Q4 2024 Earnings Call Transcript

Hello, and welcome to Albemarle Corporation's Q4 2024 earnings call. I will now hand it over to Meredith Bandy, Vice President of Investor Relations and Sustainability.

Thank you, and welcome, everyone, to Albemarle's Fourth Quarter 2024 Earnings Conference Call. Our earnings were released after the market yesterday, and you'll find the press release and earnings presentation posted to our website under the Investors section at albemarle.com. Joining me on the call today are Kent Masters, Chief Executive Officer; and Neal Sheorey, Chief Financial Officer. Netha Johnson, Chief Operations Officer; and Eric Norris, Chief Commercial Officer, are also available for Q&A.

As a reminder, some of the statements made during this call including our outlook, guidance, expected company performance and strategic initiatives may constitute forward-looking statements. Please note the cautionary language about forward-looking statements contained in our press release and earnings presentation, which also applies to this call. Please also note that some of our comments today refer to non-GAAP financial measures. Reconciliations can be found in our earnings materials.

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

Thank you, Meredith. For the fourth quarter, we reported net sales of $1.2 billion and an adjusted EBITDA of $251 million with year-over-year EBITDA improvements in all of our business segments. Turning to the full year of 2024. We achieved an adjusted EBITDA of $1.1 billion in line with our outlook considerations due to significant productivity and cost improvements, higher volumes and strong contract performance. Our Energy Storage segment delivered a 26% year-over-year increase in sales volumes, surpassing our initial guidance of 10% to 20% growth, driven by successful project ramps and increased spodumene sales.

We also generated $702 million in cash from operations with an operating cash conversion rate exceeding 60%, which is above our target of 50% and in line with our long-term objective. Albemarle continues to act decisively across four key areas: optimizing our conversion network, improving cost and efficiency, reducing capital expenditure and enhancing financial flexibility. We'll touch on each of these areas in more detail later in the call. As part of these initiatives, today, we're announcing new measures to further optimize our global conversion network, including placing the Chengdu lithium conversion facility into care and maintenance by midyear of 2025 and shifting capacity at our Qinzhou lithium conversion facility somewhat from hydroxide to carbonate.

As we did last year, we are providing our outlook based on a range of lithium market prices, including a new $9 per kilogram scenario and updated $12 to $15 per kilogram and $20 per kilogram scenarios. Compared to 2024, we have improved our outlook across these ranges due to our ongoing efforts to enhance productivity and reduce cost. Additionally, we have further decreased our full year 2025 CapEx outlook by an additional $100 million, we now expect to spend in the range of $700 million to $800 million. Thanks to these and other measures, we now have line of sight to achieve breakeven free cash flow in 2025. Now I'll turn it over to Neal, who will provide more details on our full year and fourth quarter performance, outlook considerations and market conditions.

Then I'll conclude our prepared remarks with updates on our long-term competitive position, strategic framework and execution.

Thank you, Kent, and good morning, everyone. I will begin with a review of our fourth quarter and full year 2024 performance on Slide 5. In the fourth quarter, we reported net sales of $1.2 billion, which represented a year-over-year decline primarily due to lower lithium market pricing. Fourth quarter adjusted EBITDA was $251 million, an increase year-over-year driven by improvements across all 3 businesses as well as reduced corporate costs. Note that last year's adjusted EBITDA included a $604 million lower of cost or market pretax charge.

Earnings per share for the fourth quarter were $0.29. Adjusted earnings per share reflected a loss of $1.09, excluding gains on asset sales, reduced restructuring charges and discrete tax items. For the full year 2024, net sales were $5.4 billion, marking a year-over-year decrease primarily related to lower lithium pricing, partially offset by robust growth in lithium volumes. Full year EBITDA reached $1.1 billion, in line with our outlook considerations. Slide 6 shows the drivers of our year-over-year EBITDA performance.

Our Q4 adjusted EBITDA of $251 million surpassed last year's result due to higher volumes, productivity and lower COGS. The EBITDA volume benefit was driven by higher volumes in specialties and the conclusion of the MARBL JV marketing agreement at the end of 2023. The COGS improvement was split between lower spodumene costs and reduced lower of cost or market adjustments. These benefits were partially offset by lower pricing and pretax equity income, mainly from reduced lithium and spodumene market prices. As Kent mentioned, adjusted EBITDA improved year-over-year in all 3 business segments, and we also reported lower corporate overhead costs.

Moving to Slide 7. We present our outlook considerations for 2025. As we did last year, we are providing ranges of outcomes for our energy storage business based on recently observed lithium market pricing, including year-end 2024 market pricing of about $9 per kilogram lithium carbonate equivalent, or LCE, the first half 2024 range of $12 to $15 per kilogram LCE and the fourth quarter 2023 average of about $20 per kilogram LCE. Within each scenario, we have provided ranges based on expected volume and mix. We anticipate that energy storage volumes will be slightly higher year-over-year. All three scenarios reflect the results of assumed flat market pricing across the year in conjunction with Energy Storage's current book of business.

