雅保公司 (ALB) 2020 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Albemarle Corporation Q4 2020 Earnings Conference Call. (Operator Instructions) Please be advised that today's conference is being recorded. (Operator Instructions)

I would now like to hand the conference to your speaker today, Meredith Bandy, VP of Investor Relations and Sustainability. Please go ahead, ma'am.

All right. Thank you, Joelle, and welcome to Albemarle's Fourth Quarter 2020 Earnings Conference Call. Our earnings were released after the close of the market yesterday, and you'll find the materials posted to our website under the Investor Relations section at albemarle.com.

Joining me on the call today are Kent Masters, Chief Executive Officer; and Scott Tozier, Chief Financial Officer; Raphael Crawford, President, Catalysts; Netha Johnson, President, Bromine; and Eric Norris, President, Lithium, are also available for Q&A.

As a reminder, some of the statements made during this call, including our outlook, expected company performance, expected impacts of the COVID-19 pandemic and proposed expansion projects may constitute forward-looking statements within the meaning of federal securities laws.

Please note the cautionary language about forward-looking statements contained in our press release. That same language applies to this call. Please also note that some of the comments today refer to financial measures that are not prepared in accordance with GAAP. A reconciliation to these measures to GAAP can be found in our earnings release and the appendix of our earnings presentation, both of which are posted to the website.

And now I'll turn the call over to Kent.

Thanks, Meredith. And thank you all for joining us today. On today's call, I will highlight recent accomplishments and discuss our strategy to capitalize on the very attractive long-term growth trends we see for our businesses. Scott will give more detail on our results, outlook and capital allocation.

I'm pleased to say that Albemarle reported solid fourth quarter results, including net sales of $879 million, and adjusted EBITDA of $221 million, both of which were at or above the high end of our previous outlook. I'm also encouraged by the rebound we began to see in the second half of the year, particularly for bromine and lithium. We expect to generate full year 2021 net sales of between $3.2 billion and $3.3 billion and adjusted EBITDA of between $810 million and $860 million, both up from 2020 results. As I'm sure you're aware, earlier this month, we completed a $1.5 billion capital raise. The proceeds of this offering provide the financial flexibility to execute our long-term strategy, including the acceleration of high-return growth projects.

Now if we turn to Slide 5. We have a clear strategy to drive sustainable value for our shareholders. Albemarle has 4 primary strategic objectives: first, we will grow profitably. We have identified and planned a portfolio of low capital intensity, high-return projects. These projects lever our diverse world-class resources in both lithium and bromine. Over the past 5 years, we have built the internal team and capabilities to execute these projects on time and on budget. In addition, we have the long-term commercial relationships with customers that are required for these projects. We are working to ensure that we are aligning with their strategic requirements while achieving adequate returns for our shareholders. Of course, the majority of our growth will be in lithium, but at the same time, we will be investing in our bromine projects. This will include highly efficient brownfield projects with attractive returns and short paybacks. I'm sure Netha would be happy to give you more detail when we get to Q&A.

Second, we will maximize productivity. Over the past year, we have optimized earnings and cash flow generation across our business, including our very successful sustainable cost savings program. Operational discipline is essential for generating cash flow and supporting growth, and we will not take our eyes off the ball even as we move into an accelerated growth phase.

Third, we will invest with discipline, focusing our capital investments on our highest return opportunities. Just as we have in the past, we will actively assess our portfolio for opportunities to unlock shareholder value. We will also continue to maintain our investment-grade credit rating and support our dividend.

Fourth and finally, we will advance sustainability across our businesses, which is a core value for Albemarle. Our aim is to increase sustainability throughout the value chain from the resource to the end-use of our products. Most recognizably, we developed lithium products that enable the reduction of greenhouse gas emissions through the adoption of battery electric vehicles. Our Catalyst business contributes to sustainability by helping refiners produce cleaner transportation fuels, and our bromine products contribute to consumer safety by preventing fires in electronic equipment. With continued regulatory changes, advancements in technology and investments in infrastructure like charging stations, the current environment is ideal for a step change in EV adoption. We are seeing this play out in the acceleration of global EV sales led by rebounding demand in China and new demand in Europe. Global EV sales increased 45% during 2020 and are expected to increase by over 70% in 2021.

On the right-hand side of the slide, you see demand projections for lithium over the next 5 to 10 years. Based on our internal estimates, we believe demand will reach more than 1.1 million tons by 2025, up from around 300,000 tons today. This is slightly higher than third-party projections from industry analysts like Benchmark Minerals, Roskill and the CRU Group. But as you can see, the consensus is that the industry expects to see significant growth in the coming years. As the industry leader in lithium, Albemarle is able to take these external estimates, internal forecast and discussions with our strategic customers and suppliers to generate a detailed demand forecast.

