take it to the hundred million kind of run rate, last several years, I can easily see a scenario based on what we've already committed to would be 150 next year. We may even drift that higher as we really get into some of these unique opportunities that are before us.

The last comment I'll mention is that we, we remain very aggressive on the acquisition front. We have several opportunities we're working to date, and you never know if those are going to materialize, but I hope that we have an opportunity to build on our platform through acquisitions. So, you could expect, as we've done in the past, we'll continue to be active there and spending some money there, I expect, in the future.

Okay, great and then secondly, if I may, I wanted to follow up on, on managing the rare earths costs and FCC. Can you comment on what proportion of your FCC contracts would have allowed you to pass through lanthanum costs automatically earlier this year? Kind of where you stand today, and where you might be entering 2011?

Yes, thanks, Kevin. This is John. Let me just give you some insights of ours, some additional insights on rare earths, just building on Mark's earlier comments. Just to put it into context, the Catalyst portion of the total rare earth market is about 2% of the total. So, we're really kind of the tail of the dog here. And then if you look at the FCC product line itself, it's very low single-digits. These volumetrically, these are about, on average, about 2% of the product line, they range from zero, none at all, to higher levels than that. Depending on what the refiner is trying to achieve in their given refinery. And then, so you have technology offerings that can mitigate that as well in terms of, depending on what the refiner's trying to do.

I would like to reiterate, first the availability issue, as Mark said, is not an issue here, especially considering we're such a small part of the market. So, it really comes down to, as your question highlights, is the importance of getting this price passed through, through surcharges. The majority of our contracts, because this isn't the first time we've seen dramatic rare earth inflation. It started on a pretty significant level about four or five years ago. That highlighted some concerns of ours. So, as you point out, we built in rare earth pass-throughs in a large part of our contracts, close to 2/3 of those contracts.

But to put it into context, it's a pretty significant issue to be dealt with, and these products have gone from $5,000 a ton to $40,000 a ton, and to get that, those quantities, we have got to pay that level. So, if you look at $35,000 a ton increase of 2%, that's about $700 a ton, which is, at our price level, about two per, 2% is about a 20% increase. But what we've found is, the customers are receptive and understand this issue, they're concerned, I'd say more about availability, which we have been able to satisfy, rather than, more so than the price issues. So, there were lags built in, but this was a relatively minor issue in the third quarter, but is growing in intensity through the fourth quarter and into the turn of next year. So, we're paying very close attention to inventories to make sure we're buying what the customer needs and wants, and is willing to pay for.

John, have you seen good realizations on the 10% FCC catalyst price increase that you had proposed for the first of October?

Kevin, we're working -- we had announced that with immediate effect, but the fact is with contracts and with a lot of ongoing negotiations going on, that is in play now. And we're looking, really to have that fully implemented around the first of the year, but we'll just have to keep you tuned in on that. We're working hard on the rare earth issue, because that has gained so much in intensity, compared to when we made that price increase announcement. So the rare earth is kind of trumping the overall pricing, net pricing issue right now.

Understood, very helpful color, thanks very much.

You're welcome

Our next question comes from the line of Mike Sison with KeyBanc Capital Markets. Please proceed.

Hey guys, great quarter.

Thank you, Mike.

John, in terms of polymer additives, the 8% increase in selling prices, is that mostly bromine going up, or is that the, will bromine price increases come more down the road?

Yes, thanks Mike. We're getting -- there's two aspects I'd like to use in addressing your question. This is Bromine plus the mineral. And mineral flame retardants are also extremely tight right now. We're doing what we can to get our production levels up to meet the demand, and that pricing is gaining traction now. It has to. The profitability of that business has been very weak. over the last couple years, so this is an opportunity to get to some level of reinvestment economics. And so we're working hard on that. So, it's part of that. We've gained sequentially in the 5% to 10% range, and we believe we'll achieve, at a minimum, that level going forward.

On bromine, it's a little higher than that sequentially, and I believe right now, we can get another 8% to 10% in the fourth quarter. So, the bigger issue there is what I see in terms of volume correction in the fourth quarter. And I, I think we'll see something across the entire polymers business in the 5% to 10% range in terms of a sequential volume correction, but I think that would overall be a good thing, because we don't see the end markets weakening much. This would more be a customer inventory or destocking level. That would allow to us get 2011 off to a good start too. So I look at that in a favorable light.

