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3 lithium stocks to ride a multi-year cycle
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Closing prices for crude oil, gold and other commodities
Is Gold Really Boring? (Ad)
Consumer confidence slips in February as anxiety over potential recession surprisingly reappears
Beyond Meat's shares soar on better-than-expected Q4 revenue despite weak US sales
S&P 500   5,078.18
DOW   38,972.41
QQQ   437.60
3 lithium stocks to ride a multi-year cycle
Critical asset just had biggest fall on record (Ad)
Goldman upgraded Nvidia stock, one metric says it could go higher
Autozone stock price is still in the rally zone
Is Gold Really Boring? (Ad)
New highs are coming for Lowe’s stock despite mixed results
Closing prices for crude oil, gold and other commodities
Is Gold Really Boring? (Ad)
Consumer confidence slips in February as anxiety over potential recession surprisingly reappears
Beyond Meat's shares soar on better-than-expected Q4 revenue despite weak US sales
S&P 500   5,078.18
DOW   38,972.41
QQQ   437.60
3 lithium stocks to ride a multi-year cycle
Critical asset just had biggest fall on record (Ad)
Goldman upgraded Nvidia stock, one metric says it could go higher
Autozone stock price is still in the rally zone
Is Gold Really Boring? (Ad)
New highs are coming for Lowe’s stock despite mixed results
Closing prices for crude oil, gold and other commodities
Is Gold Really Boring? (Ad)
Consumer confidence slips in February as anxiety over potential recession surprisingly reappears
Beyond Meat's shares soar on better-than-expected Q4 revenue despite weak US sales
S&P 500   5,078.18
DOW   38,972.41
QQQ   437.60
3 lithium stocks to ride a multi-year cycle
Critical asset just had biggest fall on record (Ad)
Goldman upgraded Nvidia stock, one metric says it could go higher
Autozone stock price is still in the rally zone
Is Gold Really Boring? (Ad)
New highs are coming for Lowe’s stock despite mixed results
Closing prices for crude oil, gold and other commodities
Is Gold Really Boring? (Ad)
Consumer confidence slips in February as anxiety over potential recession surprisingly reappears
Beyond Meat's shares soar on better-than-expected Q4 revenue despite weak US sales

Albemarle Q1 2022 Earnings Call Transcript


Listen to Conference Call View Latest SEC 10-K Filing View Latest SEC 10-Q Filing

Participants

Corporate Executives

  • Meredith H. Bandy
    Vice President of Investor Relations & Sustainability
  • Kent Masters
    Chairman, President and Chief Executive Officer
  • Scott Tozier
    Executive Vice President and Chief Financial Officer
  • Eric Norris
    President of Lithium Global Business Unit
  • Netha Johnson
    President of Bromine Specialties Global Business Unit
  • Unidentified Speaker

Presentation

Operator

Hello, everyone, and thank you for joining the Q1 2022 Albemarle Corporation earnings conference call. My name is Darius, and I'll be moderating your call today. Before I hand you over to your host, Meredith Bandy, I would like to remind you, [Operator Instructions]. I now have the pleasure of handing you over to Meredith Bandy, Vice President of Investor Relations and Sustainability. Please go ahead, Meredith.

Meredith H. Bandy
Vice President of Investor Relations & Sustainability at Albemarle

All right. Thank you, and welcome, everyone, to Albemarle's First Quarter 2022 Earnings Conference Call. Our earnings were released after the close of market yesterday, and you'll find the press release and earnings presentation posted on our website under the Investors section at albemarle.com. Joining me on the call today are Kent Masters, our Chief Executive Officer; Scott Tozier, Chief Financial Officer; Raphael Crawford, President, Catalysts; Netha Johnson, President, Bromine; and Eric Norris, President, Lithium. [Operator Instructions]. And now I'll turn the call over to Kent.

Kent Masters
Chairman, President and Chief Executive Officer at Albemarle

Thanks, Meredith, and thank you all for joining us today. On today's call, I will highlight our results and achievements during the recent quarter. Scott will provide more details on our financial results, outlook and balance sheet. I will then close our prepared remarks with an update on our growth projects and sustainability before opening the call for questions. Albemarle's leadership positions in lithium and bromine and our team's ability to execute have enabled us to generate increasingly strong results. In the first quarter, we generated net sales of $1.1 billion, up 44% compared to prior year, and that's excluding Fine Chemistry Services in the comparison, which we sold in June of last year.

This fundamental strength allowed us to more than double our EBITDA year-over-year. The supply/demand balance remains tight in the markets we serve. This has enabled us to significantly increase our 2022 outlook based on continued pricing strength in our lithium and bromine businesses. Scott will dive into the key elements of that outlook later in today's presentation. In terms of operational highlights for the quarter, the restart of our Wodgina lithium mine in our MARBL joint venture is progressing well. First, spodumene concentrate from train one is expected in May. We've agreed with our partners to accelerate the restart of train two with the first spodumene concentrate from that train in July. Together, these two trains can feed conversion assets with annual capacity of around 70,000 tons of lithium hydroxide. Now I'll turn the call over to Scott to walk through our financials.

Scott Tozier
Executive Vice President and Chief Financial Officer at Albemarle

Thanks, Kent, and good morning, everyone. I'll begin on Slide 5. During the quarter, we generated net sales of $1.1 billion, a year-over-year increase of 36%, including the FCS business, which we sold in June last year. This is due primarily to increased pricing as well as higher volumes driven by strong demand from diverse end markets, especially for our lithium and bromine businesses. For the first quarter, net income attributable to Albemarle was $253 million, up $158 million from the prior year because of the strong net sales, partially offset by inflationary cost pressures. This includes the impact of natural gas prices in Europe on our Catalysts business. Adjusted diluted EPS for the first quarter was $2.38. The primary adjustments to earnings were $0.07 add-back for a loss on property sales and a $0.19 add-back for tax-related items. On Slide 6, I'll walk you through our first quarter adjusted EBITDA.