On Slide 7, you see other metrics we use to gauge the future of the lithium market. While Albemarle's demand outlook for lithium is above third-party estimates, our outlook is below some of the more ambitious targets from automotive OEMs. For example, Tesla's vision of 3 terawatt hours of battery production by 2030 would translate to roughly 2.3 million tons of lithium. That means that Tesla's demand alone would exceed estimates for the entire market. Additional regulatory impacts, for example, if the U.S. decides to adopt more European like EV incentives would be incremental to our estimates. Total lithium demand is expected to grow by about 30% per year from 2020 to 2025, led by lithium consumption electric vehicles, which is expected to grow by 47% per year. 2 other trends support lithium demand, increased adoption of battery electric vehicles and larger battery size. Battery electric vehicles and larger battery size improved the consumer experience with longer driving ranges and innovation in batteries is also driving shorter charging times.

It's important to note that this outlook does not assume a major shift in battery technologies over the next 5 years. Advanced battery technologies like solid-state batteries could potentially increase lithium intensity later this decade. Since 2015, we've nearly tripled our nameplate conversion capacity to 85,000 tons per year. Later this year, we expect to complete 2 major projects, which we refer to as Wave II. Wave II consists of our La Negra III and IV project and Kemerton I and II projects, which will more than double our current capacity to 175,000 tons per year. Over the last 5 years, we engaged with our customers with long-term volume commitments to execute this portfolio of projects. Now with this new acceleration in demand, customers are asking us to repeat the model. Our next 2 waves of expansion could once again more than double our nameplate capacity. With lower capital intensity, we expect these projects to generate very attractive returns. The identified and planned Wave III projects would add 150,000 tons of annual capacity over the next 3 to 5 years. And this third wave includes a conversion plant in China, which would be part of our MARBL joint venture. A smaller expansion at our Silver Peak asset in Nevada, another plant in China on a new mega site and Kemerton III and IV, a brownfield project in Australia.

We also have identified opportunities for a fourth wave of projects. These could include further expansions in Australia, China and Southeast Asia and the potential to restart the mine and expand our conversion facility at Kings Mountain in North Carolina. Wave IV also includes options to support customers looking to localize supply, for example, by converting carbonate to hydroxide near battery manufacturer.

And before we continue, let me update you on our Wave II projects. So La Negra III and IV enables us to add lithium carbonate capacity at the very low end of the cost curve. The project remains on track for mechanical completion in mid-2021. Kemerton I and II, our new lithium hydroxide conversion plant in Western Australia is on track to reach mechanical completion late in 2021. Kemerton is core to our hydroxide capacity in line with expected strong long-term market demand. Both of these projects will add significant commercial lithium sales beginning in 2022, following commissioning and customer qualification processes. As we move from Wave II to Wave III projects and beyond, we expect an estimated 40% reduction in capital intensity to support compelling economic returns. We can achieve these capital efficiencies and returns for 3 key reasons. First, we were able to leverage our experience in project execution by building standardized plants with economies of scale. For example, we expect new hydroxide plant would be a standard 2 trains or 50,000 tons per year, similar to what we are building at Kemerton today. Second, in many cases, we're moving from greenfield to brownfield economics. Just as today, we're moving from La Negra I and II to La Negra III and IV. Likewise, we'll move from Kemerton I and II to Kemerton III and IV and so on. As with Kemerton, the focus will be on building what we call mega sites. Standardized large-scale plants able to support multiple trains for lithium conversion. Finally, we'll be buying or building additional facilities in low-cost jurisdictions. As we did when we successfully acquired and then expanded our Xinyu facility in China in 2016.

Before I turn it over to Scott to review recent results, I'd like to acknowledge all the hard work by our Albemarle team to continue to operate during the global pandemic as well as their ability to achieve significant progress on our long-term strategy. A year ago, when my predecessor laid out our 2020 strategic objectives, I don't think any of us could have imagined how the year would play out. Despite all the challenges, our team has delivered. We set ourselves up to grow profitably, keeping our major lithium capital projects on track for 2021 completion. We maximize productivity, achieving $80 million of sustainable cost savings in 2020, 60% above our initial targets. We demonstrated financial discipline, completing our 26th consecutive year of dividend increases and maintaining our investment-grade credit rating throughout the pandemic related downturn. And finally, we improved the sustainability of our businesses by establishing baseline environmental data and improving our reporting and transparency.

Now -- I'll now turn the call over to Scott for a detailed review of the 2020 financial results.

Thanks, Kent, and good morning, everyone. Albemarle generated fourth quarter net sales of over $879 million, a decrease of about 11% compared to the prior year. But at the high end of our previous outlook. This reduction was primarily due to reduced prices in lithium as expected coming into the year and reduced volumes in catalysts, offset by improvements in bromine. GAAP net income was $85 million, adjusted EPS of $1.17 excludes a pension mark-to-market loss due to lower discount rates. As Kent stated, adjusted EBITDA was $221 million, above the high end of our previous outlook.

