Albemarle (ALB) Q3 2020 Earnings Call Transcript

Albemarle (ALB -0.25%)
Q3 2020 Earnings Call
Nov 05, 2020, 9:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by. And welcome to the Q3 2020 Albemarle Corporation earnings conference call.[Operator instructions]. I would now like to hand the conference over to your presenter today Ms.Meredith Bandy, vice president of investor relations. Thank you.

Please, go ahead Ma'am.

Meredith Bandy

All right. Thanks, Marcus. And welcome to Albemarle's third-quarter 2020 earnings conference call. Our earnings were released after the close in the market yesterday and you will find our press release, presentation, and non-GAAP reconciliations posted to our website under the Investor section at www.albemarle.com.

Joining me on the call today are Kent Masters, chief executive officer; and Scott Tozier, chief financial officer. Raphael Crawford, president, catalysts; Netha Johnson, president bromine specialties; and Eric Norris, president, lithium, are also available for Q&A. As a reminder, some of the statements made during this conference call including our outlooks, expected company performance, expected impacts of the COVID-19 pandemic, and proposed expansion projects may constitute forward-looking statements within the meaning of Federal Securities Laws. Please note the cautionary language about forward-looking statements in our press release and that same language applies to this call.

Please also note that some of our comments today may refer to financial measures that are not prepared in accordance with U.S. GAAP. A reconciliation of these measures to GAAP can be found in our earnings release and the appendix of our presentation, both of which are posted on our website. Now, I will turn it over to Kent.

Kent Masters -- Chief Executive Officer

Thank you, Meredith. And good morning everyone. On the call today, I will cover a high-level overview of results and strategy, and highlight additional actions we're taking to improve the sustainability of and to grow our business. Scott will then review third-quarter financials, provide updates on our balance sheet and cost savings initiatives, and review our outlook.

At Albemarle, our first priority is the safety and well-being of our employees, customers, and communities. Thanks to the courage and dedication of our employees, we've been able to safely operate our facilities throughout the pandemic to meet customer needs. Our cross-functional Global Response Team continues to meet regularly to address -- to assess pandemic related risk and adapt protocols as necessary. Protocols, including restricting travel, shift adjustments, increased hygiene, and social distancing remains in place at all locations.

Our recent focus has shifted from managing the immediate crisis to building in flexibility to adjust for regional differences and changing conditions. Today, looking at our nonessential workers around the globe, most of North America remains on work-from-home status. Asia and Australia have returned to work sites. Most of Europe returned to work sites over the summer, but have now gone back to work from home given rising COVID-19 cases and rates.

And finally, in Chile in COVID-19 rates and falling cases have allowed us to trial a soft reopening approach at a worksite at reduced capacity. As we all know, the situation is challenging and continues to evolve. I'm grateful to our team for their continued vigilance and commitment to working safely and productively. Turning to recent results.

Yesterday, we released third-quarter financials, including net income of $98 million, or $0.92 per share, and adjusted EBITDA of $216 million down 15% from the prior year. Our adjusted EBITDA results surpassed the high end of our Q3 outlook by 14%, thanks to better than expected performance in lithium and bromine and the exceptional cost-saving results across our businesses. We currently expect full-year 2020 adjusted EBITDA of between $780 million and $810 million. Lower year-over-year based on reduced global economic activity, due to the global pandemic and reduced lithium pricing as expected going into the year.

Scott will go into more detail on our outlook for the rest of this year and talk directionally about next year. In late 2019, we launched an initiative to achieve sustainable cost savings of over $100 million per year by the end of 2021, with about half of that or $50 million to be achieved in 2020. Earlier this year with the onset of the pandemic-related economic slowdown, we accelerated those initiatives giving us a line of sight to $50 million to $70 million savings in 2020. Implementation has been even more successful than we expected, and we are on track to deliver about $80 million in savings this year and to reach a run rate of more than $120 million by the end of 2021.

We plan to turn this two-year project into an ongoing culture of operating discipline and continuous improvement with additional cost and efficiency targets. Our strategic approach to sustainability is another facet of this operational discipline and a key area of focus for Albemarle. Since we spoke last quarter, we have published our enhanced sustainability report which expands on the four key quadrants of our sustainability framework and sets the baseline for our environmental performance and increased disclosures. Now, we are working to establish sustainability goals and targets and continue to make progress in each quadrant.

This week, we also published our global labor policy in alignment with international labor organization conventions, and our human rights and global community relations and indigenous peoples' policies. Both consistent with the UN Guiding Principles. These policies will be available on the Sustainability section of our website. I'm proud to say that Albemarle generates more than 50% of our revenues from products that help reduce greenhouse gas emissions or promote greater resource efficiency.

As our Lithium business grows, an even larger proportion of our business will contribute to global sustainability. In summary, we are concentrating our efforts where they matter most so we can continue to create sustainable value for our customers, investors, and stakeholders. Our growth projects at La Negra and Kemerton are key to increasing our battery-grade lithium conversion capacity in line with long-term customer demand. La Negra III and IV is an expansion of our Lithium carbonate capacity in Chile.

The project is expected to reach mechanical completion in mid-2021, followed by a six-month commissioning and qualification process. La Negra III and IV allows us to add carbonate capacity at the very low end of the cost curve. Kemerton, our new lithium hydroxide conversion plant in Western Australia is on track to reach mechanical completion by late '21 with a six-month commissioning and qualification process to follow. Kemerton is quote growing our hydroxide capacity in line with expected strong long-term market demand.

And with that update, I'll turn it over to Scott for more detail on our recent results.

Scott Tozier -- Chief Financial Officer

Thank you, Kent. Good morning, everyone. Albemarle generated third-quarter net sales of $747 million, a decrease of about 15% compared to the prior year, and in line with our previous outlook. This reduction was driven primarily by reduced prices in lithium, as expected coming into the year, and reduced volumes and catalysts in bromine related to pandemic related economic weakness.

