Thank you, and welcome to Albemarle's third quarter 2018 earnings conference call. It yesterday. And you'll find our press release, earnings presentation and non GAAP reconciliations posted to our website under the Investors section at www.albemarle.com. Joining me on the call today are Luke Kassam, Chairman and Chief Executive Officer Scott Tozier, Chief Financial Officer Rafael Crawford, President Catalysts, Netha Johnson, President Bromine Specialties and Eric Norris, President lithium. As a reminder, some of the statements made during the conference 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 reconciliation of these measures to GAAP financial measures 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.
Thanks, Dave, and good morning, everyone. We apologize for a little snafu at the very beginning. Apparently you could hear us, but we couldn't hear the operator. So we apologize and hope we got that fixed. Turning to the third quarter.
In the third quarter, our revenue grew $50,000,000 or 7 percent and adjusted EBITDA grew by $36,000,000 or 18% compared to the third quarter of 2017 excluding divested businesses. This marks our 8th consecutive quarter of double digit adjusted EBITDA growth. During the third quarter, Bromine specialties and catalysts both reported pro form a adjusted EBITDA growth over last year. In lithium, third quarter pricing increased year on year as expected. However, unexpected outages at 3 of our manufacturing sites during the quarter caused volume shortfalls which resulted in our not being able to meet the sales commitments in the quarter.
These issues were one time in nature and have been addressed. All of our lithium facilities are now running at forecasted production rates. In addition, our lithium capital projects remain on track. We completed the tie ins at La Negra II and expect to operate that unit at full rate in 2019. Plenegra 34, which is a 40,000 met ton carbonate expansion, is progressing as planned towards commissioning during 2020.
Earlier this year, we commissioned an expansion of our evaporation cents. Additional ponds of more than 4.50 acres are on schedule for completion in early 2019. This expanded pond system will provide sufficient feedstock for all of our carbonate production facilities in Chile. In China, we have completed all pre commissioning activities at Xinyu II and are now transitioning that unit over to operations. We have begun startup activities and will be in this phase over the next few months.
We expect significant hydroxide volumes from this unit in 2019. With respect to the Kemerton lithium hydroxide facility, we are on track to obtain all necessary approvals to begin earthwork at the site in December. Now I'll turn the call over to Scott.
Thanks, Luke, and good morning, everyone. For the third quarter, we reported net income of $130,000,000 or $1.20 per diluted share. Adjusted earnings per share were $1.31, an increase of about $0.31 per share compared to 3rd quarter 2017 or 31% growth. Excluding divested businesses and other one time items. Our businesses and lower corporate expenses delivered about $0.31 per share of growth with strong performance in bromine specialties and catalysts.
Our share repurchase program contributed about $0.04 during the quarter. Those gains were partially offset by a net cost increase in other areas primarily due to a higher effective Let me talk about each of the businesses. Lithium reported third quarter net sales of $271,000,000 and adjusted EBITDA of $114,000,000, each up about 1% year over year. Adjusted EBITDA margin was 42%. Average prices were up 6% versus the third quarter 2017, with battery grade salts providing most of that improvement.
The gains were mostly offset by the volume impact from the unexpected plant outages. Hydroxide volumes and costs were unfavorable due to a 1 week shutdown in Kings Mountain as a result of Hurricane Florence in North Carolina. The Zinyu facility was down about 2 weeks as the result of an unannounced environmental inspection by local officials. We have agreed on a remediation schedule with the government and Xinyu-one is back running at full rates. As Luke mentioned, the commissioning of Xinyu II is progressing as planned.
Volume was also unfavorably impacted by environmental upgrades required at the facilities were impacted by a was a multi day outage in power supply due to a grid blackout in Chile and the second was a failure our soda ash delivery system, which tie ins that we spoke of last quarter have been completed and La Negra II is back online and operating at forecasted rates. Had we and our tollers been able to operate throughout the quarter, we estimate we would have had an additional shipments of approximately 3000 metric tons that would have equated to approximately $35,000,000 in revenue, about $14,000,000 to $15,000,000 in EBITDA and $0.11 to $0.12 per share of earnings during the third quarter. Bromine specialties reported 3rd quarter net sales of $233,000,000, and adjusted EBITDA of $79,000,000, up 9% 23%, respectively, year on year. Adjusted EBITDA margins were strong at 34%, benefiting from a favorable mix and high plant utilizations. Prices were up globally across most products, but volume gains were modest.
