Albemarle Q4 2024 Earnings Call Transcript

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Provided by Quartr
February 13, 2025

Key Takeaways

  • Q4 net sales of $1.2 billion and adjusted EBITDA of $251 million, with year-over-year improvements across all segments, and full-year EBITDA of $1.1 billion meeting outlook thanks to productivity and volume gains.
  • Energy Storage volumes rose 26% year-over-year, surpassing guidance, while operating cash conversion exceeded 60%, generating $722 million in cash from operations.
  • Operational optimization actions include placing the Chengdu lithium conversion facility into care and maintenance, shifting Zhengzhou output from hydroxide to carbonate, cutting 2025 CapEx to $700–$800 million, and targeting free cash flow breakeven in 2025.
  • 2025 outlook under multiple lithium price scenarios shows margin expansion to the mid-30% range at $12/kg LCE and preserved operating leverage to benefit from future price increases.
  • Lithium market dynamics remain pressured by lower prices and an estimated 25% of the cost curve at breakeven, offset by 25% growth in EV registrations and nearly 50% growth in grid storage demand in 2024.
AI Generated. May Contain Errors.
Earnings Conference Call
Albemarle Q4 2024
00:00 / 00:00

Transcript Sections

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Operator

Hello, and welcome to Abba Miles Corporation's Q4 twenty twenty four Earnings Call. I will now hand over to Meredith Bandy, Vice President of Investor Relations and Sustainability.

Meredith Bandy
Meredith Bandy
VP of IR & Sustainability at Albemarle

Thank you, and welcome everyone to Albemarle's fourth quarter twenty twenty four 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 Anil Sherry, Chief Financial Officer Netha Johnson, Chief Operations Officer and Eric Norris, Chief Commercial Officer are also available for Q and 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.

Meredith Bandy
Meredith Bandy
VP of IR & Sustainability at Albemarle

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 Cat.

Kent Masters
Kent Masters
CEO at Albemarle

Thank you, Meredith. For the fourth quarter, we reported net sales of $1,200,000,000 and an adjusted EBITDA of $251,000,000 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 $1,100,000,000 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 $7.00 $2,000,000 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.

Kent Masters
Kent Masters
CEO at Albemarle

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 mid year of twenty twenty five and shifting capacity at our Zhengzhou 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.

Kent Masters
Kent Masters
CEO at Albemarle

Additionally, we have further decreased our full year 2025 CapEx outlook by an additional $100,000,000 and we now expect to spend in the range of $700,000,000 to $800,000,000 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 Neil, 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.

Neal Sheorey
Neal Sheorey
Executive VP & CFO at Albemarle

Thank you, Kent, and good morning, everyone. I will begin with a review of our fourth quarter and full year 2024 performance on Slide five. In the fourth quarter, we reported net sales of $1,200,000,000 which represented a year over year decline, primarily due to lower lithium market pricing. Fourth quarter adjusted EBITDA was $251,000,000 an increase year over year driven by improvements across all three businesses as well as reduced corporate costs. Note that last year's adjusted EBITDA included a $6.00 $4,000,000 lower of cost or market pretax charge.

Neal Sheorey
Neal Sheorey
Executive VP & CFO at Albemarle

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 $5,400,000,000 marking a year over year decrease primarily related to lower lithium pricing, partially offset by robust growth in lithium volumes. Full year EBITDA reached $1,100,000,000 in line with our outlook considerations. Slide six shows the drivers of our year over year EBITDA performance. Our Q4 adjusted EBITDA of $251,000,000 surpassed last year's result due to higher volumes, productivity and lower COGS.

Neal Sheorey
Neal Sheorey
Executive VP & CFO at Albemarle

The EBITDA volume benefit was driven by higher volumes in specialties and the conclusion of the Marbel JV marketing agreement at the end of twenty twenty three. 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 three business segments, and we also reported lower corporate overhead costs. Moving to Slide seven.

Neal Sheorey
Neal Sheorey
Executive VP & CFO at Albemarle

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 twenty twenty four market pricing of about $9 per kilogram lithium carbonate equivalent or LCE, the first half twenty twenty four range of $12 to $15 per kilogram LCE, and the fourth quarter twenty twenty three 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.

Neal Sheorey
Neal Sheorey
Executive VP & CFO at Albemarle

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-twenty percent range that we delivered in 2024 to the mid-thirty percent range. Moving to Slide eight, we present modeling considerations for Specialties, Ketchen and Corporate.