These scenarios illustrate the improved stability of our Energy Storage business. Given our extensive resource positions worldwide and our cost and productivity actions, we can sustain margins even with lower year-over-year lithium pricing. Additionally, we have maintained significant operating leverage with potential to benefit if pricing increases. For example, if market pricing were to average $12 per kilogram LCE, similar to last year, we would expect to see margin improvement rising from the mid-20% range that we delivered in 2024 to the mid-30% range.

Moving to Slide 8. We present modeling considerations for Specialties, Ketjen and Corporate. Specialties 2025 net sales are projected to be $1.3 billion to $1.5 billion with adjusted EBITDA of $210 million to $280 million. Ketjen's 2025 net sales are projected to be $1 billion to $1.1 billion with adjusted EBITDA of $120 million to $150 million. The Corporate outlook shows a planned decrease in capital expenditures, which are now expected to total $700 million to $800 million in 2025, down from $1.7 billion in 2024. Corporate costs in 2025 are expected to range between $70 million and $100 million.

We are seeing the benefits of our nonmanufacturing cost improvements and the changes in our operating structure. Corporate costs in 2025 are expected to decrease year-over-year, excluding favorable FX and interest income in the prior year. Adding it all together, slide 9 presents Albemarle's comprehensive company roll-up for each energy storage market price scenario. Recall that the full year 2024 included approximately $100 million of pretax equity income from onetime additional offtake by our JV partner at Talison.

Notably, assuming a consistent average lithium market price of $12 per kilogram LCE in 2025, we expect cost and productivity improvements to more than compensate for the reduced equity earnings. Turning to Slide 10 for additional outlook commentary by segment. For Energy Storage, we anticipate volumes to be slightly higher year-over-year primarily due to the ongoing ramp of the Salar yield improvement project in Chile. In addition, we continue to ramp our conversion sites, including Meishan and Kemerton, which helps improve fixed cost absorption and result in reduced tolling volumes.

Last year, we indicated that about 2/3 of our lithium salts volumes were sold on contracts, including both long-term agreements with floors and other contracts. For 2025, we've indicated that 50% of our lithium salts volumes are sold on long-term agreements with floors. This number now excludes other contracts to help simplify modeling. Our contracts continue to perform, and we have no significant contract renewals this year.

We continue to have additional sales on contracts with volume commitments, giving us greater confidence in our volume expectations for this year. We foresee a modest volume-led recovery in Specialties year-over-year driven by strength in pharma, autos and oilfield applications. Finally, in Ketjen, we expect modest improvements in 2025 results related to product mix, cost and productivity improvements and continued execution of our turnaround plan. Please refer to our appendix slides in the deck for additional modeling considerations across the enterprise.

Turning to our balance sheet and liquidity metrics on Slide 11. We concluded the fourth quarter with available liquidity of $2.8 billion predominantly comprising $1.2 billion in cash and cash equivalents and the full $1.5 billion available under our revolver. The measures we have implemented to enhance our cost structure and operational efficiency have also increased our financial flexibility. As a result of our proactive actions to reduce costs and optimize cash flow, we ended Q4 with a net debt to adjusted EBITDA ratio of 2.6x, favorable to previous expectations. For additional information on covenants, please refer to the appendix.

We have a single upcoming maturity, which is our EUR 372 million Euro notes at 1.125% 8 percent due in November of this year. Given the favorable rate, there is no immediate urgency to refinance, and we continue to evaluate our options for managing this maturity. Slide 12 shows our focus on execution and converting our earnings into cash, evident in improved operating cash flow conversion due to operational discipline and cash management. For 2024, operating cash conversion was 62%, surpassing our target of 50% and aligning with our long-term target range.

This was driven by increased Talison dividends from higher Greenbushes sales volumes and inventory and cash management improvements across operations. Looking to 2025, we expect our cash dividends from Talison in the year to remain below historical averages as Talison completes the CGP3 project at the Greenbushes mine. Nonetheless, we expect operating cash flow conversion to exceed 80% in 2025, above our long-term target range, due to ongoing working capital improvements and a $350 million customer prepayment. This prepayment relates to a recently signed contract for delivery of spodumene and lithium salts over the next 5 years at market index prices.

As you see here, our efforts to enhance operating cash flow and cash flow conversion are paying off. This focus is evident in our free cash flow expectations this year. We now have line of sight to breakeven free cash flow through new capacity ramp-ups, inventory management, bidding events, cost and productivity measures and other cash conversion enhancements. Turning to Slide 13. I will provide some comments on the current conditions of the lithium market.

