Hello and welcome to Albemarle Corporation's Q2 2024 Earnings Call. I will now hand it over to Meredith Bandy, Vice President of Investor Relations and Sustainability..

Thank you and welcome everyone to Albemarle's second quarter 2024 earnings conference call. Our earnings were released after the market yesterday, and you'll find the press release and earnings presentation posted to our website under the Investor Section at albemarle.com.

Also posted to our website is yesterday’s additional press release announcing our initiation of a comprehensive review of our cost and operating structure which we will also reference during our comments today.

Joining me on the call today are Kent Masters, Chief Executive Officer; Neal Sheorey, Chief Financial Officer; Netha Johnson, President of Specialties; and Eric Norris, President of Energy Storage are also available for Q&A.

As a reminder, some of the statements made during this call, including our outlook, guidance, expected company performance and strategic initiatives may constitute forward-looking statements. Please note the cautionary language about forward-looking statements contained in our press release and earnings presentation which also applies to this call.

Please also note that some of our comments today refer to non-GAAP financial measures. Reconciliations can be found in our earnings materials. And now, I'll turn the call over to Kent..

Thank you Meredith. During the second quarter Albemarle continued to demonstrate strong operational execution. We recorded net sales of $1.4 billion and sequential increases in adjusted EBITDA and cash from operations, thanks in part to successful project delivery, productivity, and restructuring initiatives and working capital improvements.

We continued to capture volumetric growth driven by our energy storage segment which was up 37% year-over-year, highlighting successful project ramps and spodumene sales in that segment. For example during the quarter we achieved first commercial sales from Meishan ahead of our original schedule by approximately six months.

During the second quarter we also delivered more than $150 million in restructuring and productivity improvements consistent with our efforts to align our operations and cost structure with the current market environment. We are on track to exceed our full-year targets on this front by 50%.

Looking to the rest of this year, our operational discipline allows us to maintain our full-year 2024 outlook considerations. Notably, we expect our $15 per kilogram lithium price scenario to apply even assuming that lower July market pricing persists. This is due to higher volumes, cost out and productivity progress, and contract performance.

We have made great progress in strengthening our competitive position and enhancing our financial flexibility. However, industry headwinds that began last year have persisted longer than the sector anticipated, making it clear that we must proactively take additional steps.

Building on the actions we announced this past January, we announced yesterday that we are taking a comprehensive review of our cost and operating structure with the goal of maintaining Albemarle’s competitive position and driving long-term value.

As part of the initial review, we announced the difficult but necessary decision to immediately adjust our operating and capital spending plans at our Kemerton site in Australia. These actions showcase our deeper focus on cost and operating discipline.

There's no question that the global energy transition is underway, however, the pace of the industry changes our dynamic and we must remain agile as well. Later on the call, I will spend some time diving deeper into the cost and asset actions that we continue to take in this environment to maintain our competitiveness.

And I will also highlight the strategic advantages that remain proof points of Albemarle’s competitive and operational strengths. I'll now hand it over to Neal to talk about our financial results during the quarter..

Thanks Kent and good morning everyone. Beginning on Slide 5, let's move to our second quarter performance. In Q2 2024, we recorded net sales of $1.4 billion, compared to $2.4 billion in the prior year quarter, a decline of 40% driven principally by lower pricing.

During the quarter, we recorded a loss attributable to Albemarle of $188 million and a diluted loss per share of $1.96. This result included an after-tax charge of $215 million, primarily related to capital project asset write-offs for Kemerton 4. Adjusted diluted EPS was $0.4 per share.

Moving to Slide 6, our second quarter adjusted EBITDA of $386 million was down substantially versus the year ago period, as favorable volume growth was more than offset by lower prices and reduced equity earnings due to soft fundamentals in the lithium value chain.

Compared to the first quarter, second quarter adjusted EBITDA rose 33%, driven by higher sales volumes across all businesses and higher income from increased Talison JV sales volumes.

As a reminder, on last quarter's earnings call, we said that we expected an approximately $100 million sequential lift to our EBITDA from higher than normal off-take by a partner at the Talison JV, and that's what we saw in the quarter. Turning to Slide 7.

As we've done in prior quarters, we are providing full year 2024 outlook considerations based on historically observed lithium market pricing scenarios. The price scenario shown represent a blend of relevant market prices, including both China and ex China pricing for lithium carbonate and hydroxide.

The numbers you see here on this slide have not changed since our last earnings call. What is new is what Kent mentioned at the top of the call. We now expect the $15 per kilogram price scenario to be applicable even assuming lower July market pricing persists for the balance of the year.

