Ladies and gentlemen, thank you for standing by, and welcome to the Third Quarter 2019 Albemarle Corporation Earnings Conference Call. At this time Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Mr. Dave Ryan, Vice President, Corporate Strategy Investor Relations. Sir, you may begin.
Thank you, and welcome to Albemarle's third quarter 2019 earnings conference call. Our earnings were released ciliations posted on our website under the Investors section at www.albemarle.com. Joining me on the call today are Luke Kasam, Chief Executive Officer Scott Tozier, Chief Financial Officer Rafael Crawford, President, Catalyst Netha Johnson, President Bromine Specialties and Eric Norris, President Lithium. As a reminder, some of the statements made during this call about our outlook, expected company performance, production volumes and commitments, as well as lithium demand, 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 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 GAAP reconciliation can be found in our earnings release and the appendix of our earnings presentation, both of which are posted on our website. Now I will turn the call over to Luke.
Hey, thanks, Dave. Good morning, everybody. On today's call, I'm going to provide a quick recap on quarterly performance, but want to spend the bulk of my time on the long term position we're taking and how the recent strategic decisions we've made support that view. Scott will provide more detail into our 3rd quarter and full year performance. Excluding currency impacts, 3rd quarter revenue grew by 14% adjusted EBITDA by 12% and adjusted diluted earnings per share by 22% year over year.
Excluding currency impact, each of our GBUs delivered year on year EBITDA growth. Increased volume across all of our businesses and favorable year over year pricing in lithium And Bromine contributed to that growth. With that, Let me take a step back and set the stage for where we are today. It offers a very strong However, we are and will be dealing with the challenging market conditions for the next 12 to 18 months. Since late July, we have announced several significant strategic actions to successfully position our business for the long term.
Last quarter, we announced the decision to defer work on approximately 125,000 metric tons of conversion capacity, freeing up about $1,500,000,000 of our $5,000,000,000 5 year capital investment plan. This will enable us to generate free cash in 2021 and is the right path to take based on current supply demand dynamics and provides us with the financial flexibility This decision does not affect current customer commitments. We are in the position to deliver on all committed contracts and we have the ability diverse, high quality, low cost lithium resources, and the financial flexibility to build or buy conversion capacity in the future if doing so creates value for our stakeholders. As we will discuss in detail at our upcoming Investor Day in December, battery technology continues to advance. We expect carbonate demand to continue to grow but expect hydroxide demand to be much stronger.
To that end, we're focused or Hydroxide or other lithium products, we have access to the world's best brine and Hardrock and the industry leading conversion expertise to deliver on their and deliver a truly differentiated we told investors that we would take advantage of opportunities that accelerate and strengthen our long term growth strategy To that end, we announced last week the completion of our joint venture agreement with Mineral Resources, where we have a majority interest and a sixty-forty ownership structure. All in, our investment of $1,300,000,000 consists of a cash payment of MRL for 60 percent of the Wiges of Mine and contribution of a 40% interest in our 50,000 metric ton side facility currently under construction in Kemerton, Western Australia. We believe our investment in this new joint venture named marble Lithium, will produce substantial long term value. The JV provides access to a high quality hard rock source. Further diversifying our global lithium resource base and strengthens our position in the long by giving us the with the combined operating expertise of Albemarle and MRL, the top tier Wagina mine and our market knowledge we're well positioned to benefit from a rapidly growing market, which is increasingly emphasizing hydroxide.
The joint venture supports our long term view, but in the short term, we made the decision to idle production of the Wodgina mine until market conditions support production economics. The returns for this project will still be very attractive. We anticipate that when the JV is producing lithium hydroxide at a rate of 100,000 Met tons annually the return on invested capital will staying with lithium, I want to address pricing and contracts. As we commented in our preliminary earnings announcement, Current market conditions are challenging, and we're experiencing pricing pressures in China and on our technical grade products. To date, our pricing strategy and 11 of our earnings presentation, Albemarle's 3rd quarter lithium pricing was up slightly year over year, despite a significant year over year decline in market conditions.
Recently reported China carbonate prices appear to have stabilized in the range of $7 a kilo. We expect that this price level is at or near the marginal cost of production and do not expect China carbonate prices to drop further in any material way. However, China carbonate at $7 a kilo puts pressure on pricing across the global lithium portfolio. Including the fixed and variable pieces under our long term agreements. Concern and focus.
So let me broadly address the matter here. As we have been in the past, we are in active discussions with customers on our agreement Those discussions involve price, volume, allocations between carbon and hydroxide, length of the contract and the value that Albemarle offers for quality, security of supply, flexibility between carbonate and hydroxide sheer volume of product needed and the ability to meet the customer's growth expectations. It is obviously not in our best commercial interests to discuss contract negotiations publicly, so we are not going to do it. These are active discussions with many moving pieces. As the dust settles on these negotiations, we'll give you a better look at what this means for our annual outlook.
