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Livent Corp. (NYSE:LTHM)
Q4 2019 Earnings Call
Feb 20, 2020, 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning and welcome to the Fourth Quarter and Full Year 2019 Earnings Release Conference Call for the Livent Corporation. [Operator Instructions]

I will now turn the conference over to Mr. Daniel Rosen, Manager, Investor Relations, for the Livent Corporation. Mr. Rosen, you may begin.

Daniel Rosen -- Manager, Investor Relations

Thank you, Chelsea.

Good evening, everyone, and welcome to Livent's fourth quarter 2019 earnings call. Joining me today are Paul Graves, President and Chief Executive Officer, and Gilberto Antoniazzi, Chief Financial Officer.

The slide presentation that accompanies our results, along with our earnings release, which includes our 2020 outlook, can be found in the Investor Relations section of our website. The prepared remarks from today's discussion will be made available after the call. Following our prepared remarks, Paul and Gilberto will be available to address your questions. We would ask that any questions be limited to two per caller. We would be happy to address any additional questions after the call.

Before we begin, let me remind you that today's discussion will include forward-looking statements that are subject to various risks and uncertainties concerning specific factors, including but not limited to, those factors identified in our release and in our filings with the Securities and Exchange Commission. The information presented represents our best judgment based on today's information. Actual results may vary based upon these risks and uncertainties.

Today's discussion will focus on adjusted earnings for all income statement and EPS references. Reconciliations of these terms as well as other non-GAAP financial terms to which we may refer during today's conference call are provided on our website.

With that, I'll turn the call over to Paul.

Paul Graves -- President and Chief Executive Officer

Thank you, Dan, and good evening, everyone.

Starting with slide 3. There are a few key topics that we'll address today as part of our earnings release.

First, Livent has provided its financial guidance for the full year ahead. We'll go into further detail on this guidance today. But as we announced in early January, we are expecting profitability in 2020 to be lower year-over-year as higher sold volumes are more than offset by lower average realized pricing and higher consumption of third-party lithium carbonate. We are guiding a wider range than usual, due in part to the inherent uncertainty in the first half of the year arising from the potential impact of the coronavirus. In this context, Livent reaffirms its prior guidance for 2020 volume growth in total LCE terms and expect to sell roughly 30% higher total LCEs versus 2019.

Again, reflecting the uncertainty inherent on the demand side in the first half of this year, we are highlighting that we may shift more volume toward lithium carbonate sales, depending on how and where demand is and where opportunities arise. We will continue to provide significant volumes to key strategic customers as they increase their use of hydroxide based cathode chemistries in energy storage applications. And finally, we will provide an update on Livent's expansion programs and the drivers behind the decision to slow down the execution of these projects.

On slide 4, I want to spend some time discussing where the lithium market stands today and its implications for 2020 and 2021. Let me begin by characterizing what we saw in 2019.

Clearly, there was a slowdown an electric vehicle demand growth in 2019, largely driven by a change in Chinese subsidies. Even then, lithium demand continued to grow at a healthy rate, with lithium demand increasing by over 15% year-on-year to exceed 300,000 LCE tons. Specifically for hydroxide, we estimate demand grew to just under 100,000 product tons from approximately 65,000 tons in 2018, implying over 35% year-on-year growth. If you strip out the base demand from industrial applications, which did not meaningfully change, demand for lithium hydroxide for energy storage applications likely grew by around 75% for the year.

Despite this increase in demand, the short-term or non-contracted lithium market experienced a decline in pricing over the course of 2019 as significant new supply came online. This new supply was largely due to an increase in output of spodumene from Australia, combined with an increase in Chinese conversion capacity. A meaningful portion of the China conversion capacity was non-integrated, meaning the spodumene producers were separate from the converters that produce the final lithium products.

It is this non-integrated supply chain which was largely responsible for the excess supply, resulting in elevated spodumene inventory levels, lower operating rates and therefore increased pricing pressure from converters. It is this part of the supply chain in lithium hydroxide and carbonate that represents the marginal cost producer for the industry today given the inherent inefficiencies in this model. It is increasingly clear that today's short-term pricing levels are not sustainable for the lithium industry, especially given the need to invest in growing future output to meet growing demand.

Recent announcements across the industry underscore just how challenging it is to justify investment in most projects at current prices. Not surprisingly, we have seen a number of development projects where traditional financing sources have been essentially non-existent. This difficulty extends to better capitalized lithium producers and new entrants who have announced pullbacks or delays in their own expansion plans in light of revised anticipated returns. From these producers alone, in the last few months, roughly 300,000 LCE tons of volume have been taken out of planned supply additions in the next few years.

Beyond expansion delays and cancellations, we've reached a point where prices have also impacted existing operations. Higher cost producers have disclosed their struggle to cover operating costs at today's prices, with some companies who even have a relatively low cost position struggling to achieve profitability, and we've seen hard rock producers concluding that it makes little sense to continue to deplete finite life resources at prices that are barely above cash operating costs and significantly curtailing concentrate production as a result.

In light of all of this, it should come as no surprise that Livent is slowing down its own capacity expansion. We expect that the market will begin to see the impact of these production and expansion cuts, particularly as we head into the latter part of 2020 and early 2021. In the near term, however, there remains an oversupply, primarily due to elevated spodumene inventory levels that will need to be worked through as total demand continues to grow. We therefore remain cautious in indicating when we expect to see an inflection in the market and have not included any recovery in pricing for the year from today's levels in our 2020 guidance.

