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Albemarle (NYSE:ALB)
Q1 2021 Earnings Call
May 06, 2021, 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 first-quarter 2021 Albemarle corporation earnings conference call. [Operator instructions] Please be advised that today's conference is being recorded. [Operator instructions] I would now like to hand the conference over to your speaker host, Meredith Bandy, vice president of investor relations and sustainability. Please go ahead.

Meredith Bandy -- Vice President of Investor Relations and Sustainability

All right. Thank you, Olivia, and welcome to Albemarle's first-quarter earnings conference call. Our earnings were released after the close of the market yesterday, and you'll find our press release, presentation and non-GAAP reconciliations posted to our website under the investors section at albemarle.com. Joining me on the call today are Kent Masters, chief executive officer; 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 call, including our outlook, guidance, expected company performance and proposed divestitures and expansion projects may constitute forward-looking statements within the meaning of federal securities laws. Please note the cautionary language about forward-looking statements contained in our press release and presentation. That same language applies to this call.

Please also note that some of our comments today refer to financial measures that are not prepared in accordance with GAAP. A reconciliation of these measures to GAAP financial measures can be found in our earnings release and the appendix of our presentation, both of which are posted to our website. And with that, I'll turn the call over to Kent.

Jerry Masters -- Chairman, President, and Chief Executive Officer

OK. Thanks, Meredith. Good morning, and thanks to you all for joining us today. On today's call, I will highlight our recent accomplishments and discuss our strategy as it relates to accelerating growth and creating a more sustainable business.

Scott will give us more detail on our results, outlook and capital allocation. This was another strong quarter for Albemarle with solid financial results. We generated net income of $96 million and adjusted EBITDA of $230 million, up 17% from last year. We benefited in part from several lithium customers that accelerated orders under long-term agreements, as well as favorable volume and customer mix in our Bromine business.

We continue to see strong market demand for lithium, especially from EVs. First-quarter EV sales were up 135% versus last year, led by China. European and North American sales were also up significantly. All that said, remember that we are sold out in bromine and lithium.

Therefore, we are maintaining our previously reported company guidance for the full year. Scott will provide additional detail on this in just a few minutes. We are advancing our growth plans with the progress being made at our Wave 2 lithium projects. These two projects, La Negra 3 and and Kemerton 1 and 2 are expected to add volume beginning next year.

As you are probably aware, during the first quarter, we successfully completed a $1.5 billion equity offering and then subsequently reduced our debt. This enabled us to achieve two strategic goals. First, we are now well positioned to execute on our high-return wave 3 growth projects for lithium and bromine. And second, we have maintained our investment-grade credit rating, which was recently upgraded to a BBB rating by S&P Global.

I'm also proud to say that we have signed the U.N. Global Compact, joining the efforts of corporations and stakeholders worldwide to advance sustainability. On Slide 5, I want to update you on those two projects at La Negra and Kemerton, our two ongoing projects to increase lithium production from our world-class resources. These conversion facilities are in the final stages of construction and when complete, are expected to double our nameplate capacity to 175,000 metric tons per year.

This added capacity will provide much needed volumes to support our customers' growth ambitions and will enhance our ability to drive further earnings expansion. Construction is on track for completion later this year. We are watching the Western Australia labor situation closely, but currently, we do not expect any impact to our schedule. Once complete, we move into final commissioning and customer qualification, which typically takes about six months.

We expect to begin producing commercial volume from both projects in 2022. These two sites will complete our wave 2 lithium projects and enable our team to focus on the execution of Wave 3, which represents a further 150,000 metric tons of conversion capacity. We expect to make investment decisions on the first projects from Wave 3 as early as the middle of this year. This includes a greenfield site in China and potentially the acquisition of a Chinese conversion plant.

I would like to mention that the Chilean Nuclear Energy Commission, or CCHEN, has confirmed that our resource and reserves report is in full compliance following the additional data we provided in January. We are committed to complying with our regulatory obligations around the world, and we are pleased to reach a satisfactory and collaborative resolution with CCHEN. Finally, in bromine, we are accelerating our growth projects and expect to see the benefit of these projects beginning in 2022. I'll now turn the call over to Scott to review the first-quarter results.

Scott Tozier -- Chief Financial Officer

Thanks, Kent. I'll begin on Slide 6, and I'm happy to report on a strong start to the year. For the first quarter, we generated net sales of $829 million, a 12% increase from last year. This was driven by increased volumes across our three core businesses, as well as a favorable customer mix within our bromine unit.

GAAP net income was $96 million. Adjusted EPS of $1.10 excludes the cost of early debt repayment that we incurred when we delevered in March following our equity raise. Our sales growth enabled us to generate adjusted EBITDA of $230 million, up 17% from last year, giving us an early start to meeting our guidance for the full year. Now turning to Slide 7 for a look at adjusted EBITDA by business.

Adjusted EBITDA in total was up $34 million over last year, thanks to stronger lithium and bromine results and a foreign exchange tailwind. Lithium's adjusted EBITDA increased $30 million versus the prior year as some customers accelerated orders for battery-grade carbonate and hydroxide into the first quarter. To meet this demand, we drew down lower cost inventories resulting in Q1 margin expansion. Average realized pricing was down 10% as expected due to lower carbonate and technical-grade pricing.