For the first quarter, our adjusted EBITDA was $432 million, up 107% year-over-year. The primary driver [Technical Issues] pricing, driven by the move to index-referenced variable price contracts and higher market pricing. Lithium also benefited from the sales of lower-cost inventories, including a onetime sale of spodumene stockpiled during the initial start-up of Wodgina. Bromine was also favorable year-over-year, reflecting higher pricing driven by tight market conditions and a slight uptick in volumes. That was partially offset by raw material and freight inflation. Catalysts was down relative to the prior year, primarily driven by higher raw material costs and lower volumes. That was partially offset by pricing. And lastly, corporate expense and foreign exchange were mostly flat year-over-year. Moving to Slide seven. We have meaningfully increased our 2022 outlook, primarily to reflect continued strength in our lithium business. I'll discuss our lithium outlook in greater detail in just a minute. For the total company, we now expect 2022 net sales to be in the range of $5.2 billion to $5.6 billion, up about 60% to 70% versus prior year. Adjusted EBITDA is expected to be between $1.7 billion and $2 billion, reflecting a year-over-year improvement of 120% at the midpoint of the range. This implies a total company EBITDA margin in the range of 33% to 36%. And together, this translates to updated 2022 adjusted diluted EPS guidance in the range of $9.25 to $12.25 compared to $4.04 in 2021.

Additionally, we are maintaining our capex guidance range of $1.3 billion to $1.5 billion as we drive our lithium investments forward to meet increased customer demand. You may have noticed that we widened the range of our outlook to prudently reflect greater volatility in pricing for sales and inflation for cost of goods sold against the backdrop of a turbulent macro environment. And regarding the quarterly progression of sales and EBITDA, on our last call, we indicated that we expected Q1 to be our strongest quarter of the year, primarily due to higher pricing and sales of low-cost inventory. Given the continued strong pricing and rising volumes, we now expect our second half results to be about 55% of the total year. Turning to the next slide for more detail on our lithium outlook. Lithium's full year 2022 EBITDA is expected to be up 200% to 225% year-over-year, up from our previous outlook for growth of around 75%.

We now expect our average realized selling price to be about double last year. This is the result of our efforts to move toward index-referenced variable price contracts and a significant increase in index prices. We also have better line of sight to price in the full year. From the beginning of the year to today, indices are up between 85% and 125%. We're also assuming that our expected Q2 selling price remains at that level for the rest of the year. If current market prices remain at historically strong levels for the balance of the year, there would be upside to this guidance. There could also be additional upside if we transition additional existing contracts from fixed to variable pricing. However, if we see material declines from current market pricing or volume shortfalls, there would be downside to this guidance. There's no change to our lithium volume outlook for the year. We still expect year-over-year volume growth in the range of 20% to 30% as we bring on new conversion assets, particularly La Negra III and IV and Kemerton I. For bromine, we are raising our full year 2022 EBITDA expectations with a year-over-year improvement of 15% to 20%. This revised guidance reflects higher pricing related to strong fire safety demand, supported by macro trends such as digitalization and electrification.

We also expect higher volumes following our successful expansion last year in Jordan. For catalysts, 2022 EBITDA is expected to be flat to down 65% year-over-year. This is below our prior outlook due to significant cost pressures, primarily related to natural gas in Europe and certain raw materials and freight, partially offset by higher pricing. The large outlook range for catalysts reflects increased volatility and lack of visibility, particularly related to the war in Ukraine. Given the extraordinary circumstances and the resulting changes in oil and gas markets, the business is aggressively seeking to pass through higher natural gas pricing to its customers. As previously discussed, we continue to expect a strategic review of the Catalysts business to be completed later this quarter. The review is intended to maximize value and position the business for success while enabling us to focus on growth. I will now turn to Slide nine for a deeper dive on our lithium contracts and pricing. With the change in guidance, you can now see we have more exposure to changing market indices. Our segmented approach gives more flexibility to customers while still allowing Albemarle to preserve its upside and returns on our growth investments. This slide reflects the expected split of our 2022 revenues updated for current pricing.

Battery-grade revenues are now expected to make up 70% to 80% of our 2022 revenues, of which 20% is expected to be from purchase orders on higher short-term pricing; about half are expected to be from contracts with variable pricing mechanisms, typically index-referenced with a three- to six-month lag; and the remaining 30% is from fixed price contracts. These fixed contracts also have price opener mechanisms to change prices over time. We continue to work with these customers to transition to contracts with variable index-referenced pricing. These negotiations are ongoing and progressing well. If we are successful, this could provide additional upside to our current outlook for the lithium business. Following our last earnings call, we received a lot of questions regarding our expected lithium margins, so I wanted to provide some additional color on the moving pieces on Slide 10. We expect lithium margins to improve in 2022, driven by higher pricing, partially offset by the progressive commissions we pay in Chile under our CORFO contract.

Another item to consider is the impact from higher fixed costs related to the start-up and ramp of our new facilities such as the Wodgina mine and our La Negra and Kemerton conversion assets as well as the potential acquisition of the Qinzhou conversion plant. These plants are expected to more than double our lithium production. Over time, the impact of fixed costs on margins will diminish as production ramps and costs are absorbed. As a reminder, Albemarle calculates EBITDA by including joint venture equity income on an after-tax basis. This year, because of higher spodumene transfer pricing from our Greenbushes mine, this tax impact is much more meaningful than it has been in the past. This is simply a result of a line item where the tax hits our income statement. Albemarle remains fully integrated from resource to conversion. So effectively, we pay ourselves this higher spodumene pricing. On a completely pretax basis, lithium EBITDA margins are expected to be between 55% and 60% in 2022. Slide 11 highlights our expected volume ramp as our new lithium conversion facilities are completed. Last year, we converted 88,000 metric tons LCE including conversion at Silver Peak and Kings Mountain, Xinyu and Chengdu in China, and La Negra I and II in Chile.