Today, we're also facing the uncertainty created by the coronavirus, and particularly, the impact it may have on our end markets. In the immediate term, we restarted all of our operations in China after the Lunar New Year and have had no operating issues at the plants themselves. However, the logistics and transportation issues associated with moving products across provincial borders has created some disruption, both in terms of getting raw materials to our plants and shipping product to customers in China and other Asian countries.

The larger challenge today is understanding what the impact of these restrictions will be on our customers and competitors. It is clear that there will be some headwinds in the first half of this year as a result of the epidemic, and we are watching closely to understand how much of this will be recovered once China resumes normal operations. Consequently, we cannot yet predict with any reasonable certainty what the impact on our business will be for 2020, and we have therefore attempted to reflect this uncertainty in wider guidance ranges compared to prior years.

I will now hand over to Gilberto to review fourth quarter financial results and the 2020 outlook before I return to give more color on the status of our current expansion programs.

Gilberto Antoniazzi -- Chief Financial Officer

Thank you, Paul, and good evening, everyone.

Turning now to slide 5 and our financial results to close 2019. For the fourth quarter of 2019, we reported revenue of $78 million, adjusted EBITDA of $16 million and adjusted earnings per share of $0.05. Versus original guidance provided in November, performance was impacted primarily by about 800 fewer product tons of lithium hydroxide sold than anticipated, largely due to orders that were delayed into 2020 by customers. Sequentially, average realized pricing remained relatively flat for hydroxide compared to Q3, while pricing for carbonate continued to decline.

For full year 2019, revenue was $388 million, adjusted EBITDA was $100 million and adjusted earnings per share was $0.42. The year-over-year revenue decline was driven by lower volumes and lower pricing. Higher hydroxide sales volumes were offset by a decline in carbonate volume sold. We also saw a decline in average realized price of both hydroxide and carbonate, with carbonate prices falling by roughly 20 percentage points more than hydroxide. Average pricing for butyllithium and high purity metals were higher on a constant currency basis.

Specifically on the cost side, the largest contributors to low year-over-year profitability were the higher cost of purchased third party carbonate, one-time air freight expenses and the VAT incurred on exports from China.

As you recall, we began 2019 with limited inventory. An abnormal rain event in Argentina in the first quarter of last year caused disruptions in our supply chain that resulted in Livent incurring additional costs, including air freighting certain material. Additionally, the roughly 1,000 tons of lost carbonate production in Argentina meant that we had to source additional third-party carbonate above our initial plan to feed hydroxide customer commitments. We ultimately purchased about 6,000 tons of third-party carbonate in 2019 and used roughly 2,000 tons in hydroxide sales. The remainder will be used in 2020 to meet hydroxide customer commitments.

And lastly, while the VAT rate on Chinese exports was reduced in 2019, we incurred higher costs on a total dollar basis due to higher sold volumes.

Rounding out 2019 results, foreign exchange was a headwind for the year on the top line, primarily from the RMB and the euro, although it was more than offsets by cost benefit from the valuation in the Argentine peso.

Turning now to slide 6 and our full year guidance for 2020. We expect revenue to be in the range of $375 million to $425 million, just above 2019 results at midpoint. This is primarily driven by higher volumes being offset by lower pricing, with average price on an LCE basis across the portfolio down by mid-teens. 2020 adjusted EBITDA and adjusted earnings per share are projected to be in the range of $60 million to $85 million and $0.18 to $0.31 per diluted share respectively.

On slide 7, we provide further detail on Livent's expected sales volume growth in 2020. On an LCE basis, we plan to sell up to 28,500 tons of lithium in 2020, implying a roughly 30% increase from 2019 sales volumes at the midpoint of our guidance range. There are two points I'd like to call your attention to. First, you will see that we are projecting lithium hydroxide and carbonate sales volumes as one line item and as total LCEs. While we previously stated an intention to sell less than 1,000 tons of carbonate in 2020, as Paul mentioned earlier, we want to ensure we maintain enough flexibility in our plans to sell higher volumes should it make sense to do so. The sales will not be at the expense of any hydroxide customer commitments, and we would not expect carbonate sales to exceed more than a few thousand tons.

Second, we have now provided projected sales volumes for LCEs related to our other product lines, namely butyllithium, high purity metal and other specialty compounds. These products are all derived from lithium chloride as a feedstock and we expect sales volumes for these compounds to remain relatively flat year-over-year.

On slide 8, we provide additional detail on key drivers of our projected adjusted EBITDA performance in 2020 versus the prior year. First, we expect to grow total LCEs sold by roughly 30% versus 2019 sales volumes. The sales volumes, which are higher than our annual production capacity, are achievable given the decision to carry forward roughly 4,000 product tons of hydroxide inventory in order to meet customer commitments. To reach these hydroxide sales volumes, we will need to use up to 7,000 tons of third-party lithium carbonate, which represents an increase of 5,000 tons compared 2019 usage. This incremental use of third-party carbonate adds cost to our operations when compared to relying on our own low cost carbonate produced out of Argentina.

Additionally, we expect average realized pricing for lithium hydroxide in 2020 to be low to mid teens percent lower than the average realized price for 2019. We also expect carbonate pricing to be down again year-over-year. With respect to butyllithium, we expect both volumes and pricing to be relatively flat compared to last year. And finally, we are anticipating some additional costs from inflation on some of our key raw material inputs as well as slight FX headwind.

