Albemarle Corporation
Q4 2020 Earnings Call Transcript

Published: 18 Feb 2021

[Operator:]

Ladies and gentlemen, thank you for standing by. And welcome to the Albemarle Corporation Q4 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. . Please be advised that today’s conference is being recorded.

[Meredith Bandy:]

All right. Thank you, Joelle. And welcome to Albemarle’s fourth quarter 2020 earnings conference call. Our earnings were released after the closing the market yesterday and you will find the material 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 conference call including our outlooks, expected company performance, expected impacted 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 in our press release and that same language applies to this call. Please also note that some of our comments today refer to financial measures that are not prepared in accordance with GAAP, a reconciliation of these measures to GAAP financial measures can be found in our earnings release and the appendix of our presentation, both of which are on our website. Now, I will turn the call over to Kent.

[Kent Masters:]

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 a result 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.

[Scott Tozier:]

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 reduce prices and lithium has 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 fulfilling their full year contract commitments. Cost savings 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. Catalysts EBITDA declined by $53 million, primarily due to lower volumes. This business continues to be the most challenged of the three 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.

[Kent Masters:]

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 2 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 three of our businesses. And with that, we'd like to open up the call for questions. So Joule, over to you.

[Operator:]

Thank you. Our first question comes from David Begleiter with Deutsche Bank. Your line is now open.

[David Begleiter:]

Thank you. Good morning, Kent, on recycling in 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?

[Kent Masters:]

So, let me -- I'll start with that, maybe Eric can give a little bit more details. 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. So basically, there has to be enough lithium in the market to - for it to run its lifecycle in a vehicle and then come back for recycling. So -- and I think our roll in that. I mean, we'll have to look at those business options. But when you see 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?

[Eric Norris:]

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 the EU, for example, are still being set and being discussed. The industry is offering its views on technology as our way 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.

[David Begleiter:]

Thank you. And just on your Wave 3 projects you listed on slide eight. When should we see, expect a formal announcement, and which projects will be moving forward? And how do you rank order these projects, right now, in your mind as likelihood of moving forward first?

[Kent Masters:]

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 point where it could be an acquisition. And then, an acquisition use in 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'd probably come to a FID on that late 2021, depending on whether it's an acquisition or a Greenfield.

[David Begleiter:]

Thank you very much.

[Operator:]

Thank you. Our next question comes from Ben Kallo with Baird. Your line is now open.

[Ben Kallo:]

Thanks for taking my question. Maybe I'm just taking a step back. Could you talk a bit about just visibility in your lithium sales as we move into next year? Like we see all these announcements from big auto OMS 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 meet -- weaving in next year going from I think the Streets are like $850 million this year to over $1 billion of EBITDA next year. Not to ask for guidance for 2022, but just can you give us some puts and takes for growth in 2022 with both volume and then how you think about pricing as well? Thank you.

[Eric Norris:]

Good morning, Ben. This is Eric Norris. First in terms of the visibility, we see near term, which I think was your first question. We have two 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 a customer to commit anywhere from three to five 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 is quite reasonable and good in that regard, giving us the 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.

[Ben Kallo:]

My second question was just -- the Street is modeling about 20% growth, and it's mostly coming from lithium from 2021 to 2022. 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 then how we should think about that versus pricing that maybe rebounds as you move to new contracts?

[Scott Tozier:]

Yes. Ben, this is Scott. I'll take that question. So as you look into 2022, the volumetric growth coming from lithium with the startup 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.

[Ben Kallo:]

Great. Thank you, guys.

[Operator:]

Thank you. Our next question comes from Chris Kapsch with Loop Capital Markets. Your line is open.

[Chris Kapsch:]

Yes. Good morning. Thanks for taking my questions. 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 the outlook from 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?

[Kent Masters:]

Morning, Chris. So relative to the demand question in the mix, it is weighted towards hydroxide. If you look at the market today, we see it being sort of a 30/70 split. And by the -- 30% hydroxide, that would bring 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 LSP. But to enable the growth targets of the Western OEMs in particular, and the range they're looking for energy density is going to be hydroxide. And that's true even in 2021. The rate of growth we see for demand in 2021 is incrementally higher for hydroxide that it is 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, look at Wave 3, the predominance of that is going to go towards hydroxide for the reasons I just referenced.

[Chris Kapsch:]

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 as the tone of the conversations given that the world kind of has changed over the last three to six months. If they feels like the leverage has shifted back from them to the suppliers given maybe concerns about security of supply? Thanks.

[Kent Masters:]

Yes. So I'll start with that, and then maybe Eric gives some color. We're 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, the leverage really has shifted, but it is 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. There'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.

[Eric Norris:]

The only thing I would add Kent and Chris is that these contracts, you've characterized them, Kent, as if or Chris, as if they 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 are going to be like the old variety, but the vast majority is going to be variable based pricing that reflects some market index, 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.

