Q3 2025 Earnings Call Transcript

Hello, and welcome to Albemarle Corporation's Q3 2025 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 Third Quarter 2025 Earnings Conference Call. Our earnings were released after market closed 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; Neal Sheorey, Chief Financial Officer; Mark Mummert, 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 that same language 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. In the third quarter, we reported net sales of $1.3 billion, including another record production period from our integrated lithium conversion network. Adjusted EBITDA reached $226 million, representing a 7% increase as cost and efficiency improvements more than compensated for lower year-over-year lithium pricing. We generated $356 million in cash from operations during the third quarter, marking a 57% year-over-year increase, driven by higher EBITDA and disciplined cash management.

We are enhancing our 2025 outlook considerations. Based on our year-to-date financial performance, prevailing lithium market pricing and stronger-than-expected energy storage sales volumes, we now anticipate full year 2025 corporate results to be toward the upper end of the previously published $9 per kilogram scenario ranges. Overall demand for lithium remains robust, up more than 30% year-to-date, supported by the energy transition and rising global demand for electric vehicles and grid storage. Notably, global EV sales have increased 30% year-to-date, led by China and EU battery electric vehicles.

Grid storage growth was even more pronounced, climbing 105% year-to-date with strong growth across all major markets globally. Additionally, we have made significant progress implementing cost and productivity improvements while reducing capital expenditures. Capital expenditures for the year are now projected to be approximately $600 million. We expect to achieve full year cost and productivity improvements of around $450 million, surpassing the upper limit of our initial targets.

Considering these factors, we now project positive free cash flow of $300 million to $400 million in 2025. Turning to Slide 5. Recent portfolio actions further demonstrate our commitment to long-term value creation and enhanced financial flexibility. We recently announced 2 transactions. First, a definitive agreement with KPS Capital Partners to sell a controlling 51% stake in Ketjen's refining catalysts business. Second, an agreement to sell Ketjen's interest in the Eurecat joint venture to Axens.

Both transactions are expected to close during the first half of 2026. Together, these transactions are expected to generate approximately $660 million in pretax cash proceeds, giving us greater ability to delever while also retaining exposure to future potential gains in the refining catalyst business. This new structure positions the Refining Catalysts business to leverage KPS' manufacturing expertise and access to capital to accelerate its growth opportunities. At the same time, we will be able to shift our attention to our core businesses, Energy Storage and Specialties to set Albemarle up for long-term success.

This transaction reinforces our commitment to boosting shareholder value, improving financial flexibility and maintaining Albemarle's strong competitive position. Neal will now provide additional details regarding financial performance and outlook.

Thank you, Kent, and good morning, everyone. I will begin with our financial results for the third quarter as presented on Slide 6. Net sales for the quarter totaled $1.3 billion, a decrease from the prior year, primarily driven by lower lithium market prices. This decline was partially offset by higher volumes in both Ketjen and energy storage. Adjusted EBITDA for the third quarter was $226 million, representing a 7% increase year-over-year.

This improvement was driven by disciplined cost management and productivity actions, which more than offset lower lithium market pricing. Our adjusted EBITDA margin improved by approximately 150 basis points compared to last year. We reported a net loss of $1.72 per diluted share. Excluding charges, the largest of which was the noncash goodwill impairment related to Ketjen, our adjusted diluted loss per share was $0.19. Turning to Slide 7. I'll cover the drivers of our adjusted EBITDA performance year-over-year.

We saw solid growth in sales volumes in both our energy storage and Ketjen businesses, and our consistent focus on cost discipline and productivity yielded positive results. By focusing on the actions in our control, we were able to offset lower pricing for lithium and spodumene. Turning to other segments. The Specialties team delivered an impressive 35% increase in adjusted EBITDA, largely due to cost improvements across the board in raw materials, manufacturing and freight.

On the corporate side, we benefited from cost savings and favorable year-over-year foreign exchange movements. Turning to Slide 8. As usual, we're sharing outlook scenarios based on recently observed lithium market prices. This slide shows a full company summary for each price scenario. Our outlook ranges remain the same as last quarter, but we've updated a few key points.

Specifically, we now anticipate our full year 2025 results will approach the upper end of the $9 per kilogram lithium price scenario for total company sales and EBITDA. This reflects our strong performance so far this year, including cost controls, productivity gains and slightly better market pricing. We expect lithium market pricing to average about $9.50 per kilogram this year based on year-to-date actuals and assuming current pricing persists for the remainder of November and December. Turning to Slide 9 for additional commentary by segment.

First, in Energy Storage, sales volume growth is expected to be up 10% or more year-over-year, thanks to record integrated production, higher spodumene sales and reduced inventories. We are seeing most of that volume upside coming from a strong demand environment in China, where sales are at local market prices and not on long-term agreements. As a result, we now expect approximately 45% of our 2025 lithium salt volumes to be sold on long-term agreements with floors, primarily due to the mix impact of stronger-than-expected volumes in China. Our long-term contracts continue to perform in line with our forecast.