Rest assured that we understand the value we bring to the supply chain and we intend to capture our fair share in these discussions. Now let me switch gears and talk a little bit about 2020. As a part of our strategy, we continue to assess our business portfolio. We have received multiple inquiries about our Fine chemistry services and Performance Catalyst Solutions Businesses. So we have initiated 2 processes to pursue these opportunities.
They are both profitable businesses with strong operating teams. So if we can come to agreement on an evaluation that we feel is appropriate, we will pursue a divestiture If we are not we will continue to operate In terms of how we Our preliminary view today is that we expect Catalyst, bromine and fine chemistry services to be essentially flat. There are some gives and takes in each, but right now, assuming no overall economic slowdown, these businesses should net to approximately flat. Lithium will be lower year over year due to pricing pressure across the portfolio and are not having new conversion Across the company to capture sustainable cost savings and expect this program to deliver over $100,000,000 in sustainable cost savings over the next 2 years. Taking all this into account, our preliminary view is that our full year 2020 EBITDA performance could be lower than full year 2019 results by around 10%.
In closing, we are taking swift actions to navigate the market challenges that we see in 2020 and emerge even stronger to capture the long term growth opportunity in a profitable manner. We will continue to build on our strength in manufacturing excellence in bromine and catalysts, and we will transform processes for lithium similar to our other businesses to ensure best in class operations. We will continue to be conscientious in our asset management and capital plan and seek to be nimble in response to changing and dynamic market conditions. With that, I'll turn the call over to Scott.
Thanks, Luke, and good morning, everyone. For the third quarter, we reported net income of $155,000,000 or $1.46 per diluted share. Adjusted earnings per share were $1.53, an increase of about $2.2 per share compared to 3rd quarter 2018 or 17% growth. Our businesses delivered about $0.23 per share of growth with double digit earnings growth in both bromine and lithium, and high single digit growth in Catalyst. And a lower share count as a result of our 2018 share repurchase program contributed about $0.03.
Those gains were partially offset by $7 headwind compared to third quarter 2018. Regarding our business performance, Lithium reported 3rd quarter net sales of $330,000,000 and adjusted EBITDA of $127,000,000. Excluding the unfavorable impact of currency, lithium sales were up 23% and adjusted EBITDA was up 9% year over year. This our earnings pre release. And as a reminder, these included, 1st, a volume shortfall which impacted the 3rd quarter by about which caused lithium shipments from ports in Shanghai to be delayed into October.
And we expect this to be fully recovered in the fourth quarter. 2nd, the use of tollers to meet customer commitments and address operating issues in Chile. This resulted in an EBITDA reduction of around $10,000,000. The technical team in Chile has focused on reliability improvements which have enabled operating rates to now reach full capacity. Given customer commitments, Toni is expected to continue into the 4th quarter.
3rd, impacts also included a $7,000,000 out of period adjustment regarding lithium carbonate inventory values that was identified and corrected during the 3rd quarter close process. And finally, an overall 1% increase in lithium pricing versus prior year. However, continuing price pressure on lithium sales in China, unfavorably impacted EBITDA by about $5,000,000 versus our expectations. Finally, adjusted EBITDA margin was 39%. And it would have been 40% if you excluded the $7,000,000 out of period adjustment.
Bromine reported 3rd quarter net sales of $256,000,000 and adjusted EBITDA of $89,000,000. Up 11% 14% year over year, excluding unfavorable currency impacts. Adjusted EBITDA margins were strong at 35%, up nearly 90 basis points, benefiting from 7% higher pricing a favorable product mix and high plant utilizations. Price and volume were favorable across geographies and most of our products. Though we continue to see weakness in the automotive and construction sectors, flame retardant demand for electronics and drilling fluids in the oilfield market remains strong.
Catalysts 3rd quarter net sales were $261,000,000 and adjusted EBITDA was $67,000,000, up 5% 8%, respectively, compared to the third quarter of 2018, excluding unfavorable currency impacts. And adjusted EBITDA margins were 26%. Favorable pricing in fluid catalytic cracking or FCC catalyst was offset by lower volumes due to We currently expect both of these units to be in operation benefited from higher sales volumes and a favorable product mix. On the innovation front, on October 31, Exxon Mobile and Albemarle together launched a transformative hydroprocessing suite of catalysts and service solutions for the refining industry called the Galexia platform. The new platform helps refiners realize the full potential of specialty catalysts and enhance plant performance by analyzing and identifying operational opportunities that extract greater value.