We are able to maintain this scenario due to the success of our enterprise-wide cost improvements, continued strong volume growth, higher sales volumes at our Talison JV, and contract performance in energy storage. Moving to Slide 8. We continue to prioritize our financial flexibility and strong liquidity to navigate the dynamic market environment.

We ended the second quarter with available liquidity of $3.5 billion, including $1.8 billion of cash and cash equivalents and $1.5 billion available under our revolver. Our net debt to adjusted EBITDA was 2.1 times which was well below the quarter's covenant maximum of 5 times.

We continue to add new liquidity resources such as our AR factoring program, and from a long-term debt perspective, we are well positioned and have no significant maturities due until late 2025. Turning to Slide 9, which shows our improved operating cash flow performance and considerations.

Our focus on cash generation and efficiency continues to drive important benefits. Our operating cash flow conversion in the second quarter was 94%, which was unusually high, primarily due to increased Talison dividends.

We also continued to drive volume growth, cost and productivity improvements, and working capital efficiencies, all of which contributed to our cash conversion. As we look forward, we now expect our full year operating cash conversion to be approximately 50%, which is at the higher end of our historical range. I'll now hand it back to Kent..

optimizing Albemarle's global conversion network to preserve our world-class resource advantages, improving our cost competitiveness and efficiency, continuing to reduce capital expenditures and future capital intensity, and enhancing Albemarle's financial flexibility.

The middle section of this slide highlights that we've already taken the next set of actions across these four focus areas. And the bottom of the slide details additional opportunities that we'll closely evaluate as part of the process.

The comprehensive review of our cost and operating structure has just begun, and we plan to provide additional details with our third quarter earnings. That said, we took the difficult but necessary decision to bring forward the first step in the review, which is to further optimize our Australian network as we show on Slide 14.

As one of the first steps in this comprehensive review, we announced yesterday immediate adjustments to our Australian lithium hydroxide footprint. These changes follow our previously announced decision not to proceed with the construction of Kemerton Train 4.

Specifically, we will idle production at Kemerton Train 2 and place the unit in care and maintenance. Additionally, we will stop construction activity on Train 3. Notably, we estimate that stopping construction on Train 3 will save at least $200 million to $300 million of capital spending over the next 18 months.

These changes allow us to focus on optimizing and ramping Kemerton Train 1 to preserve optionality and diversity across both product type and geography. In the coming weeks, we'll be identifying other ways to optimize our global conversion network with a focus on the highest priority and highest return options.

Our global portfolio of convergent assets and our extensive holding network provide the flexibility to maximize the value of our high-quality resources and to provide either carbonate or hydroxide to meet the needs of our customers as their demands and technologies evolve. Turning to Slide 15.

As we deliver these initial savings and begin the next phase of our review, our operating model, the Albemarle Way of Excellence remains the standard by which we operate. By executing our operating model, we are building a culture of continuous improvement to identify best practices at every point in the cycle.

We are on track to exceed our initial goals for restructuring and productivity savings through manufacturing, procurement, and back-office initiatives. Much of the better-than-expected performance to date is in manufacturing improvements.

For example, optimized PON management at the Salar and overall equipment effectiveness improvements at La Negra have maximized production at one of our lowest-cost assets. These manufacturing benefits in Chile are in addition to the increased efficiency and volume we expect as the Salar yield improvement project continues to ramp.

Moving to Slide 16 and our capital spending profile. As I mentioned earlier, we expect 2024 CAPEX to be $300 million to $400 million below 2023 levels. Moving forward, we are evaluating opportunities to further reduce our capital intensity and total capital spending.

This will provide enhanced optionality, improve free cash flow, and put Albemarle in a stronger competitive position long term. Our capital spending profile is another element of our comprehensive review and we'll have more to say about our near-term spending plan on future calls. Moving to Slide 17.

With all these near-term factors shifting and requiring us to take action, I think it's important to remember that Albemarle continues to have significant competitive strengths. And so I will end with a review of our framework and the core advantages we continue to prioritize as drivers of our long-term value creation.

Slide 18 provides our strategic framework, which informs our planning and gives us confidence that we will achieve our growth ambition to lead the world in transforming essential resources into critical ingredients for modern living. This framework defines where we play, how we win, and how we deliver.

Albemarle remains uniquely positioned to enable operational excellence during this dynamic period thanks to our competitive strengths, including our globally diverse portfolio of world-class resources, leading process chemistry, deep innovation, and technical know-how, customer-centric approach to the market, and responsible stewardship.