We are in the process of updating our longer-term supply-demand forecast in light of recent policy and market developments. We expect to provide a more comprehensive update with our first quarter results. Lithium remains crucial to the energy transition and the long-term drivers of our business remain strong. The global energy transition is undoubtedly progressing.

It is a matter of when, not if. In 2024, electric vehicle registrations increased by 25% year-over-year. Sales reached a new quarterly record in Q4 with December achieving all-time highs for both BEVs and PHEVs. Sales are influenced by customer preferences and the availability and cost of different models.

As early as next year, we anticipate that consumers will find EV prices comparable to those of internal combustion engine vehicles. Global battery costs have fallen below the critical $100 per kilowatt hour pack average, which supports the relative EV affordability. Plus, EVs represent only a portion of the broader picture. Grid storage demand is also performing exceptionally well, increasing by nearly 50% year-over-year in 2024 driven by installations in the United States and China.

Grid storage demand now constitutes nearly 20% of global lithium demand, up from less than 5% a few years ago. On the supply side, there have been several announced curtailments both upstream and downstream. Nonintegrated hard rock conversion remains unprofitable and larger integrated producers are facing pressure. Our estimates of pressure on the global cost curve are unchanged.

We think that at least 25% of the global resource cost curve is either at or below breakeven. Slide 14 details 2024 global EV growth by region. China's demand was the key global driver by far, with demand increasing 37% year-over-year driven by balanced subsidies for battery EVs and plug-in hybrids. China now represents about 65% of the market demand.

Europe had the weakest demand due to reduced subsidies and economic challenges, but potential price cuts and emissions targets may boost growth in 2025. North America grew 14% year-over-year with U.S. trends improving due to more model availability and affordability. Overall, these trends reinforce confidence in the industry's long-term growth potential but continue to highlight that the regional dynamics are important factors to consider as the industry expands. I'll now hand it back to Kent.

Thank you, Neal. Moving on to Slide 15. I will discuss the major initiatives we are implementing to reset our cost structure. These measures will enable us to sustain our leadership position and be competitive across the cycle. Moving to Slide 16. It is essential to place our recent initiatives within the context of the measures we have been implementing over several quarters as we navigate the current business environment.

This year, we are optimizing our conversion network, including new actions at Chengdu and Qinzhou, improving cost and efficiency with significant progress toward our $300 million to $400 million target for cost and productivity improvements, reducing capital expenditures as we refine our 2025 execution plans and enhancing financial flexibility. Taken together, we now have greater confidence in our ability to achieve breakeven free cash flow as early as this year at current price levels. Our initiatives are comprehensive and designed to sustain our long-term competitive advantages in response to market conditions.

As the dynamic environment persists, we are continually adding to our list of potential actions so that we can adapt as necessary. Turning to Slide 17 for additional details. The shifting market underscores the need for a globally diversified conversion network with product flexibility. As previously mentioned, we are optimizing production from both our carbonate and hydroxide assets. achieving record production at the La Negra lithium carbonate plant in Chile and the Meishan lithium hydroxide plant in China.

As we have reviewed our conversion network for improvement opportunities, we have made the decision to place our Chengdu plant on care and maintenance due to market conditions and shifting product mix. Chengdu is a relatively small plant with a capacity to produce approximately 5,000 tons of lithium hydroxide annually. We will continue to service those customers through the ramp of newer, larger plants in Chile, China and Australia. This approach will enable us to provide high-quality secure supply to our customers while driving network efficiencies and better leveraging our scale.

Moreover, we have identified a highly capital-efficient project at Qinzhou to shift conversion capacity partially from hydroxide to carbonate in response to strong market demand. In Australia, performance of our Kemerton lithium hydroxide facility continues to improve, and the site recently commenced its first battery-grade commercial sales. On the resources front, we are focused on preserving and maximizing the value of our advantaged low-cost resources. The Salar yield improvement project has exceeded a 50% operating rate milestone and is progressing towards nameplate capacity.

We are leveraging our brine expertise, for example, in hydro geological mapping, to maximize recoveries at every stage of the resource. At Greenbushes, CGP3 is expected to produce its first ore in the fourth quarter of 2025, providing additional feedstock for increased lithium salts volumes in 2026. The Talison team, together with our JV partners, has undertaken technical studies to optimize Greenbushes' operation over the life of the mine. Please refer to Slide 18 for more details on cost and capital considerations. We've achieved over 50% of the $300 million to $400 million cost improvement announced the last quarter as we moved quickly to execute on our plans.

Our goal is to reach a full run rate by year-end, possibly sooner. Additionally, we're reducing 2025 capital expenditures by $100 million to $700 million to $800 million, down more than 50% from 2024. This result stems from a more detailed review of our projects. Full year 2025 CapEx will focus on core assets with priorities on health, safety, environmental improvements and cost reductions. Moving to Slide 19. The actions being taken are intended to preserve Albemarle's competitive advantages and position the company for long-term value creation as outlined by the strategic framework on Slide 20. Our strategic framework continues to guide how we operate Albemarle as we lead the world in transforming essential resources into critical ingredients for modern living.