However, increased volumes more than offset the lower price. Market demand remains very strong, but our plants are sold out, which limits our ability to increase volumes in 2021. Bromine's adjusted EBITDA grew by about $8 million compared to the first quarter of 2020, an increase of 9%. The strong quarter was due primarily to higher sales volumes across the product portfolio.

Pricing was also higher, in large part related to a favorable customer mix. The U.S. Gulf Coast winter storm reduced production and increased cost by about $6 million in the quarter. And just like lithium, we drew down inventory in Q1 and our bromine plants are sold out for the year, making it difficult to offset the production losses from the storm.

We expect to see the impact from lost production in the Q2 and Q3 timeframe. Catalysts' adjusted EBITDA declined $23 million, primarily due to the U.S. Gulf Coast winter storm, which impacted production in Bayport and Pasadena, Texas. These sites incurred increased electric and natural gas costs, production downtime and repair expenses that totaled $26 million.

Our Q1 catalyst results from last year included $12 million of income that was later corrected as an out-of-period adjustment, which further complicates the year-over-year comparison for this quarter. Without this and the storm impact, our catalysts EBITDA would have been up 31%. Our corporate and other category adjusted EBITDA increased by $4 million, primarily due to lower corporate costs. Slide 8 highlights the company's financial strength.

With the proceeds from our $1.5 billion equity offering in February, we repaid debt. By deleveraging in the short term, instead of holding the proceeds as cash, we were able to reduce interest expense and create the debt capacity that will allow us to accelerate our growth for the lithium and bromine businesses, funding investments as they are approved. You can see how we are executing on our commitment to grow our dividend and maintain our investment-grade credit rating. We increased our dividend for the 27th consecutive year, which speaks to our ongoing success and a track record of shareholder returns, which we are proud to maintain.

On Slide 9, we provide a look at our guidance for the year. I would like to note that our company guidance for the year includes a full year of Fine Chemistry Services results. In February, we entered into an agreement to sell the FCS business for proceeds of approximately $570 million. The transaction is expected to close in the second quarter of 2021.

We've also given a breakout of second half guidance for FCS for modeling purposes. As we've discussed, our lithium and bromine businesses outperformed expectations for the quarter, primarily driven by accelerated customer orders and a favorable customer mix. We do not expect to see the same upside over the next 3 quarters, mostly because our lithium and bromine businesses are effectively sold out and we don't have excess inventory to meet increased demand. Timing of orders can shift from quarter-to-quarter but the outlook for full year volumes is mostly unchanged, except for modest increases in lithium.

We continue to monitor the chip shortage at automotive manufacturers for impacts to lithium and bromine. And so, far, we've not seen an impact. This may be due to our position in the supply chain. In May, IHS revised their forecast for 2021 EV production, down 3% from prior forecasts related to microchip shortages and supply chain issues.

EV production is still though expected to be up 70% year over year. We are maintaining our company guidance for the full year and continue to expect net sales to be in the 3.2 to $3.3 billion range, which is slightly higher than last year. The demand we saw during the first quarter and sold out volumes speak to the importance of investing in our lithium and bromine businesses to add to our future earnings potential. Our 2021 guidance for adjusted EBITDA remains between $810 million and $860 million.

We continue to expect CapEx to be around 850 to $950 million for the year as we complete our Wave 2 lithium projects and begin focusing our efforts on Wave 3. Net cash from operations are also tracking on plan. As the year progresses, we expect higher inventories as we start to commission the two new lithium plants, and higher cash taxes. Expectations for adjusted diluted EPS of $3.25 to $3.65 are on track, reflecting higher taxes, depreciation and increased share count and lower interest expense.

While our total company guidance has not changed, the outlook for our lithium and catalyst businesses has, as shown on Slide 10. Our outlook for the lithium business has improved due to higher lithium volumes driven by plant productivity improvements, and we have added some tolling of lithium carbonate. We expect lithium prices to improve sequentially through the remainder of the year due to tightening market conditions. Overall, average realized pricing for the year will be flat compared to last year.

We continue to expect higher costs in 2021 related to project start-ups, but this will be partially offset by efficiency improvements. In total, Lithium EBITDA is now expected to be up high single digits on a percentage basis. The outlook for our catalyst business is lower than we had originally planned, offsetting the upside we expect from lithium. On a year-over-year basis, total catalyst results are projected to be down about 30% to 40%.

This is primarily due to the impact of the U.S. Gulf Coast winter storm and delays in customer FCC units. Our outlook for the bromine business has not changed. While we had a very strong first quarter, we do not expect the favorable customer mix to continue in future quarters and we will not be able to make up the lost production in the first quarter.

In addition, raw material costs are moving higher. We continue to expect results to be modestly higher than last year due to continued economic recovery and improvements in certain end markets, including electronics and building and construction, along with ongoing cost savings and improved pricing. Finally, as to our quarterly progression for the full company, we expect Q2 to have modest growth in EBITDA and the second half to have a modest decline. We continue to expect that 2022 results will benefit from accelerated growth plans in bromine, recovery in catalyst and the initial lithium sales from La Negra 3 and 4, Kemerton 1 and 2.

And with that, I'll hand it back to Kent.

Jerry Masters -- Chairman, President, and Chief Executive Officer

Thanks, Scott. As I mentioned earlier, in April, we signed the U.N. Global Compact, a voluntary leadership platform for the development, implementation and disclosure of responsible business practices. In addition to supporting the UNGC principles, we are aligning our sustainability framework to the U.N.