Neal Sheorey
Neal Sheorey
Executive VP & CFO at Albemarle

Specialties 2025 net sales are projected to be $1,300,000,000 to $1,500,000,000 with adjusted EBITDA of $210,000,000 to $280,000,000 Ketchum's 20 20 5 net sales are projected to be $1,000,000,000 to $1,100,000,000 with adjusted EBITDA of $120,000,000 to $150,000,000 The corporate outlook shows a planned decrease in capital expenditures, which are now expected to total $700,000,000 to $800,000,000 in 2025, down from $1,700,000,000 in 2024. Corporate costs in 2025 are expected to range between 70 and a hundred million dollars. We are seeing the benefits of our non manufacturing 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 nine presents Albemarle's comprehensive company roll up for each energy storage market price scenario.

Neal Sheorey
Neal Sheorey
Executive VP & CFO at Albemarle

Recall that the full year 2024 included approximately $100,000,000 of pretax equity income from one time 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 Solar 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.

Neal Sheorey
Neal Sheorey
Executive VP & CFO at Albemarle

Last year, we indicated that about two thirds 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.

Neal Sheorey
Neal Sheorey
Executive VP & CFO at Albemarle

We foresee a modest volume led recovery in specialties year over year, driven by strength in pharma, autos, and oilfield applications. Finally, in Ketchen, 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 $2,800,000,000 predominantly comprising $1,200,000,000 in cash and cash equivalents and the full $1,500,000,000 available under our revolver.

Neal Sheorey
Neal Sheorey
Executive VP & CFO at Albemarle

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 2.6 times, favorable to previous expectations. For additional information on covenants, please refer to the appendix. We have a single upcoming maturity, which is our €372,000,000 notes at 1.8% 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.

Neal Sheorey
Neal Sheorey
Executive VP & CFO at Albemarle

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 Green Bushes sales volumes and inventory and cash management improvements across operations. Looking to 2025, we expect our cash dividends from Taliesin in the year to remain below historical averages as Taliesin completes the CGP three project at the Green Bushes 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 $350,000,000 customer prepayment.

Neal Sheorey
Neal Sheorey
Executive VP & CFO at Albemarle

This prepayment relates to a recently signed contract for delivery of spodumene and lithium salts over the next five 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.

Neal Sheorey
Neal Sheorey
Executive VP & CFO at Albemarle

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.

Neal Sheorey
Neal Sheorey
Executive VP & CFO at Albemarle

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.

Neal Sheorey
Neal Sheorey
Executive VP & CFO at Albemarle

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. Non integrated hard rock conversion remains unprofitable, and larger integrated producers are facing pressure.

Neal Sheorey
Neal Sheorey
Executive VP & CFO at Albemarle

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.

Neal Sheorey
Neal Sheorey
Executive VP & CFO at Albemarle

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.

Kent Masters
Kent Masters
CEO at Albemarle

Thank you, Neil. 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.

Kent Masters
Kent Masters
CEO at Albemarle

This year, we are optimizing our conversion network, including new actions at Chengdu and Zhengzhou, improving cost and efficiency with significant progress toward our $300,000,000 to $400,000,000 target for cost and productivity improvements, reducing capital expenditures as we refine our twenty twenty five 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.

Kent Masters
Kent Masters
CEO at Albemarle

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.

Kent Masters
Kent Masters
CEO at Albemarle

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 Zhengzhou to shift conversion capacity partially from hydroxide 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 Solar Yield Improvement project has exceeded a 50% operating rate milestone and is progressing toward nameplate capacity.

Kent Masters
Kent Masters
CEO at Albemarle

We are leveraging our brine expertise, for example, in hydro geological mapping to maximize recoveries at every stage of the resource. At Greenbushes, CGP Three is expected to produce its first ore in the fourth quarter of twenty twenty five, providing additional feedstock for increased lithium salts volumes in 2026. The Talison team together with our JV partners has undertaken technical studies to optimize Greenbush's 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 $300,000,000 to $400,000,000 cost improvement announced last quarter as we move quickly to execute on our plans.

Kent Masters
Kent Masters
CEO at Albemarle

Our goal is to reach a full run rate by year end, possibly sooner. Additionally, we're reducing twenty twenty five capital expenditures by $100,000,000 to $700,000,000 to $800,000,000 down more than 50% from 2024. This result stems from 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.

Kent Masters
Kent Masters
CEO at Albemarle

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.

