Good morning to all. Thank you for standing by, and welcome to Unifor's conference call. Please note that this conference is being recorded today. Your lines are automatically used, and we can take risks to keep end users during the introduction SG and A session. If you would like to ask a question, please use the weight and functionality in tips.
For those connecting via phone, please send an email with your question to ir@unicor.com. We will read this question during the live session. We will repeat these guidelines again and after the Q And A session, but now I would like to hand the conference over to Mark Greenberg. Mark, please go ahead.
Thank you, EVA, and good morning, everyone, and thank you for joining this conference call. The purpose of the call is to provide some additional color to the release we issued this morning and answer the questions that you may have. The market context has been extremely volatile since the outbreak of the pandemic, And with this press release, we wanted to inform you about the changes in trading conditions, which we have observed since our last communication at the end of July. The automotive market, for example, posted a much stronger 3rd quarter than anticipated when we communicated at the occasion of our results. Also, This year, due to the highly unpredictable context and unlike in other years, we had not yet been in a position to provide a quantified guidance for the full year.
Now with, 10 with 10 months in the books, I believe we have sufficient visibility to do so. Finally, while the overall visibility remains extremely limited, I felt it was appropriate to provide some perspective on the building blocks for 2021 and highlight my expectation that Unicore is in the strong position to resume its growth trajectory once the disruption's caused by the pandemic will be behind us for good. As you would have read in our communication this morning, I confirmed the directional guidance I gave earlier this here, both for the group and for the different business groups. Umicore is on its way to deliver a solid performance this year, notwithstanding the severe disruptions caused by the pandemic, and I expect adjusted EBIT for the full year to be in the range of 465 €490,000,000. Let me now walk you through the recent trends, performance, and outlook in all three business groups.
Catalysis posted a very strong 3rd quarter performance, benefiting from a sharp recovery in the automotive market in most regions, and particularly in China, where the recovery in car sales has been remarkable. You would recall that Umicore has a very strong market position in China in particular with international OEMs. And this has allowed us once more to outperform the market globally. Earnings in the business group reflected the strong volume uplift as well as the impact of cost reduction measures introduced earlier this year. Based on current market trends, we now expect expect global car production to be down by approximately 20% for the full year.
You may remember that earlier this year, we anticipated a contraction of the global car market of 25% in 2020. In the scenario of a 20% contraction, I expect adjusted EBIT for Catalysis for the full year to be in the range of 130,000,001,000,000, which is well above the current market consensus. Looking already cautiously at 2021, I can say that we should continue to benefit from our strong market position in gasoline light duty applications. The start of the roll out of China 6 legislation for heavy duty applications and the cost savings resulting from measures that we have implemented this year. I said cautiously, because the evolution of the pandemic, unfortunately, makes it impossible today to predict how automotive demand will develop in the near term.
This being said, I expect Umicore to continue to outperform the market. I'm now moving on to the performance in Energy And Surface Technologies, which as anticipated, was impacted by a significant negative operating leverage. Looking first at the EV market itself, I would like to bring some perspectives to numbers that are circulated circulating and are sometimes unduly extracolated. EV sales in the third quarter grew substantially. However, This is compared to a very undemanding third quarter last year.
Looking at year to date sales, provides a better view on battery demand. EV sales in the 1st 9 months of 2020 were up 9% year on year, and the increase was driven by the growth of plug in hybrids. Full EV sales were roughly flat year on year, And you will recall that, plug in hybrids have much smaller batteries and need, therefore, less kilowatt hours of cathode materials on average 5 to 6 times less than full electrical vehicles. So if should you really take into account the growing share of plugging hybrids in the mix, The global demand for batteries used in to in automotive applications expressed in gigawatt hours grew by about 5% which is the correct metric to look at in order to assess the evolution of the capital materials market. Now if we would exclude the share of Tesla demand, as you know, that we are currently not supplying this brand and demand, in the, market, which is, effectively addressable to Unicore was actually flat.