Each of our competitive strength will help us right now and well into the future in ways that we summarize on Slide 19. First, our world-class resources are arguably the best in the industry with large-scale, high-grade and, therefore, low-cost assets. In energy storage, we have access to some of the high-grade resources in both hard rock and brine.

In Australia with Greenbushes and Wodgina and one of the largest known hard rock assets in the U.S., Kings Mountain. And in Chile with our long-standing position in the Salar de Atacama. Similarly, in specialties, we are the only producer with access to both of the two best bromine resources globally.

In Jordan, on the Southeast side of the Dead Sea, the source is the largest concentration of bromine in the world. And in the smack over formation in Arkansas, the only source of commercial bromine in the United States.

In both of our core businesses, we maximize the value of our world-class resources by converting and flexibly derivatizing into higher value and use products in our conversion assets or in the case of energy storage, through our extensive tolling network.

Second, our leading process chemistry know-how is key to achieving further productivity and cost improvements, safely and sustainably. For example, the Salar yield improvement project utilizes a proprietary technology to enable up to 20% higher yield.

At Magnolia, we've leveraged advanced process controls to increase production while lowering costs and improving sustainability.

And at both the Salar and Magnolia, we have evaluated a wide range of direct lithium extraction options and are piloting proprietary and third-party solutions in order to be prepared for technology shifts that could be important and more sustainable Salar yield options for this industry.

Third, we have a pipeline of high-impact innovative solutions in both bromine and lithium. Our research, testing, and piloting facilities in North Carolina, Louisiana, and Langelsheim, Germany, allow us to participate in differentiated high-margin segments and support our customers' specific requirements.

Fourth, Albemarle's leading industry position as a partner of choice is demonstrated through our growing number of partnerships with iconic pioneering companies. Both our businesses have high Net Promoter Scores with significantly positive gaps relative to competitors, reflecting long-standing successful relationships with major customers.

And last but not least, our responsible stewardship, strong values and high-performance culture are increasingly recognized by leading organizations.

For example, we recently earned an EcoVadis gold medal placing us in the top 5% of global companies and demonstrating our commitment to creating a more resilient world and advancing the sustainability objectives of our customers.

In summary, on Slide 25, Albemarle delivered another strong quarterly performance in the second quarter, including sequential improvements in adjusted EBITDA and cash from operations.

Despite lower market pricing, we've been able to maintain our full year 2024 outlook considerations, thanks in part to enterprise-wide cost improvements, strong energy storage project ramps, and contract performance. However, we understand these positive actions may not be sufficient given ongoing industry headwinds.

Our entire organization is focused on delivering operational excellence while positioning the company to capitalize on the incredible long-term opportunities in our markets. That's why we are taking the proactive steps to control what we can control and ensure we are competitive across the cycle.

Albemarle is a global leader with a world-class portfolio and vertical integration strength. We are uniquely positioned to win. I am confident we are taking the right actions to maintain our competitive position and ensure we execute with agility today and in the future.

I look forward to seeing some of you face-to-face at upcoming events listed here on Slide 26. And with that, I'd like to turn the call back over to the operator to begin the Q&A portion..

[Operator Instructions]. Our first question comes from Aleksey Yefremov. Your line is now open. Please go ahead..

Thanks and good morning everyone. This is Ryan on for Aleksey. My first question would just be kind of around your EBITDA outlook for the year, right. So I understand that you are kind of maintaining the base case or the low case in the $15 per kilo scenario, even though prices currently are, let's say, $11 to $12 per kilogram.

Is there the potential that EBITDA could improve if prices were to recover to that $15 per kilogram scenario here in the back half, I mean, you guys talked a lot about improved costs, so just wondering what you think about that?.

So let's say you characterize what you've said. So even as we've moved that from $15 to, say, $12 to $15. And then we commented that even at July prices, those hold for the rest of the year, we'll make that forecast. And so if there's a chance it could be higher.

If prices moved up or there are a number of reasons we're able to hold that forecast is around the volumes that we're selling contract terms, things like that. So it could move up if prices are stronger, it's not collared, so to speak. So if things work in our direction, it could be a number of different things. It could be higher than that.

But that's the best visibility we have at the moment..

Okay, helpful. And then I know it's early, but just kind of initial expectations on volume growth for maybe 2025 and 2026, just after these actions that have just been taken at Kemerton now? Thanks..

Yes. So okay, you're right, it's early. But I think our volume and what we indicated in the beginning of the year, our volume growth shouldn't be significantly different than that. I mean we are changing some of our -- we're taking out conversion capacity, but we still have the resource that should align to that.

