Albemarle Corporation (ALB) Earnings Call Transcript & Summary

But we're kicking off this afternoon session is arguably the world's most influential Lithium producer. The last month has been very busy for Albemarle obviously, navigating this dynamic and the lower lithium price environment and trying to balance growth opportunities with prudence. And Albemarle, of course, has bromine and catalyst businesses. So please join us in welcoming Kent Masters, the CEO of Albemarle, with our fireside chat. We have an app, as you guys know, please submit your questions. And if we're -- happy to weave them into the conversation.

Okay, Kent. So I mean what makes lithium price rebound here? Do you think that lithium or spodumene far better this year? And what do all these different scenarios mean for you operationally?

Well, I'm not sure I'm going to answer when they'll rebound or, I mean, I think what drives that will be a supply-demand balance and how demand looks out through the balance of the year and then how much volume comes out as a result of the current pricing environment that we're seeing. So we're seeing some volume come out now. It's come out slower than we had anticipated. And we have to see how that happens. So that's where that supply/demand fits. And if we get a little more growth and a little less supply, we think prices will balance.

And talking about if enough supplies come to the market or not, we've seen Greenbushes, your partners have cutbacks in production recently. You talked about last week some cuts to Wodgina utilization rates. We've seen some other things happen in the space, or Arcadium knockdown on Caitlin. Do you think enough production come out of the market in lepidolite blurry, -- or do you think more has to come out?

I think more has to come out, and I think it's happening. It's a matter -- it's a little slower. I think probably you can't turn on a dime. People have been holding in there, and we'll see. I think the real driver is going to be the higher cost supply in China. That's a pretty big volume and typically lepidolite based, and we'll just have to see how that comes out.

And so let's talk about that, right? So you've got cost curve support levels, which are a big question in the industry. It's a lot of learnings as new African supply for spodumene, we've seen in the last couple of years, trying to lepidolite different mines. You can say lepidolite but it's lots of mines at different cost bases some integrated some not. So what sense do you have where kind of the cost curve is?

Well, as you said, it's a lot of mines, a lot of conversion across that cost curve. So it's a lot of different pieces, but there are big chunks in there that are somewhere between $10 and $20 that will from a lepidolite standpoint. And as prices drop, those will -- we believe those will come out of the market, and that's where the biggest chunk is. There's other pieces. I mean while we've turned back at Wodgina and Greenbushes is pretty small. And those are like turndowns that can come back immediately. Once you shut down a plant, it's more difficult to get it back.

Remember you can submit on the apps as I did mention a few minutes ago, I think I did. I mean, it was interesting decision, right, here's Greenbushes. It's the best mine out there, it's ultra low cost, and the partners decided to lower production. It's an interesting decision. It makes sense but what is that a commentary on where the best asset in this commodity is taking downtime to help balance the market?

Well, I think it's -- we haven't cut back our take from Greenbushes, but our partner has. And so we've adjusted the mine as part of that. Historically, we would have -- if they would cut back, we would have taken their volume, and this time, we haven't done that. So I think it's a matter of having integrated players trying to manage the supply chain when you have a resource and conversion all the way into the end market. I think you're seeing the integrated players trying to manage through that.

Can we -- we'll come back to Greenbush a little bit later. The one thing I want to talk about was, so here we are, and we're trying to figure out what you should do operationally and what's really become apparent more so over the last bunch of months is really how limited visibility there is in the industry, it seems like, like across the battery and lithium supply chain, a lot of different players and industry players are relying on 1 or 2 data source providers for -- data providers for inventory information or things like that. Like how reliable -- how much data do you have available to you to make these decisions? How reliable is the data that you have?

Well, it's never reliable enough. And we do -- we don't take anything off the shelf and just kind of trust that. We either, we stress test it, we pressure test it with our customers, with other suppliers, people in the market on a global basis and locally with teams that we have. And we've got to build better capability to do that. So I agree that industry data is not very good. And even after we go through it and add our knowledge and all the information we have in talking to the industry players, we adjust that for us. And that's a proprietary model. We spend a lot of time and a lot of effort on that, and we need better information, and we need more time and effort on it as well.

How might you be able to build better capability for visibility?