You will have seen in our release that we expect to grow sales volumes of cathode materials for EVs in the second half, both year on year and sequentially. Which should be looked at against the flattish market context I have just sketched. The reason why it takes the time to explain these market data is that to up and quarterly data or announcements made by a single market player are being extrapolated or misread. Looking at our position over a somewhat longer period in the quarter, Our market share is solid and stable, give or take minor movements linked to platform or regional mix. In China, for example, the growth of Tesla has been spectacular.
And obviously, Umicore is not benefiting, benefiting from that. So I would like to emphasize once more that we are faring relatively well in a challenging market. We have not lost market share. And are not losing market share. Turning back to the market now in unicorns performance in that market.
The European EV market continues to do well. This has helped to bring down the levels of inventories in the battery materials value chain and we expect the inventory effect to subside by year end. It is also encouraging to see EV sales in the Chinese markets. But this being said, to put, again, things in perspective, the level of EV sales in China continues to be well below the peak levels seen in the second half of twenty eighteen and way below the levels required in order to absorb the existing overcapacity. It may take a few years for supply and demand, to be back in balance in China, and for market conditions to improve.
This being said, I'm convinced that this is not a structural issue. As the Chinese government remains fully committed to electrification. Against this market backdrop and as anticipated, the underutilized capacity in our plant in China in combination with higher fixed costs related to our expansions continue to induce a significant negative operating leverage in the rechargeable battery materials activity. The info the unfavorable pricing environment in China, where we do have some short term price exposure also impacted earnings. In the other business units of energy and surface technologies, performance continues to reflect the impact of weak trading conditions resulting from the pandemic.
Against this backdrop, I expect adjusted EBIT for energy and surface technologies in 2020 to be in the range of €70,000,000 to €75,000,000. I realized that, our current performance may be below expectation But this does not reduce our determination to maintain a strategic course of action and prepare for profitable growth in this emerging market. While market conditions have played against us since last year and may continue to prove challenging for some more time, I have no doubt that we have the right capabilities and strategy to develop successfully as one of the leading technology providers. It takes sizable upfront investments to participate in this fast growth industry and reach scale effects. In the current market context, it takes more time than originally anticipated to bring the business to satisfactory and sustainable levels of profitability.
I'm now turning to recycling, which hosted as you might recall, record results in the 1st 6 months of the year. We also indicated in July that this first half performance was not, to be extrapolated to the second half of the year, taking into account the reduced availability of the smelter due to the 4 week maintenance shutdown in Hoboken in July, as well as the seasonality effects in the jewelry and industrial metals business units. Over the third quarter, the business group continued to benefit from favorable trading conditions, a supportive supply environment and high precious metal prices. Considering the maintenance shutdown in Hoboken and anticipated seasonality effects in jewelry and industrial metals, I expect adjusted EBIT for recycling in 2020 to be in the range of 3.20 to 330,000,000 Euro, which corresponds to a new all time high. I also expect that the business group will continue to benefit from a favorable supply and metal price environment in the coming year.
We have a fairly good visibility as we have secured a sizable part of our supply and metal exposure. Visibility is far from perfect, though, as our results also depend on price levels of metals, which cannot be hedged and those, price levels cannot be predicted. You will also have read in our communication this morning that we expect EBIT adjustments in the 2nd half to be in the region of €150,000,000. These adjustments come on top of the €72,000,000 adjustments booked in the first half and are, again, mostly non cash in nature. The main adjustments in the second half relates to the charges of €55,000,000 for the streamlining of our activities in cobalt and specialty materials, some asset impairments and a provision to create a green zone next to the Hoboken plant.
You will recall from the communication at the end of July that the lead in blood levels of children living close to the Hoboken plant showed elevated readings as of as opposed to the historically low levels in 2019. The emissions from the plant as measured both by the authorities and by Umicore have been consistently well below the legal norm and there was no indication that such an increase in lead and blood values would occur. Although the root cause investigation has shown that there is no major source of dead emissions in the plant. The and next the unexpectedly elevated levels, it is exploring new avenues. Such as making an offer to buy the houses closest to the plant to create a green zone and thereby increase the distance between the residential area and the side.