Kent Masters
Kent Masters
CEO at Albemarle

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.

Kent Masters
Kent Masters
CEO at Albemarle

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.

Kent Masters
Kent Masters
CEO at Albemarle

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's 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.

Kent Masters
Kent Masters
CEO at Albemarle

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 Solar 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.

Kent Masters
Kent Masters
CEO at Albemarle

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.

Kent Masters
Kent Masters
CEO at Albemarle

And with that, I'd like to turn the call back over to the operator to begin the Q and A portion.

Operator

Per person. Our first question is from Patrick Cunningham at Citi. Patrick, your line is open.

Patrick Cunningham
Patrick Cunningham
Vice President, Senior Analyst at Citigroup

Hi, good morning. Thanks for taking my questions. 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?

Kent Masters
Kent Masters
CEO at Albemarle

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 and when we've reported previously kind of that it was about two thirds on contract. 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.

Kent Masters
Kent Masters
CEO at Albemarle

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.

Patrick Cunningham
Patrick Cunningham
Vice President, Senior Analyst at Citigroup

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?

Kent Masters
Kent Masters
CEO at Albemarle

Yes. I'm not sure that's right. I mean, if you go back, then 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 at pursuing as many resources as we were at one time. So, I think the big piece, if you look at the capital that we cut out 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 cut back on resources as well.

Kent Masters
Kent Masters
CEO at Albemarle

And I think when 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 steam a little bit, so those growth rates come down after 27% and a lot of that most of that is about resource.

Operator

Our next question is from Rock Hoffman with Bank of America. Rock, your line is open.

Rock Hoffman
Rock Hoffman
Analyst at Bank of America

Thank you. Could your actions including cutting CapEx and placing Shumdu 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?

Kent Masters
Kent Masters
CEO at Albemarle

So, I think you said, do we think our actions at Chengdu will influence the market? So, no, 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 Chensile. And then we're and Chengdu is one of our smallest facilities, which is why it's probably not wouldn't influence the market that much and then we make up that capacity because we're still ramping other larger assets at Zenu, Tinso as a small investment and then Meishan and Kimmerton as well.

Rock Hoffman
Rock Hoffman
Analyst at Bank of America

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

Neal Sheorey
Neal Sheorey
Executive VP & CFO at Albemarle

Yes. Hi, good morning. This is Neil. Yes. So the wide range is really driven by the variety of scenarios that we have on the page or in the deck here.

Neal Sheorey
Neal Sheorey
Executive VP & CFO at Albemarle

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 pre tax 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.

Neal Sheorey
Neal Sheorey
Executive VP & CFO at Albemarle

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.

Operator

Our next question is from Ben Isaacson from Scotiabank. Ben, your line is open.

Apurva Kilambi
Senior Equity Research Associate at Scotiabank

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

Kent Masters
Kent Masters
CEO at Albemarle

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, a pricing would be one of those, but we have look, they're pretty aggressive plans. You see the actions that we've taken.

Kent Masters
Kent Masters
CEO at Albemarle

We think we've executed pretty well against it so far. So, but we just need to execute to accomplish that.

Apurva Kilambi
Senior Equity Research Associate at Scotiabank

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?

Kent Masters
Kent Masters
CEO at Albemarle

Yes. So, we're taking all these actions, so we don't do that. Right? So, and we are again, as I said, 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.

Operator

Our next question is from David Begleiter from Deutsche Bank. David, your line is open.

David Begleiter
David Begleiter
Managing Director at Deutsche Bank

Thank you. Good morning. Kent, on your realized lithium prices in Q4, what was the difference of spread between your spot sales and your contract sales?

Kent Masters
Kent Masters
CEO at Albemarle

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.

David Begleiter
David Begleiter
Managing Director at Deutsche Bank

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

Kent Masters
Kent Masters
CEO at Albemarle

Yes. I think we are saying about 25% we believe is underwater and we still think that's the case. But how much is actually curtailed or shutdown? Yes. So, probably about it's about half of that 25%, I would say. And I think that both those numbers still hold.

David Begleiter
David Begleiter
Managing Director at Deutsche Bank

Perfect. Thank you.

Operator

Our next question is from Jeff Zekauskas from JPMorgan. Jeff, your line is open.

Jeffrey Zekauskas
Jeffrey Zekauskas
Analyst at JP Morgan

Thanks very much. On Slide seven, 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 $600,000,000 and $700,000,000 or because of your contract prices, it's more complicated than that.