GAAP net income was $98 million or $0.92 per diluted share, and non-GAAP adjustments this quarter were primarily related to restructuring for cost savings and discrete tax items with adjusted earnings of $1.09 per diluted share. Lower net income was primarily driven by lower net sales, partially offset, by cost and efficiency improvements. Corporate and SG&A costs were lower versus the prior year, due to these cost savings initiatives. As Kent stated, adjusted EBITDA was $216 million, a decrease of 15% from the prior year.

The success of our short-term and sustainable savings initiatives, as well as the timing of equity income from Talison JV, helped us improve margins and beat the midpoint of our Q3 EBITDA outlook by about 20%. Turning to Slide 8. For a look at the EBITDA bridge by business segment. Adjusted EBITDA was down $38million over the prior year, reflecting lower net sales and lower equity income, partially offset by cost savings initiatives and efficiency improvements.

Lithium's adjusted EBITDA declined by $31 million versus the prior year, excluding currency. Pricing was down about 17%, partially offset by cost savings. Lower pricing reflects previously agreed battery-grade contract price concessions for 2020, as well as lower market pricing and technical grade products. Lithium EBITDA margin benefited from cost savings and the timing of Talison JV shipments to our partner Tianqi.

Bromine's adjusted EBITDA was down about $10 million, excluding currency. The decline was primarily, due to lower volumes, as a result of the pandemic-related economic downturn, partially offset by ongoing cost savings. Likewise, catalyst adjusted EBITDA declined by $30 million, excluding currency, primarily due to lower volumes, offset by cost savings and efficiency improvements. Fluid Catalytic Cracking or FCC volume improved sequentially but remain down compared to the prior year, due to lower transportation fuel consumption.

as a result of travel restrictions. Hydro Processing Catalyst or HPC volumes were also down compared to the prior year, due to normal lumpiness of shipments, and softness related to lower oil prices and reduced fuel demand. Our corporate and other category adjusted EBITDA increased by $15 million, excluding currency, primarily, due to improved Fine Chemistry Services results. We ended the quarter with liquidity of about $1.5 billion, including just over $700 million cash, $610 million remaining under our revolver, and $220 million on other available credit lines.

Total debt was $3.5 billion representing a net debt to adjusted EBITDA of approximately 3.2 times. Our commercial paper supported by our revolver which is not due until 2024. And so that leaves about $670 million of short-term debt to be restructured or repaid over the next year. We expect to repay the 2021 debt maturities out of cash on hand, assuming continued economic recovery, and cash inflows from divestitures.

However, we are also working with our banks on a delayed draw term loan to backstop those 2021 maturities. If the economic recovery or divestitures are delayed, we'd be able to refinance the short-term debt using this new delayed draw term loan. As Kent highlighted earlier, our 2020 sustainable cost savings initiative is on track to achieve cost reductions of about $80 million this year. That's 60% above our initial estimates.

We expect to reach run-rate savings of more than $120 million by the end of 2021, up 20% from the previous outlook. We continue to expect short terms cash management actions such as travel restrictions, limited use of external services, and consultants and working capital management to save the company about $25 million to $40 million of cash per quarter this year. Next year, we expect some headwinds as some of these temporary cash savings reverse. Finally, we're nearing our expected range of 2020 capital spending to $850 million to $900 million based on the timing of spend.

Our two major capital projects were negative three and four, and Kemerton remains on track for completion in mid-2021, and late 2021 respectively. They will begin generating sales revenue in 2022, following a roughly six-month qualification period for each plant. Turning to our outlook. This quarter is a transition from quarterly to annual outlook.

In the next quarter, we expect to return to our normal practice of giving annual outlooks. As we approach the end of the year, we currently expect to deliver full-year 2020 net sales of around $3.1 billion at the midpoint of our range. Adjusted EBITDA of between $780 million and $810 million, and adjusted diluted earnings per share of between $3.80 and $4.15. Lithium's Q4 adjusted EBITDA is expected to increase by 10% to 20%, compared to Q3 2020 as battery grade customers continue to meet the planned volume commitments.

Bromine Q4 EBITDA is expected to be similar to Q3. Stabilization in electronics and building and construction continued to help offset weakness in other energy markets, particularly deepwater drilling and automotive. Finally, catalysts Q4 EBITDA is expected to be down between 20% and 30% sequentially, primarily due to HPC volumes and mix. FCC demand is expected to continue to recover with increased travel and depletion of global gasoline inventories.

But Q4 is expected to be particularly weak for HPC catalysts in part because of normal lumpiness, but also as refiners continue to defer HPC spending into 2021 and 2022. As we look beyond this year, visibility remains challenging. However, we are seeing signs of improvement or at least stabilization in our businesses. EV sales remain a key driver for the growth of our Lithium business.

Global EV sales were up 90% in the month of September, compared to the previous year. September represented a new monthly record of EV registrations led by European EV sales. The rest of the world continues to rebound from the pandemic related slowdown earlier this year with year to date global EV sales up 15%. The fourth quarter is also typically a seasonally strong quarter for auto sales.

And similarly, the IHS market expects global EV production to increase by 20% to 30 % in full-year 2020, and by nearly 70% in 2021. Our Bromine business supplies a diverse set of end markets and is generally driven by broader consumer sentiment and global GDP. Consumer sentiment continues to improve in most regions albeit, still below pre-pandemic levels. Analysts now expect global and U.S.

GDP to be down about 4% in 2020 before rebounding next year. Finally, in Catalyst. After the sharp drop off in March, U.S. miles driven has rebounded but remains well below normal levels.