I want to conclude on slide 9 by commenting on cash flow as well as give you an update on our capital spending plans for 2020 before Paul addresses this in more detail. For the full year 2019, Livent generated adjusted cash from operations of $90 million, in line with our expectations. We deployed $189 million in capital spending for the year, and while the spending accelerated in the fourth quarter, as expected, the total spend was below our guidance of $210 million to $240 million. We ended 2019 with debt net of cash of $138 [Phonetic] million.

For capital expenditures, we are projecting total spending for 2020 to be in the range of $200 million to $230 million. This number is inclusive of growth capital, predominantly in Argentina as well as maintenance spending across the business. As a reminder, capacity expansion related to capital in Argentina is front-loaded in both 2019 and 2020 as we build out infrastructure that will drive us through future expansion phases.

With that, I will turn the call back to Paul.

Paul Graves -- President and Chief Executive Officer

Thank you, Gilberto.

As we mentioned in Livent's January announcement, we are revisiting what the most appropriate execution strategy is for our near-term expansion plans. Let me start by being clear. Our expansions themselves and the strategy that underpins them have not changed. We remain committed to expanding our low cost carbonate operations in Argentina and to growing our capabilities in hydroxide to support our customers' growth plans. It is the pace of execution of the expansions that we are adjusting.

As part of the revised plan, Livent will be slowing down its phase one carbonate expansion in Argentina, primarily to preserve our financial flexibility in these market conditions. As we outlined on slide 10, we have continued to hit our key expansion milestones. We have completed construction camps, are fully under way in key infrastructure build-outs and have had a number of carbonate modules arrive in Argentina from the fabrication yards in China.

We have elected to delay the installation of the first carbonate modules until after the Argentine winter, which will push the start-up of these units into mid-2021. Since our current 5,000 ton hydroxide expansion was lined up to process the additional carbonate from Argentina, we're also shifting the time frame for our hydroxide expansion completion to align with this. We do not expect this revised timeline to impact our ability to meet the needs of customers, many of whom see 2021 as the first year that they will look to increase their purchases from Livent, with a larger ramp-up coming in subsequent years.

In this fluid and rapidly shifting environment, we know it is critically important to stay flexible in our capital planning, and we will remain agile and adapt our plans based on market dynamics and customer commitments.

I'd like to finish on slide 11 by sharing some key developments to keep in mind today and as we look ahead. First, relative to even just a few years ago, it's increasingly clear that the shift to EVs is gaining traction even if the ability to predict the pace in the very near term remains difficult. This is apparent in all of the announced partnerships between OEMs and battery producers as well as the substantial capital being committed and deployed across the supply chain. It's even more visible in the number of new EV models nearing production and the growing number of electric vehicles on the road.

Global OEMs are also much more active in engaging further down the supply chain as part of their electrification strategies. There have been some challenges as the supply chain struggles to keep up with the ambitious electrification plan set by these OEMs. The challenges to OEMs' meeting their announced sales targets appear to be driven more from the supply side than the demand side. For example, there have been several examples of OEMs specifically referencing a lack of sufficient battery supply from top-tier suppliers as a reason for changing forecasted sales.

It's also worth noting that there continue to be positive demand signals coming from both China and Europe, largely viewed as the key growth regions for electric vehicles over the next few years. China began this year by issuing a strong statement to the market that it will not be making any significant cuts to its EV subsidy policy in 2020 despite rumors of a potential midyear phase-out. This is just one example in a growing list of actions from China that reiterate its commitment to playing a leading role in the global push toward electrification.

While China will continue to be the largest market for electric vehicles, 2020 is widely viewed as a year when Europe will begin to close that gap, as OEMs need to sell more electric vehicles to avoid the financial penalties or reputational risk from not being compliant with CO2 emission levels. While it's still very early on in the year, some of the initial data coming out of Europe is positive. Despite the overall auto market being down in Western Europe in January year-over-year, electric vehicles continue to gain momentum with penetration levels reaching all time highs in some countries. Longer-term, there has been additional support, with the European Commission's pledge of EUR3.2 billion toward battery technology development, unlocking an additional EUR5 billion in expected private investment and additional announcements of planned European battery plants and cathode material production.

Localization of supply chains is a growing topic, and there is an increasing realization that for lithium particularly this cannot happen with the current concentration of the Australia-China supply axis. There has also been a greater focus on the overall sustainability profile of the EV supply chain. Given that the transition to electric vehicles is rooted in green, environmentally conscious goals and ESG principles more broadly, this is an area that will only continue to grow in importance over time. Today, topics such as water usage, carbon footprint and local community impact are all being examined by OEMs and especially consumers when they consider the realities of electric vehicle production.

We're proud of Livent's ongoing efforts to be a responsible sustainable producer, including the work we're doing to partner closely with the communities where we operate around the world, especially in Argentina. We've spent the last year as a stand-alone public company focusing our efforts on tailoring and strengthening our sustainability program for the future. We intend to provide a number of updates on this front as we move through 2020 and we will continue to work closely with customers, local communities and other key stakeholders.

In closing, despite the recent challenges experienced by the lithium industry as a whole, we are excited about the opportunities ahead. The low cost and sustainable nature of our brine-based operations, our partnerships with leading battery producers and automotive OEMs, our continued investment in developing next-generation engineered lithium products and our reputation for reliability, safety and quality that is second to none are all key differentiators that position Livent for future success.

I'll now turn the call back to Dan for questions.

Daniel Rosen -- Manager, Investor Relations

Thank you, Paul. Chelsea, you may now begin the Q&A session.

Questions and Answers:

Operator

[Operator Instructions] And your first question comes from the line of Bob Koort with Goldman Sachs.