These provisions for a green zone, a green zone are included in the EBIT adjustments. To conclude, and before we turn to your questions, I would like to repeat the main messages from this morning's communication. I expect Umicore to post a solid performance this year despite the unprecedented challenges caused by COVID 19, and we are extremely well positioned to benefit from market growth once the impact of the COVID 19 pandemic will be behind us for good. My priority today clearly remains the health and safety of all of Umicore's employees, and I'm grateful for their commitment and agility as they have demonstrated on a daily basis since the beginning of the pandemic. Despite the many uncertainties in the near term, Umico remains committed to its long term growth strategy in clean mobility and recycling.
And I'm convinced that we will come out of this challenging period, well positioned and well prepared for growth. Philip and I are now ready to take your questions and I hand over the call to Eva first.
Thank you. We will now start with you in a session before being working on a brief update. Please note that we kindly request to take the following Q And A guidelines into a business model. Please ask only one question for her to give everybody opportunity to ask questions. To ask you a question, please use the raise your hand button at the top menu of the teams we will keep your microphone muted until I will call your name.
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And the first question was sent to the IR mailbox from Chicago US. And the question is, how do we think about recovering BNC in 2021? It sounds like you expect the inventory issues to be concluded by end of this year. Eviserica going well, but presumably, we will also need your account for land costs of focus. Accenture expects this division to more than double in terms of beef in 2021.
This is achievable.
Yep. So, good morning, Charlie. And, so I I think it would be premature to go into, 25 guidance, for 2021. And, what the market will do in 2021 remains also somewhat hard to predict given the, current evolution of, the pandemic in in some regions, and the, the possible impacts thereof either at the end of this year or in the course of, of next year. This being said, I would say that, If you disregard for a moment, the, the, the pandemic and, the, possible impact it may have, in 2000 21 on the overall market.
I expect, I would expect, Umicore to do well in terms of, volume developments, compare, to, to this year. If indeed the easy market, continues to grow and, also considering the launch of some EV platforms, on which we are qualified. From a I would say results, a point of view, I would expect the, the, to again, With the caveat that I don't know where the market will be going, we should see, improvements compared to, to this year, driven by the volume growth if the volume growth, is confirmed. And again, the caveat that I, mentioned regarding the, the market, and still considering that, we are, incurring significant investments and significant costs to, to bring the business where it needs to be from a technology and, scale point of view.
And the next question comes from Sebastian Bray. So that's when you can now unmute yourself. Please go ahead.
Hello. Good morning, and thank you for taking my question. It was on the calculation of addressable market size Is it right to simply exclude Tesla from this? Now I'm thinking especially how do you think about the rise again of LFP and new LFP cathode technology in China. And does your do your comments, Mark, earlier, on the market being roughly flat excluding Tesla taking into account the fact that LFP has gained share in China has year.
Do you think that this is a longer term trend that could constrain the growth of NMC? Thank you.
Good morning, Sebastian. No. I'm not concerned about the, LFP story. It is confined to China. And, is, addressing a, a niche of, somewhat less, performed cars, which, Indeed, it is not going to, dense the, the, the, the growth of the unicorns, overall.
And, whether it's, appropriate to exclude Tesla, I mean, I'm not going to, it's not I would say, I was just, mentioning that as an observation that since we're not, I would say supplying Tesla and Tesla represents a significant portion of the gigawatt hours demand and the growth, in gigawatt hours in 2020, that, it was a relevant way to look at, how we are faring in the non Tesla business in a way.
Thank you for
taking my question. And even if you include Tesla, I think it's important And this has been vastly, misinterpreted, I would say it is important to, to note and to bear in mind that even if you include the, the growth of Tesla. The market overall in 2020 has grown by 5%. So, it's important not not to extrapolate from monthly or quarterly data or from data of a single player. The market has grown by 5%.
And, against that backdrop, we are faring quite well And, the fact that, we confirmed that, our volumes are growing in the second half of the year and that we did well in a way in the first half of the year as well while the market was down in Jigawa Torres confirms that, we are maintaining, at least our position.
And the next question comes from.
Yes. Good morning, everyone. Just one question, on ERC, you're guiding for a second half rebit of some 1,000,000, if I take the midpoint. So that's a decline of almost 70% sequentially. I think that volume should be up sequentially.