We are in the process of more than doubling conversion capacity with the expansions at La Negra and Kemerton, plus the acquisition of the Qinzhou plant. We typically expect it to take about two years to ramp to full capacity at a new plant, including roughly six months for customer qualification. Tying all of this together, we expect to achieve 200,000 [Technical Issues]. Total lithium volumes are expected to be higher than that, including technical-grade spodumene sales of about 10,000 tons per year, tolling volumes of anywhere between 0 and 20,000 tons per year, depending on market dynamics and the [Technical Issues] spodumene, plus any additional conversion capacity we buy or build during this period. Finally, let's turn to Slide 12 to look at our strong balance sheet and cash flow. Our 2022 revised operating cash flow guidance is $650 million at the midpoint. Relative to 2021, you can see incremental cash flow driven by the higher net income, adding back higher depreciation. This is partially offset by higher working capital related to higher sales volumes and pricing, plus higher cost of raw materials and inventories.

As a reminder, working capital typically averages about 25% of net sales. Our balance sheet is in great shape with $463 million of cash and liquidity of almost $2 billion. Current net debt to adjusted EBITDA is approximately 1.9 times. With rising EBITDA from higher pricing and volumes, we expect leverage to remain at or below our target range of two to 2.5 times. Our balance sheet supports the capex for our lithium investments to meet growing customer demand. Following our equity offering early last year, we repaid debt with the intention of relevering as needed to fund capital projects. We are actively evaluating options to do just that. We are planning to be in the debt market this quarter if market conditions are favorable. We remain committed to maintaining our investment-grade credit rating, and the debt markets provide a favorable avenue of acquiring additional capital. With that, I'll turn it back to Kent for an update on our projects on Slide 13.

Kent Masters
Chairman, President and Chief Executive Officer at Albemarle

Thanks, Scott. First, let's look at a few of our expansions in Asia Pacific. Albemarle was focused on expanding global lithium conversion capacity to leverage our low-cost resource base. The acquisition of the Qinzhou conversion facility is now expected to close in the second half of this year as we continue to work through regulatory approvals. We look forward to closing this transaction to bring an additional 25,000 tons of lithium to the market. The commissioning process at Kemerton I is progressing well. We have introduced spodumene into the process and we expect to achieve first product by the end of the month. Kemerton II remains on track for mechanical completion later this year. At our China greenfield expansions, we have broken ground at Meishan to construct a 50,000 ton per year hydroxide conversion facility.

There are also options to expand that facility. The second China greenfield project at Zhangjiagang is currently in the engineering phase, and we are looking at options to produce either carbonate or hydroxide. Importantly, with our ownership stakes at the Wodgina and Greenbushes lithium mines, we already have access to low-cost spodumene to feed these conversion facilities. As I mentioned previously, the restart of the Wodgina lithium mine by our JV partner, Mineral Resources, is going well. And we continue to negotiate agreements to expand and restructure the MARBL joint venture, and we'll update the market when we have more information. We also have a 49% stake at Greenbushes, one of the highest quality lithium resources in the world. The Talison joint venture is ramping up CGP two and has approved construction of CGP 3. And that's expected to begin later this year. In addition, construction of the tailings retreatment plant was completed during the quarter and commissioning is progressing to plan. Our intention is to ramp lithium resources in advance of conversion assets, in which case, in the near term, we could be net long spodumene.

If so, we may elect to toll or sell spodumene. The expansions in Australia and Asia are just a portion of the globally diverse lithium projects we have defined to meet growing customer demand. We remain focused on growing our global conversion capacity to leverage our world-class resources in Australia, Chile and the United States. Our Wave three projects should provide Albemarle with approximately 200,000 tons of additional lithium conversion capacity, which is higher than the 150,000 tons that we originally planned. Additionally, we continued to progress our growth options for Wave four, which is expected to bring an additional 75,000 to 125,000 tons of capacity. This includes continued evaluation of options to restart our Kings Mountain lithium mine and build conversion assets in North America and Europe. Our high degree of vertical integration, access to high-quality, low-cost resources, years of experience bringing conversion capacity online and a strong balance sheet provide considerable advantages for the foreseeable future.

Looking now at Slide 15. As you can see, Albemarle was executing a robust pipeline of projects all around the world. Our bromine business is pursuing incremental expansions in Jordan and the United States. These high-return projects leverage our low-cost resources and technical know-how to support customers in growing and diverse markets like electronics, telecom and automotive. In Chile, the Salar Yield Improvement Project is progressing and is expected to allow us to increase lithium production without increasing our brine pumping rates, utilizing a proprietary technology to improve recovery, efficiency and sustainability. We also have access to a lithium resource in Argentina called Antofalla. We anticipate restarting exploration at Antofalla later this year after securing all necessary permits. In Australia, we continue to progress study work on Kemerton expansions to leverage greater scale and efficiency with repeatable designs. Finally, in the United States, the expansion of our Silver Peak facility in Nevada is on track to double lithium carbonate production.

This is the first of several options to expand U.S. production. In Kings Mountain, North Carolina, we've begun a pre-feasibility study to evaluate restarting the mine. And then our bromine facility in Magnolia, Arkansas, we're evaluating process technologies to leverage our brines to extract lithium. This robust pipeline, coupled with our industry knowledge and strong balance sheet, provides significant growth opportunities for Albemarle. Moving on to our sustainability initiatives on Slide 16. Creating sustainable shareholder value requires our company to continue to drive progress on our own ESG and sustainability efforts, and I'm proud of what we are achieving on that front. We will publish our 2021 Corporate Sustainability Report on June 2. In that report, you will see strong progress in our work towards hitting our target reductions in greenhouse gas emissions and freshwater usage, our initial Scope three emissions assessment and our first full life cycle assessments for lithium products.