Corporate costs in the 3rd quarter were $39,000,000, an increase of $16,000,000 over the same period in 2018, primarily driven by unfavorable currency losses of approximately $11,000,000. $46,000,000 for the 9 months ended at the end of September and a decrease of $31,000,000 is the same period in 2018, primarily due to the timing of payables and the collection of certain receivables. Capital expenditures through September were $608,000,000. Expenditures for the linzagra lithium carbonate expansion and the Kemerton lithium hydroxide project remain on track and we now expect full year 2019 CapEx to range between $900,000,000 $950,000,000. At the end of the quarter, our net debt to adjusted EBITDA was 1.6 times, With the close of the MRL deal, we estimate our gross debt to adjusted EBITDA ratio to move from one point nine times to around 2.8 times and net debt to EBITDA to be around 2.6 times.
We have funded our the new joint venture by borrowing approximately $1,000,000,000 under an unsecured credit facility. We expect that this borrowing, along with other corporate funding activity, may ultimately be converted to long term debt given attractive economics. As communicated in our pre release on October 24, we expect 2019 pro form a net sales to be 3,600,000,000 to $3,700,000,000, reflecting 7% to 10% growth adjusted EBITDA to be 1.02 to $1,060,000,000 equating to 2% to 6% growth and adjusted EPS of 6 $6 to $6.20 or 10% to 14% growth. Drilling down into the businesses we expect that bromine will continue its strong performance and deliver adjusted EBITDA growth in the low double digits percent for the full year. The Catalyst business has improved since our 2nd quarter outlook, and we now expect it to be down low single digits on a percentage basis.
Excluding divested businesses. And finally, lithium is expected to grow EBITDA in the low to mid single digit percent range and deliver full year adjusted EBITDA margins of around 40%. You've likely seen reports of civil unrest in Chile, and are wondering how this is affecting our operations. And first, I'm happy to report that all of our employees are safe. At this time, since the unrest started but it will not materially impact our financial results.
We will continue to monitor this fluid situation very closely. Based on our current geographic sales, production next year to date in our expectations for the rest of 2019, we currently expect our full year effective tax rate to be about 18%. Excluding special items, non operating pension and OPEB items. This rate is in part a reflection of strong operating performance at our bromine plants. To close, we will and maintain our leadership position to deliver value to our stakeholders.
We look forward
in New York City. And with that, I'll turn the call back over to Dave. Operator, we are now ready to open the lines for Q and But before doing so, I would like to remind everyone that please limit questions to 2 per person to ensure that all participants have a chance to ask questions. Then feel free to get back in the queue for follow ups if time allows.
Our first question comes from Bob Koort from Goldman Sachs.
This is Dylan Campbell on for Bob. When we look at kind of the 10% decline that you're looking at for 2020, give us a sense of just kind of what moving pieces are embedded in that guidance in terms of the rollover in terms of lithium volume growth? And then I guess the growth for the callison bromine businesses?
Yes. So this is Luke. Let me try that at a high level. If you look at page 11 on our on the earnings presentation, you can see that year over year lithium prices is down about 30%. And Albemarle has been flat to up slightly on our year over year comparisons each quarter on lithium pricing.
So the big mover that we're seeing on the down for the profitability from 2019 to 2020 all comes down to lithium pricing and how much of that we can offset with cost reductions. On Catalyst when we look next year, we'll have probably higher volume in FCC catalysts. And it depends on HPC, how those bills, how they time out. Do we get some in the second half of next year? Are they rolling to 20 21.
So again, catalysts will be there's some moving bits and pieces there, but FCC would probably be stronger from a volume and price standpoint and HPC probably a little bit weaker, but we're working hard to get some of those additional loads in 20 20. And then on bromine, we don't have any additional volume. I mean, we're running flat out right now and allocating every bromine molecule we have. So it all comes down to what do we see from the overall economic condition? What happens in the elect what do we see from automotive, where we see a little pickup and this pricing hold.
And then that's offset by our cost actions. So those are the big moving pieces. Is preliminary right now. We'll obviously have more information as we finish this quarter and head into next year. So we'll update that.
On our at our year end earnings call.
Got it.
Thank you. That's helpful. And then considering a situation, I guess, if assuming that the market tightens once again, how do you preserve, I guess, some type of upside, considering the fact that and the majority of your volumes are going through your contracting structure?
Well, under those contracting structures, we have the ability to raise price on a certain percentage of that volumes just like we have in the past. So we would if the conditions the Titan, we'll certainly be looking at pricing actions that we can take to raise those prices.
Got it. Thank you.
Our next question comes from Steven Byrne from Bank of America. Your line is open.