Sustainable Development Goals, the largest corporate sustainability initiative in the world. Over the past year, we've increased ESG disclosure, published updated sustainability policies and made public commitments to advance sustainability. Sustainability is, by its nature, a long-term commitment. But I'm pleased to report that we are beginning to see the benefits of our efforts.

For example, Albemarle was recently recognized and added to the S&P 500 ESG Index. You can expect more details on these and other sustainability-related initiatives in our 2020 Annual Sustainability report due to be issued in June. Now, on Slide 12, I'd like to reiterate our corporate strategy. We have started 2021 with a strong quarter and continue to make progress on our four strategic pillars.

We are completing our Wave 2 projects and plan for those to deliver commercial volumes and generate sales in 2022. We are making plans to execute on our Wave 3 lithium projects, as well as expand our bromine resources to align with growing customer demand. And we are laser-focused on operational discipline to drive maximum productivity across our businesses. We continue to expect around $75 million of productivity improvements this year, and we will continuously work to improve efficiencies within our operations.

With a revitalized balance sheet, we are well positioned to invest in high-return growth maintain our investment-grade credit rating and support our dividend. Finally, sustainability remains a top priority and key component of our value proposition to our customers, and we are dedicated to exploring opportunities such as the U.N. Sustainable Development Goals to help us implement these efforts. With that, I'd like to open the call for questions, and we'll hand over to Olivia.

Questions & Answers:


Operator

Thank you. [Operator instructions] And our first question coming from the line of David Deckelbaum with Cowen. Your line is open.

David Deckelbaum -- Cowen and Company -- Analyst

Good morning, guys. Thanks for the time this morning. I wanted to follow up on your questions around potentially looking at acquiring a Chinese hydroxide conversion facility. Can you just expand upon that a bit and just help us understand what sort of metrics are you using to weigh acquisition right now? We've seen a lot of your peers looking to expand conversion capacity in the Western Hemisphere.

How should we think about the scale of this? And what sort of things you'd be looking for before making an acquisition like that?

Jerry Masters -- Chairman, President, and Chief Executive Officer

Yes. So we've -- and I'll make a few comments, and then Eric can give you some detail if I don't get there. But we've -- and we've looked at China very much, we're very familiar with the operators there, and we've been kind of looking at these opportunities for some time. We've made acquisitions in the past so we feel pretty comfortable with this, with the assets that are on the ground and what we would need to do to move them to our standards.

So we did that at Xinyu. We bought an asset and we've expanded, and we consider that to be very successful. So we like the model. We're comfortable.

We've got people on the ground in China. So we're able to do good due diligence. We have -- we'd be able to staff a new facility with -- partially from people from our existing plants. So we feel very comfortable with the strategy.

And then, I think it seemed like part of your question was about people looking at different geographies. And we're looking at different geographies as well, but we still see growth in Asia as being a big part of the growth coming forward. And ultimately, we'll be moving in other locations around the world. But we still see growth in Asia, which is why we're looking at this as a strategy.

David Deckelbaum -- Cowen and Company -- Analyst

I appreciate that. And then, just perhaps on my follow-up, you talked about just pricing this quarter, obviously driven by increased volumes of a greater mix of carbonate and industrial grade. As we think about growth coming online from Wave 2, when do you think we should think -- as we think about pricing with contracts rolling, at what point do we see battery grade making up a greater component of the overall mix? Is that really like a late 2023 dynamic just given sort of delays around qualification? Or how should we think about that as you guys increase capacity into the market?

Jerry Masters -- Chairman, President, and Chief Executive Officer

Yes. I think that means a big piece is already battery-grade material and both carbonate and hydroxide. But I'll let Eric get into the details, maybe around timing as they layer in.

Eric Norris -- President, Lithium

Yes. So the volume -- just to build on what Kent said, 60% of our business today is energy storage. And that's split between carbonate and hydroxide relatively evenly as we sit here today. With the expansions coming on, we have -- it will still be split because we have a large expansion in Kemerton in hydroxide and, similarly, one in La Negra on carbonate.

So that's where our growth is. As we bring that capacity on, that's where the volume will go. So that 60% of sales will grow larger on a volume basis. Now, in terms of pricing, that's an evolution that we're going through now in our contracts.

We've had, as you may know, concessions we made to fixed-price contracts we've done in the past. And while that's given us security of supply to run our plants and strong margins at the bottom of the cycle, we're now evolving those pricing mechanisms to give us more exposure to the market as it recovers. And that will benefit this volume as well. We bring on volume under new terms that will allow us to benefit from a rising market.

Jerry Masters -- Chairman, President, and Chief Executive Officer

Does that answer your question?

David Deckelbaum -- Cowen and Company -- Analyst

Yes, for the most part. Thank you, guys.

Operator

Our next question coming from the line of Joel Jackson with BMO Capital Markets. Your line is open.

Robin Fiedler -- BMO Capital Markets -- Analyst

Hi. This is Robin on for Joel. Thanks for taking my question. You talked about being limited on lithium inventories to meet your own demand.

How much offline conversion in spodumene capacity do you see reramping in the industry this year to meet total industry demand? And how quickly do you see industry inventories rebuilding? Or maybe you can talk about overall tightness and what that could mean for pricing.