Neal Sheorey
Neal Sheorey
Executive VP & CFO at Albemarle

Yes. Hi, Jeff. This is Neil. I think, my answer is probably going to be towards the latter part of how you described it that 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.

Jeffrey Zekauskas
Jeffrey Zekauskas
Analyst at JP Morgan

Okay, great. And then what you do on the right hand column is you have some assumptions and you say, we assume spodumene market pricing averages 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?

Jeffrey Zekauskas
Jeffrey Zekauskas
Analyst at JP Morgan

What has to happen for you to receive full Talison sales volume?

Neal Sheorey
Neal Sheorey
Executive VP & CFO at Albemarle

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.

Neal Sheorey
Neal Sheorey
Executive VP & CFO at Albemarle

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.

Operator

Our next question is from John Roberts at Mizuho. John, your line is open.

John Roberts
John Roberts
Managing Director at Mizuho Financial Group

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

Eric Norris
Eric Norris
President of Lithium at Albemarle

Good morning, John. It's Eric. That's correct. CGP2 was fully utilized, which was the last expansion of Talison in 2024. CGP3 does not come on until the very end of this year.

Eric Norris
Eric Norris
President of Lithium at Albemarle

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 5% to or 0% to 10% guidance on growth is all coming out of Chile, where the Solar Yield project continues to ramp and drives the bottlenecking effectively of the Negra plant to march towards nameplate.

John Roberts
John Roberts
Managing Director at Mizuho Financial Group

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

Kent Masters
Kent Masters
CEO at Albemarle

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.

Kent Masters
Kent Masters
CEO at Albemarle

We say 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 want to have a benchmark out there that we can aim at.

Operator

Our next question is from Joel Jackson from BMO Capital Markets. Joel, your line is open.

Joel Jackson
Joel Jackson
Equity Research Analyst - Fertilizers & Chemicals at BMO Capital Markets

Hi, good morning everyone. I want to follow-up a little bit on Ben's associates prior question. So can you talk about what if you go into 2026, how much of the half of your sales here that are contracted floors, do we expect the floors have to be renegotiated? 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.

Kent Masters
Kent Masters
CEO at Albemarle

Yes. So we've look, we provided guidance for 2025, not 2026. But the way our contracts work is they don't usually end and then get renegotiated. They get adjusted over time. As our customer wants something, we want something.

Kent Masters
Kent Masters
CEO at Albemarle

They have adjusted. That's how they've worked overtime and we expect that to happen. I mean, 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.

Kent Masters
Kent Masters
CEO at Albemarle

It's growing. We've got new capacity coming on there with Maison 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.

Joel Jackson
Joel Jackson
Equity Research Analyst - Fertilizers & Chemicals at BMO Capital Markets

Okay. And then talking about a quarter in your estimates quarter of lithium supplies underwater, maybe half of that's curtailed. We just it seems like CATL is bringing back some of the pit light production in the last bunch of weeks. There's some maybe some rational behavior going on, although those mines are downstream to capture 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.

Joel Jackson
Joel Jackson
Equity Research Analyst - Fertilizers & Chemicals at BMO Capital Markets

I mean, how do you act in this market? And is there any hope for a mature recovery such behavior by such actors continue?

Kent Masters
Kent Masters
CEO at Albemarle

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 targeted at that, so the capital that we pull back on our growth to reduce capital as a result of that, driving costs 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. That's the approach that we're taking.

Operator

Our next question is from Vincent Andrews with Morgan Stanley. Vincent, your line is open.

Vincent Andrews
Vincent Andrews
Analyst at Morgan Stanley

Thank you. I wanted to follow-up on the $350,000,000 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 $350,000,000 and almost equal then, does that mean next year cash flow would be $350,000,000 less?

Neal Sheorey
Neal Sheorey
Executive VP & CFO at Albemarle

So Vincent, on the this is Neil. On the first part of your question, you are correct. So the $350,000,000 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 $350,000,000 won't recur again in 2026.

Neal Sheorey
Neal Sheorey
Executive VP & CFO at Albemarle

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.

Vincent Andrews
Vincent Andrews
Analyst at Morgan Stanley

And then just as a follow-up on your cash flow statement. But for starters, thank you for the increased disclosure on working capital. But I have a reconciliation question. Do you have a new line item that says inventory net realizable value adjustment? And this year, it's a negative $500,000,000 Last year, it was a positive $6.00 $4,000,000 So I'm just wondering, does that line reconcile somewhere else within cash flow from operations?