Q4 EBITDA for energy storage is expected to be slightly higher sequentially. First, in terms of product mix, Q4 will have a greater proportion of higher-margin lithium salt sales versus spodumene sales. Second, Q4 is expected to benefit from current higher spodumene prices in JV equity earnings. In Specialties, we continue to expect modest volume growth year-over-year.

Q4 net sales are expected to be similar to Q3, but EBITDA is expected to be lower, primarily due to weaker demand in oil and gas applications. Finally, at Ketjen, we continue to expect a stronger Q4 due to higher CFT and FCC volumes. Please refer to our appendix slides for additional modeling considerations across the enterprise. Slide 10 highlights our focus on running the business efficiently and converting earnings into cash.

Year-to-date through Q3, our EBITDA to operating cash flow conversion has been over 100%. In Q3, conversion was strong due mainly to inventory reductions, along with a modest sequential uptick in dividends from the Talison joint venture. We continue to expect our full year cash conversion to average over 80%. The implication of that is that we expect Q4 conversion will be lower, mainly due to the timing of interest payments and higher working capital needs from increased revenues.

Our strong cash conversion performance and reduced capital expenditures forecast mean that we now expect to be well into positive free cash flow territory this year between $300 million and $400 million. Slide 11 provides a comprehensive overview of our cash position and capital allocation plans in the near term. We closed the quarter with $1.9 billion in cash. Moving forward, we intend to repay with cash on hand, our Eurobond debt that matures later this month.

Based on our free cash flow outlook, we expect modestly negative free cash flow in Q4. Moving into 2026, we expect to receive approximately $660 million of gross proceeds from the 2 transactions related to our Ketjen business. Considering these major cash items, we expect to have approximately $1.4 billion available for deployment across a set of disciplined and focused priorities as shown on the slide. With that, I'll turn it back to Kent to discuss the market outlook and provide updates on our operational execution.

Thanks, Neal. The 2025 global lithium supply-demand balance had started to tighten with global lithium consumption growth up over 30% year-to-date, driven by robust demand from both EVs and grid storage, while supply growth has slowed in part due to recent lepidolite curtailments in China. On Slide 12, EV demand growth for 2025 continues, led by China and Europe. China EV sales are up 31% year-over-year even after reaching over 50% market penetration, driven by strong growth in BEVs due to incentives supporting low-cost options.

Europe is also up over 30%, supported by EU emissions targets. North America posted 11% growth, supported by prebuying ahead of the 30D tax credit expiration. Turning to Slide 13. Global battery demand for stationary storage is up 105% year-to-date. China remains the largest market for stationary storage installations with 60% growth year-to-date and further policy support announced in the 15th 5-year plan.

Europe has shown similar policy support as the commitment to decarbonization drives demand for renewables paired with storage. North America is the fastest-growing region for stationary storage, up almost 150% year-to-date as rising data center and AI investment in the United States increases the demand for electricity and grid stability. Globally, data center electricity use is expected to more than double by 2030. With the increasing need for grid resiliency, LFP batteries are well positioned to continue meeting ESS demand, thanks to their low-cost energy density and established manufacturing base.

As a result, we expect lithium demand for stationary storage application to increase more than 2.5x by 2030. Advancing to Slide 14. I want to provide an update on our initiatives to sustain our competitive advantages through market cycles. First, on optimizing our conversion network. We set an energy storage sales volume growth target of 0% to 10% at the start of the year. We now expect to finish at or above the high end of that range with record production across our integrated conversion network, increased spodumene sales and inventory reductions.

Second, our cost and productivity programs continue to deliver. We began the year with a goal of $300 million to $400 million in improvements. Today, we've achieved a $450 million run rate, exceeding the high end of our initial target. Recent projects have further reduced manufacturing costs and improved supply chain efficiency.

Third, at the start of the year, we target a 50% year-over-year reduction in 2025 capital expenditures. By focusing on high-return, quick payback projects and optimizing existing scope, we now expect 2025 CapEx of about $600 million, reflecting a 65% reduction year-over-year. Finally, our announced asset sales are expected to generate approximately $660 million in cash, providing significant additional financial flexibility. We continue to adapt in a dynamic environment, adding new measures as needed.

We're building a culture of continuous improvement and the mindset to identify opportunities to achieve savings and efficiencies. These actions are contributing to positive financial results as shown on Slide 15. Our commitment to cost discipline is clearly reflected in our financials. Sales, administrative and R&D expenses are down $166 million or 22% since last year. Cash flow has strengthened, driven by targeted cost and capital reductions and strong cash management.