Similarly, refinery capacity utilization has improved from earlier this year but remains well below typical levels. Refinery utilization rates in the mid 70% range are a challenge for an industry designed to run efficiently at utilization rates of 85% or higher. Given recent shifts in demand in refining economics, we don't expect to see pre-pandemic levels until 2022 at the earliest. Forecast and leading indicators like these helped gauges the outlook for these markets.

However, a variety of factors including supply chain lags, contract structure, inventory changes, and regulatory impacts can cause results to differ from the underlying market conditions. Now, let's turn to Slide 13 for our current view of 2021. In lithium, we expect full-year 2021 volumes to be relatively flat as our plants are effectively sold out, given current volume constraints. We expect to see volume growth in 2022 as La Negra III and IV, and Kemerton comes online.

Full-year 2021 lithium prices are expected to be down slightly, due primarily to lower average realized pricing for carbonate and technical grade products. Discussions with long-term battery-grade customers are under way. It's too early to say what changes will be made to those contracts for 2021. Lower average market pricing and higher inventories may pressure pricing.

At the same time, many of our customers remain concerned about the security of long-term high-quality supply. Which speaks to the strong demand growth seen for electric vehicles. In bromine, we expect full-year 2021 results to improve slightly, assuming continued economic recovery and ongoing cost savings. Our Bromine business was probably the least impacted of our businesses during 2020, and that's part of the reason we expect a fairly modest improvement in 2021.

And in catalysts, we expect 2021 results to continue to improve from the very low levels seen in 2020. But to remain well below 2019 levels. Near-term catalyst results are challenging as reduced refinery capacity utilization and lower oil pricing continues to pressure our customers' margins. In the longer term, this business is well-positioned in growth regions like the Middle East and Asia and poised to benefit as refinery shift production to chemicals.

Kent Masters -- Chief Executive Officer

Thanks, Scott. Economic conditions are improving, but uncertainty remains. Particularly of additional COVID-19 impacts lengthen the time to a full economic recovery. We have the playbook established and know-how to manage through subsequent ways of COVID-19 as necessary.

At the same time, we are confident in the long-term growth prospects of our core businesses and continue to focus on controlling what we can control. That means, first and foremost focusing on the health and well-being of our employees, customers, and communities. It also means building operational discipline and sustainability into all aspects of our business, including manufacturing, supply chain, capital project execution, and customer experience. We remain confident in our strategy and we will modify the execution of that strategy to further position Albemarle for success.

Meredith Bandy

All right. Before we open the lines for Q&A. I Just want to remind everyone to please limit questions to one question, and one follow-up to make sure that we have enough time as possible. And feel free to get back in the queue for additional follow-ups if time allows.

Thanks, Marcus. Please proceed with the Q&A.

Questions & Answers:

Operator

Thank you.[Operator instructions]. Your first question comes from the line of Bob Koort with Goldman Sachs.

Tom Glinski -- Goldman Sachs -- Analyst

Good morning. This is Tom Glinski on for Bob. So the first question is, your guiding flat volumes in 2021 for lithium. Even though the battery chemicals market should be growing nicely next year.

I guess this suggests that you're going to be losing market share. First, are you ok with that? And then second, if other producers capture that incremental volume in 2021 and get through the challenging qualification process with the customers, do you expect to regain that market share in 2022 and beyond. Or is there a risk your competitors maintain that? Thank you.

Kent Masters -- Chief Executive Officer

Tom, I guess a function of our projects and when they're coming on and the capacity is coming on, and who has that capacity to capture growth. So there's not a lot we can do about that at this point. We're on our plan to bring that capacity on, but they'll likely demand will pick up before we have that capacity. So we will lose a little share, but we expect the battle moved back to us as we get that capacity on as the market continues to grow out into the future.

Tom Glinski -- Goldman Sachs -- Analyst

Great. That makes sense. And then I guess higher level looking at 2021. Considering the moving pieces between price down and lithium volume flat but capturing some incremental cost savings.

Do you think you can grow segment EBITDA next year, or EBITDA is going to be flat to down? Thank you.

Kent Masters -- Chief Executive Officer

Well, frankly it's going to depend on how the market develops over the year with us without having volume. We'll have some cost savings to offset inflation. And those pieces that we'll be close -- will be around flat unless we get a material change in pricing.

Tom Glinski -- Goldman Sachs -- Analyst

Got it. That makes sense. Thank you.

Operator

Your next question comes the line of David [Inaudible]with Deutsche Bank.

David Huang -- Deutsche Bank -- Analyst

Hi, this is David Huang here for David. I guess first just on pricing. Give us some industry pricing has bought in and even some carbon pricing started to recover. I guess if you can just fill elaborate a little bit more on your pricing weakness on carbonate in '21.

And do you expect that to the bottom during the year? Or would that be like a 2022 story?

Kent Masters -- Chief Executive Officer

Yes, I'll make a comment and then let Eric give you a little bit more detail or his perspective. So that's the magic question. It looks like when you look at the indices out there that it's at least bottomed if not starting to tick up a little. But we probably need to see that a bit more to have more confidence.

But we're anticipating that turns up during '21. And the question is when during 21. So, Eric, you want to add something.

Eric Norris -- President, Lithium

Yes, I can add specifically relative to carbonate. This is -- we look at where the growth is. It's coming in the coming year we look at what's happened this year. It's more of a hydroxide growth story.

Carbonate is therefore not enjoying as much of that. There is some growth in China. China is where we see more of these low prices, and it's the more oversupplied market. So it is that the magic question as Ken referred to.

We have some reported indices seeing it picking up. Others see it flat. It's even from the price supporting groups that report price around the world and in China specifically, it's murky and well below marginal cash crosses. The price of carbonate has gone well below where we thought it would have gone six months ago.