You will also see further definition of our sustainability-related targets, including diversity and inclusion. In addition to publishing our new sustainability report, we will host a webcast on June 28, and I hope you will join to listen in. In that presentation, we will discuss next steps, including full CDP disclosure with TCFD goals and disclosures and third-party IRMA assessment at the Salar de Atacama. As you can see, we have accomplished a great deal and we are committed to continue that progress. So this concludes our prepared remarks. And now we will open the call for Q&A.


Questions and Answers

Operator

[Operator Instructions] Our first question comes from P.J. Juvekar from Citi.

P.J. Juvekar
Analyst at Smith Barney Citigroup

Yes, good morning. Good pricing initiatives. Given that your leverage is down substantially, it's a real advantage for you right now. Would you consider more M&A in lithium or getting into recycling or potentially going downstream? How would you view those options from a 60,000-foot view?

Kent Masters
Chairman, President and Chief Executive Officer at Albemarle

So P.J., I think -- I mean we've always -- we're looking at M&A on a regular basis, so I don't think I really -- our view has changed. So we do want to be in recycling, and we feel like -- we have a plan, we're working towards being in the recycling business. We look at resources on a regular basis for acquisition, and we look at conversion assets as well. So our strategy has not changed. We may have a little more firepower now than we did in the past. But I think the strategy is the same areas, and we're pretty focused on those areas.

P.J. Juvekar
Analyst at Smith Barney Citigroup

Also in Argentina, in Antofalla, what are the permits or hurdles that are remaining before you proceed? And similar for Kings Mountain, what could be some environmental concerns there, which has impacted other projects in the region?

Kent Masters
Chairman, President and Chief Executive Officer at Albemarle

Yes. I'll just comment at a high level. I mean it's all the permits that we need. I think we're closer in Argentina than we are in Kings Mountain, but we're early in the process in North Carolina. But Eric can talk about more details there.

Eric Norris
President of Lithium Global Business Unit at Albemarle

Yes. These are classical studies, P.J., it's Eric here, that you would do for any pre-feasibility work. There are -- the Antofalla site has -- is a greenfield site. It has not ever been mined before, so there are a host of different permits from environmental onwards that would have to be achieved and those are underway. And then we would progress from there. In the case of Kings Mountain, this is a brownfield site. And so much of the work has to be done similarly on testing groundwater, testing environmental. There's a lot of work we're doing also with the community. We've engaged them very early on and did so earlier this quarter to participate in that process. And so, as Kent said, that's a little earlier on, but it's also a brownfield site, so it will have a slightly different trajectory than, say, a greenfield site like Antofalla.

P.J. Juvekar
Analyst at Smith Barney Citigroup

Thank you.

Operator

Our next question comes from Jeff Zekauskas from JPMorgan.

Jeff Zekauskas
Analyst at JPMorgan Chase & Co.

Hi, thanks very much. You have a very clear idea of the capacity expansions you wish to execute over the next five years. What's the trajectory of capital expenditures from the $1.3 billion to $1.5 billion level?

Kent Masters
Chairman, President and Chief Executive Officer at Albemarle

I'm not sure -- the question -- you mean over past the next five years?

Jeff Zekauskas
Analyst at JPMorgan Chase & Co.

Yes, exactly right. How do you expect your capital expenditures to change over that period?

Kent Masters
Chairman, President and Chief Executive Officer at Albemarle

Yes. I think we -- I think you're probably -- we expect them to be in that range, right, over the next five-year period and going forward. I mean it depends on what -- on opportunities. So resources -- if we had additional resource, that would change that profile. If we were able to acquire or identify additional resource, that could change that. But I think our baseline, which we've laid out in our Investor Day, is kind of capital in that range over the next five-year period.

Jeff Zekauskas
Analyst at JPMorgan Chase & Co.

Great. So lithium prices have really moved up. And are there limits to what cathode manufacturers or battery manufacturers can absorb? Or do you see any ceilings or we'll just see what the market brings?

Kent Masters
Chairman, President and Chief Executive Officer at Albemarle

Well, it is -- it's difficult to call what the market is going to do, so I think we have to see what the market is going to bring. I mean I think there are economic factors that come into play, but it -- when you look at the overall cost of a vehicle, I mean there is a lot of -- there are a lot of components that go in there. Lithium starts to become a little bit material, but it's still a small percentage of that overall cost. So I mean, look, our view is that prices -- the market is moving. They have recently just come down a little bit. Suspect that's because demand in China is off because of COVID-related issues and so it has softened recently. But we're trying to structure our contracts. We've talked about this for a while, so we move with the market. So we're not dislocated to the market in either in an upmarket or a downmarket.

Jeff Zekauskas
Analyst at JPMorgan Chase & Co.

Okay, great. Thank you so much.

Operator

Our next question comes from David Deckelbaum from Cowen.

David Deckelbaum
Analyst at Cowen

Think about expansion and your growth projects in North America. You discussed accelerating some activity at Silver Peak, growing out the Kings Mountain facility and restarting the mine there and looking at, obviously, the Magnolia brine operations. One, is there an interest or should we expect Albemarle to be filing any loan applications to look for some low-cost financing with any of these projects? And then my second part with that would be, do you anticipate building out conversion facilities in and around the Kings Mountain that would be sort of greater than your U.S.-based resource on the upstream side?