Our vision is still the same. We want to lead with impact and be purpose-driven. The markets we serve are unchanged. Both of our core businesses have enormous secular growth opportunities across mobility, energy, connectivity and health, including the energy transition, electrification, population growth and shifting demographics.

I want to feature on that next row of boxes, which highlights our strategic and competitive advantages. And they're highlighted in more detail on Slide 21. First, our industry-leading resources are unmatched with large-scale, high-grade and therefore low-cost assets. This core advantage is enhanced through our innovation and advanced process chemistry capabilities. We've used this for growth in the past and now are increasingly aiming these capabilities toward cost savings and incremental growth opportunities.

Customer centricity is key. We stay focused on both the customer and end user, integrating from the resource to the final product. Close collaboration with customers lets us understand market trends and technology shifts, allowing us to adapt in our dynamic markets. We continue to get positive feedback that our customers seek to work with Albemarle for our capabilities, scale and reach.

Lastly, our commitment to people and planet stewardship is fundamental. It underscores our value proposition by supporting our team and promoting sustainability across all our business lines and in the communities where we operate. There is no question that while our strategic framework has not changed, our execution has certainly adapted. We have implemented several key initiatives to enhance our operational efficiency and agility.

Our commitment to innovation is evident in the strategic investments we have made in research and development. We are exploring cutting-edge technologies and sustainable practices to ensure that we remain at the forefront of the industry. This includes developing next-generation polymeric flame retardants and optimizing lithium conversion to meet shifting market demand. Innovation is also core to preserving our resource advantage with projects like the Salar yield improvement project in Chile and an innovative process upgrade in Jordan that we call NEBO, both of which allow us to increase production more sustainably without incremental brine pumping.

We're also driving out cost and reducing capital intensity. For example, by leveraging advanced data analytics and digital tools, we are improving our ability to monitor and optimize production processes in real time. Throughout these changes, we remain dedicated to safety, sustainability and operational excellence, aiming to create long-term value for our stakeholders while fostering a more sustainable future. In summary, on Slide 23, Albemarle delivered solid 2024 performance while acting decisively to preserve long-term growth optionality and maintain the company's industry-leading position through the cycle.

Our full year 2025 company outlook considerations build on the progress we've made to drive enterprise-wide cost improvements, strong energy storage project ramps and contract performance. We are focusing on taking broad-based proactive steps to control what we can control and ensure we are competitive across the cycle. Albemarle remains a global leader, and I am confident we are taking the right actions to maintain our competitive position and to capitalize on the long-term secular opportunities in our markets. I look forward to seeing some of you face-to-face at upcoming events listed here on Slide 24. And with that, I'd like to turn the call back over to the operator to begin the Q&A portion.

[Operator Instructions] Our first question is from Patrick Cunningham at Citi.

I guess my first question is on the contract mix. That remaining 50% piece not on long-term agreements, should we assume most of those follow spot mechanisms? And then was there any significant tranche of those long-term agreements that came up for renegotiation recently and had any respective reset in floors?

Yes. So your comment about the other 50% pretty much at index is -- that's a good assumption. And the shift that we've moved, I mean, we've reported previously that it was about 2/3 on contracts. So now we're reporting contracts only with floors.

We had some long-term contracts that didn't have floors, and we pulled that out of that definition now. So that 50% has floors. I don't think we've had any we renegotiated in the near term recently or that have come up.

Understood. That's helpful. And if I'm reading the chart correctly, it seems like most of the CapEx reduction was CapEx previously devoted to the resource base. So where are you cutting back investments in resources? And given the current program, how quickly can you repossession and invest in additional brownfield to maybe support higher volume growth 2027 and beyond?

Yes. I'm not sure that's right. I mean, if you go back, I mean, the capital we pulled back a lot of it was conversion initially, and then we've gotten a little bit more focused, and we have pushed out on some resources and we're getting very focused on kind of the highest-quality, lowest-cost resources and we're not out pursuing as many resources as we were at one time. So I think the big piece, if you look at the capital that we've cut from our plans, a big piece of it was on conversion, at least initially.

And then now we're getting a little bit more focused on operations, sustaining capital, and we have to cut back on resources as well. And I think, I mean, we've said a number of times that we can -- we think we can grow at 15% kind of a CAGR over a period from '22 to '27. And we start running out of the theme a little bit. So those growth rates come down after '27. And a lot of that -- most of that is about resource.

Our next question is from Rock Hoffman with Bank of America.

Could your actions including cutting CapEx and placing Chengdu under care and maintenance influence the broader market? And how might your actions adjust further if pricing stays at the low end of the scenario analysis?