So it must be the lower prices that you alluded to or higher operational costs that is driving the lower results. So Can you tell us which is the most important one, and how we should look at the trajectory going forward?
Mutlu, good morning. So it's a combination of, I would say mostly, 3 factors. It's the, the the price, pressure in China, that we have, described earlier. It's the, the costs which, we have to continue, scaling up, as we develop new technologies, new processes, new sites, and it's, it's some mix effects, as well. So the cost factor is, is quite, significant.
And if I had to to run them, at first sight, I would say that, the cost element is, probably, among the, the top, factors. And in that respect, I would like to also, remind everyone that, we have a different strategy than, most are all of our competitors in the cathode materials space as we have decided to go for a multiregional approach with, capabilities, equal capabilities in 3 major regions, being, Korea, China, and, Europe. And this comes at a much higher fixed cost level than most of our competitors. So you will, imagine that in the current depressed market context where scale effects are not being reached and where price pressure, is there that, this strategy is, is not helping us in the short term to, to produce, adequate margins. This being said, and as I mentioned in my remarks, I'm really convinced that looking at where the market trends are from a regional and from a global point of view, that this is the right strategy and that having the same capabilities in, 3 key regions or EVs is going to pay off.
But it takes a bit of time indeed.
Hi. Thank you for taking my question. Can you just provide an update on the on the Polish plant? And, have you seen any delays in contracts or or volumes that were expected for that plant from from your customers, given the weakness. Thank you.
Good morning. So, in a nutshell, the answer is no. We mentioned some delays in the construction project a while ago, which were due to, the restrictions imposed by the, the pandemic and the lockdown measures and the possibility to travel, for some teams or contractors or or engineers. And this remains valid. So, we have, delays in construction and, now expect the year to plan to be, commissioning around mid, of next year.
Then if you take into account the time it takes, after commissioning to qualify for the customers, to, qualify the lines and, for us to start, mass production, it means that, indeed, we will start production towards, the end of the year, next year, and, the, the most significant, the more visible of the new plan from a revenue ramp up point of view will be in 2022. This does not mean or imply that, there are any delays in terms of, contracts or demands or changes in forecast from our customers. As you will possibly recall that, while we are building the plant and we'll, we'll take the time to start up the plant in in Poland, we are serving the European market through our Korean factory. So there is no change in, in that respect.
The next question comes from the IR mailbox. It was sent by Joanne from UBS. When you expect to reach cooling capacity, food capacity in China and in Europe, how much of the government capacity in China will expose to its pricing in the LG and SBI contracts are prices and volumes fixed.
Yeah. So good morning, Josh. So the questions embedded, in the, in the, the, the, overall questioning. The, let me start with the, LG and, SDI contracts. So these have, indeed, fixed prices.
And, So and some of these, we use for, we use for Some of these volumes for, LG and SDI are indeed being produced, in, in China. This being said, I would say that the majority of our capacity in China would be exposed to the Chinese price, pressure. Following it will take for the, capacity underutilization, supplied is, difficult to say today because, Can all participants, please, go on mute because we have some noise on the background noise on the line. Sorry for that. It's difficult to to say because, I today.
I mean, I don't have a clear view of how, the market in China will develop. What I see is that the, excess capacity in the industry is, quite substantial and, will take a few years, to be worked out of the system. So it's not a I would say a matter of a few months, unfortunately. And, that's why we mentioned, explicitly in our communication today that we expect, this overcapacity to continue to result in, in price pressure. In the near term.
Hello, Mark. Good morning. I had a question about your sort of capacity alignment at the moment. I think we're sort of slightly dancing around a pin, in that we're discussing a scenario where there's, at this stage, still too much China capacity and some pricing pressures. Without really understanding how your capacity splits between the three regions.
And I wondered if you would would be in a position to give us any sort of sense whether China capacity is is now above Korea. And, you know, if you look to say the 2021 plan, how does the capacity split by the 3 regions?
Just to
give us a sort of sense to the extent to which you've got a surplus issue in China.
Yeah. No. Good morning, Adam. And, indeed, I, I think this is a very relevant point. So the capacity in China is, not as large as the capacity in Korea, but close to.