I think it's about having people on the ground locally and talking to all the people in the supply chain. So customers, suppliers, cathode makers, battery makers, OEMs all the way through to the mine and understanding and piecing all that together. And we've -- historically, we've had that information, but maybe we put a little too much weight on one piece of it versus another. And it's just about getting better at managing all the data that's out there and adjusting it for what you know and what you think you don't know.

And then just specifically on what's going on in the industry like it does seem like there's been a further downstream, a lot of inventory in the system in the battery supply chain, the EV supply chain. How is that impacting kind of a lack of restocking we've seen of carbonate hydroxide spodumene the last little while?

And so that's one. It's difficult to know once it goes downstream into a battery and into a car exactly what inventory it sits. So we anticipate -- look, we're looking at EV growth in the mid-30s this year. That's how we see EV growth, and we're forecasting lithium growth to be in the mid-20s. So there's probably 8 points or so difference between that, the majority of that is inventory. There's a couple of other pieces. But the majority of that is inventory. So we see it takes about an 8-point drag on the market.

Do you think the industry is a point where maybe we need to have a little more pain for a little while to maybe cut more production, cut some projects out? You took some pain by slowing down or are you maybe stopping Kings Mountain other than permitting in the U.S. Mega-Flex plant? We just see more supply come out of the '25, '26, '27, '28 you to maybe move on to the next leg of growth or leg of attractiveness for the industry?

Yes. So it's interesting. I mean near term, the price in the market today, and if you just were to forecast that out, that does not justify reinvestment. So I think you'll see projects come out down the road. Now that's when the market is already forecast to be short. So that's just going to make that more difficult but that's the dynamic that's happening. And we -- if it stays -- if pricing stays where it is, I don't think there's a business case for a Western conversion supply chain.

Like 4 or 5 years ago, when we had the last kind of end of the downturn, what Albemarle was able to do is you acquired the control of Wodgina, you're able to basically keep it offline for, I don't know, a year or 2 years or delay of the year 2 to help balance the market. But then the market was smaller, Wodgina was pretty big. It doesn't feel like those levers are available to you now as maybe they were 4, 5 years ago. Is that fair?

Well, the market is much bigger now. So you have to be careful that it's growing 20%, 30% a year. So it's -- it's a different business than it was then. And that -- it may not give you the same levers, but I think if you -- what you're going to see, it's the pieces that are at the high cost that are going to come out and be forced out by the pricing because people are operating below cash cost, and they can't do that for very long. And there's a -- it's probably a lot of smaller pieces and maybe a couple of big chunks within China that come out and solve that problem.

Okay. The other question is that so topical among investors is lithium prices, looking at price indices. We've seen a lot of fragmentation, right? There's futures exchanges, new ones, have different benchmarks, seems to be a lack of liquidity in many of them. Like how is that changing how you look at the business, your discussion with customers? Maybe pricing mechanism, how they might change and future contract discussions?

Yes. Look, it's an immature market and the lithium business is immature. It's only been through whatever you want to call it, cycle and a half, maybe 2. And the futures exchanges are even more immature. So but we need those for -- allow customers to hedge, allow producers to hedge. So you know what you can get certainty in your business. So we need those but they're immature at the moment. We need some that are less China oriented because almost everything is about China dominates this market. We need Western indices that will kind of -- we believe prices will bifurcate between China and, say, North America, but call it the West, and we need financial markets that indicate that and people can buy and sell on those basis. But we're a ways away from that, but they have to move forward and mature, and that will take some of the volatility out of the industry.

Okay. So I've got a question on the app that I want to ask. So it's how do you see the EV supply chain developing in North America to be competitive?

Yes. Well, yes, the supply chain, so meaning I'm going to talk about the critical minerals and particularly lithium. It's a challenge at the moment. The current pricing, I talked about how it were below reinvestment rates. That's particularly challenging in the West because capital intensity for conversion is higher. You still need resource somewhere in the world to feed that. We have a mine at Kings Mountain, and we continue to work on that, but we're kind of slow playing it. We're doing the permitting work, but not everything else, given the current pricing environment. And we had the conversion project on the books that would have been fed by Kings Mountain, which we've now pushed out. So I think it's challenged at the moment, and we need price recovery in order to support that.