So, this is Matt Dio on for Steve. I want to talk a little bit about the potential fallout to you and the industry from the EU proposal to ban certain flame retardants in consumer electronics and display applications. Kind of broadly, what percent of demand goes into that market? And do you think consumer electronics companies kind of may adopt the newest standard more globally?
Yes. I'm going to let Netha start and then I'll I'll to go into the specific and then I'll tell you at a high level where we are.
Yes, we've looked at that and we expect that to have minimal impact on our business going forward starting when it goes into effect in 2021. Well, customers will make some alternate substitutions there, but we've looked at that and we think we have our alternate paths there to replace that business.
So at a high level, we've been dealing with the if you look at Tasca in the U. S, if you look at some of the European regulations globally. All of these flame retardants have been under review for since I joined Albemarle in 2003. And we've done a really good job of moving away from some of the products that were smaller we're getting a larger molecule. So it's harder form to bio accumulate, if at all.
And we are constantly evolving our technology to be able to meet the needs that the customers have. So what you see in Europe, it's a small piece today. We believe it's controlled in that sense. And we continue to innovate to bring products to the market to meet what's really needed and is a serious issue related to flame retardants. And so I think that it's it won't have an effect in 2020, maybe a small effect, if anything around the edges, and long term, we'll continue to innovate to provide the really needed flame retardants that our customers need.
All right. Thank you. And then, if I can touch on the contract, so I think past discussions stipulated that the contract terms could be renegotiated if customers could find like product and of like both light quality and light quantity. As you're seeing demand slowdown for EVs and the market kind of softened here is what's happening more proliferation of technology and such that different producers can now hit the specs? Or are you just seeing more supply to a market from the same 4 or 5 incumbent tech savvy producers?
Well, I think all those 4 or 5 tech savvy producers you're talking about have sufficient volume. What you're seeing is there's an oversupply in the market today. And then I talked about it, carbonates selling in China right now at $7 a kilo. That's probably below some of the cash conversion costs for some of those China converters. So I wouldn't you should not have the impression that there's any technological advance by some of the marginal producers.
It's not. It is where it's been. The specs are getting tighter. And ultimately long term, it's going to be for those EV battery grades. You're going to see those big 4, 5 able to meet those specs on a consistent regular basis with the volume.
There is other volume out there that is not the EV spec. And that's where you're seeing in the technical grade and some other lower specs for other uses, you're seeing those lower producers, lower technology producers being able come in at a price that they're comfortable with.
Thank you. Our next question comes from Joel Jackson from BMO Capital Markets. Your line is open.
If I take $100,000,000 EBITDA guide down on lithium, it looks like you're guiding down to an average price decline next year of about 15% to 20% you maybe give a little more color, how do we break down the price declines between your contracted and your non contract base? So is it just a very, very massive 30% drop in your non contracted base and a small decline in your contracted base? Or is it going to be similar, do you think, across both contracted and non contracted?
Yes. So as I said, I'm not going to get into discussions about specific contracts because we're in the middle of the and that doesn't do us any good thoughts. So I hope you'll understand that. So let me back up and just say at a high level, there is pricing pressure across the portfolio. The most pressure is coming in carbonate, particularly across the portfolios.
So you're going to see it, as you said, different levels of price movement according to different products and according to that end market. But that's about as much as I'm comfortable going into, given the fact that we're in the middle of discussions.
Appreciate that. 2nd question on Kemerton. So it looks like you would have almost enough spodumene at Greenbushes to support Cameron, the next wave for hydroxychloroquine 2021 and beyond there. Maybe not quite enough to get the $50,000 on May 45. Does that mean you'll look for operational improvements at green bushes?
Will you source external carbonate? Doesn't like it would make sense to restart Wodging out to run at very low rates to supply the extra extra marginal spodumene there?
Yes. So I can't see us buying carbonate from other parties to do anything. We'll have sufficient carbonate supply to do whatever we need to do. From a spodumene standpoint because of our geographic diversity that we have around the globe, what we'll do is we'll source spodumene from the source that gives us the highest net back to Albemarle and our stakeholders. So we're all in the we'll see where the market shakes out.
And where we are at that point in time, but you are right that we have flexibility for sourcing that not other producers have.
Thank you.
Thank you. Our next question comes from John Roberts from UBS. Your line is open.
Hi, this is Matt Skowronski on for John. In your pre announcement, you mentioned lower price in China were a $5,000,000 hit to EBITDA in the 3rd quarter. Where have prices moved from 3Q average level? And if this remain in if prices remained at this level throughout 2020, what would the impact be?
Ask that question one more time, please. I'm not sure I'm following you.
So you mentioned that Chinese prices were a $5,000,000 hit to EBITDA. Lower pricing. Where prices moved from that level? So are they lower or are they higher than 3Q 'nineteen?