Dylan Campbell -- Goldman Sachs -- Analyst

Good morning. This is Dylan Campbell on for Bob. A couple of questions here on carbonate. I mean, it sounds like you are delaying your installation of the carbonate module. I'm curious kind of what the rationale is they are considering kind of the net short position on carbonate and that would be kind of a net cost saver. And then I guess the second question on carbonate, I guess, you mentioned that you could shift more volumes to lithium carbonate sales. Is that in response to kind of recent chatter that you've heard on the use of LFP cathodes in China?

Paul Graves -- President and Chief Executive Officer

So, let me tackle those questions in that order. So the rationale very simply is, we want to make sure that we protect our financial flexibility. I think we've been pretty clear in the past that we see reaching leverage points of about 4 times debt to EBITDA was being something we're comfortable reaching for periods of time. But we don't feel comfortable going north of that. And we made the decision that, frankly, it makes more sense to slow down and to pace out the execution in order to maintain that financial flexibility on the balance sheet. It's an interesting trade-off. With carbonate pricing where it is today, frankly, the cost of buying carbonate relative to the build is not as punitive as perhaps it will be in the future. And so what we're really doing is delaying by six months the ability to take those costs down.

Now, look, I will say while it wasn't the basis for the decision, I think one way or the other we likely would have had to delay expansion as well. We certainly are going to have some issues getting our carbonate modules out of China, given the coronavirus. It's certainly slowed down the fabrication there. And I think as we've spoken about in the past, we run quickly into and Argentine winter where it is not particularly easy to do these installations at the 14,000 feet above sea level in the middle of winter. And so it was never our expectation that we would be doing construction in the winter, and so we've delayed it on that basis.

In terms of the shift to the carbonate, frankly, the conversation around carbonate is always driven by our customers. It's not that we sit there and try and be more strategic about it. We certainly have customers asking if we can supply them lithium carbonate instead of lithium hydroxide. Certainly, in the short term, many of our customers make multiple types of cathodes and therefore have a need for both. Many of them themselves are just responding to signals that they receive from their customers.

It feels to us that -- and we certainly won't be selling [Phonetic] generally, that ability to bring flexibility and switch between hydroxide and carbonate at really very little cost is something that our customers appreciate and in this environment where there is still a lot of fluidity, if you will, about the technology developments and the pace at which they develop. They value our ability to do that, and reaching out was on that basis. I certainly don't expect carbonate to suddenly be a massive peak in volumes for us, but I can't imagine that we'll be a few thousand tons higher this year than we originally thought we would be.

Dylan Campbell -- Goldman Sachs -- Analyst

Got it. That's helpful. And I guess a clarification question on capex. Despite the reduction in production plans -- I mean, expansion plans, it looks like capex grows in 2020 relative to 2019. What's driving that?

Paul Graves -- President and Chief Executive Officer

Yeah. Frankly, it's where we are in the projects. So we will have the first phase of the lithium hydroxide construction will be completed. So the modules will be completed. We just won't install them and will delay that till next year. And in Argentina -- look, it's a complex project in Argentina. And if we're going to hit these deadlines, we continue to have to finish and complete some key aspects of the infrastructure rollout. And once we start with these, we're certainly not going to slow them down. Some of it is just simply a rollover, a delay of costs from 2019 running into 2020. It was always expected regardless that 2020 would have been the peak capital spending year for this project.

Dylan Campbell -- Goldman Sachs -- Analyst

Got it. Thank you.

Operator

And your next question comes from the line of Christopher Parkinson with Credit Suisse.

Christopher Parkinson -- Credit Suisse -- Analyst

Thank you. So you spent a lot of time on the supply side, unjustifiably so, and you hit on this a little bit. Can you further comment on your demand outlook in '20 and '22, the development, specifically you've heard from your supply chain as it pertains to the adoption of NMC and NCA technology. Just, is there anything new on that front? Or is it kind of the status quo what you've already given?

Paul Graves -- President and Chief Executive Officer

No. Look, in terms of absolute levels of demand, I think the demand for lithium on an LCE basis continues to climb in that mid-to-high teen percentage rate year-over-year. That's what certainly what we see happening in 2020. And we certainly are continuing to see a faster growth rate in lithium hydroxide which reflects that shift to the higher nickel applications. I think we have frankly a lot more high nickel applications out there today than people realize.

I think this focus on NMC 811 or NCA and some of the challenges in getting 811 into commercial applications has confused people and shrouded the fact that really we're making a lot of NMC materials today that are north of 65% nickel, and that's the tipping point into lithium hydroxide use. So while it may not be 811 or it may not be a broader adoption of NCA, it's certainly the case that the cathode materials today are rapidly shifting over to hydroxide. It really hasn't changed.

Christopher Parkinson -- Credit Suisse -- Analyst

And I understand the delay in your Argentine carbonate expansion relates to the pace of construction and to maintain your financial flexibility. But how should investors take the announcement in the context of your intermediate to long-term margin outlook? We understand there is a natural benefit to reducing third-party supplier once you're up and running, but how should we assess the kind of the intermediate to long-term margin framework? Just any color you could possibly give on that would be appreciated. Thank you.

Paul Graves -- President and Chief Executive Officer

Yeah. I'll deal with the cost side of it, which is I think what you're pointing to, because clearly supply [Phonetic] is a completely different conversation. But it doesn't really change anything frankly. All it does is, it means that we're going to be short carbonate for six more months. That's the only real change. Instead of going online at the end of 2020 with that first phase of the expansion, it will be middle of 2021. The second phase will follow right behind that. We've structured this so that there are significant infrastructure carryover benefits into the second phase, and so we do not expect to go back into a short carbonate position once that first phase is up and running.