Turning to Slide 13 for a look at adjusted EBITDA by business segment. Lithium's EBITDA declined by $17 million versus the prior year. Pricing was down about 20% in the quarter due to contract pricing adjustments agreed in late 2019 as well as product mix. Volumes were higher-than-expected due to a combination of improving demand and customers for filling their full year contract commitments. Cost savings to help offset the impact of lower prices. Bromine's EBITDA was up about $7 million. The increase was due to higher volumes and higher pricing. Bromine is overall a good news story. The business has essentially rebounded to pre-pandemic levels. In Q4, they benefited from higher demand, customer restocking and some short-term supply demand imbalances for both raw materials and finished goods. Catalyst EBITDA declined by $53 million, primarily due to lower volumes. This business continues to be the most challenged of the 3 due to ongoing travel restrictions as well as reduced refinery capacity utilization and margins. Fluid catalytic cracking or FCC volume improved sequentially, but remained down compared to the prior year quarter. Hydroprocessing catalyst or HPC volumes were also down with a tough comparable relative to an unusually strong Q4 2019. Our corporate and other category EBITDA decreased by $8 million due to a mix of slight -- slightly lower Fine Chemistry Services results and slightly higher corporate costs. The FCS business is contract driven and can vary quarter-to-quarter.

Full year results were very strong compared to history. Comparing the full year to fourth quarter, you can see it and get a sense of the rebound we started to see in the second half of 2020, particularly for lithium and bromine. We are pivoting capital allocation to prioritize high-return growth projects to align with strategic customer demand and maintain our leadership positions. We remain committed to preserving the financial flexibility necessary to fund growth and to maintain our investment-grade credit rating. We'll also continue to support our dividend although dividend growth may be lower than the historical average, while we build out the next wave of growth projects that will enable high return opportunities. Finally, we will pursue a disciplined and thoughtful approach to investments, including M&A and joint ventures. As we've said in the past, the most likely M&A you'd see us do would be bolt-on acquisitions of lithium conversion assets in cases where buying allows us to grow more quickly. And generate better returns than building. We are finalizing the sale of our Fine Chemistry Services and Performance Catalyst Solutions businesses and expect to update you in the coming months.

Let's turn to Slide 15 for a look at our balance sheet. The primary use of proceeds from our equity offering is to accelerate profitable growth. The 90% -- or about 90% of the proceeds are for lithium growth, with most of the remainder for enhancements to our bromine business. The returns on these projects are highly attractive. And we expect to generate returns at least 2x our weighted average cost of capital at mid-cycle pricing. These are large, long-dated projects with the bulk of incremental spending in 2022 through 2025. In the meantime, instead of holding the proceeds as cash, we plan to delever which will reduce interest expense and cash drag on the balance sheet. This will enable us to use cash and debt capacity to fund investments as they are approved. Our long-term target net leverage ratio remains 2x to 2.5x adjusted EBITDA. Pro forma for the offering, we are below that range but expect to increase our leverage as needed to accelerate growth and deliver returns to shareholders. Overall, we expect 2021 results to improve year-over-year. For the total company, we expect net sales to be higher year-over-year as our businesses continue to recover from the events of 2020. Adjusted EBITDA of between $810 million and $860 million also suggests potential upside compared to 2020 due to higher net sales and ongoing cost savings. We expect CapEx to be slightly higher year-over-year as we begin to execute our accelerated growth projects. However, as I mentioned earlier, the bulk of that spending for these projects will be in 2022 to 2025. Net cash from operations is expected to be lower due to higher cash taxes and higher inventories as we start-up the 2 new lithium plants. Expectations for adjusted diluted EPS of $3.25 to $3.65 is lower than last year due to higher taxes and depreciation as well as the increased share count. Due to the recent severe winter weather, we have temporarily shut down 4 of our U.S. plants. Our Bayport, Pasadena, Magnolia, Baton Rouge plants have been down since Monday. Once it is safe to do so, we will restart these facilities. And this situation is still evolving. At this point, we expect some impact to Q1 results and potentially Q2. And it's possible that weather will have more of an impact than what is currently included in this outlook, and we'll update you if there are any material changes.

Let's turn to Slide 17. Lithium results are expected to be relatively flat compared to 2020. We expect slightly higher volumes with the restart of North American production late last year, as well as modest efficiency improvements. As usual, we expect volumes to be back half weighted for lithium. At this point, we still anticipate slightly lower pricing depending on full year average realized pricing for carbonate and technical grade products. Our new contract structures provide increased flexibility to increase price in response to improving market prices. Lithium costs will be slightly higher year-over-year related to the start-up cost associated with La Negra and Kemerton, partially offset by continued cost and efficiency improvements. And as Kent discussed, the long-term growth story for lithium is intact. In catalyst, we expect 2021 results to be flat year-over-year, including higher PCS earnings. We expect a decline in North American refining catalyst volume. This is primarily a result of 1 customer who recently indicated that they would deselect Albemarle's catalyst due to our public support for electric vehicles. Longer term, we are continuing to position the catalyst business to grow in emerging markets and capitalize on our strengths as a global specialty chemicals producer in the crude to chemicals market and the renewable fuels market. Raphael can give more color on the challenges and opportunities we see for our catalyst business during Q&A. In bromine, we expect full year 2021 results to improve modestly with continued economic recovery and a return to sold out plants. Our ongoing savings initiatives should offset the impact of inflation.

Looking ahead, we see steady demand increases for our flagship fire safety products, driven by new technology trends like 5G and electric vehicles.