It is trending up in one report. We'll have to see. Our view would be that given the dynamic that supply dynamics I talked about and the growth is more driven on the hydroxide side that you a clear movement about marginal cash costs for the spot prices of carbonate is more likely at the 2022 event. Not that they couldn't happen in '21, but it looks more favorable in 2022.

Hydroxide, however, will be differently believed.

David Huang -- Deutsche Bank -- Analyst

Thanks. And then on the panel. It looks like the recovery at the bill is a little bit slower than the expected surge. Since you're batting I mean, sales could be up slightly in '21.

I guess what kind of improvement are we talking about. And then just given that -- if we look says the current pace of recovery in Catalyst as you say we expect that we can't achieve that same level if it dies in 2022 of 19 levels.

Kent Masters -- Chief Executive Officer

So, I'll comment and Raphael can also comment. But I think a lot of it depends on the man and the view of what driving comes back. When travel comes back, and it's really about fuel demand and refinery utilization for us. So, we don't see us getting back to 19 levels for '20 until the end of ' 22.

Probably very late '22 to be back to that both from a fuel demand utilization and from our perspective as well.

Raphael Crawford -- President, Catalysts

This is Raphael. I think that's right, Kent. And when we look at the outlook, there are a few things that play in. One is the impact of a pandemic.

And when do fuel volumes recover to 2019 levels and that's a volume component. And the other is refining margins. So, there's a lot of pressure on refineries right now. Just the total value of refined products from a margin perspective has gone down.

And when that recovers that's going to be dependent on volume. But also on utilization industry capacity. So we wouldn't see that returning transcend until sometime in 2022 timeframe.

David Huang -- Deutsche Bank -- Analyst

Thank you.

Operator

Your next question comes from the line of Mike Harrison with Seaport Global Securities.

Mike Harrison -- Seaport Global Securities LLC -- Analyst

Hi, good morning. Coming back to this idea that lithium volumes are sold out for next year. If there is some additional demand take up, or if some of this oversupply or inventory gets worked down could that put you in a position to drive higher pricing? And can you maybe also comment on whether you have any flexibility to move more volume or to maybe accelerate some of your production if you do see demand picking up.

Kent Masters -- Chief Executive Officer

Yes. So, if the market gets tight and the supply is not there I mean prices should move up when we expect to see that around hydroxide. Less about, less with carbonate and it's difficult. I mean, we had delayed our projects a bit when the pandemic kicked off, we just didn't know what things were going to look like.

And as soon as we got some visibility, we tried to pull those back as much as possible. And we haven't lost much time on that, and we haven't really lost our capital estimates are still the same range as well. So it's really not possible for us to pull it more forward than our current plans. We wouldn't be able to accelerate now to impact when those projects are coming on stream.

So from our perspective, I don't think we're going to have extra capacity to what we are anticipating. We may be a little early with the projects, early on are planned, but it's not going to be dramatic.

Mike Harrison -- Seaport Global Securities LLC -- Analyst

All right. And I think everybody is kind of focused on what's happening here in the U.S. from a political standpoint. But can you maybe talk about to a and whether some of the political news there could impact your relationship with the government or your rights in the Atacama.

Kent Masters -- Chief Executive Officer

Right. So while I mean what's happening there. So they're going to -- they're going to redo their constitution that's coming. That's a pretty long process that they have in place to do that, and so far that's all been without too much turmoil.

So we don't -- we have to wait and see what that constitution looks like. We don't really expect it to impact our rights in the Atacama But I mean, I guess that's something we'll have to wait and see. I don't think it would be -- I mean it's not until it is interesting to start changing how they work with the international community. So he's got a great reputation following the rule of law, and having a strong economy in South America is an example.

So I don't think they want to change that. But it's something we'll have to watch very closely as that plays out.

Mike Harrison -- Seaport Global Securities LLC -- Analyst

All right. Thanks very much.

Operator

Your next question comes from the line of Vincent Andrews with Morgan Stanley.

Vincent Andrews -- Morgan Stanley -- Analyst

Thank you. And good morning, everyone. I'm just wondering, you talk about 60% of your assets you're going after with the new two new projects come on. What about the other 40%.

Can you talk about a medium-term perspective? What's it going to take for you to go after those assets. How much money it would require in capex spending. And at what point would you start talking about how you'd go after that, and how you'll finance it.

Kent Masters -- Chief Executive Officer

Vincent, I'm not sure I'm clear on the question. So go to after the other 40% of the asset?

Vincent Andrews -- Morgan Stanley -- Analyst

Yes. I guess my question is, when are we, when should we anticipate the other 40% coming online. And how much we have to spend to do it.from a resource standpoint.

Kent Masters -- Chief Executive Officer

From a resource standpoint.

Vincent Andrews -- Morgan Stanley -- Analyst

Correct.

Kent Masters -- Chief Executive Officer

Ok. So we have access to those resources. So it's just about building conversion capacity. So we've started that process at la Negra and Kemerton is part of that.

So, we're building that out. We'll sell those plants out, and then we'll layer in additional capacity to go after. And that's our strategy. And our plan longer term, we have not necessarily laid out a capex program publicly over time, but that's the plan.

If we build capacity and then we sell it out and then we reinvest.

Vincent Andrews -- Morgan Stanley -- Analyst

I'm sorry. And it is a follow up then to the earlier question about market share. How do you think about the medium-term in terms of not per se having a suggested timeline for that other 40% of production versus how fast you think the market's going to grow. Do you think you'll be able to bring that 40% on in conjunction with market growth, or is it possible that the lag?

Scott Tozier -- Chief Financial Officer

Well, we'd be layering in that capacity. So we're trying to do is trying to get it just right. We add capacity as the market grows and bring that on as it's required. And it's a matter of how well we execute, and how well we forecast the market.