Kent Masters
Chairman, President and Chief Executive Officer at Albemarle

Okay. So there were a couple questions in there. So I think, first, I mean, loans, I think we'd be interested if we can get economically viable loans, better than we can do on our own, we're definitely interested in that to help us build out the battery supply chain in North America. And we would be looking to build conversion capacity locally. Our customers want local conversion -- local resource and conversion capacity. And then I think your question would be outsized conversion vis-a-vis the local resource that we have. So we'll have to work that out over time. But we -- the way we see it, we've got to convert the local product. We'll probably have to supplement local product with product coming from outside the U.S. And then we want to make sure that we -- as we do this, we're considering recycling as well. So we want to have not only virgin lithium coming from the resources in the United States and outside the U.S., but capacity for recycling as well. And we see that as an integrated facility that does that.

David Deckelbaum
Analyst at Cowen

I appreciate the color on that. And then just my follow-up quickly. Maybe if you could just characterize the situation. You reiterated your outlook around volumes and, obviously, increased the outlook around pricing. Are you seeing any impacts, I guess, from some of the shipping woes that we hear getting into China or getting product into China? Are you anticipating that? And then have you experienced little friction moving spodumene concentrate into your converters in China? And how do you see that situation kind of progressing throughout the year?

Kent Masters
Chairman, President and Chief Executive Officer at Albemarle

Well -- I mean we see that in all of our businesses, right? So we're fighting the supply chain. As you hear in the news and with every other business, we're fighting it, but we've been able to manage through it. Today, we can't say we don't have issues, but we've managed through it. But maybe not -- Eric, you guys could comment a little bit on specifically what you see in -- I guess, really around China and spodumene in and out.

Eric Norris
President of Lithium Global Business Unit at Albemarle

Yes. So relative to China and the lithium business, just recall that we are an exporter as well as an importer. So a lot of the hydroxide production that we make in China goes to that market and then a chunk goes outside and surrounding Asia countries as well. And in addition, as you point out, we're bringing spodumene from Australia, entirely support those operations. We have not -- we've experienced some customer impacts. We haven't been able, due to logistics, to hit certain time lines. But we haven't had any material impact to our revenues or to our contracts with these customers. And it comes down to just a very active supply chain team that is constantly managing various ports across the East Coast of -- Eastern Seaboard of China to find the right way in and out for those products. But there are thousands of ships sitting off the coast of China now.

So it's no small task, and so we'll manage it on a day-to-day basis. The COVID crisis and how it's being managed there in China has definitely made this challenging, and we expect to continue to have that challenge and be very astute in how we manage it. But no impact of material variety so far.

Netha Johnson
President of Bromine Specialties Global Business Unit at Albemarle

And I think for us in bromine, China, we are a net importer. So for us, getting material in is the same for Eric, an extreme challenge. But we're also getting, on the back end, seeing containers return from China to allow us to load up our facilities in America and in the Middle East. That's probably the bigger issue. And that's part of the macro supply chain challenge and container movement around the world. We've got a great logistics team here at Albemarle in supply chain with a brand-new leader, and we're excited about what they're doing to manage this difficulty. But again, no material impact. We got a great team, and they're managing that very well for us.

David Deckelbaum
Analyst at Cowen

Thanks Eric and thanks Kent.

Operator

Our next question comes from Vincent Andrews from Morgan Stanley.

Vincent Andrews
Analyst at Morgan Stanley

Thank you. Scott, I just was wondering if you could give us a bit more color on the working capital and how it works, just given so much of the increase in guidance was price related. So is it just a question of receivables are going to spike for a period of time as these prices flow through? Or is there anything going on, on the inventory side as well?

Scott Tozier
Executive Vice President and Chief Financial Officer at Albemarle

Yes, Vincent, I think you've nailed it. So as prices go up, obviously, the receivables go up. We're generally averaging between 55 and 60 days as a total company. So we basically have two months of receivables and the impact of that. So that's a driver. The second one is on inventory, rising costs and inflation. We're seeing, obviously, our inventory costs go up as well, even though the quantities are about the same or actually a little bit lower from what we saw last year. So those are the two big drivers. We see a little bit of benefit from -- in the payables to offset that inventory, but that's what's going on.

Vincent Andrews
Analyst at Morgan Stanley

Okay. And just as a follow-up, you mentioned that there are some contracts that might be renegotiated midyear off of six to variable. Do you have a rough idea of what percentage of your mix that could be or that's at least in discussion?

Scott Tozier
Executive Vice President and Chief Financial Officer at Albemarle

Yes. So if you actually look at the chart that we put in, in the presentation that breaks down our revenue, those fixed contracts make up about 30% of our battery grade revenue. And those are the ones that are in discussions right now. So we'll see. If we're successful, there would be additional upside to the guidance as we move those to variable pricing.

Vincent Andrews
Analyst at Morgan Stanley

But it's all of the 30%, not a subset of it that's in play?

Scott Tozier
Executive Vice President and Chief Financial Officer at Albemarle

Eric, do you want to provide some additional detail there?

Eric Norris
President of Lithium Global Business Unit at Albemarle

Yes. I would -- just knowing the mix of business we have, Vincent, I would say it's a subset. We'd still have a double-digit percentage there. It wouldn't go to 0, but it could come down from 30% if we prevail.

Vincent Andrews
Analyst at Morgan Stanley

Okay, excellent. I appreciate the help.

Unidentified Speaker
at Albemarle

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

Joel Jackson
Analyst at BMO Capital Markets

Hi, good morning everyone. I want to ask a question, and it's not just you, it's obviously the business and your peers, what you thought pricing would be and margins with a lot different look only three months ago, but into February, into that quarter, into Q1. And suddenly, the way your contracts are working with index pricing, suddenly now, it's a lot higher pricing, it's a lot better margin. The story is really different. So I want to ask what really changed? And if things could change so quickly in three months, how can you be confident pricing -- in your base case can stay flat for the rest of the year?