As of Q3 2025, we're generating positive free cash flow year-to-date, and we expect $300 million to $400 million for the full year. Our efforts have allowed us to shore up and maintain healthy corporate EBITDA margins in the 20% range even as lithium prices declined. Thanks to these focused actions, we are well positioned to expand margins further as the market recovers with potential for adjusted EBITDA margins reaching 30% or more at $15 per kilogram lithium pricing. In summary, on Slide 16, Albemarle delivered strong third quarter performance while continuing to act decisively to maintain the company's industry-leading position through the cycle and capture upside as markets stabilize or improve.

We are maintaining our full year 2025 company outlook considerations with notable enhancements to energy storage volume growth, improved cost and capital savings and strong free cash flow generation. With our world-class resources, process chemistry expertise and a strong balance sheet, we're well positioned to generate shareholder value through the cycle. I'm confident we're making the right moves to stay ahead and capitalize on long-term growth opportunities. With that, I'll turn it over to the operator to take your questions.

[Operator Instructions] Our first question will come from Aleksey Yefremov from KeyBanc.

Strong results. I wanted to ask you about dynamics at Atlas. You mentioned you'll have better profitability because of higher spodumene prices. But how do you think this would evolve in maybe first half of '26? Would you see higher spodumene costs? Would that be again offset by higher equity income or not? If you could walk us through that dynamic for your lithium margins.

Yes. So maybe I'll start, Neal, you can add a little bit of color to that. But -- so we're not going to -- we won't predict the price for lithium, for salt or spodumene. But I mean the market is tightening.

It is tight. It has moved up a little bit. So we're optimistic about that, but we don't plan on that. And I don't -- from a spodumene standpoint, I mean, it all depends whether if prices move up, the margin will either stay with salt or it moves over to spodumene.

And we're a bit indifferent because of the integrated network that we operate. So I don't know that there's a big difference between the two. Recently, in the recent past, when prices move, most of the margin moves to the resource of spodumene. And then I think the other part is a little bit about the Talison and inventories and the way that, that gets costed.

Neal?

Yes. Aleksey, I think you're thinking about it right that in a rising spodumene price environment, we get one immediate benefit, which is obviously any sales that Talison makes to our partner, we get some of that benefit immediately through our equity earnings. But then, of course, our portion of the profit does go into inventory and it comes out over time as we consume the spodumene. So you're right, there will be some lag.

It's usually 6 to 9 months that some of that comes through in our cost of sales. But whether it leads to margin compression or margin improvement really depends on what happens with salt prices 6 months from now. But I think you're thinking about it right. There is one component that we realize right away, and then there's another component that has to flow through our inventory.

Our next question will come from Jeffrey Zekauskas with JPMorgan.

You used the $9 price as a reference point. In China today, are we closer to $10 or $11.

So yes, you're probably closer to $10 today. But as we look at it on a full year basis, it's kind of $9, $9.50, something like that.

Okay. Are you giving any consideration to starting up any of your plants where you've paused production or lost all the plants?

So no, I don't -- no, I wouldn't say so. So we haven't brought that back. So we're just forecasting to the end of the year. So that's a couple of months. So -- and it would take us longer to bring those back on. So it's not in that -- they're not in that scenario, and it would depend on the market and how that works, but that's not really the plan as we think about it for next year either.

Our next question will come from Colin Rusch with Oppenheimer. It looks like we are having some technical difficulties with Colin. Your next question will come from Vincent Andrews with Morgan Stanley.

Just a quick question. When you talk about the full year adjusted EBITDA margin potential of 30% or greater at $15 a kg, are you speaking of the energy storage segment or the company overall?

The overall company.

Okay. And then if I could ask in the capital allocation slide, you talked about with the $1.4 billion paying down or deleveraging, but then there's also another language about liability management opportunity. What does that refer to?

Yes, Vincent, I can cover that. I don't have specifics to share today, but we are obviously looking at a combination of things, not just gross delevering, but also anything else that we can do with our debt towers just across our entire debt stack. So that's what is meant by liability management. It might not always be gross debt deleveraging, but it might be actually just thinking about our debt towers and being responsible with that.

Our next question will come from John Roberts with Mizuho.

Actually, this is Edlain Rodriguez for John. So when you look at EV domain, do you have a good sense of how much is energy storage versus EV? And how do you see those percentages moving over the medium term?

So yes, we do. We have a pretty good view and those are reported independently. So we're -- and the numbers that we're showing are independent of those. So we think that -- I mean, look, there is some mix because it is kind of the base -- it's the same base technology that goes into both, but we feel like we understand where it's going and what the markets are doing.

So it's -- I think energy -- the fixed storage is about 1/4 of the market today, and it's growing at a couple of times the rate, but it's -- we still see it probably being -- long term, the market is more EV-oriented than fixed storage, but that's the dynamic and you just look at the math, right? If it's 1/4 of the market, maybe it gets to half, I'm not sure. And over time, it will depend a little bit on substitute technologies. I think fixed storage is more exposed to substitutes than BEVs.