Do you think policy in the states, IRA or whatever is good enough right now to incentivize the investment needed?

The IRA by itself does not. I don't think it's good enough because it's not working, and it's not -- it's not set the pricing difference between China and North America yet. Everyone wants IRA compliant material at the moment, but there's not a lot of it out there. And -- but what everyone wants, but the pricing hasn't changed on that moment. So we think it will, it just needs some time to mature in the marketplace.

And then I mean like sentiment in the U.S. for EV is much different than sentiment. You go over to China, there's EVs everywhere in the U.S., it's still -- you can't get away of every few days, another article written in some paper EV. [ Hertz ] doesn't want them. They're too expensive. I mean how does the sentiment change in the U.S. to help push demand that way?

Look, it's -- the U.S. is a small part of the global picture. So the overall part, that's not really driving it, but it is important for a North American supply chain and frankly, for the U.S. or the West to have an automotive supply chain, ultimately, those will be EVs. And I think the U.S. has to react to that. So I think it -- it's a challenge at the moment, but IRA is not enough on its own. It's just -- it's not doing it.

Okay. Let's transition to talking more about Albemarle as a company as opposed to sort of the macro things that you're dealing with. So I think what's been very topical in the last little while is sort of how you're managing, again, growth. Opportunity is the last mile of some of your projects, especially Kemerton in Australia with trying to maintain a decent balance sheet. So maybe you could talk about -- and you announced the other week, what you were doing with Cap or in general CapEx. But what would -- what would make you take pause and decide to really slow down this last mile capital to really preserve the balance sheet this year?

Yes. So what we're -- and the cuts we made what we're trying to do is thread the needle between the efficiency of the capital that we're spending. So there's -- you said last mile project. So we have projects that are very near finished. And if we were to stop them, they'd be very inefficient from a capital project standpoint and then to restart them later would be very costly. So ultimately, our cost position would be more difficult. And we believe in the long-term growth profile of this business, we think that we need those projects to preserve our growth in the latter part of the decade. So we're trying to thread the needle there and just cut those efficiencies, the projects that it's efficient to cut. And that guide us to the [ 1.6 ],, [ 1.7 ] that we're talking about. And we've taken other costs, we've taken people out of the organization. We're doing things to focus on cash to kind of bolster the balance sheet. We've restructured our credit agreement, so we have a little more flexibility. So that's what we're trying to do to get through this period. It allows us to be efficient and preserve our growth profile. If we can't do that, we'll have to get -- it's more draconian from a CapEx standpoint and very inefficient from those future projects.

If you can elaborate on some of the OpEx levers that you're pulling also. And also -- and is there some potential down the road with your Talison and Greenbushes partners to maybe make those operations more efficient, too from an OpEx into view?

Look, there's an opportunity to make every operation we have more efficient. So we took $300 million out of our -- from a productivity standpoint last year. We'll target to do that again on something of like that. And then will become more mature as a mining organization. We rely on our partners to help us with that. There's efficiency there. But that $300 million I talked about was just primarily at our conversion operations and across the balance of our business between specialties, energy storage and kitchen. But we've got a culture of driving cost out of the business. And as we grow that just -- all of those new projects and new plants create new productivity opportunities. So that -- that's a big part of our structure and how we operate.

I mean what's been also very topical has been what's happening at Greenbush and Talison, right, Greenbush and Talison. Maybe you can talk about that. So distributions didn't occur to yourself in January and the partner is trying to figure out what the year will look like. Maybe you can comment on what you can in that so far?

Yes, it's complicated because there are 3 partners. And I think we're all aligned on what we want to happen. We just need to make that happen through a joint venture that between the 3 of us, we completely control that. So it's just getting alignment and producing and curtailing CapEx in a joint venture. That's probably -- that's more difficult than doing in our direct operation. So it's -- there's just a little lag there, probably not as efficient as we should be as being able to pivot within the joint venture, but we're working with our partners to become more efficient at that.

If I recall, at the Greenbushes JV level, there's $600 million or $700 million of net debt at -- according to IGO. We reported that at the Greenwich's level. Aussie of net debt which I think is a normal level. So it's the balance sheet for the JVs okay, right?

On the balance sheet for the JV is fine.

And okay. And -- and so when do you think you'll be able to update the market on what distributions might look like in the short term?