Kent Masters
Chairman, President and Chief Executive Officer at Albemarle

Yes. So I mean we've been talking about moving to these variable price contracts for over a year. And so -- and coming into the year, I mean we're basically in the same position that we were at the beginning of the year. Most of the discussions that we've done with -- most happened -- that changed our contract structure happened at the end of last year -- toward the end of last year. What's changed is pricing. The indices have moved up. Market has tightened. The market has gotten stronger from an EV demand standpoint and particularly in China. So that's really, I think, was the driver. Those were the first prices to move and other prices followed that. And it's a tight market. I mean the demand is strong, and the supply is -- it's tight. It's a little bit of an imbalance, and that's what's driven pricing. Well, how it stays there, I mean we have -- but there are lags on our contracts.

So we feel like we understand the second quarter pricing very good, and we don't see it dropping dramatically. That's why we're comfortable giving guidance holding what we see for the second quarter for the balance of the year. What it does going forward after that, it's difficult to call. But the market is still tight. It's gotten a little soft because the demand is off in China over COVID issues. Some of the EV plants were shut down. They're mostly back up now, but they are at lower rates. So demand is a little bit slower, which has caused a pause in the market, and pricing has come off a little bit. It's hard to see how that comes down over time. I mean, it can, but it's hard to see that happening very quickly.

Joel Jackson
Analyst at BMO Capital Markets

Okay. If I follow up on that, so if you're now more exposed to spot and not as much as fixed or price moving around a lot more, how does that change how you manage the business? Because you can have a view right now, like you just said, but obviously, that could change in a month or two. And that may change how you look at things; your risks, how you handle working capital, what level -- how comfortable you are with leverage. Because it seems like your business now is going to be more variable with spot prices of lithium, which have surged and they're way more volatile than they were in the past. How does that change how you view the business month-to-month, quarter-to-quarter, how you manage to plan for it?

Kent Masters
Chairman, President and Chief Executive Officer at Albemarle

Yes. So our contracts, I mean they're not all spot. So they are -- these are contracts that we have. Some are shorter term in the variable category. Some are short term with -- that are indexed to the market. The longer-term contracts we have are indexed to the market but tend to have collars on them with floors and ceilings. So that takes some of that variability out. So this is -- I mean it's evolution of our strategy around pricing. We are more indexed to the market today than we were a year ago, definitely. And that was by design. And I think -- but we're confident in the volume growth. And then -- and pricing, it will move up and down, but we have a very good cost position. With the resource base that we have and our cost position, we still think that we can invest capital to grow for this business and have confidence in that.

Joel Jackson
Analyst at BMO Capital Markets

Thank you.

Operator

Our next question comes from Aleksey Yefremov from KeyBanc.

Aleksey Yefremov
Analyst at KeyBanc

Thanks, good morning everyone and congrats on renegotiating the contracts. A question on volumes. You raising your Wodgina production goals for this year, and yet your overall volumes are about the same for this year. Could you kind of explain what's going on with your volume assumptions in lithium?

Eric Norris
President of Lithium Global Business Unit at Albemarle

Yes. So the volume -- good morning, Alex, and thanks for your words. The volumes that we have guided to are 20% to 30% above last year's numbers of about 88,000. That's described to you in the chart on Page 11. We had already contemplated in our guidance that some form of Wodgina I would be used to support that volume growth. Wodgina II coming on is to follow the strategy that Kent indicated of having an excess of resource capacity to conversion growth. And there's -- and we will look. Potentially, there could be some possible upside. If that goes smoothly, it won't come on until the second half of this year. There's some possibilities to toll or sell that as we indicated during our prepared remarks. So that would be certainly in excess to the 20%, 30% range, which is our internal production.

Aleksey Yefremov
Analyst at KeyBanc

Okay, understood thanks a lot.. And the second question on pricing. I mean you indicated three to six months lag effect for half of your battery grade revenues. So if we take second quarter, for example, your expectation for second quarter pricing, and then we assume that these indices kind of stay flat where they are today, does that imply that third quarter price and perhaps fourth quarter price go up sequentially? Would that be right logic given these lags?

Eric Norris
President of Lithium Global Business Unit at Albemarle

If -- yes, given the lags, we only can see out, as Kent said, clearly out three months because of the nature of these lags. But if market prices stay where they are, yes, there's upside. Very clear, there's upside. And I think we said in our guidance that there have to be a material decline in market prices. And what we've seen in the past couple of weeks in China does not represent a material decline. So there have to be a much more significant decline before that would have a downward impact on our guidance.

Aleksey Yefremov
Analyst at KeyBanc

Great, thanks a lot.

Operator

Our next question comes from Matthew DeYoe from Bank of America.

Matthew DeYoe
Analyst at Bank of America

That's a new one. Good morning everyone. So questions on MinRes MARBL joint venture. Like one, have they paid you for the 10% stake yet? Two, who controls the decision to run Wodgina and at what pace? Is that MinRes? Is that you? Is that a joint decision? And then when you move to 50-50, is that going to establish after-tax accounting for that business as well?

Kent Masters
Chairman, President and Chief Executive Officer at Albemarle

So I may try and take that. So they've not paid us for anything and it's a concept, and we're negotiating that at the moment. So we're operating at a 60-40 structure that we had previously. So we're under discussions and, I would say, negotiations around expanding that JV, which -- and that expansion would move it to be 50-50 at Wodgina. But that's -- we've got to conclude all of that, and none of that will change until we conclude the discussions and get the final documents. So the accounting, Scott, I'll leave that to you.