So I think you said do we think our actions at Chengdu will influence the market. So no, it's -- I don't think so. I mean, we're doing that because of market conditions and product mix. So we have an opportunity to shift some product from hydroxide to carbonate at Qinzhou.

And Chengdu is one of our smallest facilities, which is why it's probably not that -- wouldn't influence the market that much. And then we make up that capacity because we're still ramping other larger assets at Xinyu, Qinzhou as a small investment and then Meishan and Kemerton as well.

Got it. And would you be able to explain the wide range in the tax guide for 2025?

This is Neal. Yes, so the wide range is really driven by the variety of scenarios that we have on the page or in the deck here. One of the reasons why we had kind of an odd tax rate in the fourth quarter and really in 2024 overall is that, as you've seen over the last few quarters, we've been reporting losses in a couple of jurisdictions where we took tax evaluation allowances. So therefore, we didn't get to recognize the tax credits in our tax expense line.

Those two jurisdictions in particular are China and Australia, where we have some particulars that require us to take those tax valuation allowances. So why there's a wide variety on the tax ranges, it's really about where the lithium price is and that influence on our pretax income. Obviously, at the lower end of the range, what our guidance has said is go to a tax rate very similar to what we did in 2024. And if you're at the higher end of the range, you kind of come more to our run rate kind of statutory rate that we have based on our geographic mix.

Our next question is from Ben Isaacson from Scotiabank.

This is Apurva on for Ben. So you've discussed the line of sight to being free cash flow breakeven in 2025. So is that -- is achieving that really just the case of all the dominoes falling in place? Is there anything that could put this at risk beyond just pricing collapsing?

Well, I just -- we have to execute against our plan, right? So that is our plan to do that. We have to execute against that. And pricing would be one of those. But we have -- look, they're a pretty aggressive plans. You see the actions that we've taken. We think we've executed pretty well against it so far. So -- but we just need to execute to accomplish that.

Perfect. And then as a follow-up, at this stage, with all of the kind of revised plans that you've laid out, do you foresee any need for a capital raise in 2025? And if so, is there any sense of what magnitude or what form that could look like? I know last year, you folks did the preferred convertibles. Is that kind of no longer in the picture given all of these actions that you've planned?

Yes. So we're taking all these actions so we don't do that, right? So -- and we are -- again, that we have to execute against that but we see ourselves being free cash flow positive through the year, and we don't have plans to do an equity raise.

Our next question is from David Begleiter from Deutsche Bank.

Kent, on your realized lithium prices in Q4, what was the difference in spread between your spot sales and your contract sales?

So we don't normally report on the exact pricing and particularly on our contract piece. So I'm going to decline to respond to that.

Understood. I believe back in Q4, you were saying that roughly 10% to 12% of global lithium supply was shut down and curtailed due to lower prices. Is that still a good estimate? Or has it moved up since then?

Yes. So I think we were saying about 25%, we believe, is underwater. And we still think that's the case.

But how much is actually curtailed or shut down?

Yes. So probably about -- it's about half of that 25%, I would say. And I think that both those numbers still hold.

Our next question is from Jeff Zekauskas from JPMorgan.

On Slide 7, where you provide different scenarios, is the meaning of this slide that you're -- if there were no change in lithium prices today, the energy storage adjusted EBITDA would be between $0.6 billion and $0.7 billion? Or because of your contract prices, it's more complicated than that?

Jeff, this is Neal. I think my answer is probably going to be towards the latter part of how you described it that, look, the prices that you see at the top of that slide are observed market prices, not our price -- what our realized prices are but market prices. The numbers below that then is if you take those market prices and move that through our book of business, you get these kinds of EBITDA ranges.

Okay. Great. And then what you do on the right-hand column is you have some assumption, and you say we assume spodumene market pricing average is 10% of the LCE price. But aren't spodumene prices already below that?

And you say you assume full Talison sales volumes. Are you currently receiving full Talison sales volumes? And what does that mean? What has to happen for you to receive full Talison sales volume?

Yes, Jeff, let me take the second one. What we mean by full Talison sales volumes is that all the partners at Talison are taking their full allocation. That is the assumption that we've made. That hasn't always been the case if you go back over the years, but our assumption going forward is that's the case.

As -- where I sit right now promptly is that is also the case right now. We're taking our full allocation in this environment. With regards to the spodumene average of 10% of LCE price, look, to your point, it has moved around over time, anywhere from -- in the 5% to 10% kind of range. So what we wanted to do was at least just put a mark in, in terms of how we've done these considerations, and we picked 10% because that was something that we sort of recently observed in 2024. But to your point, it can and it does shift around with the market dynamics.

Our next question is from John Roberts at Mizuho.

I believe IGO guided for essentially flat 2025 volume at Greenbushes. Can you confirm that? And then where is your growth, the 5% to 10% growth for 2025 coming from?

John, it's Eric. That's correct. CGP2 was fully utilized, which was the last expansion at Talison in 2024. CGP2 does not come on until the very end of this year. So there is no growth capacity at Talison until that comes on.