I'll turn it back to Kent to review our strategic objectives for 2021.

Thanks, Scott. Albemarle finished strong in 2020, and we are excited about the opportunities ahead of us in 2021. We will continue to execute our long-term strategy. The successful completion of our Wave II projects and investment decisions on new expansion projects in lithium and bromine. We are also working with customers to reach commercial agreements for a majority of new capacity prior to investing. We will continue to maximize productivity with operational discipline across our businesses, including cost reduction, lean principles, continuous improvement and project execution excellence. We expect to achieve $75 million of productivity improvements in 2021. We will be disciplined stewards of capital, investing in high return growth, maintaining our investment-grade credit rating and supporting our dividend.

Finally, we will continue to implement and improve sustainability across our company, including setting near-term goals to reduce greenhouse gas emissions at our existing operations and exploring science-based target options for all 3 of our businesses.

And with that, we'd like to open up the call for questions. So Joelle, over to you.

(Operator Instructions)

Our first question comes from David Begleiter with Deutsche Bank.

Kent, on recycling and lithium, when do you expect it to become a bigger part of the market? And what will be Albemarle's role in lithium recycling going forward?

Yes. So let me -- I'll start with that. Maybe Eric can give a little bit more detail. So I mean we've got activities around lithium, but we expect that to be a number of years out before it becomes a major business. Basically, there has to be enough lithium in the market to -- for it to run its life cycle in a vehicle and then come back for recycling. So -- and I think our role in that, I mean, we have to look at those business options. But when you see a lithium being recycled, there's a component of that, that looks a lot like our conversion facility. So we would anticipate that we would play in that, but it's a number of years out before that comes to fruition. So Eric, anything you want to add there?

Sure, Kent. David, I'd add that we have a number of efforts already with existing customers, both in the U.S. and in Europe who are very focused on investing in recycling capabilities. In some cases, in Europe, it's part of the EU battery directive. Those targets within EU, for example, are still being set and being discussed. The industry is offering its views on technology as are we and when it will be ready. And as Kent pointed out, we're doing some novel process development and linking it into how we might run our conversion plants or adapt those plants and those designs for that capability. So it is early days, but Albemarle is really well positioned with its customer base and it's spread across the various cathode technologies. And with our global footprint to really take advantage of that trend as it develops in the next decade.

And just on your Wave III projects, you list on Slide 8. When should we see -- expect a formal announcement on which project you will be moving forward? And how would you rank order these projects right now in your mind as a likelihood of moving forward first?

Yes. I think the order that we listed them. That's kind of our order. So we expect to see a China facility would be the first thing that we would move on. We're working on that, investigating it, doing planning around it now, but it's still at a -- it's at point where it could be an acquisition. And then an acquisition usually has some element of work to it before it really becomes an Albemarle facility or a greenfield plant. But we're working on that now, and we probably come to an FID on that late '21, depending on whether it's an acquisition or a greenfield.

Our next question comes from Ben Kallo with Baird.

Maybe just taking a step back. Could you talk a bit about just visibility in your lithium sales as we move into the next year, like we see all these announcements from big auto OEMs. And then smaller start-ups. And can you talk about how your salespeople attack those companies and then your lead time to that? And then maybe weaving in next year going from I think the street's at like $850 million this year to over $1 billion EBITDA next year, not to ask for guidance for '22. But just can you give us some puts and takes for growth in '22 with both volume and then how you think about pricing as well?

This is Eric Norris. First, in terms of the visibility we see near term, which I think was your first question. We have 2 approaches we take, right? One is exactly what Kent described in the call, which is a macro to micro approach of modeling demand. And that has led us with some of the announcements you've referenced to increase our demand outlook on a macro basis. That -- a big part of that is what happens on the ground with our salespeople. Our strategy has been and will continue to be to use contracts to secure long-term volumes. That requires a discussion with the customer to commit. Anywhere from 3 to 5 years and a discussion that follows that into the details of what they are looking at from a specific chemistry, location and quantity point of view. So I'd characterize our visibility as quite reasonable and good in that regard, giving us a certainty we need to expand and positioning us well in the market to grow with the additional resources we have.

Maybe you could repeat your second question?

My second question was just the street is modeling about 20% growth, and it's mostly coming from lithium from '21 to '22. Can you talk about the puts and takes that we should think about without giving -- without having to give guidance. But the volume you're bringing on and how we should think about that versus pricing that maybe rebounds as you move to new contracts?

Yes, Ben, this is Scott. I'll take that question. So as you look into 2022, the volumetric growth coming from lithium with the start-up of La Negra III and IV and Kemerton I and II is clearly the highlight for that year. However, we do see continued recovery in refining catalysts as transportation fuels and refinery utilization continues to improve. And potentially some additional growth in bromine as some of those early growth projects come to fruition, and we're able to place that into the market. So I think we're well positioned going into 2022 to see very meaningful and high-return growth in that year.

Our next question comes from Chris Kapsch with Loop Capital Markets.