But we think we can. That's what we're trying to do.

Vincent Andrews -- Morgan Stanley -- Analyst

All right. Thank you, very much. Appreciate it.

Operator

The next question comes the line of John Roberts with UBS.

John Roberts -- UBS -- Analyst

Thank you. Nice progress on the cost savings efforts. The debt backstop indicates some uncertainty here in the divestment process refined chemicals and catalysts additives. Are we expecting one buyer for both, or two? And do you think both will be announced before year-end?

Scott Tozier -- Chief Financial Officer

Hey John, this is Scott. So we were expecting that we'd have two different buyers for those two different businesses. Discussions continue favorably on both of those. A little bit too early to call exactly when we'd be able to announce and announce a deal on either one of them.

But obviously, we're pushing hard to do that. the backstop is also related to economic uncertainty. And so we just got to -- I think we've just got to get through the winter period and that increasing COVID cases and whatever the government reactions to those are to fully understand where we end up in 2021. And that's -- it's really just a safety valve for us in case things go the wrong direction.

And the banks have been very supportive of us and our story. So really appreciate their contributions.

John Roberts -- UBS -- Analyst

And then you mentioned in the third quarter the benefit of timing in Talison shipments to Tianqi. Was that a catch up from Q2? It doesn't sound like it's a pull forward from the fourth quarter given the strong fourth-quarter guidance.

Scott Tozier -- Chief Financial Officer

Yes. You've got a right, John. It was really a catch up from the Q2 shutdown that they had. And just from an accounting perspective, when Tianqi takes more product, we end up getting that equity income immediately.

So it helps, helps our bottom line.

John Roberts -- UBS -- Analyst

Thank you.

Operator

Your next question comes from Arun Viswanathan with RBC Capital.

Arun Viswanathan -- RBC Capital Markets -- Analyst

Great. Thanks for taking my questions. Good morning. Congrats on the results.

Just nice to see the contradictions playing out. I just wanted to ask about the contracting side of lithium. I think you had offered concessions to some of your customers this year in 2020. Did you find the need to extend those concessions into 2021? Could you just maybe comment on the contracting environment out there.

Thanks.

Kent Masters -- Chief Executive Officer

So we're in the process of having those discussions with our customers. So I mean, you're right. We've made concessions late '19 for the 2020 period. They were one-year concessions market price is lower than it was at the time we made those concessions today.

And so we're having discussions about what that those contracts will look like for 2021. At the moment, it's too early to give any too much guidance on exactly what that looks like. So we're having those discussions today.

Arun Viswanathan -- RBC Capital Markets -- Analyst

Ok. I appreciate that. And then I guess on that note, I imagine that you may be extending or rolling over maybe three-year contracts that you signed up in '16 or '17. Is that going on? When do you expect to do that? And I guess, would you expect to revert to the prior price umbrella on those contracts or is their potential for those negotiations to result in pricing closer to market levels at this point.

Kent Masters -- Chief Executive Officer

Eric, do you want to talk a little bit about the contract strategy.

Eric Norris -- President, Lithium

Sure. So to answer that first part of that question Arun, we don't have any contracts, any major battery-grade contracts, or turnover next year. It's not the following year in 2022 that we have one that does turnover. That being said, it might be worthwhile to discuss what we're trying to do, right.

And with our contracts so just as a recollection of what we shared in the past, we're moving from what previously was a singular fixed-price contract for all customers to a more segmented approach. And really putting that into, I would put it simply into three buckets. One is, there'll be a group of customers that as we talk in the future with them, and we've actually had some new customers come in. So we have some brand new LTE one we've signed during the quarter.

That is prospectively for the conference in volumes when they come online. So that first category is people that really want very little volatility in their price and our will. And as a result, we are looking at or negotiating a fixed price with them that's well above current prices and favorable investment economics for us. There's a second category that may want to have a little bit more volatility but not quite so much.

They don't want to. They don't want to have a nosebleed price when the market recovers. And we're insisting on a floor that we have -- we can earn favorable reinvestment economics over that pricing cycle with that second category. And then the third will be price buyers.

Now our aim and the way this is shaping up is that we expect about once we have moved from this old contract structure to the new. And this price concession we gave this year that bridging between the two contract structures is to have about 20% in that price bucket, and about 80% in the first two buckets. And if that 80% that drive our capacity expansion. What they commit to us to in these long term contracts is the basis for our adding capacity over time.

And any access is what we would then sell into the price market. So we don't build for that price market, and we don't commit very long to that price market. That's the strategy where we are today. Quite encouraging.

We're starting to see with as the second six months of the year as come about, and you're looking now at a 2021 and has a very strong, we believe demand curve associated with it. We're starting to see that already in Europe. We're already 15% up year to date with that -- with those positive signals coming through the channel. We're seeing more and more customers coming to us, and wanting to talk with us about long term contracts that have favorable reinvestment economics to us, or transitioning their existing legacy contracts to that new structure I just described in a way that allows favorable reinvestment economics for us.

And that is absolutely paramount. Because I think a lot of the rest of the industry that's still buying on price is not appreciating the fact that at current prices no one's going to expand. And there isn't going to be sufficient lithium for them. And so having more and more customers, including automotive OEMs become aware of the need for reinvestment economics on behalf of the lithium in the supply industry is starting to turn the tide.

2020 want to be -- because of the pandemic, it's going to be a bit of a transitional year. We're still working through that. That's why there's some uncertainty and of course, we talked about the weakness already in carbonate. But maybe that's helpful additional context to your question, Arun.

Arun Viswanathan -- RBC Capital Markets -- Analyst

Very helpful. Thanks a lot.

Operator

Your next question comes from Laurence Alexander with Jefferies.