So, that's why, unfortunately, today in the current market environment, this is such a drag, on, on profitability. And does not allow us to reach the desired and required scale effects, indeed. And over and over time, the, the, I would say, the relative importance, will, change because, the, as you know, we have decided to, postpone further, additions of capacity in China. So to be, that are aligned with the, the timing of the market demand. And as, Europe will, grow, in terms of, production capacities, in the, in the near term, the relative importance of China, will, decrease.
Now are you able to see where your capacity is now in in overall terms or or where it is relative to the original plan of 200 K by 21?
Well, it's, because we have decided to, postpone some, capacity expansions, given the state of the market. I mean, the market has been more or less stagnant in 2019, 2020 after a, an acceleration in, in 17, 18. And, the, so clearly, we have taken that, due to account, in, adjusting or, CapEx plans and our our capacity additions. So we are far from the, the, the, the figure that you have mentioned, in that respect, plus there is another element is that has the, as a product mix has changed, quite, substantially with, much higher nickel, chemistries, in our mix, today. The, capacity should be looked at in terms of, gigawatt hours, rather than in terms of, tonnages, because the, for the same tonnage, of a high nickel, canvas where you have more gigawatt hours or more kilowatt hours.
So, I think that we have, in terms of, tonnages, which we referred to, some 2 years ago, is, is fairly significant in terms of gigawatt hours less significant for the reasons I've just mentioned.
From Judy Mormon. Mark, would you give some color on the EVKES material for example or full year 2020? Or any foreign europe versus China?
No. I think that that's not the, the kind of, sorry, Chetan. It's not, I don't want to agree to, that level of, breakdown of, regional sales. I think that, clearly, China is depressed market for us and expressed in terms of, of volumes. So by definition, the, the, this is not contributing so much to the, growth that we see in the 2nd part of the year.
Yeah. I can maybe address that, Chitung. So, I mean, for the CapEx currently, I would guide for the full year 2020 for a CapEx number just above 400,000,000. So that best to about 550,000,000 last year. And DNA, I would currently, again, it depends a bit on the, There's some exact timing towards the end of the year, but I would guide for the full year, D and a between 262270 1,000,000, and that compares to about 240 something last year.
So that's about 20,000,000 increase, give or take between last year this year. That would be the current guidance.
Thank you, Rafiki.
Next question comes from
Hi, good morning. Can you hear me?
Yes, now we can.
Okay, great. Sorry for that. Good morning, Mark, good morning, Philip, good morning, Eva. I wanted to ask you what makes you confident that, LSP will remain a niche in China and that it will also remain contained to China And the follow-up question to this is maybe could it be that going for less performing cars end up being the right strategy if that segments develop better, simply because customers could be very much cost constrained.
Good morning, Jean Baptiste. And, the reason I'm, I'm confident about that is because, The reason LFP is, is, gaining some ground in China and, has, some sort of a, second life. Is because there is, spare capacity. And, so the, the, the question is, does it make sense to invest in new capacities outside of China, to produce, I would say, technologies, which are less performance in terms of, density, and ranges and, which may not be necessarily cost competitive if you have to make a greenfield investments, in, regions outside of, of China. And I think the, the answer based on the, what I see today is no.
It doesn't wouldn't make sense, for, for investments, to be made outside of China. And, but there is a vast, capacity available in China. And, there is, some, audience, some, I would say consumer audience, for less performing cars, which you do not really have, in other regions like, Europe or North America. So I'm, I'm not so much concerned. I'm not saying that, that, LFP will not be there.
I'm just saying that, this is not going to be mainstream outside of China in my opinion. Okay. Thank you.
Next question comes from Sharani Webb. Can you quantify your positions at the time for the green zone around 4 Resolution has been agreed with yours today.
So the, there is no agreement yet. The the discussions and the, the process, the discussion and the process are ongoing, both with the, the residents and with, the authorities. So it would be too early to quote a figure, at this point in time. And, we expect, and we hope to be more advanced or sufficiently advanced, when we speak next beginning of February to, provide more color on this So if I was to say at this point in time that, we're talking about a meaningful number, meaningful enough material enough, to be mentioned, in the release.