So on the upward revisions here, 2025 lithium demand forecast, you pointed to, obviously, to EV penetration and the mix of EVs, larger batteries as the drivers. I'm just wondering if you could provide color on on the outlook from a hydroxide versus carbonate standpoint. I'm just curious if the upward revision is tied mostly to higher energy density EVs and therefore, more skewed towards hydroxide?

Chris. So relative to the demand question and the mix, it is weighted towards hydroxide. If you look at the market today, we see it being sort of a 30-70 split by the 30% hydroxide, that would be that value. And if you look out to 2025, and there's going to be some error bars on this, of course, but it's about 60-40, 60% hydroxide. So the large part of the growth is in hydroxide high nickel chemistries. It's not to say there isn't growth in carbonate for more conventional technologies like LFP, but to enable the growth targets of the western OEMs, in particular, and the range they're looking for energy density, it's going to be hydroxide. And that's true even in 2021. The rate of growth we see for demand in '21 is incrementally higher for hydroxide than it's for carbonate. And as you know, Albemarle is well positioned no matter which way it goes because we have capacity coming on, and we're doubling our capacity in both product lines. As we roll forward and look at Wave III, the predominance of that is going to go towards hydroxide for the reasons I just referenced.

Got it. That's helpful. And the follow-up is regarding your comments about your contracts, which sort of are seemingly kind of -- sort of a perpetual renegotiation right now. But what -- you mentioned the ability to lift prices higher. I'm curious if there's also a floor in the renegotiated contracts. And if it applies to both EV supply chain customers and industrial-grade customers also. And then just any color on just the tone of the conversations, given that the world kind of has changed over the last 3 to 6 months, if it feels like the leverage has shifted back from them to the suppliers given maybe concerns about security of supply?

Yes. I'll start with that and then maybe Eric give some color. I'm not sure. But I think for the industrial customers, I mean, the long-term contracts are mostly in the EV market. So when we talk about our long-term contracts, that's about the EV market, less so on the industrial side. And I don't know if the leverage really has shifted, but it has changed the tone of the discussions. And it's -- we still sit with our long-term prices above the spot market even with the moves that we've seen, but there's less pressure on those contracts. It's not that there's no pressure on those contracts, but there's, I would say, less pressure. If that trend continues, it will kind of move in the same direction. Eric, you want to top that off?

The only thing I would add, Kent and Chris, is that these contracts -- you've characterized them Kent -- or Chris, is if have been perpetually negotiated and that they may be one size fits all. That's the change. We did make an adjustment, a concession as the market pricing collapsed a year ago. And now we're moving into restructuring these contracts based on customer needs. And there are going to be some that are going to look like spot, and that's going to be, as Kent pointed out, some of those contracts in the TG area and perhaps in the China market. There's others who are going to be like the old variety, but the vast majority is going to be variable based pricing that reflects some market index, a global index, not necessarily just China. And that's positioning us well as we go into an improving market from a price standpoint to benefit from a growth standpoint.

Our next question comes from Laurence Alexander with Jefferies.

I guess, 2 questions. First on the recycling comments earlier. Is the message that you'll engage in significant recycling when the returns are double your WACC? Or is it that you are engaging in a significant amount of R&D to try and position yourselves for when that market develops? I mean, like are you subsidizing the market to some -- the development to some extent? And secondly, can you speak to the trends in conversion costs as specs change at the automotive OEMs or the costs rising or falling over the next few years?

Yes. So on recycling, I think I would say it's really we're investing in R&D in process, but we're talking to customers about what a business model might look like, but it's really an early phase of that. And it's in -- we're investing at this point and trying to figure out what the business model would look like and what our role would be in that. But we're also investing in R&D to kind of get us there. So I don't think we're not sitting and waiting until we get the returns that we expect. And the kind of the biggest driver for that is there's not going to be lithium that's coming through the life cycle to feed recycling processes for another -- a number of years. And I'm sorry, the second question?

Just with the respect as auto OEMs or as the battery specs are evolving, is the conversion costs rising or falling? Is it becoming tougher to meet those specs?

Yes. So I mean, the specs are evolving and -- but I don't know that processing costs are really going up. So we're driving hard on productivity, trying to drive those costs down. There are, in some cases, some steps that we've modified in order to meet some of the specs around crystallization. I don't think it's driving the cost up at this point, but it's probably offsetting some of our productivity gains but -- and it's -- as it gets more sophisticated, but we get better at making it. A lot of that's about process control. We are looking at one step in the process that we have to add in which would add a little bit of cost, but I think we would at a minimum, we'd offset that with our productivity.

Our next question comes from Mike Harrison with Seaport Global Securities.

I wanted to ask about the lithium business. Your pricing and mix, you said, was down 20%. Typically, I think about pricing is flowing through pretty directly to the bottom line. And so that 20% decline would have been something like $80 million of an EBITDA headwind. Yet your EBITDA was only down $18 million. So how did you make up that fairly significant difference? It doesn't looked like volume would have been big enough to make that up on its own?

