Albemarle Corporation held a Q2 2023 Earnings Call, led by Meredith Bandy, Vice President of Investor Relations and Sustainability. Joining her were Kent Masters, Chief Executive Officer; Scott Tozier, Chief Financial Officer; Netha Johnson, President of Specialties; and Eric Norris, President of Energy Storage. The earnings from the second quarter showed an increase in net sales and EBITDA from the same period last year. Albemarle also increased their energy storage outlook for 2023 based on current market prices. The company also signed a strategic agreement with Ford to supply over 100,000 metric tons of lithium hydroxide over a 5-year period, starting in 2026. Albemarle is committed to sustainability, which is one of the reasons customers choose them.

In Q2, Albemarle's net sales increased by $1 billion and net income attributable to Albemarle was approximately $650 million. Albemarle was included in the Fortune 500 rankings and TIME100 Most Influential Companies list, and they continue to invest in future capacity. The Salar yield improvement project and Meishan project in China are ahead of schedule. They reached agreements in principle with the Department of Justice on a matter from 2018 that included an accrual of $219 million.

The company is raising its 2023 guidance for net sales and adjusted EBITDA to reflect current lithium market prices. They expect net sales to be in the range of $10.4 billion to $11.5 billion, adjusted EBITDA to be in the range of $3.8 billion to $4.4 billion, and adjusted diluted EPS to be in the range of $25 to $29.50. However, their net cash from operations is expected to be lower due to higher working capital related to the timing of their energy storage shipments.

Albemarle is increasing its full year 2023 energy storage net sales guidance to be in the range of $7.9 billion to $8.8 billion, with an expected volume growth of 30-40% and average realized pricing increases of 20-30%. Specialties net sales are expected to be in the range of $1.5 billion to $1.6 billion, and adjusted EBITDA is anticipated to be between $385 million and $440 million. The DOJ payment of approximately $219 million is expected to be made by year-end, and capital spending is in line with previous forecasts. Maintenance and inventory reduction has been pulled forward to maximize efficiency and free cash flow in the second half of 2023.

Ketjen is expecting a 325-425% increase in adjusted EBITDA for 2023 due to insurance recoveries, increased refining prices, and improved processing costs. The net sales mix for 2023 is expected to be 80% index referenced variable price contracts and 20% spot. Energy Storage volume is expected to increase 30-40% in 2023, with a 20-30% CAGR by 2027. EBITDA margins are expected to be around 45% for 2023, though they may normalize from the high levels seen in late 2022 and early 2023 due to a lag in spodumene inventory.

Albemarle is investing in organic growth projects, M&A opportunities, and battery recycling, such as the acquisition of Western Lithium subsidiary of Lithium Power International and an investment in Patriot Battery Metals. They are also expecting lower lithium prices and a 5% lower reported margin in 2023 due to the accounting treatment of the MARBL joint venture.

Albemarle is investing in a spodumene deposit in Northern Quebec with a 4.9% interest, and is maintaining its disciplined M&A process and investment-grade credit rating. Through the "Albemarle Way of Excellence" and initiatives like Project AI, they are targeting $250 million in productivity benefits over the next two years, with $150 million from manufacturing excellence and $100 million from capital projects excellence.

In four global projects, SQM has achieved mechanical completion on time and on budget. Kemerton I is producing battery-grade products, Kemerton II-IV are in execution, Qinzhou is ramping up on budget and on schedule, and Meishan is ahead of schedule with mechanical completion expected in early 2024. SQM has amended the terms of the transaction with Mineral Resources, with SQM acquiring 100% ownership of Kemerton and retaining 100% ownership of Meishan and Qinzhou, and exchanging a 10% interest in Wodgina for a 25% interest in Kemerton. SQM expects to pay Mineral Resources $380-$400 million upon closing.

Albemarle is expecting to close a transaction later this year after receiving Australian regulatory approvals. EV sales have been growing steadily, with global sales up 41% and China up 45% year-over-year through June. Lithium market pricing has also seen a rebound due to downstream restocking and strong EV and battery production. Albemarle is well-positioned to meet customer demand due to its scale, global footprint, and vertical integration. The company is anticipating 2023 sales to be up 40-55% with healthy margins.

The company is investing in early-stage hard rock assets in Australia and Canada to pivot their M&A strategy, taking smaller stakes with more risk to get their foot in the door. They are also looking into opportunities in South America and the United States.

Jerry Masters discusses how the company has been building conversion facilities organically and pivoting towards resources in order to utilize them with the existing conversion facilities. He states that they need to identify additional resources by the end of the decade in order to be prepared for the future. He also mentions that they will look into resources in North America, Canada, Western Australia, and South America, taking into consideration geopolitical stability and permitting issues.