So it's not significantly different than we had indicated at the last call..

Our next question comes from Steve Byrne. Steve, your line is now open. Please go ahead..

Yeah, thank you. Kemerton has some more meaningful freight costs than some of your Chinese conversion.

But roughly what is the cash margin for Kemerton 2 and where would you put it on the cost curve, what quartile?.

Yes. So I guess we've never put any of our assets and given that type cost out there. So it is -- I guess it's a combination of -- so you're talking about 2. So 3 is really about some of the money that we're spending in growing that. And Kemerton 1 and 2 gives us a couple of things.

So it's closer to the resource, but it gives us diversity just geographic diversity. So we would have Chile, we would have -- we have Australia, 1 and 2 help us with that, we have China. And then we still aspire to have conversion in the U.S. at some point if prices come back to that.

So I'm not going to give you what our marginal cost is or our cash cost is at Kemerton, but that's some of the thinking that goes into the decisions we've made..

Okay. It seems like there's more than just a cost cut. It's a supply cut. But with respect to the roughly $1 billion -- sure. Go ahead, Kent..

No, I was just going to say that it is on conversion. It is capacity cut on conversion. The resource is still available..

Right. Understood.

The $1 billion charge in 3Q, can you put that into buckets and how much of it is cash?.

Yes, hi Steve, good morning. This is Neal. So let me answer the second part of your question and maybe the two kind of go together. So roughly speaking, at this time, we've only had a very small group of people working on this. So we'll obviously refine this number quite a bit in the third quarter.

But you should think about of that roughly $1 billion charge we announced today, somewhere at least 60% of that is noncash. And similarly, you can expect that kind of on that order represents what's already on our balance sheet that we're writing off.

And then we'll give you a better assessment when we get to third quarter in terms of how much of the rest of that is actually cash. But I'd say at least 60% is noncash..

Our next question comes from Patrick Cunningham. Patrick, your line is now open. Please go ahead..

Hi, good morning. Thanks for taking my question. Maybe just trying to square the comments last time, cash conversion expectations expected to be well below historical averages versus strength in the outlook here. You had the $400 million to $600 million in headwinds.

Was there any improvement in some of those items, whether it's deferral of discrete tax items or other things, some of the working capital ramp for projects, I'm just trying to understand cash drag for the remainder of the year?.

Yes. Yes. This is Neal, again. So yes, thanks for asking that question because we are -- as we said in our considerations in the prepared remarks, we're taking that range now up to a 50% conversion, which is towards the high end of our historical range now.

And there's -- I'd say there's two things that I would point to that where we're doing better than expected. The first is from a dividend perspective from our equity companies, that was certainly better than we expected coming into the year. You heard in our prepared remarks and you know about the additional offtake that we saw at Talison.

So that definitely boosted dividends in the second quarter and helped our cash conversion.

And then the other part is, yes, on the working capital side, we are highly focused on it, and we have a lot of initiatives around this, and we're seeing some of those come through already in the first half of the year and are continuing to work on that in the back half of the year.

So working capital was another nice tailwind to cash in terms of the release of cash from there..

Understood, very helpful. And then just generally on how we should think about 3Q sequentially for energy storage.

Can you help us triangulate how much lower volumes will be sequentially based on some of this onetime benefit, where we should stand for pricing if we kind of hold the July averages here? And then is the remaining sensitivity in your numbers mostly around volume or is there something else?.

Yes. So I can maybe take the second part of that. We are obviously, from a volume perspective, we're obviously tracking towards the higher end of the 10% to 20% volume growth range that we gave you at the beginning of the year.

And I think at this point for the visibility we have, we're probably going to keep tracking towards the high end of that range. So I wouldn't say our earnings corridor or our outlook considerations are really driven by volume per se. It's really around the pricing range that we've given you, that kind of $12 to $15 range today..

Yes. Just -- but the first part of the year was strong from a volume standpoint and that was fine [ph], the upper end of that range, 20%, Neal is saying it's going to be less year-on-year growth in the second half.

But that's just because it's so strong in the first half, and we've had a mix of spodumene sales in there as well that's pulled some of that forward..

Our next question comes from Vincent Andrews. Vincent, your line is now open. Please go ahead..

Thank you and good morning everyone. Last quarter, you had a slide on capital allocation priorities and it had a couple of things in it. I just would like to revisit.

One was a commitment to investment-grade rating, the second was your ultimate long-term net debt to adjusted EBITDA target of less than 2.5 times, and then thirdly, the continuation to support and grow the dividend.

How are you thinking about those three things as part of the comprehensive review?.