Scott Tozier
Executive Vice President and Chief Financial Officer at Albemarle

Yes. So on the accounting, some of this depends on how those [Technical Issues]. So with a 50-50 joint venture, there's some complex accounting rules around control that we'll have to go through and evaluate that once those agreements are there. So there's two potential options there. One is that it is a consolidated joint venture on our books with minority, similar to what we do with JBC, or with no control, and it will just run through equity income, which would then create that tax impact that you asked about. So more to come on that. It all depends on how the negotiations and the final contract comes out.

Matthew DeYoe
Analyst at Bank of America

All right. That's helpful. And then what are you -- what are the assumptions for second half 2022 spodumene internal transfers, if I were looking at sizing that impact? Is it still $17.70 or have you moved that up?

Scott Tozier
Executive Vice President and Chief Financial Officer at Albemarle

No, no. That's moved up. It's almost doubled. It's almost doubled from that. So I think it's -- Eric, do you have that?

Eric Norris
President of Lithium Global Business Unit at Albemarle

Will double.

Scott Tozier
Executive Vice President and Chief Financial Officer at Albemarle

Yes. Yes, or will double, right.

Eric Norris
President of Lithium Global Business Unit at Albemarle

It's based on a formula with -- how we've agreed to -- the JV is agreed to with the authorities in Australia for tax and royalty purposes. And then it's based upon a lagging basis of how spodumene prices in the market, several different indices have fared. So based on that, what you see with spodumene prices rising with -- certainly, with the salt prices as well that we talked about earlier, that average price is probably going to be on the order of double where it's been.

Matthew DeYoe
Analyst at Bank of America

Yeah, understood. Okay, thank you.

Operator

Our next question comes from Christopher Parkinson from Mizuho.

Harris Fein
Analyst at Mizuho

This is Harris Fein on for Chris, thanks for taking my question. So your competitors have been discussing that there has been a noticeable step change in your customers' willingness to enter into contracts and more of an acknowledgment that the world will be short lithium in the coming years. So I was wondering if you could give your perspective on that based on what you're seeing. And I know it's early, but how -- what that implies for the setup for 2023 pricing? Is it reasonable to expect that you would be able to maintain these levels?

Eric Norris
President of Lithium Global Business Unit at Albemarle

So Harris, this is Eric. I'll start and maybe others will add. So the market -- there is certainly a very big concern about security of supply. With the rapid commit -- with the significant commitment that automotive manufacturers are making towards EVs and the excitement that, that brings with it, there's a concern as well that the -- whether the industry can spool up quickly enough to meet that demand. And in one regard, that might be why the spot prices are so high. It's just a fundamental concern in that regard. And that's leading to long-term partnership discussions. And fortunately, that falls squarely in the strategy we've had for years now, which is picking the right partners, partnering with them long term, leveraging our world-class resources and our ability to execute well to give them comfort that we're the right partner for them to ease that concern around security of supply.

Price is, as we've discussed at length in this call, is a function of what happens with the market indices for a large measure of our revenue. Currently, 50% of our battery grade revenues are going to be impacted by that. It is -- and that's going to be what the market does. So there will be structures we take on with these sorts of partners that, as Kent earlier said, will probably be index-based and have some collaring on either side of them. And a long-term commitment from these customers to buy and for us to supply. Where that price is, is going to be a function of the market. So hard to call that right now.

Harris Fein
Analyst at Mizuho

Got it. And piggybacking off that, in the past, we've been looking at sort of a 40% long-term EBITDA margin bogey for lithium. And 1Q looks like a little bit of an anomaly. But given the current price setup that you're seeing, is there any meaningful change to your long-term normalized margin outlook? It's a bit higher in 2022. And if you could also talk about helping us come up with a framework for quantifying how start-up costs are going to play into that over the next few years, that would be really helpful.

Scott Tozier
Executive Vice President and Chief Financial Officer at Albemarle

Yes. So I would say that our long-term view, as we laid out last year in our Investor Day, was in the mid-40s for the lithium business at mid-cycle pricing, so through the cycle. And I would say that our view really hasn't changed at this point in time. We'll continue to evaluate that and adjust as we need to, as we better understand the long-term pricing outlooks. Of course, as you mentioned, our plant start-ups do have an impact on that. It's bigger today because we're doubling our capacity versus, as you go forward in time, the next increment is going to be a smaller and smaller percentage and eventually just be part of -- just part of our normal operating activities.

Operator

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

Arun Viswanathan
Analyst at RBC Capital Markets

[Technical Issues] I mean, first off, I guess, just wanted to go back to the pricing discussion. So we have had some majors announce some new capacity announcements, I think Ganfeng and some others, as you know. And that would kind of potentially signal some confidence that we are in a new price regime. You've also taken up your guidance for the full year. I'm just curious what you think the new level of, say, peak to trough pricing in lithium is as you move into '23. I mean do you think you can build off of this base that you're at right now?

Kent Masters
Chairman, President and Chief Executive Officer at Albemarle

So we're not going to call lithium pricing going forward. So I mean what we've done is we've structured our contracts so we move with the market, and we've given ourselves a little bit of stability. That's been part of our plan for some time, and it gives our customers visibility of what the price is relative to the market. I mean they have the same visibility going forward as we do and as you do. So it's difficult for us to say where it goes in '23. We think the market is tight. When we look at the demand from EVs and demand on lithium and what we see is capacity coming on, the market is tight for years. So for at least through our planning period, which I would call it five years. So we see it being pretty tight. Now there will be periods where there's a little -- there's some oversupply, but the growth in the market, it catches up very quickly. So we think the market is tight, but we're not going to call lithium prices for '23.

Arun Viswanathan
Analyst at RBC Capital Markets

Understood. And then I guess, we haven't really asked about bromine yet, so maybe I'll just ask quickly there. Maybe you can just provide a couple more details on your thoughts there. Do you expect continued price upward momentum there? And what's the outlook, I guess, from a demand standpoint?