That's sort of the, as you know and appreciate the lumpy nature of bringing on capacity. Our 0% to 10% guidance on growth is all coming out of Chile, where the Salar yield project continues to ramp and drives debottlenecking effectively over the La Negra plant to march towards nameplate.

And then on Slide 18, you're targeting sustaining CapEx of 4% to 6%. Is the percent of sales the right way to think about targeting sustaining CapEx given the volatility that you get in pricing?

Yes. So we -- that's the right point. So we -- and we say that on a stabilized market, right? So -- and it's aspirational at the moment for us because we're not there, but we're also at what we think is the bottom of the market.

So it's a good benchmark. We say a mid-cycle pricing is where we go to that. We're not at that level today. We still have some work to do around that.

But we're getting focused on it and we wanted to have a benchmark out there that we can aim at.

Our next question is from Joel Jackson from BMO Capital Markets. .

I want to follow up a little bit on Ben's associate's prior question. So can you talk about what -- if you go to 2026, how much of the half of your sales here that are contracted floors? Do we expect the floors have to be negotiated? And how do you think about the balance sheet leverage if spot prices stick around where they are and we are renegotiating floors for 2026?

Yes. So look, we provided guidance for '25, not '26. But the way our contracts work is they don't -- and they don't usually end and then get renegotiated. They get adjusted over time as our customer wants something, we want something, they have adjusted. That's how they worked over time.

And we expect that to happen. You see our portfolio of contracts has become a little bit more spot oriented in the recent past. That's because China is the biggest market. It's a spot market.

It's growing. We've got new capacity coming on there with Meishan ramping. So that's really why that has shifted. Our contracts simply don't just come to an end.

We negotiate terms somewhere along that and extend them out a year or two, and we've done that over time. And I suspect that's how it's going to play out going forward.

Okay. And then talking about 0.25% -- in your estimates 0.25% of lithium supply is underwater, maybe half of that's curtailed. We just -- it seems like CATL is bringing back lepidolite production in the last bunch of weeks. There's some maybe some rational behavior going on, although those mines are downstream with cathode and the battery.

So I mean it seems like there are actors in this industry that are maybe manipulating price, maybe don't have the same objectives as Albemarle and other public companies. I mean, how do you act in this market? And is there any hope for material recovery if such behavior by such actors continue?

Okay. So I don't know if I can comment on all of that. I would say that we're pretty focused on making sure we can compete at the bottom of the cycle. And so when you see us taking actions and have targeted at that.

So the capital that we pulled back on our growth to reduce capital as a result of that, driving cost out of the business, getting more focused on cost, not as much on growth and making sure that we can compete at that cycle and then pivot when the market comes back to take advantage of more growth and higher prices. So that's the approach that we're taking.

Our next question is from Vincent Andrews with Morgan Stanley.

I wanted to follow up on the $350 million customer prepayment. And just a clarifying question to start off with, which would be, I assume that's included when you talk about the 80% conversion as well as being free cash flow neutral this year. I assume you're including the $350 million. And all else equal then, does that mean next year cash flow would be $350 million less?

So Vincent, on the -- this is Neal. On the first part of your question, you are correct. So the $350 million is included in our cash conversion number of 80% for 2025. And with regards to looking over to 2026, let me just give you maybe two things to think about here. You are correct that, that $350 million won't recur again in 2026. But also remember that there are a lot of other things from a cash standpoint that will actually start to benefit us in 2026 and beyond.

One of the key ones that I'll point out is that from a Talison JV perspective, right now they're obviously going through a large investment program. That program is going to be done at the end of this year. So we would expect, even in this low environment, as you would expect, Talison is a very competitive asset. So we would expect a return to dividend payouts from the JV as we get into 2026.

And then just as a follow-up on your cash flow statement, for starters, thank you for the increased disclosure on working capital. But I have a reconciliation question. You have a new line item that says inventory net realizable value adjustment. And this year, it's a negative $500 million.

Last year, it was a positive $604 million. So I'm just wondering, does that line reconcile somewhere else within cash flow from operations? Or what is that? Or any more detail you can provide would be helpful.

Yes. So that line, Vincent, is predominantly going to be a reflection of the lower of cost or market adjustment that we took in fourth quarter of 2023. And so that's why you see those adjustments, and so that's the best -- the most of that line is related to that.

Our next question is from Aleksey Yefremov from KeyBanc.

If you look at your CapEx, you're talking about maintenance level. Assuming market prices don't change, can you get to that maintenance level in 2026? And would you be willing to do so under these conditions?

Yes. So I'm not going to make a commitment for capital for '26. But those are -- our aspirations is that we want to get to like maintenance capital at that particular level. So we still have in our capital opportunity -- growth opportunities, say, growth or cost saving opportunities, smaller investments. So the Qinzhou investment that we talked about on the call is a good example of that, low single-digit millions of dollars.