Vincent Andrews
Vincent Andrews
Analyst at Morgan Stanley

Or what is that? Or any more detail you can provide would be helpful?

Neal Sheorey
Neal Sheorey
Executive VP & CFO at Albemarle

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 twenty twenty three. And so that's why you see those adjustments. And so that's the best most of that line is related to that.

Operator

Our next question is from Alexei Efremayov from KeyBanc. Alexei, your line is open.

Aleksey Yefremov
Aleksey Yefremov
MD & Equity Research at KeyBanc Capital Markets

Thanks. Good morning, everyone. 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?

Kent Masters
Kent Masters
CEO at Albemarle

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, I'd say growth or cost saving opportunities, smaller investments. So, the Cinso 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.

Kent Masters
Kent Masters
CEO at Albemarle

So that I mean that and that's a 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, at Chinseng. 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 2026 or not, we've not laid out plans in that detail for 2026, so I can't answer that.

Aleksey Yefremov
Aleksey Yefremov
MD & Equity Research at KeyBanc Capital Markets

Thanks, Kent. And on CGP3, I mean, 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?

Kent Masters
Kent Masters
CEO at Albemarle

Yeah, I think we are 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.

Operator

Our next question is from Kevin McCarthy at Vertical Research Partners. Kevin, your line is open.

Kevin McCarthy
Partner at Vertical Research Partners

Yes. Thank you and good morning. 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?

Kent Masters
Kent Masters
CEO at Albemarle

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.

Kent Masters
Kent Masters
CEO at Albemarle

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 kind of I think everywhere. So, The U. S. Is starting to play out.

Kent Masters
Kent Masters
CEO at Albemarle

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

Eric Norris
Eric Norris
President of Lithium at Albemarle

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, etcetera, it's going to be similar to our share in grid storage. It's the same companies, get deep into back into the supply chain that are providing the cathode and battery materials into that. So that's what determines our shares of those relationships not necessarily the end markets.

Kevin McCarthy
Partner at Vertical Research Partners

Understood. And then secondly, if I may, Kenneth, 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?

Kent Masters
Kent Masters
CEO at Albemarle

So, I'll be 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. So the direct impact on Albemarle is not going to be that significant.

Kent Masters
Kent Masters
CEO at Albemarle

I mean, we're not we don't ship from China to The U. S. I mean, significantly, there are some, but it's not a big part of our business. It will impact our customers more than, than it will impact us directly. So the knock on effect of us is something is what we're really paying attention to.

Operator

Our next question is from Laurence Alexander from Jefferies. Laurence, your line is open.

Laurence Alexander
Laurence Alexander
Analyst at Jefferies Financial Group

So a couple of questions. First, on energy storage, how much of your capacity is under long term contracts compared to the EV market?

Kent Masters
Kent Masters
CEO at Albemarle

Well, I'm sorry. You said, was that that was a fixed storage question?

Laurence Alexander
Laurence Alexander
Analyst at Jefferies Financial Group

The energy storage side of your business, how much of that is under long term contract?

Kent Masters
Kent Masters
CEO at Albemarle

It's about 50%.

Eric Norris
Eric Norris
President of Lithium at Albemarle

Yeah, it's the same, Lawrence. Yeah, the other 50%. We talk about 50% being under floor based contracts. The 50% that's not is the pricing mechanism is spot contracts.

Eric Norris
Eric Norris
President of Lithium at Albemarle

It's mix of contracts that are shorter in duration and spot. Okay. Sorry. Just to

Kent Masters
Kent Masters
CEO at Albemarle

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 but not in the same category as spot.

Laurence Alexander
Laurence Alexander
Analyst at Jefferies Financial Group

Okay, perfect. For the $350,000,000 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 2027, but then the cash conversion suffers? Or is there also an EBITDA is there also an impact on the EBITDA bridge?

Neal Sheorey
Neal Sheorey
Executive VP & CFO at Albemarle

Yes, Lawrence, 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 delivery over actually the next five years. So and that's at prices that are indexed to market.

Neal Sheorey
Neal Sheorey
Executive VP & CFO at Albemarle

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 five years.

Operator

Our next question is from David Deckelbaum at TD Cowen. David, your line is open.

David Deckelbaum
David Deckelbaum
Analyst at Cowen

Thanks for getting to my questions. I was hoping to follow-up just on the plans at Shenzhou to convert some of the capacity to carbon 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 you're seeing this pivot as a necessity to sell product at this point?