Netha Johnson
President of Bromine Specialties Global Business Unit at Albemarle

Yes, Arun, in terms of pricing, I think we should see pretty stable pricing. We're pretty fortunate that the applications in digitalization and electrification continue to grow. And that those applications are growing slightly faster than supply can come on to the market. So similar to what we saw in our Investor Day last fall, we expect this market to be fundamentally undersupplied for the next five years of our planning period. So -- and we're adding capacity. So we expect the pricing to stay relatively strong for the foreseeable future.

Arun Viswanathan
Analyst at RBC Capital Markets

Thanks.

Operator

Next question is from Ben Kallo from Baird.

Ben Kallo
Analyst at Robert W. Baird

Just two questions. First, hydroxide versus carbonate and how do you decide on where to make the investment on the two? And then geopolitical risk, just as you invest in countries, there was a headline out yesterday about Mexico nationalizing their lithium resource. But as you look to Argentina and making that investment in Chile, we get a lot of questions about that. So how do you think about that going forward?

Eric Norris
President of Lithium Global Business Unit at Albemarle

Ben, this is Eric. I can take the hydroxide and myself or Kent can address the geopolitical risk one. So first on hydroxide versus carbonate. The prior question was about the trend towards long-term partnerships and security of supply. We -- one of the benefits of the customer partnership approach is to leverage that -- their commitment to us and making commitment firmly to the product form that they wish it. There's also -- and this does relate to the geopolitical risk side of things, in that there's also a discussion around where they want it and increasingly a concern and a desire to have localization of supply. So we leverage the commitments we're trying to get in these contracts of these customers to narrow down those two issues, the product risk and the regional risk for the two. As an added comment, we currently are seeing that maybe carbonated or LFP chemistries are about maybe 20%, 25% of the market. That's our current view. We continue to monitor that carefully. Kent, do you want to comment just on how we think about risk?

Kent Masters
Chairman, President and Chief Executive Officer at Albemarle

Yes. I mean -- I would say -- I mean [Technical Issues] important for us given the locations where [Technical Issues] and we look at it kind of at a macro level and by country. So -- and we look at it for particularly kind of -- we get deeper and deeper as we make a new investment, but we monitor that. So a lot happening in Chile, as you know, we talked about on these calls before. Argentina, as we make investments there, we'll have to make sure that we're looking at those risks and monitoring that. Australia, less of an issue. China, another area that we have to focus on and make sure we have our risk assessment, but we monitor those. We try and combine it with government -- active government relations on making sure that we're doing the right thing in the country. So we're seen as a good actor and that we're bringing value to them as well that others can't necessarily bring. And that's a big part of how we feel like we mitigate the risk in some of those geographies.

Ben Kallo
Analyst at Robert W. Baird

Thank you.

Operator

Our next question is from Colin Rusch from Oppenheimer.

Colin Rusch
Analyst at Oppenheimer

Can you talk a little bit about the potential for incremental customer deposits or customer-funded capex? You guys are spending a ton of money to grow capacity. And I'm just wondering about some of the alternative strategies for financing then.

Scott Tozier
Executive Vice President and Chief Financial Officer at Albemarle

Yes, Colin, I think it's a good question. I think given the environment that we're in and the concern around supply from our customers, we're exploring all sorts of options. Partnership type of options like Eric talked about, prepayments. There's a variety of different things there. I think the key for us is to ensure that those types of agreements are giving us incremental return versus what we could do on our own. So clearly, our strong balance sheet, strong support from investors give us plenty of capacity to be able to do it on our own. But if we can get incremental returns, we'll take a look at it.

Colin Rusch
Analyst at Oppenheimer

Okay. And then just given the expertise that you guys have around cathode materials and formulation, I'm wondering about your willingness or interest in additional vertical integration. Obviously, you don't want to compete with your customers, but it seems like you guys have enough expertise that you could do some real work in that space.

Kent Masters
Chairman, President and Chief Executive Officer at Albemarle

Is that a cathode question? Or I'm just trying to make...

Colin Rusch
Analyst at Oppenheimer

Yes, cathode question. Yes. No [Indecipherable] vertical integration there.

Kent Masters
Chairman, President and Chief Executive Officer at Albemarle

Yes. So -- I mean, look, we look at the different options, but we're from -- we look at it from a material standpoint. And our interest in batteries and cathodes is to make sure that we're producing and developing the right chemistries that go into our customers' processes. So we're not looking to be in the cathode business, but we're looking to be an excellent supplier to those cathode makers and the OEMs that have vested interest in the battery and the cathode technology.

Eric Norris
President of Lithium Global Business Unit at Albemarle

Yes. And I'll just expand. Colin, part of doing that is being able to understand that application very well, but not integrate forward into it. And as -- I would also say, though, that as we look at other advanced forms of lithium, we'll look at the -- again, question exactly how we want to play in that. Still be a material player, but what material are we supplying? And so we're looking at -- as you look at solid state chemistries, there's a variety of different ways we can play in that area. And we're doing a lot of work currently with partners and customers in that area to determine the future.

Colin Rusch
Analyst at Oppenheimer

Thanks guys.

Operator

That's all the time we have for today's Q&A session. I'm now going to hand you back to Kent Masters for any final remarks. Please go ahead.

Kent Masters
Chairman, President and Chief Executive Officer at Albemarle

All right. Thank you, Darius, and thank you all again for your participation on our call today. Our success in 2021, combined with the momentum we are experiencing in '22, strongly positions us for profitable growth. I'm confident in our team's ability to drive value for all of our stakeholders by accelerating our growth in a sustainable way and to lead by example. Thank you, and thanks for joining us.

Operator

[Operator Closing Remarks]

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