Laurence Alexander -- Jefferies -- Analyst

Hi. Could you give a sense of your current thinking around inventory management? How much of an inventory build you need to do next year to prepare for the growth curve you expect from 2022 to 2023.

Kent Masters -- Chief Executive Officer

I'm assuming you're talking about lithium. We've been to that for all the inventory questions come from the one to qualify that. So next year, I mean the inventory is probably in the channel. We don't think have really changed much from what we said in the last quarter as ordered them, and we're saying if demand is picked up and it feels better but we don't have data to say that inventories any less than it was last quarter.

So that still has to be worked off. But given the demand profile, we see in 2021 and our limited capacity, we don't expect to build inventories there. We would expect actually and we will work those down, and then we work off of what we would consider standard inventory in the channel. So we don't see it building at least from our perspective through 2021.

W see us working inventories off.

Laurence Alexander -- Jefferies -- Analyst

And then can you add then for bromine given the trends in the end market. What negative factors do you see keeping the bromine improvement next year at fairly modest?

Kent Masters -- Chief Executive Officer

Netha, you want to make a few comments on that.

Netha Johnson -- President Bromine Specialties

Sure. Large enough I think that the biggest impact for us is the overall macroeconomy. we tend to be driven by global GDP, so that's really the limiting factor for us is how fast are things going to come back. And this is going to come back in a stable consistent way if you're going to be lumpy.

And right now it's just a little bit unclear how that recovery is going to take place across the globe in 2021.

Laurence Alexander -- Jefferies -- Analyst

Thank you.

Operator

Your next question comes the line of Joel Jackson with BMO Capital.

Unknown Speaker

Hi, this is Robin on for Joel. Can you provide some more order of magnitude around the guidance of catalyst EBITDA you expect next year? Is it reasonable to be about halfway between 2020 and 2022? Was it more likely to be above or below that level? Maybe you can just walk us through some of the key building blocks to get there.

Scott Tozier -- Chief Financial Officer

Hey Robin. This is Scott. Let me make a quick comment and maybe Raphael can give some additional color. It's really going to depend on refinery utilization rates, as well as transportation fuel demand.

And given what we're seeing and projections right now, it's likely in the bottom half of that range that you just gave versus the top math. But maybe Raphael you can add some more color as to what you're seeing.

Raphael Crawford -- President, Catalysts

Robin, I think that Scott characterized it correctly. But over the next six months, I think we'll have a much clearer picture as to what that recovery will look like. As we see demand recovery, we see margins progress at refineries will have a better sense of that. But I want to give you a sense Robin that while it's going to be a challenging 2021 better than 2020, the business is still very focused on the right that to return to growth in the future with a focus on chemicals.

With a focus on refineries East of Suez where demand continues to grow. So while we have a challenge, we also have good strategies to establish us for long-term recovery and growth.

Unknown Speaker

That's helpful. Thank you. Just as a follow-up, I apologize, did I hear correctly really in the call that it was mentioned that lithium EBITDA will be closer to flat for next year. I assume the cost savings in the lithium portion of the cost savings are offsetting that.

That slightly lower pricing. Is that right?

Scott Tozier -- Chief Financial Officer

Robin this is Scott. I think you have about right. It's really a little bit early to call exactly what the numbers going to be. But lithium EBITDA should be flat to maybe down a bit.

Just given the dynamics that we're seeing.

Ok. Thank you.

Operator

Your next question comes from the line of PJ Juvekar with Citigroup.

PJ Juvekar -- Citi -- Analyst

Yes. Hi. Good morning. So it looks like you have some limited capacity growth and you might lose some share next year.

Why couldn't you build inventories in full Q here to sell so as to not lose share? And then secondly, you -- some of your capacity is still idle like the Wodgina mine. And what does it take for you to start that backup?

Scott Tozier -- Chief Financial Officer

Ken would you like that.

Kent Masters -- Chief Executive Officer

Yes, I'll start. So first question about inventory. So I mean there's a limit on inventories on hydroxide. And we know there are a little more than normal in the channel, and we actually shut down some facilities to manage that a little bit because there's life on hydroxide.

So you want to be careful about how you manage those inventories. So we'll work through those inventories next year. So we'll be able to probably we'll sell more than we'll be able to make. So we are doing that to some degree, but we're limited by the life of hydroxide and that's where that extra demand comes from.

The other question on Wodgina. Our limitation is on conversion capacity. Right. So Wodgina does not produce but that's because we can't we don't have the capacity to convert that.

So Kemerton brings us and gets us going in that direction. And then we would just -- we have to manage between  Wodgina and Talison and about how that how --what resource we use there. So, but we're limited more on conversion capacity. So we'd be needing to add additional conversion capacity to take full advantage of our resources.

Scott Tozier -- Chief Financial Officer

Just to add on Kent. This year PJ, we are selling all the hydroxide that we can make. So we are sold out this year. In fact and that's -- where we've made the concessions we talked about on price and the leverage for that is we're getting the volumes this year that we've planned.

That's the reason for the upward guidance for the fourth quarter. So we're getting what we intended. And in fact, we'll be up year over year on volumes overall. And we expect the industry to be down.

So this will be in that regard to a solid year for lithium. As you go into next year can hit its conversion capacity. In fact our ratio of mining capacity conversion capacity, mining potential is actually the version that's about four to one. So it's about more conversion assets.

And we're being -- as we talked about in terms of managing our cash flow and managing our profitability, very disciplined about how we bring that conversion capacity to market. Next year, we'll be a flat year, but we'll have significant capacity we bring on in 2022 and be in a position as we ramp those plants to recover any lost ground we have with our customers. As I earlier said, we've also started to draw up new contracts with customers for that volume in that year.