Got it. Then in terms of Catalyst, you strung on two very impressive quarters here. Did, did you take a little bit away from the fourth in either three of the businesses? Or was it pretty clean, and the outlook for Catalyst continues to look pretty good next couple quarters?

Mike, this is Mark. No, the quarter's real clean, and, as have been the last three quarters for us. It's been real clean, real crisp. So, to answer your question, no, but there is a little bit of hunt that always goes on in these products, and I think what John's, what we're trying to communicate, is that you can expect to see a little bit of moderation of this rocket ship growth that we've had, but the first quarter looks really good, and next year looks really good for us. So I think the trend is going to be solid, although it may moderate a bit in this fourth quarter.

Great. Just one last quick question, it seems like the hot item these days in consumer electronics are these iPads and other tablets that are going to be rolled out by other players. Is the brominate flame retardant used in those?

No, Mike, but I would tell you, I kind of look those products use some very advanced materials, which is why they cost anywhere from $400 to $700 a piece. So if you look at it on a per ounce basis, an iPad, iPod, those are very expensive items, and that really isn't the market we play in, we really play in helping, for example, television producers drive down their costs to produce, using various resins, so they can offer an LCD TV for the same price you'd buy an iPad for. So, that's, that's kind of our game there.

Got it, thank you.

You're welcome

Our next question comes from the line of Steve Schwartz with First Analysis. Please proceed, sir.

Good morning, everyone. Sequentially, sales declined in all three segments. And that is, from my model, not typical, so could you comment on whether or not you maybe saw some restocking in the second quarter, and then Mark, if you could just perhaps quantify what you consider the typical seasonal decline going into the fourth quarter?

Yes, Steve, let me ask John to make some comments on it first, then I'll take it second.

Steve, what we're looking at, I think we're anticipating something on polymers, volumetrically in the 5% to 10% range in the fourth quarter. I think that would be somewhat typical, but again, we are not seeing any kind of secular demand drop across our customer-base there. So I think that could help us get off to a good start in the first quarter of 2011. But with that, there were a few unique issues why we didn't see sequential revenue growth, and one we've taken steps on to de-bottleneck our plants, and we went into the quarter with some pretty low levels of inventory. And so we've got to continue to meet that customer demand, and we fell short of that in a couple of product lines. But with that said, we still see that volumetric decline in the fourth quarter in polymers.

In Catalyst, it was a strong, very strong second quarter, and I'd think it was a great achievement to mirror that again in the third quarter. In Fine Chemistry, we had, I think, some unique issues as well, sequentially. The Ag markets kind of surprised us a bit. The drought in a lot of farm lands created a lot of our customer base to ease up on their inventory levels, and that was probably a $0.03 issue for us. And then the clear brines markets were no help as, I think, we described earlier.

Okay, and John, are you still expecting the customer, I think in the first quarter, an Ag customer had destocked inventory. You thought that they would come back in the fourth quarter, and that would provide a boost for you. Do you still expect that to come then?

Well, you know, I don't think that's going to be much help to us in the fourth quarter. But we had earlier talked about a goal of achieving margins in Fine Chemistry, approaching 15%, in the fourth quarter this year. I believe we're going to do that, and we're seeing good trends there across the bromine chain in the fourth quarter, and our new products portfolio in Fine Chemistry continues to do well. We're off to a better start on clear brines. With that said, we're really focusing on getting, having another really solid year in our Fine Chemistry business in 2011. We see a new product, we've talked about a real specialty customized glue product that we happened to make in Fine Chemistry. Those volumes are doubling next year. Our SIGA opportunity, once some technicalities are worked through for them, I think will result in some uptick in our revenues for next year. We're excited about that. It fills a real need, that the country has to have. So, overall we're feeling really strong about Fine Chemistry into 2011.

Okay, you're good. Thank you.

If I can summarize that, Steve, just real quick. If you roll all that together, that stuff together, I'm going to roughly call it seasonality, but there's a whole bunch of things associated with it. I think the net impact is probably down between 10% to 15%. If you put in 15% number, that's the right, that's the right kind of range that we see, and there's a whole bunch of pluses and minuses that roll in relative to that. That's what I would say from a seasonality point of view.

10% to 15%. Okay, thank you, Mark

Our next question comes from the line of P.J. Juvekar with Citigroup. Please proceed, sir.

Yes. Hi, good morning.

Good morning, P.J.

I missed part of your call, so you may have answered this, but I want to go back to bromine. Prices shot up in China, they have tripled in China. How high can they go in China, and is there any demand destruction associated with that?