There was another question from Charveda. How should we think about working capital for full year 2020? As it does, it recovers stronger than expected.
Yes, indeed, this is, so, I mean, Catalysis clearly plays an important role, as you know, in, in, in working capital, you rightly mentioned, there's the recovery aspects of volume related, but there's also the metal price aspects. As you've seen, the PGEM prices and particularly, rhodium is at a, basically, historic high. So indeed, we do expect for the second half to have an increase in working capital for the group. More than what we had in the first half, which was 1,000,000. So that will be, indeed a driver in the second half, an increase in working capital and and and definitely Catalysis will play an important role in that.
Next question comes from Mudar Panula. Mudar, please go ahead.
Yes. Just a just another follow-up question. Can you share with us what the current capacity utilization is in your cathode material plants? And, assuming you expect a, eventually, a significant volume recoveryvolume growth within EVs but prices may be the biggest risk. So at this price, will you make your cost of capital?
Will you make your return targets?
If we single out the, the Chinese operations at the current price levels, we cannot make the cost of capital. And, so there are 22, aspects to the equation. 1 is the, capacity underutilization, which prohibits, us from, reaching the required scale effects in order to reach the cost of capital and secondly, do the pricing pressure. And both factors today do not allow us to, to reach the, the current to reach the, the cost of capital in, in China. So that's why we would need, both, the, the, the price pressure to, to subsides for the excess capacity in the, in the industry, to, to be worked out of the system.
And, on our side also, be, be able to utilize our capacity fully, you know, that you reach that, targets. And I'm not going to, to to comment on the degree of capacity utilization. I can always say that it's, the underutilization today is quite material as you can infer from, the, the financial results, coming out of, on the business.
Thank you, Mark.
Next question comes from chetan Udeshi What is GPS adoption for new car needs test forms for 2020, China, and 0?
We, we actually, we have, the full effect, of, GPS and in China and in Europe in our, in our platform mix. So all the other platforms that, Ewing Moore has, where Umicore is qualified and, which require GPS, are in production and have been in production for some of them since 2019. And for all of them, in 2020. So I would not expect if that is the, the, the, the gist of the question, I would not expect and we don't need, to expect an uptick, in terms of, GPS adoption, in the coming year for Umicore because our portfolio, includes all of that already.
Next question comes from Nick Moshe. Please go ahead.
Yes. Good morning. Question on the announcement of Tesla, made in in its battery day a while ago. Tesla going for vertical integration, and also making some statements that they have, developed better process technology. So the question is, yeah, to what then do you see it as a threat and and how do you see your process technology?
I know you did a lot of investments in that technology and how do does it kind of compare to competition? Any statements on that
would be helpful. Thank you.
Yeah. I believe, that as I've mentioned on the on previous occasions, Tesla is, clearly a game changer, because it is, setting the tone and setting the pace and setting the direction for the industry is putting, the, the, the right level of, of pressure and, and targets in front of the automotive industry and the supply chain. So in that respect, it is acting as a, as a as a real game changer. And this I see as a very positive, for us, because it's a driving the, the market, the apartment, to, to quite some extent. This being said, I believe that, and I believe that many observers share, my assessments that, some of the statements, that have been made are aspirational, at this stage.
And, and have not yet been worked out in any, kind of, of detail. So there is no particular impact or threats, that I see, from that. And, I believe that we have, excellent process capabilities to compete in this technology driven industry.
Next question comes from Sebastian Grace with Tim. You can go ahead.
Thank you. Could I ask a question about the choice between price and volume in China? I believe you, Mickor is one of, if not the largest producer in that geography. And you'd assume if scale effects were very important, then it would be amongst the lowest cost producers why not pursue a strategy which giving me core is the lowest cost of favoring volumes at this stage? Is that because we impact on profitability would be worse than under the current scenario of selectively producing volumes.
And how do you view position of the Chinese plant in terms of your cost curve versus low competitors? Thank you.
Yeah. Sebastian, I think the, it's it's a business strategy choice and, philosophical choice and business model choice to, to be selective. And to go for, profitable business and, and not, compromise or, position and strategy to go for, to to actually sell, great technologies at lousy prices. I think this is, not, would not set the, the right benchmarks in the industry and may be, difficult to rectify if and when the market, turns, turns around. So, we, we continue to be, to be selective.