The increased profits were partially offset by higher raw material costs, primarily from oil derivatives. Catalysts 3rd quarter net sales were $251,000,000, up 15% compared to the third quarter of 2017, excluding divested businesses. Adjusted EBITDA was $63,000,000, up 25% with adjusted EBITDA margins of 25%. Year over year growth was driven by increased volume and pricing in refinery catalysts and about $2,000,000 of insurance collections. It is important to remember that third quarter 2017 had an unfavorable impact from Hurricane Harvey in Houston of about $9,000,000.
In fluid catalytic cracking catalysts and curatives. Moving on to the balance sheet and income statement items. We completed our 2008 our May 2018 accelerated share repurchase program and in August, initiated a second $250,000,000 ASR program, which is expected to be concluded by the end of this year. Through the 1st 9 months of 2018, we have retired approximately 4,700,000 shares Our average share count for Our average share count for the second half is expected to Through the end of the third quarter, our net cash from operations was $377,000,000 and adjusted free cash flow was $38,000,000. For the full year, through September was $472,000,000.
As previously mentioned, our lithium projects continue to ramp up as scheduled. Higher forecasted sales of Catalyst and lithium for the 4th quarter resulted in increased inventory with a corresponding increase in total working capital compared to the second quarter of 2018. Based on current sales and production mix by country so far in 2018 and our expectations for the fourth quarter, We currently expect our excluding special items, non operating pension and OPEB items. Our full year adjusted EBITDA, EPS, diluted EPS, and free cash flow guidance remain unchanged. Bromine specialties is a bit stronger and on a path to deliver low double digit adjusted EBITDA growth.
Catalyst is expected to increase high single digit growth on a pro form a basis and lithium is a bit weaker with a third quarter outages but still expected to grow in the low 20% range. With that, I'll turn the call back over to Luke. Thanks, Scott.
I want to spend a minute providing more detail on our long term lithium supply agreements with major cathode and battery producers. Pages 1213 in our earnings presentation, which was posted online last evening, provides a snapshot where we stand as of today on secured volumes for the calendar years 2021 2025 and the volumes that are still the subject of active discussions with third parties. In summary, we are right on schedule for 2021 commitments and well ahead of schedule on 2025 volume commitments. As you can see, for 2021, we are already at our targeted wave 1 nameplate production capacities of 85,000 metric tons of carbonate and 80,000 metric tons of hydroxide. These charts also show the acceleration in our customers' demand for the battery grade lithium hydroxide over that period.
For lithium hydroxide, more than 60,000 metric tons are secured for 2021. Approximately 60,000 metric tons of committed minimum volumes are contracted for 2025 with an additional 20,000 or so metric tons contracted as right of first refusal or option volumes. In addition, for 2025, we're in negotiations for another 80,000 to 90,000 metric tons of hydroxide volume. For lithium carbonate more than 70,000 metric tons are secured for 2021 through our supply agreements and our internal needs, which feed production of our specialty As we look out to 2025, we have carbonate volumes under supply agreements and for our forecasted internal needs of around 40,000 metric tons with another 60,000 to 80,000 metric tons, the subject of ongoing negotiations. Given the demand from existing customers and from cathode and battery producers who are not customers today, we are very confident It is important to note of carbonate and hydroxide volume under the supply agreements in 20212025 are equal to or greater than the average 2018 sales price with opportunities for price increases.
Given this outlook demand, as shown on page 15 of our earnings presentation, we are adjusting our planning accordingly. While the 40,000 metric ton carbonate expansion at La Negra is still on track to allow us to begin commissioning in 2020, we have stopped all engineering work on any further carbonate expansions in Chile at this time. We're going to put it on the shelf and continue to monitor our customers' needs and the needs for the market. We previously disclosed that Kemerton would have an initial capacity of 40,000 metric times, with an accelerate a portion of that additional capacity to at least 60,000 metric tons of hydroxide. The commissioning of the Kemerton site is expected to start in stages during over this period as a result of this change.