So the cost basis in Argentina, obviously, allowing for some of the short-term movements we can get in inflation and currency depreciation, really hasn't changed. Its cost structure remains really where it has been for several years. And, again, we don't expect that to change either.

Christopher Parkinson -- Credit Suisse -- Analyst

Thank you.

Operator

Your next question comes from the line of Chris Kapsch with Loop Capital.

Christopher Kapsch -- Loop Capital Markets -- Analyst

Yeah. Good afternoon. A question about pricing in 2020. Is there any way you can characterize your outlook for pricing based and what is sort of locked in for the full year versus what could drift one way or another? The reason I'm asking is, because I'm trying to reconcile the downward revision in your guidance versus what you said earlier this year, primarily on the basis of pricing versus just opposed against what a lot of my texts are saying that, granted, I understand we're oversupplied right now. But in hydroxide there's definitely more evidence of a tightening hydroxide market.

For example, and I know it's unique circumstances [Indecipherable] but they introduced a 10% price increase earlier last week. But given the shift in demand favoring hydroxide that you just alluded to, tightening hydroxide because there's not as much hydroxide in the in the inventory -- the channel inventories, there is a notion that hydroxide pricing could be improving as we exit 2020. So that's why I'm asking. Is there -- are you locked in on the pricing that you just sort -- the outlook that you just conveyed or through the possibility that you could kind of -- from a more favorable hydroxide pricing as we exit 2020? Thanks.

Paul Graves -- President and Chief Executive Officer

Sure. Hey, Chris. Thanks for that. You've kind of really gone to the heart of one of the key challenges that we've had this year in terms of some of the decisions we've had to make. Clearly, there is a trade-off we make. Do we sit here and leave more pricing open on the expectation there will be a recovery in pricing from here, but it's hard to predict when? Or do we lock it all in? And so we sort of tried to balance that. We do have a bunch contracts that rolled over anyway. And so those prices didn't change and haven't changed from 2019 to 2020.

We have other customers where we elected to fix the pricing, even though it's lower year-over-year. With just the nature of those customers, we chose to do that. Our guidance, as I said, does not assume an increase in pricing in the second half of the year. I see the same external announcements that you've seen from people like [Indecipherable]. We've seen some commentary about challenges bringing hydroxide material plants online successfully.

And so, yes, you can certainly see data points that suggest that tightening is going to happen. It's really difficult today, Chris, to answer the question as to whether it's changing because frankly it's not a normal market we're in. As we look at the impact of the disruption that's in China, that doesn't just impact China. That impacts throughout the supply chain. And even if it doesn't directly impact our supply chain, for example, lithium or the batteries themselves or the cathode materials, it's certainly the case that it's more difficult to build vehicles today. So even if you have enough material for the batteries and if batteries then you may not have enough other parts, other components.

So, it's frankly very difficult to parse through all the noise and to work out whether you are in fact seeing signals or whether you are in fact just seeing noise at the moment.

Christopher Kapsch -- Loop Capital Markets -- Analyst

Okay. And just as a follow-up -- and maybe it's just way too early to see how this may affect sort of I guess supply chain thinking of major OEs. But given the coronavirus and how disruptive it's been in sourcing from supply chains that rely on China and given that the vast majority of conversion of hydroxide happens in China, say, notwithstanding, I guess your conversion in North Carolina, maybe a little bit at some others, do you have any thoughts on, as this industry evolves and matures, would that put you in a better competitive positioning or worst competitive positioning? Do you have any sense that conversations with downstream customers are going to evolve to a point where they want to rely less on conversion that takes place in China? Any feel for how that may play out over time? Thanks.

Paul Graves -- President and Chief Executive Officer

But I think there has been for a while, and it is too soon to know whether the coronavirus will be a direct factor driving this. But there has been a concern for a while among many end users, and OEMs particularly, about the concentration of conversion capacity in China and specifically around the desire to localize supply chains. There is political pressure to do that. There is environmental pressure to do that. But I think what is changing, and has changed in recent months, from my perspective at least, is that the OEMs are now starting to spend a lot more time really truly understanding how and where lithium is produced and they are certainly starting to understand that it isn't like any other material that they've ever had to deal with. It's not like PGMs. It behaves differently and is produced on a different basis than things like nickel, cobalt, copper, aluminum, etc. And so they started to scratch their head and say how do you localize a supply chain when it appears that most of the raw material is being mined in Australia and shipped at 6% concentration levels because that is extremely difficult to localize.

When they ask that question, they then turn to us and say, you have a different model, come and explain it to us, is this more able to be localized into Europe or into the US. So the answer is yes, we do have a lot more conversations around it. I would not for one moment suggest that we are at the point where people are making actual decisions on that basis. But they are certainly starting to ask the questions, and depending on who it is, express preferences for what they want their future supply chain to look like.

Operator

And your next question comes from the line of Kevin McCarthy with Vertical Research.

Kevin McCarthy -- Vertical Research Partners -- Analyst

Good evening. A question on your sales guidance, which at the midpoint, seems to imply growth of 3% in 2020. Trying to reconcile that level of sales growth with the 30% volume that you indicate on slide 7, and price erosion in the low to mid teens. Can you help me reconcile that?