P.J., it is a real -- you know this so well, but bromine as itself, is not really sold. So elemental bromine sales, which is what you are tracking, is maybe 10% of the global kind of bromine movement, right. When you see bromine go up and down, what that really means is there's no availability, and so, the producers that would take that and upgrade that, are struggling to do it and make any money. That's reflected back in what John and his team are doing in terms of driving this business. Because they're the real, along with a few others, are the real players in this industry.

How high can it go, it's an interesting question. I always thought it was more like iodine than anything else. If you believe my analogy, it's got four or five times to go, but I think I make everybody a little nervous when I say that. It's a pretty rare element. We'll see where this market goes over time. We're just working hard to make sure our customers are satisfied. We are bringing value to them, that's worked for us in the past, I think it'll work going forward.

Can you just explain or clear for us, how much capacity got shut down in China over the last, let's say, 18 months?

I'm going to put some numbers out, and these are always continually updated, and John, just hop in here if you have a more current view on that, but we think the production out of China is down maybe 30%, maybe even 40%. And that's a combination of, of depletion of the reserves, seasonal outages that they take, bad weather, military exercises, there's all sorts of reasons why that area's been impacted by lower volume, but directionally, the reserves are not as robust as they used to be. So, their trend, which had been going up for a number years, is now in the backside of that curve, and we think it is going to continue to fall off, albeit at some moderate pace going forward. So, what Luke talked about, and John talked about, is we are adding capacity to our existing facilities, so it gives up plus 15% or so. We're looking forward to additional capacity additions when they're needed, so we're going to work hard to see that we satisfy our customers through this period of time and maintain the positive aspects of this business.

And just lastly on the HPC side, where are we in the HPC replacement cycle, and can you just talk about line of sight you have in that order book?

Yes, P.J. The fourth quarter is better than the third, and the first quarter is looking better than the fourth. What we're really seeing, now, I think is, as refiners have worked their way through a really horrible period, they've got to get their refineries operating more efficiently, and, as we pointed out, this is more happening outside the United States than within the United States. But the trend I think we're also beginning to see, is a lot more difficult crude slate to use, and it's becoming heavier and sour again. We had that view three or four years ago and went through the recession. And the weakness in oil demand, we saw that, that was ameliorated if you will. We're beginning to see, I think, the beginning of a stronger cycle.

But with that said, we've really tried to build the portfolio of our business here, to achieve whatever the refiner wants. And for example, I was at a large refiner in Europe at the end of September, and they basically wanted a HPC load to allow them to run for four to five months, to optimize a certain end product stream. Four to five months. So, we solved that problem for them. That was going to pave the way for a more significant fresh cat fill in the February/March time frame. So I think we're really positioning the business to satisfy whatever the needs of that refiner is.

Thank you.

Thank you

Our next question comes from the line of Dmitry Silversteyn with Longbow Research. Please proceed, sir.

Good morning, guys, and congratulations on a very strong quarter.

Thanks, Dmitry.

Couple of questions. Sticking with the rare earths and catalyst business, you talked about that having a very modest impact in the third quarter, but you expect that impact to get a little bit more pronounced in the fourth quarter and early next year. Should we be looking at -- I understand that these levels of profitability are difficult to sustain in the high 20s, but should we be looking at margins maybe coming down more, kind of into the low 20s area until the price increases catch up with the, with the $700 a ton move that you're seeing in your costs? And when do you think, given your contractual schedule and customer acceptance of price increases, when do you think you're going to be made whole? Is it by the second half of next year?

Dmitry, I think that's a bit too, a bit too pessimistic. As John said, about 2% by weight of the product, on average, is rarer in FCC. We sell products that have none in it, to more than that quantity in it. There's a fair amount of latitude that customers have, that we have working with our customers to see that the quantity, the impact of them is minimized. When it can't be minimized, we're passing through the cost of those products, and John and his team have done a good job of that today. It seems to be well received because of this (Inaudible). So I wouldn't anticipate a dramatic or materially noticeable impact of that over the next couple of quarters. I'm saying that, assuming that, in the start of the year, China opens up a bit, and we start seeing volumes flow a bit easier back in the marketplace. If they stay at 8,000 tons forever, then that's a little bit of different ball game. But we don't anticipate that, and as John also noticed, about 2% of the rare earths is the market that we play in. So we're not a huge consumer to start with.