And then
Yes, if you look at page 11, you'll see that most of the over in a lot of the price decline that we've seen year over year, it accelerated in the third quarter. So you see you saw an acceleration of price decline overall for the market for lithium products in the third quarter. If they're down 30% in some of those, it was 15% of that down was in about half of it was you saw in the third quarter year over year. So prices have continued to decelerate going into the fourth quarter. Derek, you want to talk about some details?
I would just offer that in looking at price in China, if you were asking that question, we were talking about price 3 months ago, we would have talked to you talking about an $8 or $9 price and now we're talking about a $7 price. So that's your difference right there. And China is a small part of our business. But it is a part and that's the impact it's had on our P and L.
And then you noted your bromine assets are operating higher than expected volumes. Just going off of a comment that you just made, are these kind of normalized levels now?
Yes, I think we've been able to get some nice get rights in our JBC expansion that we did last year. That's enabled us to run at a little bit higher rates than we expected when we set plan in place. And that will be the new run rate going forward, but we always do productivity enhancement and utilization increases. We'll continue to do that and we're very confident in our manufacturing capability to get out increased volumes from those manufacturing enhancements.
Thank you.
Thank you. Our next question comes from Aaron Viswanathan from RBC Capital Markets. Your line is
Good morning. I guess I just wanted to ask about the lithium environment. Do you think as you look into next year, what are some of the drivers you're watching to see if things are stabilizing? Or even potentially turning around? I mean, is it just EV demand or is it, macroeconomic growth or what else are you guys kind of looking for?
Or maybe supply disruptions or anything else?
Hey, Aaron, it's Eric here. I think that the big drivers for us are not necessarily about demand. We feel fundamentally that while you've seen a pause in China, that's a pause and our long term view for the global EV growth remains intact. So our focus is on supply and inventory that's in the channel. Other we believe on our assessment, there's not a lot, there's not enough new supply or put it this way.
The new supply coming in will not exceed the demand growth. So the question is, how much is still in inventory? There is probably at least 6 months of product in inventory maybe more. So you're probably 2 to 3 times the level of inventory you should have and that's the drag on price now and then we see that having an effect into 2020.
And on that note, I guess, how long do you think it would take to kind of work through that, especially on the technical grades? And I'm just a little bit surprised that there's been such an impact on, EV battery grade lithium, even with the oversupply in the tech side. So maybe you can just help us understand what the impact is there and why we're seeing
Yes. Hey, this is Luke. Don't we didn't what Eric was just talking about was overall. That included battery grade as well as technical grades. So we think there's an we think there's an overhang of the supply chain for lithium derivatives overall.
And what I said in the prepared remarks is we think we're looking at 12 to 18 months of trying market conditions and we think that's about the time it's going to take people to work it off. That's our view today.
And is lastly, just is there anything else that the industry can do, I guess, to accelerate that process of destocking. Have you been, aware of any other potential shutdowns or reductions in production? Thanks.
Yes, I can't comment on what other people are thinking about doing. I can tell you what we're doing we're going to take control of what we can control. So you can see when the joint venture deal with MRL close, we made the decision to idle those assets because we don't need to bring any more spodumene rock to the market in this market conditions. Secondly, we're going to take actions internally from a cost standpoint point to ensure that what we can control, we will control.
Our next question comes from Mike Harrison from Seaport Global Securities. Your line is open.
Hi, good morning. Just looking at the and kind of building on the questions around inventory levels. It seems like spodumene is one of the areas where there is too much supply. And I'm just wondering, can you talk about your operations at Talison and maybe how we should think about the contribution from Talison in 2020 relative to 2019?
Yes. So Talison contribution in 2020 relative to 2019. Remember that Talison is a raw material supplier to Tianqi and Albemarle. And that's really it, both from a technical grade perspective as well as from a battery grade perspective. That we take that rock and convert it as TNC does into our in our assets or in toll converters.
So it's going to be essentially that volume will be similar to up slightly based deansis bringing on a new plant. And so I would expect it to be slightly higher than what we saw in 2019.
All right. And then on the, on the catalyst side of the business, I guess I was a little bit surprised to hear you say that HPC was expected to be a little bit lower in 2020. Can we go back and discuss maybe your updated view on IMO 2020 and the impact that that could have on HPC catalyst growth over the next maybe what it's doing here in second half of twenty nineteen and what your expectations are for 2020?
Go ahead, Rafael. Yes,
sure. Mike, this is Rafael. So, we do think that IMO will have an impact on HPC catalyst demand, low to mid single digits. But I think when you look at when you step back and you look at the overall picture, more so than IMO for our business, it's really the tightening of sulfur specifications around the world, which will be favorable. As Luke mentioned, as the onset of the call, there are things that with the timing of various refills at customers that could push us up down in any given year, not indication of a weakness in the business more of timing in customer demand.