David Deckelbaum
David Deckelbaum
Analyst at Cowen

And are there further plans, Should we expect further plans to pursue more conversion from hydroxide to carbonate?

Kent Masters
Kent Masters
CEO at Albemarle

Yes. So, look, it is I mean, the hydroxide, there's a market hydroxide is growing, carbonate is growing faster. So there's a stronger demand for carbonate. And this was a kind of a unique opportunity for us because the plant was designed in this way and we but we had there's a few things we have to execute against to take advantage of that. It's very small capital.

Kent Masters
Kent Masters
CEO at Albemarle

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.

Kent Masters
Kent Masters
CEO at Albemarle

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.

David Deckelbaum
David Deckelbaum
Analyst at Cowen

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?

Kent Masters
Kent Masters
CEO at Albemarle

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 and 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 Solar yield in the Solar.

Operator

Our next question is from Benjamin Kallo with Baird. Benjamin, your line is open.

Benjamin Kallo
Managing Director at Robert W. Baird & Co

Hi. Thanks for taking my question. I want to follow-up to an earlier question and maybe frame it just slightly different. There's capacity coming offline, 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.

Benjamin Kallo
Managing Director at Robert W. Baird & Co

So can you talk to anything to help us understand why 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. And I'm just wondering your thoughts around the impact of that on pricing as well. Thank you.

Kent Masters
Kent Masters
CEO at Albemarle

Yes. So there are a lot of moving pieces in your question, but also in the market, right? So it is I mean, there is 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.

Kent Masters
Kent Masters
CEO at Albemarle

And then the recycling part, I mean, recycling has been growing over time. We've 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 a 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?

Kent Masters
Kent Masters
CEO at Albemarle

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 long period of time. Capacity comes on in chunks and you get an imbalance, prices are going to be down. I don't know that I can explain it more than that.

Kent Masters
Kent Masters
CEO at Albemarle

It's very opaque market and particularly because a lot of it happens in China, but it is it relies basically on the supply demand.

Benjamin Kallo
Managing Director at Robert W. Baird & Co

Okay. Thank you.

Operator

Our next question comes from Josh Spector with UBS. Josh, your line is open.

Josh Spector
Josh Spector
Executive Director at UBS Group

Yes. Hi. Good morning. 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?

Josh Spector
Josh Spector
Executive Director at UBS Group

Or was that just something you decided to do given your needs for cash and the customer focus and volume?

Neal Sheorey
Neal Sheorey
Executive VP & CFO at Albemarle

Yes. Hi, 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.

Neal Sheorey
Neal Sheorey
Executive VP & CFO at Albemarle

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.

Josh Spector
Josh Spector
Executive Director at UBS Group

Understood. Thanks. 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?

Kent Masters
Kent Masters
CEO at Albemarle

No. Look, I would say, I mean, we'd model more lipid light coming in. So we not weren't exactly targeting this particular asset to be the one that came back on, but we had lipid light volume. China is a strong market, it's growing, they're short of resource. It's not surprising they're trying to get more domestic resource.

Kent Masters
Kent Masters
CEO at Albemarle

So I think it's I think it's no more complicated than that.

Josh Spector
Josh Spector
Executive Director at UBS Group

Okay. Thank you.

Operator

Our last question comes from Andres Kastanos from Berenberg. Andres, your line is open.

Andres Castanos
Equity Research Analyst at Berenberg

Okay. Thank you. Of the 2,055 lithium volumes, how much of it would be spodumene sales and how much would be lithium salt sales? Are there any things you can tell in volumes left? Thank you.

Kent Masters
Kent Masters
CEO at Albemarle

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 like we shifted a little bit from a prepaid perspective, but what you mean in that, there's not a lot of that in 2025.

Eric Norris
Eric Norris
President of Lithium at Albemarle

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

Andres Castanos
Equity Research Analyst at Berenberg

Thank you. Very, very helpful.

Operator

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

Kent Masters
Kent Masters
CEO at Albemarle

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 look forward to continuing on our journey together. Stay safe and take care.

Operator

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

Executives
    • Meredith Bandy
      Meredith Bandy
      VP of IR & Sustainability
    • Kent Masters
      Kent Masters
      CEO
    • Neal Sheorey
      Neal Sheorey
      Executive VP & CFO
    • Eric Norris
      Eric Norris
      President of Lithium
Analysts
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