So, I think, Dmitry, the raw question, rare earths, you shouldn't expect rare earths to have a big impact. Now we have had a lot of great products that we moved. We've had good mix going forward, so that's pushed us a bit. Had good cost reduction efforts. That's pushed us a little bit. So, can we sustain in the low 30s? No, I think that's a bit too aggressive for us to average, and lay claim that we can be at 30% margin. So I would pull that back a bit, but low 20s is too far.

I guess you were talking about EBITDA I think, right? I'm talking about EBIT.

I think we're talking about EBIT.

Yes, we are talking EBIT.

Okay, good. That's good. Second question, staying with the Catalyst division, this is third quarter and the last four that you've posted double-digit volume growth, volume mix improvement on a year-over-year business. So are we seeing strong growth in polymerization catalysts, and that's what's driving the overall volumes? Are we seeing volumes in FCC pick up, which I think is where most of the volume in the division comes from? Or are we actually are seeing some signs of a replacement cycle in HPC?

It's a little bit of all of the above, is what I would say, Dmitry. HPC is the big volume play there. So a little bit of uptick in volume carries a lot of weight. Of course that's gone on as we've talked about as this market's come back a bit both in US and Europe, but also in emerging economies, where probably the biggest play has been for all of us in this industry. If we look at replacement cycle, we have shared a lot of our views on that. Broadly speaking, these products add value in both throughput, and the distribution of products in refineries. So, as these refineries start up in their capacity, which they're doing, and we start to see some spread developing again between the various grades of crude, then Catalyst takes on a more meaningful role in driving refinery profitability. It is always important, but it becomes more important. That's the situation that John tried to outline, that we're seeing signs of. So, I think that you should expect that where we had shifted from fresh to recycle, sort of as an industry, a recovered catalyst, that's going to slowly start shifting back. And I would expect that our throughput on, on fresh catalyst in HPC is going to continue to trend up.

When you look at polyolefins, those trends are positive too. There really are two demands for these polymer plants, and being able to compete with the big facilities that occur, that exist now in the Middle East, they have got to find ways to drive higher value in their products, and they come to companies like Albemarle to do that with our catalyst technology. So we're seeing that activity in the Korean plant that Luke talked about. The R&D facility's now complete. And Amy Motto, who runs that segment along with her team, are out there just producing samples like crazy. It's been very well received by customers in region, we're quite confident as that plant comes on, that our volume's are going to continue to trend upwards. So, it's a little bit of all of the above. But those trends you're seeing in volume, keeping in mind, quarter-to-quarter, might fluctuate a bit, I think directionally are going to be with us as we go through 2011 and 2012.

Got you. That's very helpful. On polymer solutions, first half of the year you were delivering high teens operating margin, it spiked up here to the mid-20s in the September quarter. A lot of it probably had to do with the bromine price increases, as well as price increases across curatives and other parts of your portfolio. Just, historical perspective, margins have rarely gotten to this level in a sustainable basis in Polymer Solutions. On the other hand, you haven't had a duopoly in bromine or a virtual duopoly before. Are we looking at the new level of profitability that is sustainable, maybe not at 25% but maybe somewhere in the low 20's? Or is this just a combination of the perfect storm between your pricing power and raw materials not getting you insurmountable obstacles, and demand being strong, utilization rates high? How should we think about margins of the Polymer Solutions business longer term?

Dmitry, this is John. We always had a view. We didn't externalize this. But we always had a view that we could get our margins up into the 20% plus range in polymers. What was really unique, I think, about our performance in the third quarter is it came from such a balance of different businesses, and our strong portfolio across our polymer platform is really beginning to show its worth here.

Can we sustain 25%? I would be disappointed if we don't. That is a -- I recognize that's a high number, but assuming we don't see any kind of double dip recession, and our base volumes hold in there pretty well, we're very excited about continuing to grow this business and the opportunities that we're being presented with in polymer solutions around the globe are really impressive. I kind of view our effort here as we're at the base camp and just heading up the mountain. So we feel really strong about polymers and the whole portfolio. Mineral flame retardants had a good quarter in the third quarter. Looks to be a little better in the fourth. It's just one example of a business that we had to work hard to fix. And curatives equally with the infrastructure development, especially in China, we're very positive about that, and the new product portfolio that we have there.