We have to And, I don't want you to create, the, the wrong precedence by actually setting, selling, technologies at the at a at the wrong price.
Thank
you. And when the Chinese customers come to Umicore and put pressure on prices? Do they point towards commodity indices when asking for price reductions? Or is this more of a bespoke negotiation that goes on between Umicore and its customers?
I'm not sure what you, mean with the commodity indices. Can you, make
What I mean is that do your customers come to you with a graph of NMC 532 prices published by industry providers in China and say, alright, can we have a 30% discount, or does it, is it still in the rounds of this is a bespoke negotiation, and the graph doesn't play a role, so to speak.
Oh, we have we never had, this type of discussions around, indices or graphs or, and, we have never looked at, this type of, data being provided by, external sources. These are not relevant in our negotiation processes. No, it's a bespoke, negotiation, about a certain, grades of, of products that, that we make. And, which other, some other players in China can also produce and, and given the overcapacity, some of them make different trade offs. Than we do and are ready to, to sell at prices which, are, in my opinion, way too low.
Thank you.
And the
next question comes from chetan Udeshi the first release, it says that cathode material business continues to be driven by technological innovation. However, at the same time, we have pricing pressure from overcapacity. How do you tie these two cards together?
Yeah. I mean, it's, I mean, I could also send the question back to you. I mean, if you say that, that we have to look at the, the Tesla announcements, as some sort of a threats in terms of, technology developments and new processes. This is a a clear indication, that the business continues to be, driven by technology. And I think if you analyze the, announcements made made by Tesla, there is a lot of technology development and innovation in there in terms of, batteries, cell design, battery pack designs, in terms of, analog materials in terms of, cathode materials in terms of production processes.
This is just and exclusively a technology story, but we're not alone, in, in that. And there are a number of players who are capable which are capable of, developing, innovative technologies and, and high quality technologies. So it's a competitive play, but it's, driven by technology Innovation And Technology Development.
Next question comes from Charles Benton from Main Suisse. In line with rising and utilization in China, is there a risk of impairments in the industry?
Well, there's again, you've seen in the adjustment, announcement that we do foresee some additional impairments, like we had them in the first half that's typically an exercise we do at a full year close. So it's a bit too early to, to comment on that. We will look at that. Now, obviously, when you look at impairments of, I would say production assets you take is sufficiently long, period of time, so that would not be focused on, on short term, trends and and contexts. So it's a bit too early and we'll provide the, the details of, any of those impairments at, well, in the month of February, basically.
How much of this is sustainable versus temporary?
Yeah. So we already had the cost savings in tell us in the second half, indeed, from the footprint adjustments we've announced that we implemented in the first part. Now, next to that, there's also cost savings from, I would say, the the context, the COVID context, which has meant that, on an SG and A level, think of travel, etcetera. There's obviously some also some, some cost savings. Now, limiting it to the footprint adjustments, would say the impact in total is probably something similar to, to the impact we see in, in, in the adjustments we've announced in cobalt and, and specialty materials.
The only thing is that in Catalysis, it will come earlier. So, you should see next year Indeed, a, basically, a full year impact of that, of that cost saving. And for just to give you an idea for cobalta specialty materials, I think we've said it's about €15,000,000 on a full year basis or CSM that would only be there once we fully implemented the, the footprint adjustments. So we're talking 2023 while in Catalysis that will, clearly come much earlier that we should see in, in next year.
Next question comes from Ed Collins and Please go ahead.
Thank you. Actually, I had 2, if that's okay. The first one is, has there been any further price hedging for gold platinum palladium in the recycling business? And then
and then
if you wanna just do that, then I'll if I can Yep.
I'll take that out first, Adam. So nothing material compared to when we last spoke in July, which just as a repeat, we have, you know, a significant portion of, of palladium and gold for next year hedge significant. You could think something, in the order of, 2 thirds of, the estimated exposure, obviously. And that goes into, 2022, but at the lower percentage, so less than, than half. And we do have some, hedges in place also for next year.