Yes. This is Scott. I would point to -- there is volume growth in the quarter on a year-over-year basis. But also, we're seeing the results of our productivity actions from a cost perspective. And so that's been a big focus that we started in 2019 as we're trying to maximize the productivity and not only have the world-class resources that give us low-cost, but also have low-cost operations. And we're seeing the benefits of that very clearly in the fourth quarter. And we'll see benefit of that in 2021 as well, both on the cost basis, but also we're seeing some volumetric growth just from the yield enhancements and improvements that engineers are able to get out of our plants. So all pointing in the right direction for us.

And I would add to that. I mean, those productivity improvements, I mean, they flow through. It's much more difficult to get them on flat volumes. As we get volume growth, those really start to show up. But there'll be new facilities, which will then kind of redo the playbook on productivity again. But I think as volume grows, those really show up more.

Understood. Okay. And then over on the catalyst side, you mentioned the change in customer order patterns affecting maybe the cadence of the year, but I wanted to dig in a little bit on this customer that deselected you guys because of your support for electric vehicles. Do you see that as kind of a one-off happening with a specific customer? Or are there other customers where you see this coming into play going forward?

Yes. So it's difficult to predict the future, but we kind of see it as kind of 1 customer that took exception, and we're going to work pretty hard to gain their confidence and get that customer back. But they've kind of taken a different view at the moment.

Our next question comes from Arun Viswanathan with RBC Capital Markets.

Just curious on the pricing outlook. You commented that maybe your overall pricing would be down a little bit year-on-year in '21 versus '20. And we have seen some initial improvement in pricing, I guess, in certain markets. So maybe you can just give us your thoughts on how price in both carbon and hydroxide evolves through the year as you see it? And maybe if there's any regional differences between China and North America, that would be helpful.

So I'll make a comment, and Eric can add some color. But I mean, I think we see the same numbers that you're seeing around spot prices. So they have moved, China spot prices. So we sell little to no volume in China on a spot basis. So it's not directly applicable, but it is indicative of the market. But we've not really seen prices change outside of China. So the contract prices we have are really seen. But as I've said earlier, it lessens the pressure on our discussions with customers. So it's not as much downward pressure as we had seen, say, second quarter, third quarter of last year because those spot prices have turned up. But we'll just have to see how it plays out during the year. At the moment, the spot prices are still below our contract prices. So it's not like a sea change. If it continues to move, it -- that could give us some upside. But at the moment, that -- those prices are still below our contract prices.

And so I'd add to that, Arun, that the prices in China that you're seeing are largely carbonate and have largely inflected in the past 2 months. It's a bit early. It's an encouraging sign, but a bit early to extrapolate that to the world. And as Kent pointed out, our business is biased to more world or ex China prices then in China prices. And most of our outlook is around carbonate and TG products, not around necessarily battery grade hydroxide, which is relatively flat in this outlook. So it's an encouraging sign. And the way we've got our contract structured, should it continue, broaden and deepen over time that trend, then we are in an extremely good position to benefit from that going forward, and we'll just continue to watch it. I would say it's a matter of -- from where we are today, it's not a matter of if prices inflect upwards broadly. It's just a matter of when. And 2021 is a transition year, I think as we go forward in the future years, it's going to get pretty tight.

Great. And maybe you could also offer your thoughts on maybe a little bit longer term. You noted that it is going to get pretty tight. Would you expect pricing to kind of head back towards prior peaks that we saw in '17 and '18? And also maybe you can just comment on that as it relates to spodumene as well?

Yes. So I would say, I mean, we're predicting the future, right? And this industry has really only been through 1 down cycle. So we're coming off that. We don't anticipate that prices move back to the peaks that they were before, but we don't know that. So I think I'll leave it at that.

Yes. On spodumene, we are -- because of what's happened in China, what's really -- the reason we believe prices have spiked in China, is a fundamental shortage now of available carbonate inventory and available spodumene supply and inventory. So what that's meant is now prices have started to inflect upward for chemical grade spodumene, which should that trend continue, will provide more supply into that market to meet that need. What that all means from a future standpoint, as Kent said the calculus, too hard to say, given the maturity of this market. And we'll continue to watch.

Our next question comes from Vincent Andrews with Morgan Stanley.

I just wanted to bridge the Wave III on Slide 8 with sort of the plans from when you did the MARBL JV and Just looking back at that slide, you were going to build 2 stages of 50,000 tons of LCE at Wodgina, and it was going to be $1.6 billion split between the 2 parties. It doesn't seem like you're still planning to do that at Wodgina. So what's changed and why? And that $1.6 billion number as it relates to 250,000 ton plants. Is that still a good approximation of what it would cost in Australia. Presumably, it's less in China? Just if you could just help us bridge that, that would be very helpful.

Yes. So I mean, I guess, our plans around the MARBL JV have evolved. But -- so the initial conversion is the Kemerton I/II. And as we see it today, the second conversion facility and the fact that 50,000 would be in China. So that would be probably that first project that we were talking about in the Wave III projects.

Okay. But presumably, that's going to come in at less than the Australian CapEx cost that you had envisioned. Is that correct?

Yes. Absolutely. So if it's -- it'd be -- it'll be quite a bit less than a Western Australia plant.