To match the needs of our customers Now there have been questions raised in the press about our authorizations in Chile, so let me try to clarify the matter. As you can see on Page 16 of our earnings presentations, we have the operating permit for Pumping Brine from the Chile Environmental Superintendent, the production quarter from Corfo and the sales quarter from C Chen, to allow for the In addition as we have previously disclosed, we are in the engineering and development phase of a project that we believe will increase the overall lithium yield from our operations in the Salar. If successful, and we have seen no data to indicate that it won't be. The project would allow us to produce more lithium from the same amount of brine that we pump today all allow us to produce the same amount of lithium from less brine. In either case, it would be a more efficient and more sustainable process.
In conclusion, we believe we have positioned the company for another year of exceptional growth supported by our long term strategic initiatives. Our 2019 planning process is well underway. And while it's too early to provide specific guidance, we believe 2019 will deliver in a way that
Chris, we are now ready to open the lines of Q And A. But before doing so, I'd like to remind everyone to please limit questions to 2 per person to ensure that all participants have a chance to ask questions, then feel free to jump back in the queue for follow-up if time allows. Please proceed.
And the first question is coming from the line of Kevin McCarthy. Please go ahead. Your line is open now.
Good morning. It's actually Matt Dio on for Kevin. So I'm interested in the outages in you and the Chinese environmental inspections. We've clearly heard about the fallout of tougher restrictions in China across a lot of other chemical chains, but less so in lithium. And I'm just thinking out loud here but if you're falling victim to the 4 statages, you might stand a reason that converters operating off or concentrated or then green bushes maybe even having a more difficult time.
So with that in mind, is this something specific to this in you? Is this a one off thing? Expect it to be an ongoing industry issue? And how much is the remediation going to cost out mall?
Yes. This is Luke. From a remediation standpoint and the cost, it'll be minimal and you won't see it in our numbers and you won't see it in our or you won't be around in there, 1st of all. 2nd of all, I can't comment on what might have happened as it relates to other tollers. We do know of our colors were also unable to produce.
So I don't think it was just targeted at Xinyu, but I do view it from our standpoint as a one time thing, one time event, we reached agreement on everything that needs to be done with the authorities in a well underway of getting that taken care of. So we viewed it as a one time event. And it would be just pure speculation for us to say anything about what happened in the future of the 3rd parties.
All right. And then regarding the longer term contract, So based on disclosure, you have some price commitments for the committed minimum volume agreements. But what about those agreements under the right of first refusal or evergreen contracts? How should we think about the pricing terms there? Thank you.
Well, the pricing terms would be consistent. If you look, we have the ability supply if we do, but we're not required to supply. So we're going to sell at the at a price that's commiserate with what we think the market should deserve or we won't sell it.
So is that based on market prices at the time of those sales or is that kind of more in line with the price agreed to in the committed minimum volume contracts?
It's more in line with the price committed in those minimum volume projects, because that's what we put in the look at what the capital return should be for those projects. And we're going to be disciplined in our approach that we take for pricing. So that's what it set forward.
The next question is coming from the line of Ian Bennett.
Thank you. Good morning. Thanks for providing that slide 16, I think, is really helpful to the investment community. And I was wondering if you could elaborate a little bit on the areas of conflict with each of these agencies. I think there's been some discussion of various water pumping rights as well as some of the technology with the expansion and helping us think about that?
Yes, there's no conflict at all with the EPA. We've got a permit. We're operating within our permit. There's been with Corfo, has been very public of what that confusion is. It's a matter of what price needs to be offered to any facility in Chile.
There's a dispute. They've said they're going to arbitrate that dispute, but to date, no arbitration has yet been filed. So we believe very strongly in our position. We think it's clear It's a public document in Chile. So I'd invite you to look at that document and read the language.