Eric Norris -- President, Lithium

So Robin, it's Eric here again. I think the short answer to your question is while mines are restarting, there are still some that went into the bankruptcy phase in Australia that still haven't come back. They are -- it takes some time, particularly in Western Australia right now given the labor crisis and the rising iron ore prices, to mobilize both equipment and labor personnel to restart a plant. So what we foresee going forward, given the strong demand that's starting to develop -- or has been under development in China and is now ramping around the world, that it's going to remain short in China.

That spodumene is going to be a constraint. That is why you're seeing carbonate prices rise so quickly in China, where there is a high demand, in particular for carbonate for some of the recovering industries in China post-pandemic, but also because of the growth of LFP chemistry, specifically in China. And inventories are a bare minimum in the Chinese market and have come back to normal levels worldwide, which is why we were in a position during the first quarter to otherwise thought, like as in prior quarters, would not be a strong quarter, where it was quite the opposite. We had to pull volumes forward into that to drive the growth that you saw.

We're limited in what we can do, but we'll benefit greatly when we bring on that new capacity and be well positioned into 2022.

Robin Fiedler -- BMO Capital Markets -- Analyst

That's really helpful. And just a quick follow-up. So I assume the rationale to reinstate tolling is to meet that market tightness. So is that strategy temporary then? Maybe you can discuss the amount of volume from tolling and what the margin impact from that is, because I think the previous long-term target for lithium margins was closer to 40%.

Obviously, things are trending sub-35 right now. Maybe you can just elaborate on those points.

Jerry Masters -- Chairman, President, and Chief Executive Officer

Tolling has always been a bridging strategy for us, and it's only ever done in carbonate because we feel that there's adequate carbonate capacity out there that can meet the standards for that product, and hydroxide is something we view as different and more proprietary. The bridging strategy, in this case, is to get us revamped in relationships with Chinese customers that we've supplied in the past such that when we bring on La Negra 3 and next year, we have a ready customer base to take that on. So I would think of it as ad hoc or bridging. It's not a sustained strategy.

It is something -- we're not -- I can't get into the details of volumes per se. But it is to, as you point out, not as lucrative, not as high a margin of business for us because we're paying somebody to convert for us. So it moves us to the right on the cost curve, whereas we're normally on the left side, you're moving more toward the right, so that impacts margins. But it does provide incremental EBITDA, and it does set us up for a successful ramp next year.

Robin Fiedler -- BMO Capital Markets -- Analyst

Thank you very much.

Operator

And our next question coming from the line of David Begleiter with Deutsche Bank. Your line is open.

David Begleiter -- Deutsche Bank -- Analyst

First, in Lithium, what was the benefit of the acceleration of customer orders into Q1 on EBITDA?

Jerry Masters -- Chairman, President, and Chief Executive Officer

Thank you. Good morning. David, I'm going to have to -- let me just take a quick look. But I think it's meaningful in terms of the volume.

So it's probably in the 30s -- $30 million range, something like that.

Scott Tozier -- Chief Financial Officer

Another way of think about it, David, is that you may have had -- I don't know your model, but you may have had -- to get to guidance, you may have had a much stronger second half than first half. And because of the robust demand, whatever we make, we're selling. There's not very little going to inventory. So the quarters are going to be a lot more even or similar this year than they were last year for the lithium business.

David Begleiter -- Deutsche Bank -- Analyst

Got it. Got it. And Eric, just on La Negra and Kemerton following the commissioning qualification processes, how should we think about volume ramp-up for these two new assets?

Eric Norris -- President, Lithium

Yes. So we've kind of -- we've said those will ramp up over a period of time. So from, we first turn it on, nothing, to getting us to expect to get to a full ramp of say, 18 months, and some of that depends on demand and customers. But -- so over that first year per line, you -- probably 40 or 50% of capacity in the first 12 months.

That's probably the best way to think about it. And some of that will depend on demand, but we think we expect demand to be there.

David Begleiter -- Deutsche Bank -- Analyst

Perfect. Thank you.

Operator

And our next question is coming from the line of Jeff Zekauskas with J.P. Morgan. Your line is open.

Jeff Zekauskas -- J.P. Morgan -- Analyst

Thank you very much. When you bring on your new capacity in 2022, '23 in lithium, how might you compare the pricing structures that will be negotiated versus the current pricing structures that you have today? That is, how has the market changed? And how has Albemarle changed in the way that you charge your customers or contemplate charging your customers?

Jerry Masters -- Chairman, President, and Chief Executive Officer

Right. So we've been talking about kind of the shift in our commercial strategy in lithium for some time. We kind of delayed -- intentionally delayed the conversion from kind of a strict long-term fixed-price contract to one that is more indicative of the market, that moves more with the market. And we'd have different types of customers we'd contract slightly different ways.

We delayed the conversion of that a little bit because the market was so far down. We didn't think it was the right time to negotiate at the bottom of the market, so we held off on that. So that strategy hasn't changed and the new volume doesn't change that. So I think we're moving into that dynamic as we go through the next 12 months or that the contracts we'll be negotiating will be on that new basis.