We were able to shift from hydroxide to carbonate about 10,000 tons a year. So that -- and that's great return project and pretty low capital. So we continue to look for those. Those tend to be more focused on cost savings now and maybe incremental growth, like what we're doing at Qinzhou.

But the 4% to 6% at mid-cycle, that's an aspiration that we work to, and we continue to focus to try and drive to that. Whether we get there in '26 or not, we've not laid out plans in that detail for '26, so I can't answer that.

And on CGP3, it's an important project for your cash flow this year and next year especially. Any comments on risk assessment for delays, cost overruns, that kind of thing? Like how is the project going from your point of view?

Yes. I think we're on schedule and around budget. I don't know exactly whether we're right on budget or not, but it's pretty close from a budget and a schedule perspective.

Our next question is from Kevin McCarthy at Vertical Research Partners.

Kent, you talked a little bit about the grid storage growth in your prepared remarks. Can you comment on your outlook for 2025 in that end market? And is your share in grid storage higher or lower or about the same as it is in your customers in the EV arena?

Yes. So the grid storage has been one that's been a positive surprise for us for a few years now as it's been growing. I think it was up almost 50% this year. And we anticipate that continuing to grow.

And a couple of years ago, we probably would have thought lithium may not be the best solution for grid storage, but I think the way battery costs have come down and the popularity of LFP, it looks like grid storage is going to be lithium-based and LFP-based going forward. So it's a good opportunity. And it's on -- it's kind of, I think, everywhere. So the U.S. is starting to play out.

You see that in Europe, and then China has been really strong around that. So it's a positive. It's a bright spot and it's offset a little bit of the little less growth that we saw in EVs and some of the shifts between plug-in hybrids and BEVs as well. So it's covered that and build in nicely.

And Kevin, as for the market share, first of all, it's largely an LFP market. So if you look at our share in LFP on EVs, PHEVs, et cetera, can be similar to our share in grid storage. It's the same companies. It's deepened back into the supply chain that are providing the cathode and battery materials into that.

So that's what determines our share of those relationships, not necessarily the end markets.

Understood. And then secondly, if I may, Kent, as the tariff regimes continue to evolve here. Are you managing the company any differently today than you were last year as it relates specifically to tariffs?

So are we managing the company differently? Look, we're paying very close attention to see what happened. It's evolving. I'm not sure, no one knows exactly what the final impact will be.

But the direct impact on Albemarle is not going to be that significant. I mean, we're not -- we don't ship from China to the U.S., I mean, significantly. There is some, but it's not a big part of our business. It will impact our customers more than it will impact us directly.

So the knock-on effect of us is some -- is what we're really paying attention to.

Our next question is from Laurence Alexander from Jefferies.

So a couple of questions. First, on Energy Storage, how much of your capacity is under long-term contract compared to the EV market?

Laurence, I'm sorry, you said -- that was a fixed storage question?

The Energy Storage side of your business, how much of that is under long-term contract? .

It's about 50%.

Yes, it's the same, Laurence. Yes, the other 50% -- we talked about 50% being under floor-based contracts. The 50% that's not is the pricing mechanism of spot in the contracts. It's a mix of contracts that are shorter in duration and spot.

Okay. Sorry. Just to clarify there. So what we -- when we said the 50%, so those are long-term agreements, and we have floors on those agreements. There are some other longer-term agreements, we don't have floors. So we're now categorizing that in the same category as spot.

Okay. Perfect. For the $350 million of cash inflows, just to be clear, if -- would the net effect be that the EBITDA related to that would show up in 2026 or '27 but then the cash conversion suffers? Or is there also an EBITDA -- is there also an impact on the EBITDA bridge?

Yes. Laurence, I think you're circling on kind of the right mechanism here. So we have taken the prepayment upfront and already received it here in the first quarter. You'll see that with our first quarter results.

And then we satisfy our obligation through product deliveries over actually the next 5 years. So -- and that's at prices that are indexed to market. So you are right. We will then recognize EBITDA in increments as we make those deliveries, but it is over the course of the next 5 years.

Our next question is from David Deckelbaum at TD Cowen.

I was hoping to follow up just on the plans at Qinzhou to convert some of the capacity to carbonate versus hydroxide, mainly just being is this decision really just to capture the discrepancy in margin? Or do you have very differentiated views now over time on just the appetite for hydroxide? Are you seeing customer resistance for hydroxide volumes in the market and then you're seeing this pivot as a necessity to sell product at this point? And are there further plans?

Should we expect further plans to pursue more conversion from hydroxide to carbonate?

Yes. So look, it is -- I mean, the hydroxide, there's a market hydroxide, it's growing. Carbonate is growing faster. So there's a stronger demand for carbonate.