Yes, I don't think our view has changed, right. So that will -- as we go through this, I mean, we'll reiterate that, but I suspect it will stay the same..

And as a follow-up, could you speak a little bit about the factoring and how that process works for you and how we'll see it, I guess, in the working capital results?.

Yes. So Vincent, to your question, that's right. We put in place an AR factoring program. It's an initial program. We'll continue to evaluate that and add to it as we can as we go along. But essentially, that factoring program is currently untapped. We will use it when we need liquidity if and when we need liquidity.

And so basically, at that point, that's when you'll see it, and we'll talk about it. But at this point, it's an untapped resource available to us..

Our next question comes from Chris Parkinson. Chris, your line is now open. Please go ahead..

Hey, good morning. This is Harris Fein on for Chris. So we walked through that the $15 per kilo scenario still holds at $12.

I guess how much of that is because of higher Talison shipments and cost improvements and I guess, like where would EBITDA be absent those items if we were just isolating the contract component and I am just kind of trying to get a sense of what that looks like if prices go down to, let's say, $10 per kilo through the back half of the year?.

Yes. So we've said at July pricing, it basically holds the same, right. So $12 to $15 on the slide, but we've said in the remarks that, that July pricing it holds. If July pricing extends throughout the balance of the year, it still holds. So you can work out exactly what that number comes to. And there are a number of pieces that allow us to do that.

So it's the volume mix, it is a little bit of additional volume from Talison, it's our contracts. It's a lot of things. It's the cost savings things that we're putting in place. So it's a number of things that go into making that statement true. So it's not one particular thing..

Yes, maybe just to add on to that, just a reiteration that those outlook considerations we provided were always a view on the average pricing across the year. And so with the last couple of earnings releases, we've given you -- you obviously know the sales that we've had in energy storage, and we've given you the volumes that we've sold.

So you can look at what our average realized price has been. It's been above $15 for the first half of the year. And so when you -- you can take your -- whatever lithium price you'd like to in the back half of the year and do the averaging.

But that's why we say when you take July pricing and roll it forward, it falls within that range that we've given you. With regards to Talison, I think the best way to answer that is just to go back to what we've said before.

We told you that in the second quarter, we expected about $100 million sequential lift related to the Talison offtake, the additional Talison offtake, and that's exactly what we saw. So maybe that gives you an idea of how to think about that part of your question..

Got it, that's helpful. And then for my second question, in Slide 12 you show that the global average EV is on track for cross parity with ICE in the next year or two.

It would be nice to hear your take maybe on what you make of some of the recent challenges that Western OEMs are having in making a profitable EV and also the fallout from European tariffs on Chinese EVs, kind of how that is playing into your demand outlook?.

Okay. So -- I mean, the cost on -- the cost curve that you see, Neal said on Slide 12. I mean that's a curve that we've been -- that the industry has been looking at for some time. That $100 per kilowatt hour has been a benchmark or a tipping point we call it that people have been looking for, and we're below that in China today.

Now some of that fair enough is on -- is because lithium prices are low, but the majority of it is just on the experience curve, the technology and the battery technology. So we think that maintains itself. And then the rest of the world will follow China and they've hit that hurdle. It's not there in the West yet, but we believe that it comes shortly.

I'm not -- I don't think I want to comment on the OEMs' cost position. I think a lo1t of it goes into it, including batteries is a big part of it, but it's the rest of the vehicle as well. But we're not -- I'm not going to get into the comment on auto cost positions.

But I think the battery technology is hitting those benchmarks we've been looking for, for a long time, and it's only going to get better..

Our next question comes from David Begleiter. David, your line is now open. Please go ahead..

Thank you and good morning.

Kent, what does the Kemerton capacity curtailments mean for Wodgina production, if anything?.

I don't think it means anything for Wodgina production. So that there -- as we had said, so we're taking conversion capacity out and the resource piece we continue to operate from both the Greenbushes and a Wodgina standpoint. It's not really related to Kemerton..

Very good.

And just on what's happening in China, how much LiFePo production do you think is shut down and has that number changed at all in the last couple of months here?.

David, this is Eric, good morning. I would say in the last couple of months, it hasn't changed materially. There's some that's come off a bit. I'm going to guess tens of thousands of tons or less that is related to where we are in the cost, where price has gone.

I think Kent in his remarks talked about the considerable pressure that anybody who is -- particularly anybody is not integrated in buying either spodumene or LiFePo [ph] is under. And in fact, most are operating at a loss, if they're not fully integrated inside of China. And so that's a factor.