So portfolio of customers with -- kind of customers who really want security of supply will be more of a fixed price, but it will still move with the markets and then contract with other people that look more like market prices. Not spot prices contracted, but prices that move with the market. And that's what we've been talking about for the, I would say, almost the last year. And we did delay the implementation intentionally because we felt like we didn't want to negotiate at the bottom of the market.

Jeff Zekauskas -- J.P. Morgan -- Analyst

OK great. Thank you so much.

Operator

And our next question coming from the line of Colin Rusch with Oppenheimer. Your line is open.

Joe Beninati -- Oppenheimer & Company -- Analyst

Hey, guys. It's Joe on for Colin. Can you speak a little bit to how challenging hiring is at this point as you get ready to bring capacity on early next year?

Scott Tozier -- Chief Financial Officer

Challenging hiring next year.

Jerry Masters -- Chairman, President, and Chief Executive Officer

OK. All right. Sorry, I missed that. So yes, hiring.

So yes, so I mean there were two locations. So Chile and Kemerton, so Western Australia, and a different dynamic because we've got a significant operation in Chile already. So I don't -- it's not such a challenge in that location. A bigger issue in Chile at the moment is COVID.

But we're able to bring people on there, and we've been bringing them on, training them with the existing staff. And Australia is a little different because it's a true greenfield facility. But we've been hiring. We've been -- we're happy with the plan.

We've been doing well. In the labor market, it's a different -- a little different dynamic in the construction market than it is in the chemical operating market. So we've been able to hire according to our plans and ramp up staff that would operate the facility according to our plan. So that hasn't impacted us.

What's been more of a challenge is in the construction labor market and getting the staff that we need to complete construction. And we were actually trying to accelerate it, but we're not able to do that. We're just kind of treading water with our original plan.

Joe Beninati -- Oppenheimer & Company -- Analyst

OK. That's helpful. And then, switching gears a little bit. Beyond pricing, can you speak to any other elements of your long-term contracts that you're working to improve, given what seems like a better negotiating position?

Jerry Masters -- Chairman, President, and Chief Executive Officer

Well, I would -- I mean I guess it's several elements, but it's really about the guaranteed supply, the profile of that supply. Pricing is a big part of that and liabilities. Eric, you have --

Eric Norris -- President, Lithium

I would say that the big -- the evolution of the dialogue, where we feel we have a lot of value to offer now is location of supply, as well as the localization. And we've referenced in our expansion strategies down the road how we can play to that. And it's -- for many of our customers, that's a down the road consideration because the vast majority of the business today is still Asia-based. And then, the other is sustainability.

Sustainability has been key. As OEMs become more involved and have thought through their value proposition, which is based on lower CO2 and other sustainable factors, they want suppliers who are differentiated in that regard. And what we are doing, what Kent described in the call, has real value. We talk in these calls very much about what it means to shareholders of being part of the S&P 500 ESG Index.

For me, it's about driving a value proposition with our customers and getting paid for it. So that's become a big part of our proposition as well.

Joe Beninati -- Oppenheimer & Company -- Analyst

Super helpful. Thank you very much.

Operator

Our next question coming from the line of Vincent Andrews with Morgan Stanley.

Unknown speaker

Hi. This is Angel on for Vincent. Just curious on your Wave 3, what are the key gating factors that you kind of see for both capacity and lithium and bromine before you actually announce FID?

Jerry Masters -- Chairman, President, and Chief Executive Officer

I'm sorry, you said the key?

Unknown speaker

The key gating factors or what are the primary, I guess, checkpoints sort of things that you want to see before you actually make the FID decision?

Jerry Masters -- Chairman, President, and Chief Executive Officer

Yes. So I mean we're looking -- right. So we're -- I mean we're looking at projects, identifying them, designing in the plans for that. So I guess it's anything you would expect to see in a normal investment program.

So we're getting -- making sure that we've got designs, the process chemistry that we like. We've lined up -- we have the resources. That's not an issue. But a lot of it's about location, about permitting, workforce.

I mean of all the things that you would see that we would line up. But we're relatively advanced at looking at that. And then, obviously, when you get to that decision point, the returns are a big deal.

Unknown speaker

Got it. And then, switching, I guess, to bromine a little bit. You talked about the favorable mix, customer, I guess, not repeating going forward. One, I guess, could you give us a little bit more color on that and why it won't repeat? And then as we think about kind of the second half or kind of 2Q and beyond, should we expect higher pricing in bromine to kind of offset both the shorter supply because of lost production because of the area and also the raw materials headwind that you mentioned?

Scott Tozier -- Chief Financial Officer

Yes. This is Scott. I would start, and maybe Netha can add some additional color. But in the first quarter, the bromine market overall was relatively short.

So it gave us some nice opportunities in the spot market to take advantage of that and get some upside. We're not expecting that kind of condition to continue through the rest of the year. But maybe, Netha, you have more specifics?

Netha Johnson -- President, Bromine Specialties

Yes. Just as Scott described, we had a chance to go sell some volume out of inventory to our noncontracted customers that increased demand based on market recovery. That's a unique opportunity and at very good pricing. We don't expect that to continue through the second half of the year.

But just like the other industrial businesses, as you look forward, to the second part of your question, freight and raw materials are going up. And they'll do the same for us and that will impact our business in Q2 and beyond for the rest of the year.

Unknown speaker

That's all I had. Thank you.

Operator

Your next question coming from the line of Matthew DeYoe with Bank of America. Your line is open.