Okay. And if I could just also ask, what is the plan in terms of the Wodgina facility, I believe, is in care and maintenance mode right now. Do you intend to leave it like that? Or do you anticipate bringing it back online at some point this year?

Well, I don't know about this year. So we just have to see how we evolve as the Kemerton project comes on and then we accelerate growth. I mean, Wodgina is in our plans for being a resource. It's a very good quality resource. So it's there. I don't -- off the top of -- I don't want to commit to when we bring that resource on, but it would be as we start into these Phase III projects is when we would need that resource.

Our next question comes from Kevin McCarthy with Vertical Research Partners.

This is Corey on for Kevin. As it relates to the bromine business, at your 2019 Investor Day, you talked about expecting new resource discovery and expansion of offshore drilling. Obviously, things have changed. So how has your view of the market changed? And can you talk a little bit more about your U.S.-based bromine expansion?

Yes. I think in terms of our view of the offshore oil market, I think it's muted slightly. Things have changed a little bit, but we do see oil prices recovering, which we know with the lag time of 6 to 9 months is going to be good for our business going forward. In terms of the U.S. expansion, it fits right along to the corporate strategy of accelerating our lower capital intensity, higher return growth projects. Magnolia, for example, it's a great jurisdiction for us, we've been there for decades, and we know those assets well. That really lends itself to investments to have a quicker return and a higher return and those are the ones we'll leverage as we grow this business going forward.

And if I may follow-up, sort of pivoting here on divestitures. It sounds like you're close on performance catalysts. Do you have any expectations regarding aggregate proceeds and timing? And with lithium recovering and equity raise as recently, would you consider separating the balance of your catalyst business at some point?

Yes. So I mean, FCS and PCS, we're on the same track that we were. It's gone slower. COVID slowed us down, but we're -- I'd say we're back on track, but they're not done yet. And as we said in the prepared remarks that we'll kind of let you know when we get closer or -- and those deals to get signed. On catalyst, I mean, we still think that we're kind of the best owners for that business. We've been in that business for some time. We add value. We've taken a hit over COVID-19 and the miles driven being down and refinery utilization, all of those issues. But we still think we like the strategy of kind of becoming more in crude to chemicals, moving toward Asia as we move, and we still like the products we have and the innovation we have in that business, we think we're the best owners of that business for today. So we don't have immediate plans around divestiture of catalysts. They're a core part of our businesses, the 3 businesses we have in the portfolio are all core for us.

Our next question comes from Jeff Zekauskas with JPMorgan.

You're bringing on 50,000 tons at Kemerton, 30,000 of which is yours, and you're bringing on 40,000 tons at La Negra. And you said that demand is going to be really strong for electric vehicles over a 3- year period, much stronger than people thought before. So as a base case, how many tons do you expect to sell-out of those 2 units in 2022? I know it takes time to ramp up. So of the 40,000 and the 30,000 that's yours. As a base case, how much will you sell in 2022?

Yes. So Eric, if you want to look at some detail on that, I would think as we bring those plants on and ramp them up, we'd expect to be selling kind of half of each in the first year.

That's fair. Yes. If you look at -- we have an example, Jeff, obviously, we've -- in the growth mode, we've done this one other time before as part of Wave 1 what you need to and that plant came up a little north of 50%, but it was a brownfield facility with much of the existing infrastructure in place from the acquisition we've made prior to that. So Kemerton is greenfield, considering that, 50% feels reasonable. And the same with La Negra as well for 2022.

Right. And for my follow-up, is there any volume or EBITDA benefit from either of these 2 projects in 2021? And I guess the rock for Kemerton has to come from Talison, Greenbushes because the other -- the Wodgina mine is on -- is sleeping. Is that correct? Or is that not correct? And what's the effect on '21?

Yes. So I don't -- and I don't think you're going to see much in '21. I mean we've got increased cost because we're commissioning and bringing those on. And if we were to -- if we could accelerate and get a little bit of sales, it would be offset by those costs, but I wouldn't be planning on benefit in '21. And initial -- and initially as it is most likely we'll feed that -- the Kemerton from the initial phases with Talison product.

Your next question comes from P.J. Juvekar with Citigroup.

Currently in China, the carbonate prices are higher than hydroxide prices because of comeback of the LFP batteries. Do you think that's a trend or it's an anomaly that may not last? And then secondly, just on pricing, you had given sort of 15% concessions on certain contracts in 2020. And the expectation that the time was in 2021, those contracts will go back to original pricing. Did that happen on those contracts?

So on the first question, P.J., it's Eric here. The carbonate delta on carbonating the inversion of carbonate being higher than historically, hydroxide is a $1 or $2 lower. We think that's a dislocation of a rapidly responding China market, which is largely carbonate and not a long time trend. It's important to understand that a lot of the hydroxide market is supplied by low-cost brine producers, of which Albemarle one is on converting to hydroxide, which is what we do at Kings Mountain. And without that supply, there's not enough market, there's enough volume for the marketplace. So the point is that the economics say that there has to be that incentive for those producers to go to hydroxide. So we expect that to revert, and we are obviously very well positioned in both product lines to participate.