PJ Juvekar -- Citi -- Analyst

Thank you for that color. It's interesting you're seeing conversion capacity is the bottleneck. Again maybe related to that. Can you talk about what's happening to conversion capacity in China? I know they at some point back in 15,16 they were constrained that they are overbuilt.

Where do we stand on conversion capacity utilization in China? Can you just give us some update there? And also, could you take some of your volumes into the Chinese third party conversion. Thanks.

Kent Masters -- Chief Executive Officer

Eric, you want to comment.

Eric Norris -- President, Lithium

Yes. Sure. So in China, as you know, these Chinese converters. Now, I assume you're talking a lot about our integrated competitors such as the Tianqi and you're talking about other non-integrated producers.

Those that do not own a resource, they're dependent upon economics, right in their net buyer of they have to buy their rock. Many of those mines have been curtailed. Altero being the latest victim of low market prices they've been able to operate. So supply for Iraq has dried up.

And they've been sustaining themselves through available inventory. That's one factor. Another factor is, they themselves at current carbonate prices are breakeven at best and most are operating at a loss, as we see the price in China. Spot prices in China below marginal cash costs.

So it's a pretty challenging economic picture for those producers. In a market recovery, we expect that capacity to come back. And China's going to remain a very healthy market for lithium into the future. So I think there's going to be a place for those producers.

In terms of Ore going in. As you know, we're looking in terms of growing our capacity. We've talked about buying versus building capacity. We still are evaluating that approach and that remains a viable expansion off route for us.

It's the way we got the capacity we have today, the basis for how we got our current Chinese conversion capacity. We are less inclined, particularly for hydroxide which is the growth part of a market where there's a lot of process know-how quality differentiators to teach a toll producer how to do that. That's proprietary know-how that we would be concerned we'd lose if we were to toll. So our bias would be to acquire.

PJ Juvekar -- Citi -- Analyst

Great. Thank you.

Operator

Your next question comes the line of Mike Sison with Wells Fargo.

Mike Sison -- Wells Fargo Securities -- Analyst

Hey, good morning. Nice quarter. If I recall you've got a 40 million in carbonate coming on. And I guess in '22 and 50 hydroxide, and 22.

How much of that is already contracted out. And how long do you think -- how long do you think you'll take to sell those out.

Kent Masters -- Chief Executive Officer

So your numbers are right. Although they're not going to -- it's not going to turn on day one at that capacity. Right. So there's a ramp in our manufacturing processes to get us up to those full capacity.

So they won't come on all of it. It will just turn a switch. Unfortunately, it doesn't work like that. Eric, you want to talk about the ramp of sales versus production.

Eric Norris -- President, Lithium

Yes. So where I mentioned earlier Mike that we are in particular on the hydroxide side which the type of market we are entertaining. Well, first of all, we already had long-term contracts. Then I see long term contracts that had earmarks if you will against that capacity when it came on.

And now we are having additional countries we signed one recently as I said during the quarter to increase that utilization of that plant, and we're in negotiation with still others. So I don't think I'm -- we're liberty has to share the details of exactly how much. But I would say, a significant portion of the Talison capacity is well assured from a sales standpoint. On the carbonated side, a little different.

Most of the carbonate market is increasing in China. As you know, the China market is a much shorter-term contracting market. We have been very diligent to maintain relationships with our existing capacity out of never wanted to build relationships and ongoing volume relationships, or sales to a number of leading Chinese producers with whom we are talking about growing our business. We are talking with him about committed volumes.

The nature of contracting though is different from those. So it's gonna be a little different with carbonate in terms of we'll be closer to bringing that to market before we have firm prices with -- for that volume. Though remember that whereas along the cost curve, so it still very attractive business notwithstanding the fact that we have some of the same long-duration contracts that we see on the [Inaudible] side.

Mike Sison -- Wells Fargo Securities -- Analyst

Right. Great. Thanks. And then a quick one on Catalyst.

Any thoughts on pricing for FCC heading into '21.

Kent Masters -- Chief Executive Officer

Raphael, you want to comment.

Raphael Crawford -- President, Catalysts

Sure. Mike, this is Raphael. I think pricing in FCC has been challenged in 2020 for non-contract volumes. So our nonspecialty, noncontract volumes have been under the most pressure in response to decisions by refineries to look for perhaps less special, fewer specialty catalysts in order to help their near-term economic pain.

Going into 2021, I think that the trend would continue. I mean I think we'll continue to see pressure on non-contracted volumes, but where we create a differential value namely in areas like high propylene yield. I think we'll continue to hold onto the price and remain strong in that area.

Mike Sison -- Wells Fargo Securities -- Analyst

Great. Thank you.

Operator

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

Chris Kapsch -- Loop Capital Markets -- Analyst

Good morning. Thanks for taking my question. So a follow up on Eric on how comprehensive comments about the shifting approach to the contracts. And really, I guess against the context of some of the anecdotal commentary about hydroxide versus carbonate.

It seems like the oversupply is still a little more acute in carbonate versus hydroxide. So -- and then you obviously, have this tension about some customers wanting near-term pricing release, and others may be more focused on concerns about longer-term supply. I'm wondering if those conversations reflect this bifurcation hydroxide versus carbonate. And if you could take another a little bit further is it, as this plays out is it more likely in the context of those buckets that you described.

Eric, the more likely that the hydroxide guys are going to fall in this bucket where they won't fix prices, security, and supply, and the carbonic customers are more likely to be willing to play some of the volatility.

Eric Norris -- President, Lithium

Sure. Any advance comments, Kent, before I dive in.

Kent Masters -- Chief Executive Officer

No. Go ahead.

Eric Norris -- President, Lithium

Ok. So I think the reflection of what everything I've described and you asked Chris is both there is a difference between carbonate and hydroxide. More the carbonate market going forward will be in China. And to date, I don't see the same approach to secure us a supply in terms of contracting with us or with anybody for that.