Matthew DeYoe -- Bank of America Merrill Lynch -- Analyst

Hi. Thanks, Can we talk a little bit about the puts and takes on lithium EBITDA as we move sequentially through the year? I kind of understand the transition from 1Q to 2Q, but it seems like you're guiding for price to improve sequentially as we move through the year, but also costs are up. So perhaps like how much cost do you expect to incur with these new plant start-ups? And when would that roll off?

Scott Tozier -- Chief Financial Officer

Yes. This is Scott. So in the second half, we just have something in the range of 10 to $15 million of incremental costs from those plants. It all depends on the timing of when those come in.

But that's the kind of range that we're looking at ultimately. So as you look at the puts and takes, obviously, there's a limit in terms of our ability to supply additional volume. We're getting some out of tolling. Of course, that comes at a lower margin ultimately for us.

So that's a bit of a drag from a margin perspective as well.

Matthew DeYoe -- Bank of America Merrill Lynch -- Analyst

OK. And then, on catalysts, you made a comment that you don't expect to get back to pre-COVID levels before late 2022, 2023. So can you just walk through your assumptions there? Is that just all miles driven? Or is there something else that's happening?

Jerry Masters -- Chairman, President, and Chief Executive Officer

Ultimately, it's coming from our customers and what our customers are telling them. But maybe, Raphael, you can provide some additional color as to the specific parts of the market that are slower than others.

Raphael Crawford -- President, Catalysts

Sure, Scott. So I think there's a few different pieces that come into play. I mean one of them is miles driven is a big driver of recovery in refining utilization. I think we're already starting to see an improvement in refining utilization, and you'll see that throughout the year and into next year.

That's going to have -- will have a big effect on FCC usage at the refineries. And our business, about 60% of our business is FCC, so we'll see that recovery. On the CFT or HPC business, that business is timed with turnarounds at refineries. A lot of that's been pushed out until 2022, and that's when we'll start to see an uptick in that business.

The portfolio we have in our business is very much geared toward high performance. When refiners are running near capacity, that's really when the value of our business -- of our products kicks in because we help them maximize on yield, maximize on the throughput through their assets. So as it recovers, we'll start to see that leverage effect in the return of our business.

Matthew DeYoe -- Bank of America Merrill Lynch -- Analyst

OK. And so, just right now, you're seeing mix just mixing down across some of the catalyst because people don't need their utilization through the refineries?

Raphael Crawford -- President, Catalysts

Yes. I think that's a fair statement. We have a -- we see a mix impact and a volume impact, but we expect both of those to reverse as the world recovers.

Operator

And our next question, coming from the line of Arun Viswanathan with RBC Capital Markets. Your line is open.

Arun Viswanathan -- RBC Capital Markets -- Analyst

Great. Thanks for taking my question. Good morning. I'm just curious what you're seeing, I guess, in China? There's been obviously some robust recovery in lithium markets in there, as well as in Europe.

Do you expect that to kind of continue into next year? Is there an environment or scenario where you see prices kind of getting back to, say, the 12 to $14,000 per ton range? Maybe you can just comment on what your outlook for pricing is for hydroxide.

Jerry Masters -- Chairman, President, and Chief Executive Officer

Yes. It's hard to comment too much on price. I mean, those are the -- that's the magic question. But the market is clearly moving in that direction.

And you're seeing the demand growth. So the demand growth we expect to continue. I mean what we're seeing is kind of -- it's extraordinary, but it may not be 135%, but it's going to be 70, 80% for the year around EV levels, and lithium is going to follow that. So demand growth is going to be there.

And pricing has moved very quickly in China because that's mostly a spot market, so it would move quicker. That hasn't translated into the contract market fully yet. So it has started to, we think, and we see that moving in that direction over time. It's hard to predict what's going to happen out into the future, but we see prices moving up.

And that what's happening in the spot market will translate into the contract prices. And that will be a positive for Albemarle.

Arun Viswanathan -- RBC Capital Markets -- Analyst

And just as a quick follow-up then. A couple of years ago, you were discussing contracts with term lengths of maybe seven, 10 years at times. Have you seen your customers kind of come back to you now with requests to kind of elongate their contracts? Or -- yes, maybe you can just comment on the customer environment from a contracting perspective.

Jerry Masters -- Chairman, President, and Chief Executive Officer

Let me start, Eric can add some detail to that. So -- but I would say, I mean, our philosophy hasn't really changed. We've adjusted a bit on the kind of the nature. I would say we've evolved in our contracting structure, but it's really still the same philosophy.

And I think our customers are kind of coming around to that way of thinking a bit. And I think it's changing because some of it's with OEMs now. Several years ago, we were talking to cathode makers, then battery makers and now it's OEMs and still talking across that -- all three of those areas, but the OEMs are getting more involved, and they have a longer-term view. So I don't know about 10-year contracts, but three-year, five-year, maybe seven on the longest term.

But those are the kind of -- that's the nature of the contracts that we're discussing. I don't know anyone's pushing us further than that.

Operator

And our next question, coming from the line of Aleksey Yefremov with KeyBanc. Your line is open.

Paul Staudinger -- KeyBanc Capital Markets -- Analyst

This is Paul on for Aleksey. Could you update us on any lithium recycling initiatives currently so far?