But overall, we feel like the tightening sulfur specific regulations around the world, IMO included is favorable for our business and the industry.
Yes, this is Luke. HPC is just simply a lumpy business. And what you have to do is the customer mix, the product mix as well as what that what the fills are going to be in any one period of time. So that's the only reason I say it could be down. It's got nothing to do with overall market demand, not a share issue, not a price issue.
It's just simply a matter of the fills that we expect today. Now if we were sitting here in 2018, we got more fills in 2019 than we expected we'd get in 2018. So the team's still working. We may be able to move some orders up a little bit or get a little bit better mix. So it's early, but yet people ask what an indication is from where we are today, it looks like HBC is going to be a little bit down and FCC is going to be up.
Thanks.
Got it. Thanks very much.
Thank you. Our next question comes from David Begleiter from Deutsche Bank. Your line is open.
Looking, Eric, just on lithium volumes in 2019, what do you think they'll be? And do you expect any growth in your lithium sales volumes in 2020?
Go ahead, there. David, your question is the market or us, I'm sorry
on you, your sales volumes in 2019 and potentially 20.
So our sales volumes in 2019, so you're worried about the growth and what it's like here on versus prior year. That growth is coming from both from the ramp up of Xinyu II, which is now running at full rates, but for the 1st half year,
it was
ramping So we'll be three quarters full there for this year. So that's the 20,000 ton plan. So that's a big part of our growth. And the remainder is coming from La Negra, though La Negra, we haven't run as well as we wanted to in the third quarter. We expect to show favorable year on year growth though in the fourth quarter of a 1000 a couple 1000 tons or so for the year.
If you look to 2020, David, I would expect that from a volume standpoint, we probably have maybe 5,000 to 7,500 metric tons of growth. That assumes we get additional growth in, and run La Negra at rates. We don't have another rain incident like we did in the first quarter. The brines is percolating down there the way it ought to be. And they ran at October rates at highest rate they've ever run.
Now we've got to sustain that all into 2020. And then we'll get a full year of Xinyu II from what we ran this year. So that's how I get to about the 5 to the 7.5 or 8000 net tons, okay?
Very helpful. And look, just on the cost savings, how much will be realized next year of $100,000,000 and what's the breakdown between the three segments? The $100,000,000?
Yes. I don't know how much we're going to get in next year, because some of it is it it's going to take a little bit of time. So we will update you in December. We'll have more information at the Investor Day. And then when we roll out into our 4th quarter earnings call, we'll give you more update, David.
Thank you. Thank
you. Our next question comes from Jim Sheehan from SunTrust. Your line is open.
Thanks. Good morning. I think you've repeatedly said that La Negra was on track to produce close to 40,000 metric tons of lithium carbonate in 2019. What is that number now going to be given the shortfall in third quarter? And can you just give some color on what caused these operational issues at La Negra and what gives you the confidence they won't repeat?
Yes. So let me do the first one and Eric can talk about some details. We're running about 38,000. Is that about right, Eric? Between 38, 39,000 met tons for La Negra this year.
And one of the things that we've done is we've taken some of the best process engineers we have around the company from catalysts, from biochemistry services from bromine and they've been down in La Negra over the last couple of months, helping with some best in class, some debottlenecks and things like that. So I'm confident next year that we'll be able to build from where we are, not have the Hic not have the rain events, not have the struggles with the brine because of the rain and things such as that. So I feel good about where we are and the progress that we're making.
So Jim, I'll just add and I'll move beyond the brine in the rain. We've talked about that enough this year, but in terms of reliability and uptime of the plant, we expected more reliability and more uptime during the third quarter than we had. Me first of all point out this plan is sold out. So everything we make, we can sell. So if there is an uptime issue, it's going to have an impact And that's why we're backfilling where we can, where we're qualified to do so with tollers.
Now that being said, as Luke earlier said, we had the best October we've ever had in that or the best month we ever had in the month of October. We got to sustain that. It's been a large measure due to upskilling from people from outside of the lithium business. But we've also brought a new operational talent and we're building skills within the organization. It's a journey, right?
It's an operation trade. This plant has to be operationally excellent. And we're on our way there. The aim is world class, but we're not there yet.
Very helpful. And Lou, could you also explain how the tolling process works in Shoa. Do you meet La Negra commitments with tolled brine based carbonate or spodumene based carbonate? And you've explained a lot in the past about how difficult it is to meet product specifications for battery grade products. Are hold volumes coming from a big 5 producer and thus they meet those specs?
And if not, do you have to offer some kind of price concession given the lower quality tolled product?