Very helpful, John. Thanks a lot. And I was intrigued by the comment that you made on the sorbents technology business, maybe actually seeing some signs of life out of China. Can you provide a little bit more granularity on, I understand you said you were going to be participating in some trials in 2011, I'm assuming you're competing against alternative technologies, not necessarily bromine-based mercury removal. So can you give us an idea of the timeline, and the how sizeable this business can be? In the near to midterm, I'm not looking for five to ten years out, but over the next couple of years.

I think, Dmitry, for example, some of the cement regulations I referred to, would occur in 2013. The good news on that side is, is compared to what the customer, these large cement kilns, have to put in, in terms of capital, an option is an enormous amount of capital, are putting in our system that is extraordinarily cost-effective. So, longer term in both, in both the coal industry and in the cement industry, we feel really positive about the development of that. The China is part and parcel of that whole effort. We're really encouraged about how proactive the Chinese government has been, in trying to facilitate the coal industry there, which is enormous, to eliminate their mercury reductions, or greatly reduce their mercury reductions. But these are, I would say, on a three-year time horizon. But it's scary good what that could do to the overall growth in the market. I'd like to point out too, in a lot of these applications, there are competing technologies, but many of them include bromine somewhere in that supply chain.

Dmitry, to give you some weighted numbers there, US regulations and power plants alone, so I'm not talking about the cement counts John is talking about, would probably take about 5% of the global bromine capacity to satisfy, roughly. In China -- that's global. So it would be material enough that you would see it in the system, in what's now an industry that's running essentially at capacity.

If you fast forward and look at China, it would be 25% to 30% of global bromine demand would be required to satisfy that. Which doesn't exist today in the world. In terms of -- it exists, but we can't produce it today, we'd have to , all of us in this industry, to do it. A few things are, as John said, scary good on the upside trend. You're right, it's not that material today, and we expect that materiality to grow over the next three

That's very helpful, thank you. One final question, how is your CFO search going? Can you update us on your efforts there?

Well just to say that we're, we're working hard on it. Richard's doing a great job here, as you can tell from these results, he's taking all the credit for it this quarter. But yes, that process is underway and going fine.

Do you have a timetable in mind, or is it just going to be best available whenever you get them?

You're always on these things, it always takes you five or six months to do it. It'll be sometime early next year I would expect, we would make a decision.

Got you. Thank you very much guys, and congratulations again.

Thank you, Dmitry.

Ladies and gentlemen, we do have time for one more question. We're approaching the end of the conference. The final question comes from the line of Laurence Alexander with Jefferies and Company. Please proceed, sir.

Hi, this is Rob Walker on for Laurence. Just to follow up on comments on M&A. Broadly, which business lines and regions are you focusing your efforts on? The pipeline, is it roughly, mostly bolt-ons or are you at the point where you are considering larger acquisitions as well?

Yes. We work hard not to constrain ourselves too much. If you look at the businesses, we're pretty excited about some opportunities in the Fine Chemistry side. Believe it or not, we think that the service factor, the service system we have in place is a value-add system, but it lacks for mass and it lacks some geographical reach. We're looking hard in that area, and hope to be able to do something there.

In the Polymer side, it's all about Asia and that part of the world. We're pretty aggressive over there. Whether we do acquisitions or make investments, we're not sure yet, but we're looking a lot in Asia at some unique opportunities there to push into some, not only existing areas, but perhaps new areas.

And what I'll mention on, on Catalyst is that we have great technology and we, we have a lot of ways we can push that technology vis-a-vis investments or acquisitions. So we're looking at all the areas. We have leads in all the areas, we have discussions underway in all the areas. We would do a larger acquisition, but it's got to make sense. It has to fit our portfolio, it has to be a fit from an organizational point of view, and a cultural point of view. And it's got to be something, if we do it, folks like yourself would stand up and say immediately, "that makes sense to me."

Okay, great, and just one final question, just to follow-up on some of the comments on the polyolefin catalyst market. Can you just kind of characterize the pricing trends going forward in the quarter?

Going forward, there's a big mix impact there, Rob, so some of our higher value-added catalysts which take advantage of all the technology we bring to play are obviously higher priced than just supplying the base organometallic activators. So it's a big mix effect. The base business is pretty, is staying steady from a price and margin perspective. Sao we don't see any issues there going forward.

Okay, great, thank you.

Great thanks.

I'd like to thank everyone for participating on the call today. If there are any further questions, you can contact me at the number indicated on the press release. Thanks everyone. Have a great day

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect. Have a wonderful day.