Paul Graves -- President and Chief Executive Officer

Sure. I think it's probably fair to say that we are being very cautious on pricing and on mix. You've noticed that we also shifted a hydroxide and carbonate assumption into there as well. So we have a price decline for sure in hydroxide. Absolutely a price decline continued in carbonate. We also have price declines in certain other areas, particularly ones that are largely referenced to carbonate as a feedstock like some of the metals based businesses that we have where with carbonate pricing declining, it becomes more of an incentive to convert that into chloride and create metal-based products. So we also have some quite significant price declines in certain other areas as well.

I think it's probably fair to say that in that revenue guidance, as I said, we're being maybe a little overly cautious in some people's minds. But there is, as I said, no assumption whatsoever of any price changes away from where the market is today, and that's what's driving much of this.

Kevin McCarthy -- Vertical Research Partners -- Analyst

Okay. And so, as a follow-up, Paul, is it the case that the total Company average price erosion could be greater than the mid-teens? Or is it the case rather that while you could sell 30% higher volume, what is embedded is something less than that?

Paul Graves -- President and Chief Executive Officer

So I think a little bit of both. There is certainly a potential that it goes from mid teens to high teens. I don't see going much further than that just because of the mix of how much pricing is already committed and agreed across our contracts. Frankly, it's more likely that we sell less volumes. And I think when you look at the volume range that we have out there, some of the volumes that we have in there are not particularly profitable business to be perfectly honest. It's profitable but not hugely profitable, and we're not going to place that with customers for no reason. It's going to be placed with a little more important customers and want to make more sense.

If the market doesn't evolve that way, if we do get an impact in China and it doesn't recover in the second half of the year, we'll frankly just pull those volumes from the market. We won't just sell them for the sake of it. So you should assume that there is a degree of flexibility, a wider degree of flexibility in that volume estimate than there is maybe in price.

Kevin McCarthy -- Vertical Research Partners -- Analyst

Understood. That's helpful. And if I may, I had a second question for Gilberto. What is the amount of working capital source or usage that's embedded in your cash flow from operations guidance range for 2020?

Gilberto Antoniazzi -- Chief Financial Officer

So, we expect -- as we guide, we're going to generate about $85 million of cash, with the midpoint of capex of $215 million. And in terms of our working capital -- naturally, we build up a lot of inventory beginning of the year, Kevin, and for this 4,000 metric tons that we mentioned early in the call, as we drawn on this inventory, that is going to accelerate our cash generation as well. So that's why our outlook for cash is actually higher than our EBITDA guidance.

Kevin McCarthy -- Vertical Research Partners -- Analyst

Okay. So you plan to liberate some cash then from trade working capital?

Gilberto Antoniazzi -- Chief Financial Officer

Yeah.

Kevin McCarthy -- Vertical Research Partners -- Analyst

Okay. Very good. Thank you so much.

Gilberto Antoniazzi -- Chief Financial Officer

Yeah. [Speech Overlap] in Q4.

Kevin McCarthy -- Vertical Research Partners -- Analyst

Thanks, again.

Operator

And your next question comes from the line of P.J. Juvekar with Citi.

P.J. Juvekar -- Citigroup -- Analyst

Yeah. Good afternoon. Hey, Paul, you mentioned that there is a desire to become less reliant on China for the supply chain. How do you see that supply chain developing in Europe? And -- as the US seems to be lagging behind, but is the industry doing anything to lobby the government in the US?

Paul Graves -- President and Chief Executive Officer

I think the issue in the US, frankly, is you can't really move the inputs like lithium locally until you've really got the cathode material production locally, and it's the lack of cathode materials and that chemical infrastructure in the US that really is lagging more than anything else. In Europe, that's less the case. There are certainly more people out there, and there are some pretty important cathode material producers based in Europe and committed to Europe, and there's also more state support or EU support in Europe for that localization for multiple reasons.

I don't know how it's going to evolve, if I'm perfectly honest. I don't know what appetite markets have to have large spodumene mining operations. We know there are spodumene resources in the US and in parts of Europe. It's not entirely clear that there is an appetite for that mining to actually take place when you get into the local communities. I also think there is an acknowledgment and recognition in Europe anyway that this will result in higher costs. We see that in the way that the very energy-intensive cathode material producers in Europe are paying extra to get wind or solar or other renewable energy sources, even though a customer -- I don't know that that will be as acceptable in other parts of the world either.

So the dynamics as to how it localizes, I think, is starting to be understood more clearly by many of these interested parties. It's not a very simple -- there is not a simple solution to it. I mean, clearly one way as you take lithium carbonate produced in South America and convert that locally which is, as you know, what we do, but not everybody views that as a good long-term solution.

P.J. Juvekar -- Citigroup -- Analyst

Okay. And then coming back to Livent. You mentioned that your capex in 2020 is still around that $200 million to $230 million mark. What's the cadence beyond that, particularly in 2021? And then based on your outlook today on lithium, can you fund all that capex through your internal cash?

Paul Graves -- President and Chief Executive Officer

I'll let Gilberto touch on 2021. The short answer is yes. I mean, it's always in terms of funding off our own internal cash. It's not clearly ideal that we don't have the cash flow generation today that we had a couple of years ago, but we do have the ability to just frankly slow down that expansion. Will it get done as quickly? No, it certainly won't. I'll be honest with you. My take on this is very straightforward. I think the market is speaking. Customers are saying, hey, we'll take that risk. We'll take the risk that there will be a delay to new capacity coming online, we'll take advantage of oversupply today to drive prices down, and we recognize that that's quite likely to create a spike in prices in the future.