Another thing that happens this time of year is seasonal production of brine starts to ramp up in Western China. And so that's rising to sort of substitute that drop in LiFePo [ph]. I think overall, though, we're seeing rising inventories of lithium salt. So that is a concern to watch.

And obviously, the price pressures I talked about, so I think -- we'll have to see how the industry responds. Obviously, there's a need for some caution in the market given where we see demand versus supply..

Our next question comes from Stephen Richardson. Stephen, your line is now open. Please go ahead..

Hi, good morning. I was wondering Kent, appreciating that the review is ongoing, but I was wondering if you could talk a little bit more about your efforts on defining and lowering your sustaining capital.

It seems like from the slide that you put forward on 16 that you're suggesting that sustaining capital is a little bit lower than it was previously and that there's a range here of minimum required capital that's sub-$1 billion.

And I guess in an environment where current prices are sustained into 2025 do you envision corporate CAPEX below $1 billion next year, is that a feasible number?.

Yes. So we are -- I mean look, we're going through this, we'll be cautious around that, right, to see what we can. As we are operating, we're not growing as fast. We're ramping some of these assets, but we have a view of sustaining capital, and we're challenging that. But we're going to push on that. We'll be rigorous about it.

It might take risk, but we're going to be more aggressive around that than others. It's a big piece. Most -- a lot of these assets are still ramping and they're pretty new. So we've been conservative on our estimates around the sustaining capital. So we're going to dig into that and change our approach a little bit, but we see that as an opportunity..

Okay, appreciate that.

And maybe just a follow-up, if you did indeed kind of reduce a lot of your growth CAPEX and appreciate that you're outperforming growth on the ramping assets this year, would anybody be willing to hazard of guess as to if you -- on this plan what kind of remaining growth do you think you'd have in the program in 2025 just in terms of thinking about Salar and just the different projects that are out there that are still in flight in terms of growth, would that be still -- is it safe to assume you'd still be growing absolute volumes into 2025 just based on those ramps?.

Yes. No, I think that's right. And I go back to the comments we've said earlier. So what we had said previously in the call or in the previous quarter's call, around the changes we did in January. We've got a couple of years of growth in the assets that we have on the ground and ramping.

So we'll continue to do that at 2025 and into 2026, but then it starts to -- without further investment, we start to maximize on that. But we -- and Kemerton doesn't really change that. Again, the resource is there and the investments that we've made in there continue to ramp up. And -- but it's the conversion capacity.

Actually changing Kemerton gives us a little more flexibility on product mix, but it limits us a little bit more, we're less diverse geographically around that. And that's the trade-off we're making..

Next question comes from Laurence Alexander. Laurence, your line is now open. Please go ahead..

Good morning. Two questions. First can you just give a sense, not so much about kind of the next round of restructuring, but how you think about the longer-term objective.

I mean if, for example, prices were to just stay at the current range, where would you expect energy storage margins to go over four, five, six years, however long it took for you to right size or how much do you think you can bring down the cost structure, so that's the first one, just how you think about the longer-term objectives for the business if market conditions do not improve? And secondly, can you just give a bit of a spotlight comments on sort of the state of play for DLE projects in Latin America, what do you need to see either in terms of partnerships or government support for anything to move forward in current conditions?.

Okay. So the first one on the restructuring. So our goal is to put the company within the cost structure and the supply chain that we can compete at the pricing that we see today, and if it stays that way long term. So that's the hypothetical question you're asking, but that's what we're planning for. And we don't know when prices are going to rebound.

We know they -- we think a lot of players are operating below cash cost. We think they have to come up. We just don't know when. So we're going to structure the company to operate and be competitive and profitable in that range.

So what that margin -- what the margin looks like I'm not going to hazard a guess on that, but it is -- we're going to put ourselves in a position to be profitable and being able to compete where prices are today. Yes, so that's the first question.

And the second one, DLE, and you said in South America, I'm going to talk about our view of DLE and our projects, not so much the industry. I mean I don't know -- I mean we are -- we're working on deal. We've got two projects, both going into pilot phase. We've done a lot of work around that for quite some time.

One focused on the brines we have at the smackover formation at Magnolia and Arkansas in the United States where we process bromine. And we have that -- we can take that stream and process that. So we have a pilot that is in start-up at the moment around that. And then we'll do a similar pilot at the Salar de Atacama.

One, I think we've said this in the remarks, one of the technologies is proprietary. The other is kind of commercial. So we're doing it in a couple of different ways. But I think the key to the -- I mean, DLE is the whole system, not just the extraction piece.