So I think that has to play out over the next decade to see where that really ends up.

Our next question will come from David Begleiter with Deutsche Bank.

Ken, for you and Eric, on Chinese lepidolite, how much supply do you think is being currently curtailed? And versus the high of lepidolite production, how much is production down today versus that high?

Yes. So Eric can give us some details on it. So look overall, it's not been a huge impact. There has been some impact.

They've come out of the market and come back in. That's probably been the bigger piece. There are a number of plants that are looking for permits and -- but they are operating through that. That's our understanding of that they need to get new permits.

They've applied for those, and they're allowed to operate through that. So Eric, maybe you can give some numbers or some of the scope of what has come out and not come back on.

Yes. I think since the middle of the year, David, about 1/3 of the production was impacted through a repermitting exercise and/or as to idle for a period of time, some of that is -- we don't know all the cause for that. I mean there's a lot of discussion about what's happening in China on policy. But nonetheless, that's what we've observed.

That's about 8 different lepidolite operations, including the largest, which is CATL. It's a reduction of about 30,000 tons annually. But I think the question is how long they remain down as they go through permitting. It's -- in the scheme of the market, if they -- should they come back, you're only talking about a couple of percent of supply over the course of a year.

So it's a minor blip, and we'll continue to watch it carefully.

Very good. And just on lithium demand, you didn't include -- you did not include your slide from last time lithium demand forecast. So for 2030, has there been any change to your lithium demand outlook? If it hasn't been, has the bias moved to the upper end of that range, i.e., 3 million tons or above given what you've seen in the last maybe 6 to 9 months here?

Yes. So we didn't show that. I would say it hasn't really changed, but it has probably moved up a little bit within that range. If you recall, we had a pretty big range because of some of the uncertainties.

And then I think the both -- on both the EV and on fixed storage, it's probably more demand. I think it is a demand story, and that's higher than we were thinking about at the beginning of the year. So it's been a positive surprise. The range stays the same.

It's well within that range, but I would say it has moved up a little bit.

Our next question will come from Josh Spector with UBS.

It's Chris Perrella on for Josh. As I think about the ramp of the extra train and Greenbushes and your production in La Negra, how much could your resource production be up in 2026 with just the scheduling of those ramps? And then also, do you have a first right of refusal on Wodgina? And are you guys discussing the future of that asset and the ownership with your partner down there?

Okay. So first, I guess, on the asset. So La Negra is pretty much ramped at capacity today. We have some marginal improvement.

We can do that as a result of Salar Yield and as that works its way through the process in the Salar. So we'll see better feedstock at La Negra, and that will give us a little more capacity, but it's incremental compared to the overall ramp that we've been through the last couple of years. And then CGP 3 at Talison will start up at the end of this year, and then we've got a kind of plan to ramp through next year. So it's kind of a ramp through the year.

It will depend on how well we execute on that and that's how fast it comes up, but we kind of -- we tend to straight line it through the year to kind of more or less full capacity by the end of the year. And then you can do the math to see what that gets you throughout the year. And Wodgina. So you're asking about Wodgina.

So look, I'm not going to comment on the process that's happening down there. You probably -- you can read about it in the Australian press that's doing that or what's happening there. So we talk to our partner. We're aware of what they're doing.

So we'll see. We'll let -- that has to play out.

Think another feature to bear in mind as we look to next year, Chris, is that a good part of our growth this year, as referenced in the prepared remarks, has been that we've taken a lot of inventory out of our supply chain this year, and that would largely be spot inventory in the case of energy storage that has fed growth that is onetime in nature. And so we don't get the benefit of the inventory reduction next year. So the factors that have been described are going to help to offset that. It's important to keep in mind as you think about next year.

Your next question will come from Christopher Parkinson with Wolfe Research.

This is Harris Fein on for Chris. Just curious maybe if we could talk about the stronger volumes this quarter. How much of that was just you being opportunistic on spot sales because of price volatility? And I guess dovetailing off of the last question, how should we be thinking about the impact on volume growth next year versus the higher baseline?

Yes. So look, it's -- I mean there is some us being opportunistic. Eric just described that inventory reduction. So that's part of our cash management initiatives we were doing to drive that, but it did give us a little extra growth this year, and we won't have that opportunity next year because we've driven inventories down.

But the market has been -- the market is strong, right? -- both demand and pricing is a little stronger than it has been. So we're optimistic about that. We're not counting on it, but we're optimistic about that. And it's been a bit of a demand story, I think, over the last quarter or maybe even a little bit longer, that it's stronger and both -- and that's both EVs as well as fixed storage.

Fixed storage has been the big upside surprise this year, and it's been very strong, and we see that continuing.

Great. And -- also just wanted to touch on -- there's been a lot of news flow about critical minerals support. We saw what happened with Lithium Americas. Just curious to hear what the latest you're hearing is.