[Chris Kapsch:]

Very helpful. Thanks.

[Operator:]

Thank you. Our next question comes from Lawrence Alexander with Jefferies. Your line is open.

[Laurence Alexander:]

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

[Kent Masters:]

Yes. So on recycling, I think, I would say it's really we're investing R&D 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 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, we're not sitting and waiting till we get the returns that we expect. And the kind of the biggest driver for that is there's not going to be no lithium that's coming through the lifecycle to feed recycling processes for another number of years. And I'm sorry, the second question?

[Laurence Alexander:]

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

[Kent Masters:]

Yes. So, I mean, the specs are evolving. And but I don't know the processing costs are really going up. So we're driving hard on productivity to try and 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 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.

[Laurence Alexander:]

Thank you.

[Operator:]

Thank you. Our next question comes from Mike Harrison with Seaport Global Securities. Your line is now open.

[Mike Harrison:]

Hi, good morning. 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 look like volume would have been big enough to make that up on its own.

[Scott Tozier:]

Yes. This is Scott. I would 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 costs, 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 the engineers are able to get out of our plants. So all pointing in the right direction for us.

[Eric Norris:]

And I would add to that. That mean those productivity improvements, that mean, they flow through, it's much more difficult to get them in 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.

[Mike Harrison:]

Understood. Okay. And then over on the catalysts side, you mentioned the changing customer order patterns affecting maybe the cadence of the year. But I wanted to dig in a little bit on this customer that de-selected 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?

[Kent Masters:]

Yes. So difficult to predict the future, but we kind of see it as kind of one customer 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.

[Mike Harrison:]

All right. Thanks very much.

[Operator:]

Thank you. Our next question comes from Arun Viswanathan with RBC Capital Markets. Your line is open.

[Arun Viswanathan:]

Great. Thanks for taking my question. Just curious on the pricing outlook, you commented that maybe, your overall pricing would be down a little bit year-on-year in 2021 versus 2020. 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 and 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'd be helpful? Thanks.

[Kent Masters:]

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 for the contract prices we haven't really seen. But as I'd 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 of 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, that could give us some upside. But at the moment those prices are still below our contract prices.

[Eric Norris:]

And so I'd add to that. The prices in China that you're seeing are largely carbonate, and have largely inflected in the past two 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 and 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 its outlook. So it's an encouraging sign. And the way we've got our contracts structured, should it continue broaden and deepen over time that trend, then we're in 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 -- 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 is going to get pretty tight.

[Arun Viswanathan:]

Great. Thanks for that detail. 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 2017 and 2018? And also maybe you can just comment on that as it relates to spodumene as well? Thanks.

[Kent Masters:]

Yes. So I would say I mean, we're predicting the future, right? And this industry is really only been through one 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.

[Eric Norris:]

Yes. On spodumene, we are -- because of what's happened in China, what's really -- the reason we believe prices have spikes in China is a fundamental shortage now -- available carbonate inventory and available spodumene supply and inventory. So what's that meant is now prices have started to inflect upward for chemical grades 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.

[Operator:]

Thank you. Our next question comes from Vincent Andrews with Morgan Stanley. Your line is now open.

[Vincent Andrews:]

Thank you. Thank you for taking my question. I just wanted to bridge the Wave 3 on slide eight with sort of the plans from when you did the MARBL JV. And just looking back at that slide, you were going to build two stages of 50,000 tons of LCE at Wodgina, and it was going to be $1.6 billion split between the two parties. 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 than China. Just if he could just help us bridge that that'll be very helpful?

[Kent Masters:]

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 second 50,000 would be in China. And that would be probably that first project that we were talking about in the Wave 3 projects.

[Vincent Andrews:]

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

[Kent Masters:]

Yes. Absolutely. So it'll be quite a bit less than a Western Australia plan.

[Vincent Andrews:]

Okay. And if I can 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?

[Kent Masters:]

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 on our plans for being a resource. It's a very good quality resource. So it's there. I don't know off the top -- and I don't want to commit to when we bring that resource on. But it would be as we start into these phase 3 projects, when we would need that-- need that resource.

[Vincent Andrews:]

Thank you very much. I really appreciate it.

[Operator:]

Thank you. Our next question comes from Kevin McCarthy with Vertical Research Partners. Your line is now open.

[Unidentified Analyst:]

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

[Kent Masters:]

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 six to nine 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 lower capital intensity, higher return growth projects. Magnolia, for example, it's great jurisdiction for us. We've been there for decades. And we know those assets well. That really lends itself to investments that have a quicker return and a higher return. And those are the ones we'll leverage as we grow this business going forward.

[Unidentified Analyst:]

Thank you. And if I'm 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 raises recently, would you consider separating the balance of your catalysts business at some point?

[Kent Masters:]

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 those deals to get signed. On catalysts, 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, and all of those issues. But we still think we like the strategy of kind of becoming no 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 are core part of our businesses. Three businesses we have in the portfolio are all core for us.