For platinum and silver, but, definitely less than less than half. So nothing materially has changed compared to, to July.
Okay. Thank
you. Just to just as a reminder, so that is what we have hatched, as you know, and as we also, set out in the in the press release, obviously, the recycling business. Those have quite some exposure as well to, unhedgeable, metals, right? You know, that.
Yeah. Okay. The second question is, is back to, the cathode is us. We've been discussing the mix, headwinds associated with rising plug in hybrid share, particularly in Europe this year. But there is a there is an expectation longer term that BV share will increase as the Europeans get, they're act together in terms of new models and as battery costs come down.
And I wondered if you could say Whether in your pipeline, you're seeing a good number of BV models looking forward.
Well, if you look at, the, the near term, Adam of the next, 2 or 3 years, we see, still a very significant share for, plug in hybrids. And, they are quite popular in, in Europe. It's it's a matter of, consumer acceptance and consumer adoption more than anything else. And, it's not so much a matter of, battery costs, in a way, perhaps unlike in, in other regions, but it's, it's a matter of, consumer mindsets that, twice a year, you need, the range, to go, on vacation and, that, you don't want to, you don't see an alternative to, to a plug in hybrid, for that reason, for now. So if I look at the, the, the pipeline for the next, for the, I would say, the near term, the, I would expect the share of, plug in hybrids to, to remain, pretty high, in Europe.
What it will be longer term, may depend on, on, I mean, it's difficult to predict today. In a way because it will depend on the, on the consumer experience and, perhaps that, second generation buyers who have head of plug in hybrids will move, after that, after 4 or 5 or 6 years, to a full EV if they have enjoyed, the, the, the electric experience on a limited basis and have figured out how to go on vacation other than by car. So that may change. And, it may also change in function of, the tightening CO2 regulations, which will, increase the pressure on car OEMs in the region. So difficult to, to make out, at this stage, for the longer term, but I would say I would not expect major shifts in, in the leagues in the, in the short term.
Okay. Thank you.
Our last question comes from will do on the 1. Will do please go ahead.
Yes, thank you for the final question then. Yes, Mark, coming back to the price in China, can you provide some clarification or some color on what is happening there? Because if I go back a few years, I remember when you were announcing contracts, you would always say prices are largely locked in. So but it seems that customers are significantly renegotiating their contracts. I mean, can you confirm that?
Can you tell us what's happening Is it dual sourcing? Are customers switching volumes? If you don't agree on a significantly lower price? Just some color would be helpful. Thank
you. No, really the what it is is that the that the contract durations are are shorter in, in general, in China than they are in other parts of, of, of the world. And you have to bear in mind that when we announced, the multi year, strategic contracts with, LGM, and SDI, these were 1st in industry. And, so the industry has only started to move to multi year, contracts to secure supplies and, with, with fixed prices. This is a very recent trend.
With a limited number of, of the key, battery makers. But in China, typically, the, the contracts are more limited in time. And, so, at every term, you have to, to, renegotiate the, the, the conditions inflection of where the market is. So that's really what it is.
Can I just add to that? So is it then possible that you might lose a customer, if they demand a significantly lower price, because my understanding was that you applied for a model because you can't switch in the meantime, because otherwise, the OEM would have to use a different cathode supplier. Can you explain that?
Well, let's, let's keep in mind that, we have been in a growth mode. Also, we have, like others been adding capacity, to, in, in anticipation of, new business and, significant growth. The market has not grown, in China, since 2018, unfortunately. For reasons which we have, explained, on on previous occasions. And, this has prevented us from, from booking new business and using the capacity at adequate conditions to a very large extent.
I mean, this is, what it boils down to.
Okay. Thank you.
Please, we are going to conclude the Q And A session, and I hand over to Marvin
Thank you, Eva, and, at this point, I would simply like to, thank you for, attending the call this morning, despite the short notice. And, as usual, I would invite you to, raise a follow on questions, to reach out to, for follow on questions, to reach out to our investor relations, team. And, as a last, remark, I would like or comments I would like, simply to wish you all well. Please, keep safe and talk to you soon. Have a nice day.
Bye bye.
This does conclude our conference today. Thank you for participating. You may