And in the event we start to see maybe the government engage a little bit more concretely on the localized energy storage infrastructure. Maybe just some thoughts on the scenario planning you're doing in terms of how that might shift your strategy either way.

Right. So I would say -- look, we're very happy to see the government focused on critical minerals, the U.S. government, but other governments around the world, we think that's important. We've been saying that for years that it's important to build out a globally diverse competitive lithium supply chain and to see governments focused on that is fantastic, not going to speculate on what could happen with the governments. We're talking to governments all over the world all the time, everywhere that we operate.

But there won't be one solution. So it will be a mix of things that will help the market in the West get to reinvestment levels. So tax incentives, trade policy, direct investment maybe. I mean I think it will be a mix, and there'll have to be a combination of some public-private partnerships to drive this because it's a big problem, but we've been talking about it for a couple of years now, and we're happy to see governments focused on it.

Your next question will come from Laurence Alexander with Jefferies.

So as you look at the way policy is shifting both in Latin America and in the U.S. What do you see as kind of the appropriate return hurdles for you to engage in new projects as opposed to just focus on your existing assets and/or opening up Kings Mountain?

Yes. I don't think our return criteria has changed, right? We've been pretty consistent about that. The issue has been with the pricing that we see in the market, we can't get those returns, which is why you don't see us investing.

So we -- and we've been focused on kind of balance sheet cash, driving cost out of the business so we can compete at that lower level. And look, our view is -- and we've said this, we don't -- we're not able to predict the lithium price, and we're not going to depend on that. So we have to be able to compete through the bottom of the cycle, which is why you've seen us so focused on cost and cash and getting our business in a position to do that. We're getting there.

We still have room to go. And if the market -- but our view is we plan for the bottom of the cycle, but stay agile so we can pivot when the market gives us that opportunity to invest. We still have good investment opportunities. We mentioned Kings Mountain.

We have very good resources that we can still leverage as we go forward. And conversion is still a possibility, but the economics aren't -- they're still not there today for Western economics or conversion -- Western conversion economics.

And is your cost structure at the point where if prices do not improve next year, your cash flow -- you are free cash flow positive?

So we're not forecasting next year yet. So we'll do that next quarter. But we're in a -- look, we've driven cost out. We -- I feel pretty good that we've built a cost-out mentality around productivity, particularly in our operations.

I think we could be better at it from an overhead and back office, but we're working on that. We've made good strides around that, and we'll continue to drive that. So we'll continue to drive cost and work on our cost position. Look, it's still a new market, and it's going to be volatile and dynamic, and we have to be able to ride that on to capture the upside, but work our way through the downside.

So I don't want to forecast -- we're not going to forecast next year today, but we're continuing to stay focused on that cost out, and that will drive the result for next year and years going forward. But I think you should think of our business as that we make sure that we can ride through the down cycles and then take advantage of the up cycles.

Your next question will come from Patrick Cunningham with Citi.

Just a couple of related follow-ups to your last comments. I guess, anything else you're looking at in terms of productivity savings program into next year? And what would be the size of sort of the incremental carryover? I know you reached run rate sometime in the middle of the year.

Yes. So Neal can talk about the run rate carryover, but we're going to -- we continue to have productivity programs, and they go across the breadth of our business. We are -- our programs around operations are the most mature, and it's not surprising given our legacy as a specialty chemical company, but we are -- that's pretty mature and we go down the range. Our supply chain is a little less mature.

Our back office is even less mature than that, but we're building the capability and leveraging off of the program we have in manufacturing. So you'll always see us have productivity programs and goals. Even if the market is hot and on fire, we're still going to be pushing to take cost and productivity out of the business. That's just -- I think that's just going to be a feature of our business, and that should be a feature of a healthy business.

Yes. And Patrick, maybe the other thing I can add is just to reiterate, so we see line of sight to a $450 million run rate in cost and productivity savings this year. So obviously, we'll have to see how we finish up the year in terms of the actual savings, but you're already seeing those savings come through in our S&A line and our R&D line and so on. But obviously, some of those will continue to roll into 2026, and we'll give you an update on that with the next quarter once we finish the year.

But let me give you an example of what you can expect to hear as you get into 2026. Just a small example, though, is that we continue to ramp our facilities to full rates. That's a perfect example of the productivity measures that we're really working on. Kent kind of highlighted that in Chile, we're almost to the kind of top end of what we could do with La Negra. Our Meishan facility in China is, I think, about a year ahead of schedule in terms of its ramp, and it's getting almost up to full rates as well.

So you can expect that kind of continuing to sweat the assets as kind of a key theme in our productivity on top of any other additional cost actions that we can take as well.

Got it. That's helpful. And then maybe just a quick one on bromine. It seems like there's some strong demand there in areas like electronics, but maybe some offsets that have pulled performance down and have seen some normalization in prices. How have sort of the bromine supply and demand trended throughout the balance of the year? And what sort of outlook are you seeing for the fourth quarter?