That's a lot of questions. So, let me try to address and time. Overall, we don't take any brine from anybody else in tolet. And we don't give our brine to anybody else to toll for us. So if we have a slowdown at La Negra where we lose 1000 metric tons, we take spodumene from our Talison supply and have a third party generally in China, toll it, either to carbonate or hydroxide.
And we generally, if it's told to carbonate at least in 2019, previously it might have been a little bit different, but in 2019, we use that for internal consumption mainly to go downstream into our specialty businesses. And we continue to sell our carbonate directly to 3rd party customers.
Thank you.
Thank you. Our next question comes from Dimitri Silverstein from Buckingham Research. Your line is open.
Good morning. Thank you for taking my call. A couple of questions, if I may. You talked about the sort of the outlook for incremental volume growth that you're still going to get in 2020 without added capacity just from capacity ramp ups that you've done over 2019. But I just want to understand that the closure of the Wakena mine, it doesn't impact sort of the progression of capacity additions that you've outlined in the second quarter slide when you took down the $1,500,000,000 CapEx expectation, right?
I mean, in terms of hydroxide and carbonate capacity, that's still going to go online through 2022, as you've outside in that slide,
That's exactly right Dimitri.
Okay. And then on the divestiture, I found it interesting that you're getting, sort of inquiries on the catalyst the Fine chemistry business. Obviously, the Fine chemistry business has been around on the market, I guess, for a while. On the catalyst side, you mentioned kind of pro form a catalyst being the subject of interest. Does that include the curatives in organic Alex?
Or would that still be strictly the FCC HBC catalyst?
Yes. So let me be clear, Dimitry. It is not the refining catalyst. It is not FCC and it is not HPC. The inquiries have been for the PCS portion of that business, which you are right, are the organometallics and the curatives.
Okay. So you're looking at some of the, what I would call sort of orphan businesses, not necessarily, contemplating yet the possibility of bromine or refining catalysts being used as a way to help you with the capital requirements in lithium.
Mr. That's like asking me which one of my children are favorite. I love them all. I wouldn't call them an orphan business, but I would say that they are quality businesses with good operating teams that can do much better if they have capital and with the competition for capital that we have, they're just not going to get it. So it's a better value creation for our stakeholders.
For divestiture if, if and only if the valuation is where it needs to be. So that's how I look at it, okay.
Thanks. Perfect. Thanks very much.
Thank you. Our next question comes from P. J. Juvekar from Citi. Your line is open.
So in light of your Wodgina shutdown, Can you talk about this spodumene cost curve? What's the cost of marginal producer? And where has volume fall there? And what signals are you looking looking to for the startup of Wagina again?
Well, the best cost position in the world from spodumene rock is Talison. And if you follow the purity of the rock and the lack of foreign substances in there, you follow the cost curve. Talison is the premier in the world. If you take Talison out of the picture, then Wodgina is right up there on the cost curve with the low cost producers out there from a quality resource, from the size of the resource, from the link that we're going to be able to mine in from the cost position that we'll be able to get. So it's a top tier resource from a cost standpoint and from a quality standpoint.
Remember, we weren't planning to sell that spodumene. We were going to use it to convert it to lithium hydroxide And when we look at the market today, it makes sense for us. We think today to treat Wodgina the same way we treat Talison. As a raw material source for the marble limited joint venture between Albemarle and MRL. So we'll get Kemerton online and we'll start that, bring mechanical completions sometime in 2021.
We'll have a period of time where we have to have qualification runs. And then we'll look to source Waginald with Kemerton to the extent the market conditions makes sense for us to bring whatever amount of capacity it makes for us to bring on for lithium hydroxide. We don't need to operate it wide open on day 1. Will bring on capacity to meet that demand for lithium hydroxide. And that will dictate how we run the Wodgina mine.
Sure. Thank you for that. And then if you were to divest your fine chemistry and performance catalyst business, Is the long term goal for Albemarle to become a pure lithium company, or is it just to keep the refining catalyst business and bromine in the portfolio. So that's a cash generated business that can fund the growth of lithium. Thank you.
Yes, I think lithium will be able to fund it. If we start back and look lithium and cash flow positive in 2021, 2022 kind of timeframe, inclusive of servicing its debt if you add to and things like that. But right now, our goal is to drive shareholder value When we look at our portfolio today, we see bromine and catalysts good solid business high EBITDA margins that allows us to harvest cash and use that for the lithium business. So we will consistently, as we always have look at our portfolio, but for the foreseeable future, we like where we are after these two divestiture.
Thank you.
Thank you. Our next question comes from Colin Rusch from Oppenheimer And Company. Your line is open.
Thanks so much guys. As you're looking at the landscape of battery manufacturers and considering your strategy, can you talk about consolidation in the industry folks that may be distressed in how you expect to handle that sort of situation?