Well, I'm not sure we would plan to do that until our next quarterly earnings. I'm not -- I mean we're working on driving all of those pieces through the business, but it's something we would do in our -- either -- I don't think we would do it before quarterly earnings.

Okay. Okay, fair enough. So I had a question from the app. It's more of a macro question, but it does relate to Kemerton. So I mean, why are -- the question is, why are all the new lithium hydroxide plants outside China struggling to reach capacity?

I think China is good at this. I mean we've built a number of for these in China and operated, and there's a machine in China that's just very good at this. In Australia, for Kemerton in our case, specifically, we executed that during COVID, and we probably underestimated just the workforce, just take COVID aside, just the chemical processing workforce, people that were in skilled chemical process and capability in Australia and to start up those plants without help. So we've gotten help now. We can bring people in, we bring teams from China. We bring engineering from the U.S. to support that. I think we just -- we underestimated the workforce. We've had to now -- now we're going back and we're training the workforce kind of more or less from scratch for chemical processing, going back to fundamentals and then we're starting to get momentum around that and building that up. So Kemerton is operating. Kemerton I is operating at about half rates, and we're making qualified -- not qualified product on spec material. We still have the final -- not have the final qualification tick from a couple of our customers but we're producing an on-spec material that meet our customers' specifications at about 50% rate, and we think we'll be able to accelerate there. And Train 2, all the lessons we've learned from 1, we can apply to Train 2. We expect that to go much faster but we have to prove that.

And if we -- so going back, so if we think of going to 2025, when you finish up Kemerton and most your capital spend, would you expect '25 would be really close to maintenance capital kind of level if you can -- if things don't improve in the market or maybe a little bit of spending for permitting Kings Mountain a little bit?

So I mean, it depends on the market, right? So -- but if you say the market stays flat, and we'll have much more flexibility in '25. It will be above maintenance capital, but not much. We can cut that pretty much without affecting too much of the assets that are near finished. So we don't have that issue of the inefficiency of cutting a program. This will be about cutting things that are more for the future. But we'll have that flexibility in '25.

Fair enough. Okay. The other thing that I want to talk to you about is what we're really hearing in the industry is kind of a change in how feedstock might work. So maybe the history -- sorry, the future of some brine production would be, say, Argentina, where it's harder to make battery-grade, carbonate, maybe the world shifts to more techno-grade carbonate at the brine producer site, and it's upgraded to battery grade later on or maybe we stop shipping spodumene around the world and we ship lithium sulfate. I mean can you talk about discussions that might be happening around feedstock changes, how that might change your strategy or -- if anything?

Well, yes, you hear those conversations. I don't think anyone's really done that. I mean the upgrading carbonate, technical grade is not new. We do that with Silver Peak Carbonate at Kings Mountain today. So we convert that to battery-grade hydroxide at Kings Mountain. So we've been doing that for a long time. And I think that's a well-worn path. It's -- it adds cost because it's another step and you bifurcated the supply chain, but it does add cost, but it's another way to do it. Sulfate would be I would say, a similar answer. If you can work out where you break it, you'd have to dry it to ship it. There's a bit of inefficiency around that, but you're shipping more condensed material, more dense material when you're -- in terms of lithium, if you ship that around the world, you leave tailings, most of the tailings in the jurisdiction that's used to that as opposed to one that doesn't like that. So Europe, North America, for example. So I think it's a credible strategy, but there's a lot of detail that has to be worked out about it. No one's really done that yet.

You talked about last week -- or the week before, sorry. It was last week. Maybe you wanted to talk about maybe exploring non-core asset sales. I mean, obviously, the catalyst business, you've been looking -- sorry, noncore asset sales, right? You've talked about before or for years, maybe trying to sell Ketjen catalyst. So is it -- is noncore asset to you just for the catalyst business?