That's the decision the market is making. We're listening to the market. We're slowing down, we'll add capacity at a slower pace. We'll add it frankly as quick as we can without taking undue financial risk.

Gilberto Antoniazzi -- Chief Financial Officer

P.J., regarding the capex for 2021, as you ask. So we expect to be ramping up not only finishing in '21 the MGA [Phonetic] one expansion -- the phase one expansion in Argentina, but also the BC. And we will continue to have the 30 -- about $30 million. All combined, in 2021, we're looking out at something in the magnitude between $175 million and $200 million.

P.J. Juvekar -- Citigroup -- Analyst

Okay, great. Thank you.

Operator

Your next question comes from the line of Steve Byrne with the Bank of America.

Steve Byrne -- Bank of America Merrill Lynch -- Analyst

Good evening. These 7,000 tons of carbonate that you're purchasing from third parties and converting into hydroxide, do you need to do this to meet volume commitments or to absorb fixed costs of your conversion capacity in China? Or this is just profitable for you?

Paul Graves -- President and Chief Executive Officer

A good question. Let me just be clear. We won't purchase 7,000 tons of lithium carbonate this year. Some of that lithium carbonate is actually embedded in the inventory that we brought forward from 2019 into 2020. But the P&L impact is 7,000 tons or so of lithium carbonate. We're certainly not doing it to run the plants flat out. Our China plants don't have any fixed costs. Because of the way we operate them, they have a higher variable operating fee but we can turn them on, we can turn them off without any meaningful cost at all. And we've always been very clear if it doesn't make sense to run them and we can't sell the product comfortably, we will just turn them off. We'll just -- we've got small lines -- that are 5,000 ton lines, three of them. And if we have to turn one of those lines off or slow down some of the lines, we'll do so. We certainly don't have a cost burden from doing that.

But it's a valid question, though. We certainly today -- this is profitable business. We don't need to buy, for example, battery grade carbonate to convert into hydroxide. We can use multiple grades. So we have a lot of purchasing flexibility as to what we can use in those units. And that gives us a cost saving. Our plants are very efficient, especially the ones in China. So even with no fixed cost to allocate, the variable cost that we incur is competitive and competitive with what we do in the US. And so today -- even China pricing today we can still, and do still, make money on that particular business. It is not great business compared to what we want it to be and what the rest of our business is. And we certainly will only do it if it makes sense for long-term benefits for our customers. We will not be trying to sell small amounts to non-important, non-strategic customers on that basis.

Steve Byrne -- Bank of America Merrill Lynch -- Analyst

And Paul, you've got a long history there of improving the selective absorption of the brine solutions on in Argentina and continually improving that and reducing the amount of evaporation ponds. Do you see the potential for that technology to get to the point where you could eliminate the evaporation ponds?

Paul Graves -- President and Chief Executive Officer

It's a very good question. Our technical team would love to eliminate the evaporation ponds. The short answer to that is, yes. We absolutely -- we do have a plan to retire our evaporation ponds. We will keep the smaller ones. I'm sure you know we have two types of evaporation ponds. There are very large pre-evaporation ponds similar to what you see in Chile. And then we have much, much smaller, fraction of the size, basically finishing ponds that the brine stays in for about a month or so after it's come out of the selective absorption process.

We will absolutely, as part of the expansion, eliminate those pre-evaporation ponds for two reasons. One of them is that evaporation -- a lot of water leaves the environment. We know water is a scarce and valuable resource where we produce lithium. Not so much as it is in Chile, perhaps, but still critically important. And it's important to us, first, to reduce that water loss, and eliminating the pre-evaporation ponds does that.

The second is they're frankly expensive to maintain. We get a lot of salt buildup in the bottom of these ponds, and so every few years you have to drain them and one way or another move that salt. That itself is expensive, but it also creates another waste product, which is the sodium magnesium chloride that builds up in the bottom of the pond. So a long answer to say, yeah, we absolutely will expect that within the next couple of years we will be retiring those pre-evaporation ponds.

Steve Byrne -- Bank of America Merrill Lynch -- Analyst

Thank you.

Operator

And your next question comes from Mike Harrison with Seaport Global.

Michael Harrison -- Seaport Global Securities -- Analyst

Hi, good afternoon. Apologize if I missed this. But can you comment at all on the expected cadence of earnings in 2020? Obviously we're coming off a Q4 that was $16 million in EBITDA. And at the low end, your $60 million EBITDA guidance -- $65 million -- implies something like $15 million a quarter for 2020. So any thoughts on how that progresses over the course of the year?

Paul Graves -- President and Chief Executive Officer

Yeah. [Indecipherable] response is going to be a huge surprise to anybody. Clearly, the first part of the year is going to be more challenged given the disruption that we've seen in China and given how much of our business and how much of our customers and how much of our product ultimately finds its way and other through China. So we're certainly expecting the first half to be weaker than the second half.

I don't have the confidence yet from the data that I've seen to know how long that lasts, how deep it is or even whether in fact we will get everything that we lose in the first half back in the second half. There are questions around all of those. But what I can say reasonably confidently is that certainly, compared to the second half, the first half is going to be softer.

Michael Harrison -- Seaport Global Securities -- Analyst

All right. And in terms of the customer delays that you saw during Q4, can you give a little bit of color on what led your customers to delay? And I guess help us understand what's in your contracts that maybe give them flexibility around when they take deliveries. I guess I would have assumed that those volumes are committed and that maybe they would have to take them.