And this was kind of a unique opportunity for us because the plant was designed in this way. And we had -- there's a few things we have to execute against to take advantage of that. It's very small capital, as I said before. It's low single-digit millions in order to make that shift.

It gives us more flexibility in the market. The market is stronger around carbonate now, so we can take advantage of that. Over time, we can shift this back either way. Once we make this investment, we'll be able to go -- we could go back to hydroxide if we wanted to or stay on carbonate.

At the moment, it makes more sense to be on carbonate. It's about the market and the fact that this was designed in upfront, and we had to kind of finish some work in order to leverage the capability.

If beyond sort of this year and the next you wanted to lean more heavily into carbonate, is there tolling capacity available in China that would enable you to do that? Or would that have to be a more significant investment on your part?

No, there's tolling capacity that's available and that -- we've taken advantage of that in the past, and it gives us flexibility in our supply chain. And then the growth you see from us in Chile as well at La Negra has allowed us to grow with that market, particularly around kind of on the back of the work at La Negra, but particularly Salar yield in the Salar.

Our next question is from Benjamin Kallo with Baird.

I wanted to follow up to an earlier question and maybe frame it just slightly different. There's capacity coming off-line, utilization going down and demand going up for EVs even at a slower rate than maybe we predicted a couple of years ago. At the same time, with all of that happening, which should indicate prices going up, prices have been coming down. So can you talk to anything to help us understand what that is and then anything that would change that?

And then my follow-up question is, I do see a lot of reports around recycling in China. It seems like that's becoming a bigger industry there. I'm just wondering your thoughts around the impact of that on pricing as well.

Yes. So there are a lot of moving pieces in your question, but also in the market, right? So it is -- I mean, there's capacity that has come off, higher cost capacity. There is new capacity that has come on.

There's excess conversion that sits in China as well. And then the recycling part. I mean, recycling has been growing over time. We actually -- with prices come down, we've seen recycling drop off a little bit in China because it's just not economic given where prices are for new material.

All of that is going to work its way -- has to work its way through the system. It's a dynamic market. It's hard to say. But I would anticipate higher cost assets coming out, particularly.

We've got -- we're still growing. This market is still growing 20% plus, right? So it's just not quite as high growth rates as we had anticipated, but it is still growing significantly. And China is the main driver of that, but North America and Europe are kind of coming from there.

So there's going to be growth in this market for a long period of time. Capacity comes on in chunks and you get an imbalance, prices are going to be down. I don't know if I can explain it more than that. It's a very opaque market and particularly because a lot of it happens in China, but it is -- it relies basically on the supply/demand.

Our next question comes from Josh Spector with UBS.

I wanted to just ask on the prepayment that you got. Is there any requirement there to make further investments or some preemptive expectation around CapEx spending? Or was that just something you decided to do given your needs for cash and the customer focus on volumes?

Yes. Josh. No, there's no further requirement on our side. We have everything we need to be able to satisfy that contract.

And I would just say the last part of what you said, I'd say it a little bit differently. We have discussions with customers all the time. We've done these kind of prepayments actually in the past, and this was just a unique opportunity that came across our desk. And it was one that we went after.

So I think it's just a sign of how we work with our partners in many different ways.

Understood. And I guess just to follow up on some prior questions, so specifically with the CATL restart, I've heard some mixed things around supply maybe being temporarily tighter versus their cost being more in line, I guess, closer to where the market prices have moved towards driving their restart. Do you guys have any view internally about why that's happening against the low price environment?

No. Look, I would say, I mean, look, we'd modeled more lepidolite coming in. So we weren't exactly targeting this particular asset, be the one that came back on. But we had lepidolite volume. China it's a strong market. It's growing. They're short of resource, not surprising. They're trying to get more domestic resource. So I think it's -- I think it's no more complicated than that.

Our last question comes from Andres Castanos from Berenberg.

Andres Castanos-Mollor: Of the 2025 lithium volumes, how much of it would be spodumene sales and how much would be lithium salts sales? Are there any significant tolling volumes left?

So I don't have that split, but it's mostly salt, right? There's -- the spodumene sales that we do are really more for transparency in the market, understanding that. We do sell some of that, other than we've shifted a little bit from a prepaid perspective. There's spodumene in that. There's not a lot of that in '25.

Yes. It's under 10%, 15% of total LCEs this year roughly in that order of magnitude. It's basically the production coming out of Wodgina.

Thank you. That's all the time we have for questions. I will now pass it back to Kent Masters for closing remarks.

Okay. Thank you, operator. In conclusion, Albemarle's strong operational execution and strategic framework have positioned us to successfully navigate dynamic market conditions and maintain our long-term competitive edge. We are dedicated to delivering value for our stakeholders and driving sustainable growth.

Thank you for joining us today, and we look forward to continuing on our journey together. Stay safe and take care.

This concludes today's conference call. Thank you for your participation. You may now disconnect. .