Yes. So -- this is Eric. First, on the demand side, you're right. It's still a mixed market, reflecting probably the many of the GDP-oriented markets, growth markets that we serve.

So for instance, you mentioned electronics, pharmaceutical, those have been stronger markets. Weaker markets have been building construction and oil and gas of late, stronger earlier in the year, but with drop in the price of oil, a little weaker in the second half of the year. We saw -- if you look at the supply side and the tightness or balance of supply and demand, middle of the year, we saw some tightness. You may have seen if you follow bromine -- elemental bromine prices, particularly out of China, there's an index you can follow.

You've seen that price rise. It's now started to come down again as the market has become more balanced on the one hand. On the other hand, we're headed in a time of year where seasonally production -- some seasonal production in India and in China that comes offline due to the winter months, and as that happens, I don't think we're going to get to a tight situation, but we'll remain fairly balanced. So we're not looking at this as being supremely oversupplied or undersupplied, therefore, dynamic from a price standpoint on elemental bromine at the moment, fairly balanced as we go into the end of the year.

Your next question will come from Rock Hoffman with Bank of America Securities.

I guess does the energy storage volume beat contain any pull forward? And just given the stronger near-term volume assumptions, where would you expect the contract spot mix to shift in 4Q and thereafter?

Yes. So the pull forward, as you described, that's mostly inventory, right? So we had inventory that we were able to use that. The market is strong.

So we're selling into a strong market. But it's not we're pulling next quarter's volume forward, but we are bringing to some degree, capacity forward by selling inventories that we had. It's also just us being leaner on cash and inventory, so us being leaner and operating around that. That's the piece.

The other piece, I guess, we saw from a pull forward would be the expiration of the 30D tax credits in the U.S. So there was a bit of a rush for people to buy EVs in the U.S. It's 10% of the market. So it's not going to be dramatic overall, but that is one where demand did get pulled forward a little bit.

Understood. And just as a follow-up...

I'm sorry, Rock, I think you had asked about contract spot mix going forward. I just wanted to add one point, which is, look, I think Kent had mentioned in the prepared remarks that our contracts continue to perform. We don't have any major contracts that are rolling off until you get towards the end of 2026. But look, the demand has been so strong in China, in particular, where we don't sell volume on long-term contracts. So if that trend continues into 2026, just based on mix alone, you can probably expect that our 45% that we're at this year will tick down just because of where the product is going and the fact that it's not going on these long-term contracts.

But it's not a shift in our long-term contracts. It's really more about geographic mix of sales.

Makes sense. Just as a quick follow-up. Any preliminary thoughts on 2026 CapEx? And I guess, more broadly, when you would need to turn on CapEx in order to incentivize any meaningful volume growth after 2026?

Yes. So I think -- I mean, look, we've been -- we've worked our CapEx down, and we try to be very thoughtful about that. So we would anticipate unless we pivot to do some investments, I'm not thinking of right now, we will continue at that run rate or maybe a little bit lower. We'll continue to work on that to get it down.

We don't think we're shorting our assets with the cuts that we've made. We're just -- we're getting more efficient at it, but we're being thoughtful and careful. That's why we legged down slowly, I would say, particularly on maintenance capital. And so without forecasting -- not forecasting some investment that we might make as a result of the market taking off, you see us in a range where we are maybe another leg down.

But the legs are incremental now, not -- we're not going to make 50% reductions within -- that's not in the cards, there maybe 10%, something like that.

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

I guess I'm just curious to get your thoughts on spodumene and the impact on pricing. So it looks like prices are for both carbonate and hydroxide are kind of settling out at marginal cost levels. Would you agree with that? And would it take spodumene maybe to go up to $1,200 or $1,500 to see some more robust activity in lithium salt pricing?

And if so, what would drive that? spodumene, do you feel that supply/demand is balanced or tight or loose? Or maybe you can just comment on that relationship.

Right. So we commented on it just a little bit earlier, but I think you're probably right. So conversion right now is at basically marginal cost of conversion and in China. And then when you see price move, most of the value and the price movement, the conversion stays at that cost, that marginal cost and it moves to the resource, the margin moves to the resource.

So that's kind of what we've seen, I guess, for at least a year now. Most of the value moves to the resource because you have overcapacity for conversion in China primarily. It's a little bit different when you start talking outside of China, but the majority of the market is in China. And -- but the market is getting a little tight.

And I think that's why you see prices move up. It's probably a bit more as a demand story, but supply has not kept up. Demand is stronger than we thought and supply growth is less than we thought, and that's tightening it. Inventories are coming down in both salts and in spodumene in the system throughout the system.

So I think it's a demand story. I guess maybe it's both because supply has not been as strong as we were originally thinking and demand has been stronger. So the market is tightening. So it's a supply-demand piece, but all the value at the moment does move to spodumene.