[Unidentified Analyst:]

Understood. Thank you very much for the color.

[Operator:]

Thank you. Our next question comes from Jeff Zekauskas with JP Morgan. Your line is now open.

[Jeff Zekauskas:]

Thanks very much. You're bringing on 50,000 tons in Kemerton, 30,000 of which is yours, 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 three-year period, much stronger than people thought before? So as the base case, how many tons do you expect to sell out of those two 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?

[Kent Masters:]

So, Eric, if you want to look at the 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 in growth mode, we've done this one other time before as part of Wave 1, Wodgina II. 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. Kemerton -- is Greenfield, considering that 50% feels reasonable. And the same with La Negra as well, for 2022.

[Jeff Zekauskas:]

Right? And for my follow-up, is there any volume or EBITDA benefit from either of these two 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 2021?

[Kent Masters:]

Yes. I don't think you're going to see much in 2021. I mean, we've got increased costs, because we're commissioning, bringing those on. And if we were to -- if we could accelerate and get a little bit of sales, it'd be offset by those costs. But I wouldn't be planning on benefit in 2021. And initial -- and initially is most likely will feel that -- the Kemerton from the initial phases with Talison product.

[Jeff Zekauskas:]

Okay, great. Thank you so much.

[Operator:]

Thank you. Our next question comes from PJ Juvekar with Citigroup. Your line is now open.

[PJ Juvekar:]

Yes. Hi. Good morning. Currently in China, the carbonate prices are higher than hydroxide prices, because of comeback of the LSP 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?

[Eric Norris:]

So on the first question, PJ, Good morning, it's Eric here. The carbon delta on carbonate and the inversion of carbonate being higher than historically -- historically hydroxide is a buck or two lower. We think that's a dislocation of a rapidly responding China market, which is largely carbonate and not a longtime trend. It's important to understand that a lot of the hydroxide market is supplied by low cost brine producers of which Albemarle is one, converting to hydroxide, which is what we do at Kings Mountain. And without that supply, there's not enough market, there's not 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. PJ your second question was what again, please?

[PJ Juvekar:]

So you have contracts that were reset in 2020 lower, and they were expected to go back to the original price in 2021?

[Eric Norris:]

Well what -- 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 -- we have converted of several of them over and struck new ones based upon a market reference price, either and all or a 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 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.

[PJ Juvekar:]

So Eric, if I heard you, right, 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?

[Kent Masters:]

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 is a price is well above. We're not going to agree to that unless it's well above market. But that's one segment of the customer base. Another segment and a big chunk, want some variability to say that they're 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 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 a 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.

[PJ Juvekar:]

Great. Thank you for that.

[Operator:]

Thank you. Our next question comes from Bob Koort with Goldman Sachs. Your line is now open.

[Bob Koort:]

Thank you very much. I wanted to explore, a little bit more on the MARBL integration with how you plan your lithium expansion. So a couple questions there. What will be the transfer price from Talison to the Kermerton 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?

[Scott Tozier:]

Yes. So well, I would say the short answer on that is that with in our original agreement that we would do two of the 50,000 tons, and then the next one we expect to do would be the one in China. And that's part of the JV. So we -- the JV was done cause one, to get the resource for the Wodgina mine, we have that. And also their expertise in mining to help us on that side, because we're more 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, other conversion project with them.

[Bob Koort:]

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? Thanks.

[Kent Masters:]

Yes. So on the transfer price, I mean, it's a kind of established market price that we were following Australian tax rules around that. And so it's a market -- I would say it's a market price, arm's length market transaction around that. And then the thermal evaporator, I mean, it was a return project that'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.

[Bob Koort:]

Great. Thanks very much.

[Operator:]

Thank you. Our next question comes from Mike Sison with Wells Fargo. Your line is open.

[Mike Sison:]

Hey, guys, good morning. Just one quick question on your 2025 forecast. Do you in the sort of pundits believe the industry can sort of support that by then. And then how much capacity do you hope to have on online by 2025 to support that growth?

[Kent Masters:]

So 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 was that we kind of maintain our share in there. Eric, maybe you want talk about the capacity in 2025. I don't have that number in my head.

[Eric Norris:]

Well, I think a rule of thumb way to think about our capacity growth, and the plans that we put forth for Wave 3 and for Wave 4 to sustain our leadership and grow with the market. It's going to be hydroxide weighted the growth. We already comment on that earlier, in an earlier question. And it's going to require as you get on the middle part of the decade us to 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 a decade and beyond. So approximately speaking, you're talking about 150,000 tons of growth a year in the market price, or in that neighborhood, Mike and are bringing on 50,000. That's the kind of pace we're looking at.

[Mike Sison:]

Great Thank you.

[Operator:]

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

[Kent Masters:]

Okay. Thank you, Joelle. In closing, Albemarle is well-positioned to capitalize on long term growth trends for all three 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.

[Operator:]

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