P.J., your second question was what again, please?

So your contracts that were reset in 2020 lower and they were expected to go back to the original price in 2021.

Well recall what we had -- what we've done. Our strategy has been to migrate these contracts to benefit from the recovering market price. What we have converted several of them over and struck new ones based upon a market reference price, either in all or part, it depends on the customer. And we are -- we'll do the remainder of this year going forward. So that's our strategy. Our strategy is to take advantage of the inflection of price, not to go back to a fixed price in the past necessarily, although there are some customers who are asking for that, right? So it's not a one size fits all answer. But the aim is to benefit from a recovering market in prices in terms of how we structure those contracts.

So Eric, if I heard you right, are you saying that your contracts are going to be more sort of dependent on price or maybe more variable pricing as opposed to like a fixed annual price?

That is correct. That is correct. It will vary. Look, I can give you examples of some customers who want a fixed price. They want the stability. That today as the price is well above -- we're not going to agree to that unless it's well above market. And -- but that's one segment of the customer base. Another segment and a big chunk wants some variability to say that they are able to move with the marketplace relative to other -- their competitors or other sources of supply they buy. And as a result, those contracts will have that kind of a market-based component to them, either collared or in part for their volume or for a large part of their volume. The degree to which we give that flexibility also dictates how much of a commitment we make to them as well. The more spot based the customer wants to be, the less likely we're going to commit to them long-term and use that as part of our justification for expansion. So there are some caveats there in our value proposition, but that's how we're approaching things. And all of this is going to allow us, we believe, to really improve our overall mix on a price and profitability basis as the market price recovers.

Your next question comes from Bob Koort with Goldman Sachs.

I wanted to explore a little bit more on the MARBL integration with how you plan your lithium expansion. So a couple of questions there. What will be the transfer price from Talison to the Kemerton MARBL JVs? And why pursue the Chinese expansion in concert with MARBL, if you could get 100% of it. And now you have the financial wherewithal with the accommodating equity markets to fund that kind of expansion? Why share that? Why not keep it all for your shareholders?

Yes. So well, I would say the short answer on that is that was in our original agreement that we would do 2 of the 50,000 tons, and the one we expect to do would be the 1 in China. And so that's part of the JV. So we -- I mean -- and the JV was done because, one, to get the resource for the Wodgina mine we have at and also their expertise at mining to help us on that side. Because we're more of chemical processing expertise on our side. And they bring the expertise on the mining side. So that's kind of the logic behind overall. And that's part of the original deal that we did with them. So we're committed to doing another project, another conversion project with them.

Okay. And maybe if I could get an answer on the transfer price from Talison. And then also your new La Negra project is going to use a thermal evaporator. Can you talk about what that does to the cost structure out of La Negra III and IV versus the capacity that's already there in I and II from a cost curve standpoint?

Yes. So on the transfer price, I mean, it's a kind of established market price. So we were following Australian tax rules around that. And so it's a market -- I would say it's a market price. Arms length market transaction around that. And then the thermal evaporator, I mean the -- it was a return project, it's driven by financials, but probably just as much around sustainability. So it allows us to operate without water or much less water than we were using before. And that's an area where water is tight and then the cost of that. I think the returns were good. I don't recall exactly what they were. I don't know that they were extraordinary, but the benefit was also around from a sustainability perspective as well.

Our next question comes from Mike Sison with Wells Fargo.

Just one quick question on your 2025 forecast. Do you and the sort of abundance believe the industry can sort of support that by then? And then how much capacity do you hope to have online by 2025 to support that growth?

So I mean I think the -- I mean, I can't speak for the industry. So part of -- as we see acceleration in EV adoption, that's kind of what has moved us in this current pivot toward accelerating our growth plans. And the goal is that we kind of maintain our share in there. Eric, maybe you want to talk about the capacity in 2025? I don't have that number in my head.

Well, I think a rule of thumb way to think about our capacity growth and the plans that we put forth for Wave III and for Wave IV to sustain our leadership and grow with the market is it's going to be hydroxide weighted to the growth. We already commented on that earlier in an earlier question, and it's going to require, as you get out in the middle part of the decade, us bringing at least 50,000 tons to market a year of hydroxide. And that is what that plan, if you look at the details, would enable into the middle of the decade and beyond. So approximately speaking, you're talking about 150,000 tons of growth a year in the marketplace or in that neighborhood, like and -- are bringing on 50,000. That's the kind of pace we're looking at.

This concludes our question-and-answer session. I would now like to turn the call back over to Kent Masters for closing remarks.

Okay. Thank you, Joelle. In closing, Albemarle is well positioned to capitalize on long-term growth trends for all 3 of our core businesses. We have built the capabilities to accelerate low capital intensity, higher return growth. At the same time, we will continue to control what we can control. That means, first and foremost, focusing on the health and well-being of our employees, customers and communities. It also means building operational discipline and sustainability into all aspects of our business, including manufacturing, supply chain, capital project execution and customer experience. We remain confident in our strategy, and we will modify execution to position Albemarle for success. Thank you.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.