Eric Norris -- President, Lithium

So yes, Paul, Eric here. Recycling is a key part of -- key platform for us going forward from a growth standpoint, both because our customers who as Kent just indicated, are increasingly OEMs, value that as part of their partnership with us, and because a good amount of the know-how we have from processing lithium is going to be replicable in the streams that will come from a recycled process. We've got investments we've made in start-ups we're looking at, making through some relationships we have. We've got technology initiatives under way, with some business development activities under way to partner.

We have one joint development agreement, which we're currently doing with a customer. All these are all confidential at this stage, so I can't divulge names. But it's a pretty comprehensive effort and a critical one for our growth going forward. We aim to -- we view this as a future resource that we would like to play prominently in.

Your line is open.

Operator

And our next question coming from the line of John Roberts from UBS.

Matt Skowronski -- UBS -- Analyst

Good morning. This is Matt Skowronski on for John. Going off of Jeff's question earlier, you mentioned that you're restructuring some of your lithium contracts. And I believe on the last call, you mentioned the majority of these contracts will eventually have some sort of variable-based pricing tied to an index.

When do you expect the majority of your contracts be based on this variable price mechanism? And how frequently does a typical contract allow for price adjustments?

Eric Norris -- President, Lithium

Right. So it's Eric here. You're right. Our legacy contracts had, as Kent described in the past, a fixed price mechanism.

And during the crisis of the past year plus, we've -- we gave some relief on that. That relief clause expires during the course of this year. Some in the middle of this year, all by the end of the year. So that's -- for our legacy contracts, that's the time frame we'll be looking to move to the new structure that we'd earlier described and that will give us that upside to rise -- have price rise with the market more freely than it would have under the fixed-price constructs.

And it's the basis for any new contracts we've struck. We've struck several new contracts, both with battery and automotive OEM producers in the past three to six months. And they are in that same construct. Now, it's important to note, it's not one structure.

We have some customers who actually value more consistency. And obviously, that's a higher price point from a fixed price standpoint, so we can get our returns over the cycle. And there are certain commitments we'll make to go along with them on volume. On the other hand, those who are more fixated on price, we'll have a component of our mix there.

We will be a little more -- just exercise more discretion about how long we go on some of those contracts. And so, there's going to be a mix there, there's going to be mix that we see. But the underlying message is exposure to a rising market.

Matt Skowronski -- UBS -- Analyst

That's helpful. Thank you.

Operator

And our next question coming from the line of Ben Kallo with Baird. Your line is open.

Ben Kallo -- Robert W. Baird -- Analyst

Hey, guys. Thanks for taking my question. Just on bromine, I know it's not the top of du jour, but the chip shortage that we see, everyone sees out there, can you talk about how your visibility is on that? Or what you could gain if there's semiconductor new builds and how -- if that benefits you? And then just on the lithium side, Scott, I back when the worry was around not enough batteries being produced, and from our EV coverage, I think that's a worry too, but what do you guys see on that side as far as new capacity being built? And how you guys are modeling that yourselves and the visibility on that?

Scott Tozier -- Chief Financial Officer

So yes, so on -- let me start with the second part first with the battery. I mean we're focused on making sure we get the lithium that goes with the market. And we model that from the vehicle backwards to the battery, and then to the cathodes, and it's -- there's a lot of plans and capacity being added. I don't know that we -- we're not going to put an opinion out there about capacity for batteries.

We're very focused on making sure that we've got the -- our part of the lithium market and we're building out -- somewhat all of our growth plans are about. Those investments and executing on those investments so we've got lithium to provide that market. So I don't think we should comment about the capacity in the battery market, but we see a lot of projects and a lot of capability in executing those projects. On the -- maybe Netha could talk a little bit about the chip shortage and how that impacts bromine from a -- I guess, that would be across all the electronics space.

Netha Johnson -- President, Bromine Specialties

Yes. Ben, we see the electronics market is really strong. But as Scott mentioned, we're not seeing the chip shortage impact us. A strong semiconductor chip electronics market is definitely good for us.

But with us being sold out, we have very limited additional capacity to leverage that in the rest of the year. So we do have contracted volumes in those markets. Those volumes are being ordered as we expect. And so, we don't really see that as an issue right now.

Now, things could always change. But from where we sit in the supply chain, we're not seeing an impact right now with the chip shortage.

Jerry Masters -- Chairman, President, and Chief Executive Officer

And I think it's a little bit -- Ben, part of your question was just about an advantage we might see coming forward. I think that's really just going to be about demand of those electronics. So what -- they build -- they need more chips, those underlying applications where we play, whether it's in automotive or just call it, the Internet of Things, proliferation of chips. And that's an advantage for us, so they -- but they have to be able to keep up with it for it to be an advantage for us.

Ben Kallo -- Robert W. Baird -- Analyst

And if I can sneak one more in. Just, what about just the overall flexibility of the three businesses? I know you guys have done a lot and -- but just overall, 80% of the questions are about lithium here. And so, how do you think about the portfolio altogether?

Jerry Masters -- Chairman, President, and Chief Executive Officer

Yes. So look, we've got three core businesses and it's a portfolio. So catalysts is struggling a little bit. Their market is not as strong because the miles driven and the issues we saw from COVID there.

Bromine held up very well during the pandemic. And then, really, EVs and then part of that, the lithium market was accelerated through COVID because of, really, the European response to the COVID was really about clean energy and electric vehicles. So I think the portfolio effect is working for us. I mean we'd love for all three businesses to be striking on all cylinders.