But volume rather I see that the market tends to be content to go for a short duration on the bet the resource will continue to come online. Conversion price can come online, and there'll be sufficient capacity. And there's also a bifurcation based on who's buying, right. More of the purchasing decision is moving closer to the point of use.

So it's moving to the battery producers, and the automotive producers and they gave the investments, they are making in the length of supply chain whether it be carbonate or hydroxide tend to want longer as the surety that they're going to have it because of the size the investments they're making. Not everybody is doing that, but increasingly more are and more becoming I think appropriately aware of the need to do that. So it's also who we're contracting with. And in these long-term contracts, it plays a factor in that.

Chris Kapsch -- Loop Capital Markets -- Analyst

Ok. Thanks for that. And then just as a follow-up. Could you think as the last caller you characterize the inventories that you saw in the supply chain? Any update on that.

And also, just any changes to the timeline on the idling of your convert, your hydroxide conversion facility in North America. Thanks.

Eric Norris -- President, Lithium

Yes. So we have -- so first of all I'll just reiterate what Kent said. Look at it is imperfect the science of assessing how much inventories in the channel. We can survey our customers and we do.

And that gives us a basis for understanding that. We obviously, don't know what our competition holds. And they -- and some of how quite a bit if we look at it things net the overall monthly inventory in the channel. So about the same as it was three months ago.

Five months, five-month of access roughly speaking. Though I think that shifted. There's probably more carbonate than hydroxide now. So carbonate has built up a bit, and hydroxide is drawn down a bit.

Again, we are probably wrong about that, but directionally correct. It doesn't feel that different because a little bit better because I think that the pull on hydroxide but not too different. I'm sorry. Then you had the second part of your question, Chris.

Chris Kapsch -- Loop Capital Markets -- Analyst

Is this the timeline of the idling of your hydroxide?

Eric Norris -- President, Lithium

Yes, we have. We are in the process of restarting the King's Mountain hydroxide facility now. Employees are returning. That's sooner than we thought and that's based upon the improvement we're seeing for demand next year.

And some of the earlier questions around can you please try to get more volume next year. So we're ramping that plant up. It's a small plant, so it has a very small impact on the overall volume growth. But we're starting that up.

And so we're Peak which is the feedstock plant that feeds that hydroxide plant with the carbonate feedstock. we'll restart on schedule beginning of the year 2021.

Operator

Your next question comes the line of Colin Rusch with Oppenheimer.

Colin Rusch -- Oppenheimer and Company -- Analyst

Thanks so much, guys. Can you give us a sense of how mature the conversations are on the financing side? It sounds like things are going pretty well, and there are some pretty meaningful opportunities to reduce your cost capital going forward. But just curious how far down the road you are with on.

Kent Masters -- Chief Executive Officer

Yes. We're well advanced in those discussions, so feel comfortable about where we're headed.

Colin Rusch -- Oppenheimer and Company -- Analyst

Excellent. And then I think the lithium market's been pretty well labor. But I'm just curious if you're seeing any consolidation in terms of battery OEMs given we're seeing capacity additions. It looks like there's going to be a handful of folks that really stride out here.

And if there's any consolidation below that with some of the cathode producers as you look out over the next three to five years.

Kent Masters -- Chief Executive Officer

Eric?

Eric Norris -- President, Lithium

Yes. Sure. So on the battery OEM. I don't be interested to see what you see calling because we don't see that.

In fact, I've seen the opposite. You've seen new players come into the market. Not very recently, but companies like Norfolk come into the market for Europe. And many other multinationals who have played around this space in the past.

I think looking to come in to support the growth of the European markets. So I see more players coming into the market on the batteries had not less. And some of that's being supported and driven by the automotive volume. I think want more off.

They want some negotiating leverage right. They want more options or they want more localized options for in the case of Europe. On the cathode side, it is constantly changing. Right.

This is the part of the market that has, I said is not necessarily directly involved in the personal decision as much anymore being told what to make either by the automotive OEM or the battery maker, so they're losing some of their power in the decision channel. And so I do expect some change consolidation. I can't point to any obvious ones now, but there is disruption. There are people gaining share and losing share.

And so I think we'll continue to see evolution in that part of the channel. And also some backward integration. You have some battery makers now building their own in-house cathode capabilities. that's super helpful.

Colin Rusch -- Oppenheimer and Company -- Analyst

That's super helpful. Yes, I'd love to have that conversation offline. Thanks, guys.

Operator

At this time, we have no further questions. I will now turn the conference back over to Ms. Mandy.

Meredith Bandy

All right. Thank you all for your questions and your participation in today's conference call. As always, we appreciate your interest in Albemarle. And this concludes our earnings conference call.

Operator

[Operator signoff]

Duration: 61 minutes

Call participants:

Meredith Bandy

Kent Masters -- Chief Executive Officer

Scott Tozier -- Chief Financial Officer

Tom Glinski -- Goldman Sachs -- Analyst

David Huang -- Deutsche Bank -- Analyst

Eric Norris -- President, Lithium

Raphael Crawford -- President, Catalysts

Mike Harrison -- Seaport Global Securities LLC -- Analyst

Vincent Andrews -- Morgan Stanley -- Analyst

John Roberts -- UBS -- Analyst

Arun Viswanathan -- RBC Capital Markets -- Analyst

Laurence Alexander -- Jefferies -- Analyst

Netha Johnson -- President Bromine Specialties

Unknown Speaker

PJ Juvekar -- Citi -- Analyst

Mike Sison -- Wells Fargo Securities -- Analyst

Chris Kapsch -- Loop Capital Markets -- Analyst

Colin Rusch -- Oppenheimer and Company -- Analyst

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