Great. And then could you also comment on your potential commercialization in the energy storage market? What are you seeing there? And what do you kind of expect over the next few years from a demand standpoint?

Well, it's the same supply chain and value chain as it is for batteries for EVs for the most part. I mean there are people specializing in that and the core technology, it's pretty much the same thing. And from our standpoint, it's about the same. We sell the same material and just which value chain it goes to.

Many cases -- most cases, it's the same customer that's playing in both energy storage and the electric vehicle market. But the growth has been very strong. A lot of that is grid stability. Well, it's about renewables and storage to go with it in Europe and China to some degree.

But it's also about grid stability and data centers, you could say, artificial intelligence, but that system is what's driving it, particularly in North America. So it's a pretty dynamic market. You always get the question or you think about it, is lithium-ion technology the right technology for that? I mean it's what's available today at scale.

Supply chain has been built out, and it still has a significant cost advantage over other technology like sodium ion. So they don't have scale at sodium-ion yet, and the cost is still significantly higher. So I think in the near term, it's going to be mostly LFP technology. Long term, you probably see sodium coming into the mix.

But I think we're kind of forecasting about 80% of that stays with lithium-ion technology.

Your next question will come from Joel Jackson with BMO Capital Markets.

Kent, you talked about for a while and today about really being able to ride out the cycle here. What do you think Albemarle is going forward? If you're not really doing any growth beyond CGP3 and some conversion in China and you're looking at taking CapEx maybe down a level, economics don't justify new builds or new capacity. What is in this growing, rising sector, EV and ESS, what will Albemarle be?

Are you worried about not growing proportionately with the industry?

Yes. So look, we -- a lot of the work that we're doing is to preserve that growth optionality as we go forward, but we need to see good business cases in order to do it. So my view is we're being disciplined. Look, we probably are risking some of the upside by being -- taking the approach that we have, but we are making sure we can go through the bottom of the cycle and then take advantage of that uptick.

So we will capture growth. We have opportunities. We think resource is the key to that, and we have some of the best resources on the planet. So it is about optionality, and we're having -- and we have to manage our balance sheet and the market opportunity out there, and we don't want to get caught flat-footed.

But I think we're -- what we're trying to build is a business that is agile, and we'll be able to pivot to do those investment projects when we see the right economics.

Okay. And then my second question is maybe a little strange. But I mean, we've seen a lot of good data out from a lot of different industry sources about the acceleration in growth rates in ESS. Can you talk about on the ground what you're actually seeing? Is the hype real? Is it being exaggerated? How much tangible evidence do you have of accelerating growth rates in ESS you can share?

Well, Eric can comment on that, but I think the most tangible is the volumes that we see going into it. I mean that is not -- I mean they are shipping and going into battery. So that's not forecast. That's legitimate. That's real. And so I think that -- I mean that market is there. Eric, you can comment on more specifics.

Yes. It's akin Joel to the last question that came up around where -- what's going on in this market? Is it a different channel? It's not.

It's the same big battery names that are in the EV space. And I guess there are a couple of things we see, certainly in China, which is the largest market and where -- and really the home of LFP technology, we're seeing a lot of -- in all of our discussions with both cathode, particularly LFP cathode and battery producers in China, those cell lines are at full utilization now to meet the demand, both domestically in China and abroad. The interesting thing about the grid storage market is it looks a little different from a global perspective than the EV market, meaning it's not all just about Europe, China and the U.S., it's the rest of the world and the grid demand, grid stability, renewable power are important, whereas in North America, of course, the big driver is more about AI data centers, and even now pivoting to the U.S., we have a great number of battery partners -- partner with OEMs here in the U.S. who are taking those same facilities and looking to retrofit them to make ESS technology, whether that's moving to a lower nickel technology or to an LFP technology.

And then finally, we're seeing a big uptick, and this is both an EV driver and an ESS driver amongst all cathode produced, certainly in China, I referenced, but now outside of China, the Koreans, the Japanese, they're all aggressively pursuing their own LFP in-house technology programs. And it's both EVs, but probably more importantly of late, that's ticked up because of ESS. So those are -- that's a little bit of an on-the-ground commentary of what's driving this enthusiasm for the space.

Your next question will come from Abigail Eberts with Wells Fargo.

I understand you're not guiding to 2026, obviously, but I was just wondering about your expectations for underlying EV demand as we look to next year.

Eric, do you want to...

You said we were curious about underlying EV demand for next year. I think...

Yes.

We continue to have -- go ahead, sorry. Okay. This is part and parcel of the long-term forecast. We did not put in the slide deck we have in prior decks.

It's a growth in the market we see of 2.5x between now and 2030 of the total market consumption for lithium. And while we spent in the last question, a lot of time talking about AI data centers and grid storage demand, that's about 25% of demand. The well over close to 70% of demand in the space or more is for lithium is driven by EVs. We -- China continues to be strong.