Well, I'd say noncore assets is just part of us trying to make our balance sheet a little bit stronger. So there's a number of investments we've made we don't see strategic anymore. So we'll clear those out. We've done a couple of those in the last few months and Ketjen is the big one about that. So we've kind of decided -- we felt like Ketjen need to go through a turnaround program, and we're kind of right in the middle of that. We're trying to manage it like as if we were a private equity company. So we've kind of carved it out of the broader part of Albemarle. We will allow them with more degrees of freedom strategically. We've let them -- they've set up their own incentive programs, and we're on a good path. Now we kind of want to see 3 years of the right level of EBITDA before we go through that process again. Now we could do it sooner if there's interest -- but we're just -- we're trying to optimize that. We felt the last time we went through that, we didn't get the price that we liked, and we thought it was a great asset. We didn't want to sell it at a discount. And I think that's still our view.

Would you look at maybe selling some of the smaller stakes you have in some lithium or spodumene developers?

I think we will look at that. But I mean it depends on where we get to from a price and how -- where we are from a market standpoint. We still want to develop new resources, putting a stake in a small -- in a resource upfront, a small stake upfront, learning and growing that is still a strategy we would like to follow. We think that's the way to get lower-cost resources without paying a fortune for them for the future supply but we have to be able to afford that. And I would say, today, if prices stay where they are, that's not a wrap. That's not something we'll be able to do but the prices recover, we would go back to that. So I want to preserve optionality by keeping them again, if I have that flexibility.

And you're still going to complete some permanent activities at Kings Mountain, like the U.S. spodumene clay, as you have. What would make you restart Kings Mountain and Richburg, the U.S. Mega-Flex plant? What would make -- what has to happen for that to get you started?

I mean I have to have a view of investment economics that we see that. And it's difficult to see that with the prices today, I like to see an indicator where they come back and we see that. And that, that supply in North America really is developing. I think that's going to be a key for us. But frankly, what I do -- when we do the math on the projects, they don't give us good returns at the moment.

So you need to see OEM plans, that's what you're talking like high level, that sort of investment.

Yes.

Okay. So obviously, we saw your competitor in Chile and brine, SQM come to a settlement with Codelco and CORFO. You have leases out to 2040, 2044?

43.

43. Are you engaging discussions with Codelco or it's 20 years to now see you then? Or what's it like?

Well, I think first is we want to let SQM and Codelco do their finish their deal. They did an MOU right? So they don't have the deal yet. So we want to wait and see that. We're not in a rush to do it because we do have the 2043 but once we see what they have and we may have conversations, it allows us to get more resource, more brine in a partnership and going to operate what we have on our own. I mean if it's -- there's a win-win, we would look to execute on something like that. We don't know what that looks like yet, and we're not in a big rush. But I think, first, we want to see SQM and Codelco finish what they put out, see what it really looks like and then we'll take our view then.

I mean I think what's happened in the space in general is investors have really started to value lithium producers as mining companies and giving you mining stock valuations, which probably isn't fair. What has to happen, do you think, to get back your specialty chemicals multiple?

Well, I think we have to stabilize the volatility in the market or at least in our P&L to some degree. It's all the things that we do. We've had the world-class resources, we think we're as good as anyone at building conversion assets, and we've done that on multiple continents around the world. So we think we're very capable of building out and supporting this energy transition as a company and with the strategy that we have. But we have to stabilize the pricing that flows through our P&L. It can go from $80 to $12 in a year, and expect the market to give us specialty chemical returns.

Can I realize you're going to read some opening remarks. Did you want to maybe finish the presentation with opening remarks and make some closing remarks or not?

No, I think -- I mean, we've gotten into it -- if you want me -- I'll close, if you want. Where are we?

I can give you a question. I have a question for closing questions. We're good? Okay.

Yes, I'm fine.

Okay. What do you think investors or -- what are you thinking investors most -- like what's most underappreciated about Albemarle right now, the company, the stock, what do you think people just don't give you credit for it that they should?

Look, I think our biggest issue is the volatility that flows through the P&L. I'm not sure people appreciate the breadth of our resources, the cost position, the diversity across multiple geographies around that. The capability we built to build conversion assets around the world, the technical work that we do with our customers, understanding what the materials will be of the future and then building the supply chain to do that, whether that's salts or lithium metals or sulfide for sulfitic separators. I think there's a broad range of products that we sell today and that we work on to develop future supply chains. And I think we have to tell that story a little better from a technical capability perspective. But the important thing we have to do is try and take all the volatility out of our P&L.

Thanks, Kent. Appreciate it.

Thank you very much.