There's a lot of focus on the absorption or a solvent extractor and whatever technology used to actually get the lithium molecule out. But the real art in it is the overall system and the integration in making it operate consistently day in, day out. You can do it in the lab, a lot of people can do it in a lab.

You need to be able to do it in the field and do it all the time, and that's -- we're doing scale pilots that will prove that out. And so we'll see. So -- and what do we need from a government standpoint around that, I mean, for us, specifically, I don't think we're looking for government necessarily.

I mean, funding would help that, but we are moving both of those projects forward. And its important technology for the industry and for us, for us to really leverage the lowest cost resource in the world in Salar de Atacama and get growth from that, we'll need DLE. So it is important.

But I don't -- we're not we're not waiting on governments to help us fund it or do anything like that. We're moving forward..

Our next question comes from Kevin McCarthy. Kevin, your line is now open. Please go ahead..

Yes, thank you and good morning. Kent, in your prepared remarks, I think you commented that you're seeing an ongoing trend for carbonate-based batteries.

Can you discuss why that's the case and whether that trend is intensifying or not and does it have any bearing on your decision to idle Kemerton 2?.

Okay, so I'll go at a high level. If it gets deeper, Eric will jump in. But I mean, this is -- I mean, it is carbonate is usually the preferred chemistry for LFP technology, and there's been a shift toward LFP. And I would say that's the preferred technology in China. Because China is on such a growth rate and the West is slowing down a little bit.

That's -- there's more of a shift of -- a little bit of a portfolio mix toward carbonate. Now the West is looking at carbonate or LFP as well. Therefore, our view from a year or two ago, we always expected a mix. It was a little more hydroxide heavy. Now it's probably carbonate heavy in that view.

And then that product mix, I mentioned product mix earlier when I was talking about Kemerton, that does play into that. Kemerton is hydroxide, and we can toll that same resource for carbonate if we need to, and that gives us more flexibility. So it was a consideration in our decisions around 2 and 3..

Thank you for that.

And then as a follow-up, what would you need to see specifically to make a decision to restart Kemerton 2 and how quickly might you be able to do that and is there a meaningful cost to restart?.

Yes. So there's a cost to put it in care and maintenance, right and it would be a cost to come back, but I don't know that it's not dramatic. It would be ordinary course I think if we brought it back. There's a number of things we have to do. Part of the decision about focusing on Train 1 and not 2 is to really optimize that asset, get it to work.

We've all -- we have struggled with workforce in Australia and we struggle to ramp the two of them together. So we're going to focus on one, ramp that up to make that really operate, really understand the technology and process. And we think we can bring it back faster and more efficiently to Train 2 when the conditions make that right.

So we've got do a few things before we would do that, we would get the plant to operate, really understand the technology and the process chemistry that's unique to Kemerton. And then we can bring that to Train 2. It will be -- but we'll need the market to improve before we do that. And then there would be a time frame in order to bring it back.

So it's not going to turn on a dime, but we'll plan for that. And it is not dramatic from a -- not big from a capital standpoint, but there would be cost to bring it back on, and we'd have to bring people back on to do that as well..

Our next question comes from Colin Rusch. Coli, your line is now open. Please go ahead..

Thanks so much guys. As you're working through enforcing these contracts, can you talk about some of the dynamics with the customers and any sort of compromises that you might be making to adjustments. Historically, you've kind of enforced some pricing and you reallocated volumes.

Just want to get a sense of how those dynamics are playing out?.

Yes. Good morning Colin, it's Eric. As you point out, it's obvious with where market pricing is going. It is a discussion certainly around helping our customers remain competitive through this period of time, while at the same time, respecting the contracts we have and the thresholds that we have there in order to continue to invest on their behalf.

I would tell you that all of these contracts are performing to date and it's our expectation that we'll continue to do so. And we'll keep working with our customers. There are things we can do in terms of source. Some of these contracts have a little bit of flexibility, and we can work around spodumene supply versus salt supply.

We can look at sourcing points that are different that helps them with their supply chains while at the same time, respecting the core fundamentals of our contracts. So that's basically the nature of the discussions to date..

Thanks so much. And then just a little bit more on the technology side. As we see more silicon-based anodes, whether it's increased levels of doping or silicon, I know it's completely -- the challenge of lithiation is pretty substantial.

Can you talk a little bit about how much leverage you're getting out of the R&D center and helping folks figure out process and approaches to the lithiation challenge?.

Well, this remains an area of focus for our growth.