Paul Graves -- President and Chief Executive Officer

Look, it's a complex question on the demand side. Number of customers -- as we've mentioned before, this is a fluid market. We've had -- they themselves have their own customers changing demand, changing orders, changing structures. And so there is no single reason behind some of these delays other than perhaps this constant flux that we have in the supply chain today with maybe a higher degree of uncertainty over who is making what, how much they're making.

Our contracts -- we have various types of contracts with customers, multiple ones. We do not think it's in anybody's interest to force product down to customers that frankly don't need it. Lithium hydroxide especially does not have as long a shelf life as lithium carbonate. It's not in our view a healthy relationship with a customer to force them to take material that they don't need at that point in time.

We have tended to find, over time -- and we still see this holding up today -- that on a life of contract basis, our customers live up to their commitments. They take the volumes that they've committed to take from us. Sometimes they take it more quickly than they think, and that's an upside to us in the short term, and in other times they have delays and that's a downside to us in the short term. But we certainly don't have or have not had yet at least any major customers not living up to their volume commitments.

Michael Harrison -- Seaport Global Securities -- Analyst

Thanks very much.

Operator

And your last question comes from the line of Joel Jackson with BMO Capital Markets.

Joel Jackson -- BMO Capital Markets -- Analyst

Hi, good evening. I want to follow up on some of the capex and the expansion question. So, beyond the first phase of carbonate and hydroxide -- or the next phase of carbonate and hydroxide expansion here, what would be the cadence you think of that in the next round of expansion? And then how would your capital budget kind of phase out here or phase down or project over '22, '23, '24 as you may be head [Phonetic] on your next leg of capacity, I think?

Paul Graves -- President and Chief Executive Officer

Yeah. Good evening, Joel. It's weird saying good evening, by the way, on an earnings call, I have to say.

Joel Jackson -- BMO Capital Markets -- Analyst

Yeah.

Paul Graves -- President and Chief Executive Officer

So phase two of Argentina, clearly, we will continue to go ahead with. The expansion was designed to essentially break into two groups, phases one and two and then phases three and four. And phases one and two really do go hand in hand. And so once phase one is completed -- even before is completed, we'll start to turn our attention to phase two, hence the no real slowdown in capital spending likely to come in 2021.

On the hydroxide side, we do not expect to add any more units in hydroxide. We certainly don't have enough visibility today at anything other than maybe a unit in China. I think we see an opportunity to add another small unit in China. But as you know, that's a relatively low capital outlay for it's just a very different way that we do it in China compared to in the US.

Beyond 2021, look, I think we're not going to make any decisions yet. At the moment, the only the commitments we've made are what I just described to you, and on that basis, we will see a significant ramp-down in capital -- if there's a word ramp-down in capital spending in 2022. I think we reserve the right that if market conditions change, if customers make appropriate commitments, then there is a likelihood that we will move into more phases either of hydroxide or lithium carbonate. But we're certainly not making that commitment today.

Joel Jackson -- BMO Capital Markets -- Analyst

Just the way I interpret that. So right now, the 9,500 ton addition to carbonate, 5,000 tons addition to hydroxide, that's [Indecipherable] that will finish. You may add a little bit more hydroxide in China or somewhere, but other than that nothing is in the plan right now.

Paul Graves -- President and Chief Executive Officer

And another 9,500 tons of lithium carbonate, the phase two in Argentina. So when we're done with this...

Joel Jackson -- BMO Capital Markets -- Analyst

[Speech Overlap] 9,500 tons, yeah.

Paul Graves -- President and Chief Executive Officer

Yeah. So compared to today, we will have more than double the carbonate and we'll have about 10,000 tons more hydroxide.

Joel Jackson -- BMO Capital Markets -- Analyst

And so the first year you might get down -- if you don't do anything other than that, the first year you might get down to like a true maintenance capital cost might be $23 million or where would that be?

Paul Graves -- President and Chief Executive Officer

Yeah, probably second half of '22 will be in that phase. So on a full year basis, $23 million, correct.

Joel Jackson -- BMO Capital Markets -- Analyst

Okay. And just my other question was, have you -- do you have a view on the new Argentine export royalty? Are you assuming that gets regulated into law full-time?

Gilberto Antoniazzi -- Chief Financial Officer

You must be referring to the one that the previous president has issued that's supposed to be finished.

Joel Jackson -- BMO Capital Markets -- Analyst

[Speech Overlap] yeah.

Gilberto Antoniazzi -- Chief Financial Officer

Yeah. So that has this year to go still. So we haven't heard anything different from what was said before.

Joel Jackson -- BMO Capital Markets -- Analyst

So [Speech Overlap] in short term?

Gilberto Antoniazzi -- Chief Financial Officer

Yes.

Joel Jackson -- BMO Capital Markets -- Analyst

Thank you very much.

Operator

And that is all the time that we have for today. This concludes the Livent Corporation fourth quarter and full year 2019 earnings release conference call. Thank you.

Duration: 59 minutes

Call participants:

Daniel Rosen -- Manager, Investor Relations

Paul Graves -- President and Chief Executive Officer

Gilberto Antoniazzi -- Chief Financial Officer

Dylan Campbell -- Goldman Sachs -- Analyst

Christopher Parkinson -- Credit Suisse -- Analyst

Christopher Kapsch -- Loop Capital Markets -- Analyst

Kevin McCarthy -- Vertical Research Partners -- Analyst

P.J. Juvekar -- Citigroup -- Analyst

Steve Byrne -- Bank of America Merrill Lynch -- Analyst

Michael Harrison -- Seaport Global Securities -- Analyst

Joel Jackson -- BMO Capital Markets -- Analyst

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