The interest thing about China is that it is now over 50%. It is well below the tipping point from a cost standpoint. So the pack costs are well below $100, in some cases, half that level. And so that's producing a car that's now more competitive than an internal combustion engine with an incredible amount of vehicle choice to consumers there and healthy demand for both battery electric and plug-in hybrid vehicles.

Now as that market gets bigger, the percent growth rate obviously gets smaller because it's just the law of large numbers, if you will. The growth is still -- the penetration we still expect to continue. We're encouraged most recently and expect a continuance into next year in Europe. Europe has -- there's a lot of discussion about the long-range emission targets, and we have to just remain vigilant as to what the policy decision there is.

In the short term, there's been a commitment to the next step in that CO2 reduction across the fleet on average. And while some benefit was given to go slower this year, they still have to hit an average 3-year target, which means they're going to have to go faster from a supply side to produce such vehicles in the coming years. Probably our most -- not questionable, but difficult to predict market for EVs would be the U.S. All of those technology trends that I described should be favorable to cost and adoption.

Even here in the U.S., we're at that tipping point on pack costs. However, policy and other things are -- may not be supportive of that. So we just have to wait and see. However, that is the smallest of the 3 major markets.

It's only about 10% of the lithium or lithium demand or not saying that rate of EVs are in the U.S. So that outlook we see flowing into next year as well.

Your next question will come from David Deckelbaum with TD Cowen.

I did want to follow up and maybe with Neal, just post Eurecat and Ketjen partial monetization, obviously, a significant amount of capital coming in. One, I'm trying to think about how much capital you'd be saving on the CapEx side, '26 just from divesting those assets. But more importantly, once the proceeds come in, in the first half of '26, I think you've talked about it increasing your ability to delever. What do you see doing with those proceeds near term?

Or has this just become a cash hoard to opportunistically look at the balance sheet?

David. So let me -- if I hit all your questions here. I think in terms of -- I think you were asking what is the CapEx from Ketjen. I think on a going-forward basis, you should think about roughly 10% of our CapEx is related to Ketjen, and that will be what would potentially come off as we get into next year.

Now we obviously have to see when the transaction will close. So there might be a little bit of Ketjen CapEx in our numbers next year, but maybe just for the first half of the year. This year, Ketjen's CapEx admittedly was a little bit higher than that. That was mainly because Ketjen was finishing its own growth investment called ZSM-5. That project is done, but we did have a little bit higher CapEx through the year related to Ketjen.

In terms of -- I think the second part of your question is sort of what are we going to do with that cash? Look, I think we have always said that delevering is one of our top priorities as a company, and we're at that point now. We obviously have enough cash on hand to take out or repay the debt that's coming due here in a few weeks. That will happen in the normal course.

And I think what you can expect is that once we have line of sight to getting to the proceeds around Ketjen, look, I think that's when we'll get a lot more serious about acting with that cash. We're not going to necessarily let it sit on the balance sheet for too long. And we have some thoughts around how we want to do that with regards to delevering as well as the other capital priorities that we have on our slide in the deck. So I can't give you any more specifics around timing, but obviously, we're developing our plans now.

Appreciate that. And maybe just a second one for Neal or Kent. Obviously, super commendable job this year, just getting the free cash neutrality. I know part of the benefit was -- or you did have some help from a customer prepayment, but albeit at the bottom of a pricing cycle here.

As we go into '26, I know a lot of people have asked about the free cash outlook. But I guess in isolation, one tailwind that I am curious on is just the outlook for dividends from Talison, which I guess, as I think about CGP 3 completing and coming online, should that be a credible tailwind going into '26 in your view?

Yes, David, I can start on that. So we kind of covered that a little bit earlier in the Q&A, just to go back to that is that CGP 3 is basically in the tail end of the investment part of things, and it will start to ramp as we go through 2026. But you should think about kind of the majority of 2026 really being the ramp period for that facility. So 2 big things, I think, that the Talison dividends will be dependent on is, obviously, number one, how well or quickly that unit ramps up, and we're working with the JV right now to understand what that's going to look like as they tip over into start-up.

But then the other part, of course, is pricing. And so it's a little early for me. We never do try to call pricing. It's early for me to call pricing for spodumene across the balance of 2026. We're also working with the JV also through their budgeting to understand the levers that the JV has as well.

All the partners are very interested in dividends out of the JV, especially as we get through this investment phase.

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

Thank you, operator. In closing, I want to thank you all for your continued support and trust in Albemarle. Our strong results this quarter, enhanced outlook for 2025 and ongoing focus on operational excellence position us well for the future. With our world-class resources, leading process chemistry and commitment to customer success, we're confident in our ability to create lasting value for our shareholders and seize opportunities ahead.

We appreciate your partnership and look forward to connecting at our upcoming events. Stay safe, and thank you.

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