And when we talk about some of the advanced materials that are lithium-based looking at prelithiation materials that will support the adoption of silicon anodes or silicone doped anodes as you point out, for higher-capacity batteries that can lend themselves, obviously, to longer battery life or range.

And furthermore, there is sort of the next journey -- step on that journey is moving towards a lithium metal anode as well, whether that's a solid state or even a liquid electrolyte used with lithium anodes. So these are areas of growth.

These areas we see, frankly, having a faster adoption in technologies outside of electric vehicles, whether there's a smaller format battery and perhaps less risk involved in the customer base as a first step, on the one hand.

On the other hand, if you speak to some of the more progressive vehicle producers, OEMs who are looking at future technologies, there's a lot of investment they're doing in this area as well. So it's part and parcel of the overall partnership we have with customers.

I mean it's the reason that relative to the earlier question, maintaining a contract relationship and supporting us when prices are low, we support them throughout the cycle as well, is if we got to respect and have strong contracts -- contract relationships because they're more than just supply.

They deal with things like technology as well that you're pointing out..

Our next question comes from David Deckelbaum. David, your line is now open. Please go ahead..

Hi, thanks for the time today and for taking my questions. Maybe for Neal. I just wanted to understand, I think, the remarks with the Kemerton move, it saves $200 million to $300 million over the next 18 months or so.

Can you talk about that in the context of where you expect next year's CAPEX to be And more just is $1 billion of sustaining CAPEX, is that a reasonable target for what you could get to next year or still have to take sort of a multiyear progression?.

Yes, I think I'm going to answer this probably very similar to the way that Kent did. So obviously, as we look at CAPEX into 2025 and 2026, this decision that we're sharing today around Kemerton will absolutely factor into lowering our CAPEX in those out years. And we've always talked about our focus on doing that in this environment.

Just as Kent mentioned to an earlier question, we're working through that with our teams right now.

And obviously, we understand that what the current environment looks like and that we need to spend a lot of hard time looking at our CAPEX spending and how we can -- where we can bring that down and how we can bring that down as quickly as possible without taking unnecessary risk.

So I would just say like we're working on that equation now, and we'll have more to share, I think, in the next couple of quarters..

I appreciate that. And then my follow-up is just -- on going forward now, with CGP 3 ramping at Greenbushes and volumes growing there.

On the back end now with Kemerton having less capacity, is the commercial profile going forward just all going to be reliant on tolling or do you have flexibility to sell spodumen concentrate into the market? And will you be able to satisfy all of your customer contracts through tolling alone?.

Well, it's not -- well, not just totally. So we've got a network of conversion assets today. And so Meishan is up and operating and ramping as we speak. And we've got first sales from Meishan in this quarter. And we -- as we said, ahead of schedule, we have multiple other facilities in China that we own and operate for conversion.

So Kimberton is a portion of it, of our Hard Rock conversion assets. And it will be a blend. We will use some tolling to supplement our conversion assets, but we have significant conversion assets and the Kemerton 3 and 4 is just a portion of it. And again, we'll have 1 operating and 2 to bring on after that.

So it's still a significant portfolio of conversion assets that we have, and then we don't want to forget about the carbonate that we bring from Chile as well. So it's a pretty good portfolio of conversion assets. And I would say this is a tweak, not like a big wholesale change in that network with the change to Kemerton..

Our last question comes from John Roberts. John, your line is now open. Please go ahead..

Thanks and who would have thought that [indiscernible] would be the good performing business here in the portfolio. I'll ask a question on the specialties business.

Is some of the weakness in specialties temporary channel destocking or had those -- had your channels already destocked like many others have and the weakness you're seeing actually is reflective of the end market weakness?.

Yes, John, this is Netha. We are seeing some end market weakness. And rather than weakness, maybe not as quick as a recovery as we expected, particularly in electronics. We did have volume growth of 9%, but price declined.

And if you look at the spot price, which is our only public spot price we have in the market in Q1, the Chinese bromine spot price was $3.11 per metric ton and in Q2 was $2.86 per metric ton, and that explains the pricing.

But we are seeing green shoots and we are seeing that electronics recovery come, continuing strength in oil and gas, pharma and ag, and we expect to see that growth continue, maybe a little slower than what we thought, but throughout the rest of the year AND sequential growth in our financials as a result of that ..

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

Okay. Thank you, and thank you all for joining us today. We continue to adapt and move Albemarle forward to better position ourselves in the current market environment, enhance our company's profitable organic growth trajectory, and create long-term value for shareholders.

I remain confident in the long-term secular growth opportunities in our end markets and that we are taking the right steps to position Albemarle for value creation. Thank you..

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