But that's part of the portfolio. We think they're key businesses. They all fit into the sustainability angle that we're pushing. There's a sustainability piece for all three of those businesses, and that's kind of what ties them all together, and we like that portfolio.

And it's working because we -- when business is down, the other two are doing quite well, and that will probably cycle.

Ben Kallo -- Robert W. Baird -- Analyst

All right. Thank you.

Operator

And our next question coming from the line of Chris Kapsch with Loop Capital. Your line is open.

Chris Kapsch -- Loop Capital Markets -- Analyst

Yeah. Hi, good morning. So my question relates to lithium business in the industry and focused on your visibility more specifically. So the industry at this point is still pretty China-centric.

And in the materials space, China has been notoriously sort of double ordered or build excess inventories during periods of rising commodity prices. And on the flip side, as this industry has witnessed, the pain can be pretty acute when prices are coming in with destocking and the supply chain exacerbating the downward pricing pressures. Granted this lithium chemicals for the battery application are not as commodity-oriented as, say, copper or iron ore or something, but I'm just wondering if you could comment on the ability right now for the industry to build back inventories or safety stocks or buffer stocks? And maybe also speaking to your visibility, how is this changing along with the procurement strategies, which are migrating maybe away from cathode producers simply to cathode plus battery and in some cases, OEs. So just if you could speak to visibility on that, what the dynamic is currently and how you see that evolving.

Jerry Masters -- Chairman, President, and Chief Executive Officer

OK. So I mean, I guess, a bit about China. I'm not sure we have a ton more visibility, but there's not -- I mean we're fighting to keep up with demand. I think the industry is doing the same.

So I don't think they're building -- anybody's building inventory in this supply chain. Everyone -- and that probably goes from batteries to cathodes to materials as well. I mean from my perspective, we're not building inventories, we actually sold down inventories to take advantage or to satisfy demand in the first quarter. And I don't know, Eric, if you have any more visibility around that?

Eric Norris -- President, Lithium

No. I mean the industry is tight. I can -- up and down, not just in China, around the world, and it's a consequence, in some regards, of just how bad it got last year from a value standpoint. A lot of capacity went out of the market, a lot of projects slowed down.

So it's going to take a while to catch up and yet demand is accelerating. So it's -- we don't see a let up in the situation, which is one reason why we won't give a specific number. We see price rising going forward for the foreseeable future. China is still very important to the industry.

If there's a delay anywhere in building out capacity downstream for batteries, it's outside of China. So Asia continues to be an important point going forward, which certainly in the near term, suits where we're bringing on capacity. So we're very optimistic about being able to place that capacity we're bringing on next year.

Jerry Masters -- Chairman, President, and Chief Executive Officer

And I would just say one thing that's a little different than some of the other industries that, kind of mining industries, iron ore, ferrous materials, I mean, we are integrated into the resource and into the conversion as well. So we -- and that's not all China. That's -- the resources are really not in China. A lot of the conversion capacity and the customer demand today is in China.

But it's -- and we spent a lot of effort making sure we have a diverse resource base from a resource standpoint and also from a conversion specific. So we're not too heavy in China. It's why you see us building in Western Australia, and we're doing conversion capacity in Chile as well. So we focus on that diversification from a resource standpoint and from a conversion basis as well.

And in some cases, it's more expensive for us to do that, but we think it's important.

Chris Kapsch -- Loop Capital Markets -- Analyst

Thanks for the insights. Appreciate it.

Operator

And I'm not showing any further questions at this time. I would now like to turn the call back over to Mr. Kent Masters for closing remarks.

Jerry Masters -- Chairman, President, and Chief Executive Officer

OK. Thank you, Olivia. And again, thank you all for joining us today. All the efforts and opportunities we discussed today require execution, and we have the capabilities, the resources and most importantly, the people to execute on our strategy.

We expect to achieve accelerated growth with lower capital intensity, which should enable us to achieve higher returns. We will continue to work on our sustainability throughout the value chain, not only within Albemarle's operations but by continuing to support our customers. Thank you, and we look forward to speaking to you on our next call.

Operator

[Operator signoff]

Duration: 60 minutes

Call participants:

Meredith Bandy -- Vice President of Investor Relations and Sustainability

Jerry Masters -- Chairman, President, and Chief Executive Officer

Scott Tozier -- Chief Financial Officer

David Deckelbaum -- Cowen and Company -- Analyst

Eric Norris -- President, Lithium

Robin Fiedler -- BMO Capital Markets -- Analyst

David Begleiter -- Deutsche Bank -- Analyst

Jeff Zekauskas -- J.P. Morgan -- Analyst

Joe Beninati -- Oppenheimer & Company -- Analyst

Unknown speaker

Netha Johnson -- President, Bromine Specialties

Matthew DeYoe -- Bank of America Merrill Lynch -- Analyst

Raphael Crawford -- President, Catalysts

Arun Viswanathan -- RBC Capital Markets -- Analyst

Paul Staudinger -- KeyBanc Capital Markets -- Analyst

Matt Skowronski -- UBS -- Analyst

Ben Kallo -- Robert W. Baird -- Analyst

Chris Kapsch -- Loop Capital Markets -- Analyst

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