Hey, Colin, this is Eric. So, what we are seeing, and I've talked about before, and it continues, is a shift of power decision making around lithium and the battery materials used in a battery to the battery manufacturers themselves. And in some cases, the OEM is getting more engaged. And so when we look at how we do business going forward, that is the group that we speak with. That's a group or we'll partner with.
That's a group we have our a great deal of our contract relationships already. Kathode players form the balance. That's where there's more stress in the value chain. There's a lot more fragmentation. And I think you will see some consolidation over time there, but it's hard to say at what pace that would occur.
But that's the dynamic we see we're well balanced and prepared with pretty deep relationships across all of those 3 parties, OEMs, battery producers, cathode producers.
Great. And then on the policy side, obviously the situation in China from a sell through perspective on EVs has been a major appointment in particular in the second half of this year. What are you hearing in terms of potential for stimulus in China for for vehicles and for EVs at this point, if anything.
What we interpret is what is going on as a pause, right? It's a shift in policies to incent the development of an industry that is part of a grand plan for China. So we have no doubt about China's intent and where they want to go. And what we are hearing specifically is, is that the drive towards higher energy density batteries and full battery electric vehicles is the aim of where they want to go. So we recognize that past couple of months has been a pause.
It's been a little slow, but we view that as simply a natural pause in the road of what will be significant growth. And we're certainly seeing that in the global EV space in Europe today.
Great. Thanks so much guys.
Thank you. Our next question comes from Joseph Catania from G. Research. Your line is open.
Good morning, everyone. Obviously, the lithium industry has responded to the softening price dynamic with you and others delaying cancelling capacity expansions. But with the amount of lithium carbon sitting in supply chain needs to be consumed, are you concerned there's going to be more room for prices fall going forward as the industry destocks?
We, as we said, I think on the call, you got $7 a kilo price kind of in China right now. We think that's about where there are cash cost conversion is, I have seen a hard time them going much, much lower than that. Okay. And as
the shift to high nickel cathodes accelerates and you're seeing the growth in lithium carbonate slow. Do you expect the price spread between the 2 to widen seems like it's tracked fairly steadily this year, the $1.50 to $2 per kilogram range?
Well, a couple of things I'll say. One is that that the demand growth for carbonate remains strong. Demand outlook for hydroxide is much stronger. Today, the workforce of the industry is 622 chemistry begma Mae with carbonate or hydroxide, which plays to Albemarle's advantage is where the only producer that has the ability to play both. As to the future, we see hydrot because of the growth, we see the hydroxide market getting tight.
But today, I don't know that we would forecast any major change in spreads between the two.
Thank you.
Our next question comes from Kevin McCarthy from Vertical Research. Partners. Your line is open.
Yes, good morning. Luke, one of your industry peers announced a new contract with LG earlier this week. As you consider your contract strategy, given all that has transpired with lithium prices, are you generally disinclined to enter new long term contracts or are there perhaps isolated opportunities that look attractive?
Kevin, we're talking to everybody. As I said, we're in negotiations under our existing long term agreements and for new long term agreements, both in the both with the OEMs as well as with additional battery producers. So we're in negotiations and in discussions with a lot of moving parts and pieces. And what that tells me is that there's a ability there is a need for a security of supply from companies like Albemarle. And everybody knows we're not going to enter into a contract long term today at a $7 a kilo price for carbonate.
It's just not going to happen. We're not going to do it. It doesn't make any sense for us to do it in a lot of that in because we think the market's going to move up. So We know the value we bring. I think that customers know the value that we bring as well.
And we're inclined to enter into agreements that will drive value for our stakeholders. That's the best way I know to describe it.
Okay, fair enough. And then second, with regard to your potential divestitures, how would you characterize the aggregate level of EBITDA there? And as
a point of
clarification, is that amount of EBITDA included in your 2020 guidance comments or are you contemplating a decrement or step down related to a midyear divestiture?
Hey, Kevin. This is Scott. So, the combined EBITDA is kind of in the $55,000,000 to $60,000,000 range. We have not assumed that we sold those businesses in our guidance at this point in time. We just started the process as we talked about And we need to see if we're going to get the value for those businesses that we expect.
And if not, then we'll If we don't, we'll hold them. If we do, we'll end up transacting.
Thank you. And that does conclude the question and answer session for today's conference. I'd now like to turn the conference back over to Dave Ryan for any closing remarks.
I'd like to thank everyone for joining us this morning and for your questions and participation. As always, we appreciate your interest. This concludes Albemarle's third quarter earnings call. Thank you.
Ladies and gentlemen, thank you for participating in today's conference. This does the program. You may all disconnect. Everyone, have a wonderful day.