Eric Norris and Jerry Masters answer Colin Rusch's two part question. The first part is about how they are handling volumes that are going to large OEMs in the U.S. and Europe, and the second part is about the viability of pressure leaching process as a way to simplify supply chain logistics. Masters asks Rusch to clarify the second comment, and Norris takes the first part of the question.

The majority of OEM contracted volumes are for mid-decade onwards and battery producers are securing lithium needs for today. EV sales in June saw 40% growth and early data from China in July looks promising. Though there have been headlines of certain EV models slowing in the U.S., the rest of the market and the demand is strong. The company is researching autoclave process and other process chemistry and extraction techniques for the future, but it is still early technology and won't be in scale production for the next few years.

David Deckelbaum asked Jerry Masters and Scott Tozier how the Mineral Resources restructuring and MARBL JV would affect Albemarle's growth investments and balance sheet management. Masters and Tozier affirmed that they were being disciplined in their investments, but also wanted to take advantage of opportunities as they arose. Tozier added that the strong balance sheet gave Albemarle a competitive advantage. Deckelbaum then asked for a more specific estimate of tolling volumes for the rest of the year.

Eric Norris and Jerry Masters discuss the increase in tolling volumes from the previous year due to the lag in finding the right tollers and partners, as well as the spodumene availability being back-end loaded. They explain that the market was weak in January and February which caused them to not aggressively pursue incremental volumes. However, the market is now strong due to the growth in EV sales and the demand for product in all regions. The MinRes deal will also provide additional conversion capacity which means they can do less tolling and produce more self-produced resources.

Scott Tozier explains that the rise in inventory is due to an increase in volume and tolling, as well as higher spodumene prices. He also mentions that the inventory levels, when measured in days, are consistent with what they would expect. Matthew DeYoe then asks about MARBL's comments on trade relationships between China and Australia, and whether or not they think they are wrong.

Jerry Masters and Eric Norris discuss the sustainability of feedstock for their China conversion network. They note that Australia is a stable economy with minimal geopolitical risk, making it a good location to operate in from a mining standpoint. Additionally, they mention that their resource base is in Australia, Western Australia, North America, South America, and Chile, and they plan to focus on these areas as they have low-cost first quartile cost position resources.

Albemarle has pivoted to be more index-based in their contracts and has decided to provide guidance by taking the current market price and forecasting it for the rest of the year. This is the methodology they will use for the foreseeable future.

The goal of the company is to forecast lithium prices in the future with confidence, but that is not achievable in the near term. To ensure success, they are investing in Patriot and other partnerships to become more integrated in the resource and conversion process. This will ensure they can guarantee the quality and production of their products, and they are actively working on identifying and owning additional resources to ensure they have enough supplies until the end of the decade.

Scott Tozier answered a question about the impact of the restructuring of the MARBL joint venture on margins, saying that there would be a headwind for a period of time, but that the margin rate would ultimately improve by 5 percentage points. Jerry Masters then discussed the acceleration of the Meishan project, attributing it to a combination of improved project execution and the greater capability in China to execute large projects.

Jerry Masters explains that the ability to execute projects around the world has improved significantly in the past few years and that the capital costs and speed of execution will vary depending on the region. Scott Tozier adds that it is too far out to predict the volume growth and EBITDA for energy storage in 2024.

The company is expecting a volume story for next year, and pricing will be a question mark. They do not anticipate any big changes in the contract structures and believe the market will remain tight with significant demand growth and matched supply growth. Fixed costs on a unit basis will go down as capacity is added through the end of the decade.

Eric Norris explains that there is seasonality in EV sales, with demand typically stronger in the second half of the year. However, in January there was a weak demand in China due to the timing of the new year. Despite this, EV demand has remained strong and grown by 40% in the first half of the year. In response to a question about Salar Yield, Jerry Masters explains that it is a yield improvement that leads to an increase in volume and shape or timing of the yield.

Scott Tozier explains that the increase in Energy Storage guidance is due to higher prices, while Jerry Masters states that they have plans to exploit their assets in the Smackover and Magnolia regions of Arkansas for lithium production. Eric Norris adds that the Salar Yield project will allow them to reach their nameplate capacity of 85,000 tonnes, with the benefit of the project being seen within 6 months.

Jerry Masters of Magnolia Minerals discussed their proprietary technology for processing bromine for lithium, which involves DLE and absorption based technology. They are in the process of building pilot plants and plan to execute projects based on this technology. They have access to the brines and the infrastructure needed to take advantage of this opportunity. He concluded the conference call by expressing their confidence in the market opportunity and their strategy to achieve both short-term and long-term results.

This summary was generated with AI and may contain some inaccuracies.