We think it's quite clear, and we're very confident in our position. With respect to C Chen, there is nothing at issue relative to the 2017 authorization. There that is not an issue. It is not an issue. Our ability to be able to sell the 80,000 met tons or so annually.
What we did is in March of 2018, Corfo signed an amendment to the agreement with us that essentially said, if we elect to build Chile 56, they would extend our production quota from around 80,000 met tons a year to around 140,000 met tons a year. But we at the same time, we applied for C Chen to ensure that the ability to sell was also reflective of what we could produce. We can we to build 5 and 6, we have to have yield improvement from lithium out of the Salar or we won't have enough brine coming out of the ground to be able to do that. So All that they've done is come back and said, we're not willing to approve that additional sale today until we understand where you are in the yield improvement process. So from our perspective, there is nothing at issue that restricts in any way our ability to sell at least 80,000 met tons, which is our wave 1 nameplate through 2043.
And it's not even the issue for anything unless we elect to build 5 and 6. And we just told you today that we're putting that on the shelf to understand what happens with the market place and what our customers need. So hope that clarifies it. I'm sorry it's so confusing, but that's how the regulatory, system works down there. And hopefully, this helps you out.
That's very helpful. And as a follow-up and perhaps related, it It appears to me from the outside that there's increasing conflict within Chile who has this this great natural resource in lithium and some members of the government want to have that source create more battery manufacturing, which ultimately will be a much larger industry than just lithium production. Whereas the existing players in the industry yourself and SQM are come companies that are operating to create shareholder return. The delay in the expansion in Chile 56, is this related? And how do you think about deploying capital moving forward in that region?
You said it's on hold. But does this is your view of how to deploy capital in the most shareholder friendly manner over the next decade or so changing as a result of the political situation in Chile? Thank you.
Yes, I think it's stretch to say that. What's changing is we're seeing a significant acceleration in demand of lithium hydroxide. And so we need to address that we need to be focused on what we're going to do. We've always said that we are going to, invest capital to meet the needs of our customers. And if you look at the charts that we put in there.
You see what we're talking about about the drop side demand and what we're talking about about carbonate demand. It's clear we need to focus on lithium hydroxide, have the focus there. And that's why we're doing it.
The next question is coming from the line of David Begleiter. Please go ahead. Your line is open now.
Hi, this is David Huang here for David I guess first on your Q3 lithium pricing. Can you discuss what happened there since the 6% looks a bit lighter than expected? And do you still expect high single digits for the year?
So this is Eric, but I'm having a hard time understanding you, could you repeat the question please? It is regarding pricing. I understand, but I could not hear over the phone line.
Yes. So on your Q3 pricing, the 6% looks a bit lighter than expected. Do you still what happened there in Q3 and do you still expect up high single digit for pricing for the year?
It's actually right on our expectation. We had forecasted at the beginning of the year, a high single digit increase overall for the year. And given the year on year comparison, in that, during 2017, prices were gradually increasing through that year. We'd see double digit comparisons in the first half of the year dropping to, less than the average for the year. It's the mid single digit for an average from a high single digit increase year on year.
So it is on our expectation.
Okay. And second, just on your Q4 guide, what gives you the confidence in the EBITDA ramp in Q4? And what needs to happen for you to be in the upper end of your guidance range?
So, this is Scott. I mean, overall, we've got 2 big, big movers in terms of the fourth quarter. So, Of course, lithium is on a big volume ramp. That's been expected, throughout the year. Of course, with the third quarter outages, we had a pause there.
We are fully back online. The CAP projects that we have coming online are are coming online to schedule. So barring some other unexpected or Black Swan type of an event, I think we're well on track for lithium. The other one is catalyst, similar to 2017, The Catalyst business has another large 4th quarter, much of that being driven by the volume in the CFT or clean fuels technology hydroprocessing catalyst business. We have pretty good line of sight to those projects right now.
And Again, barring any other change in our customers with the, with the downtime that they take to put this catalyst in, we feel confident in that in that catalyst fourth quarter as well. So those are those, those are big major drivers for the 4th quarter growth. And again, we feel we feel good about
The next question is coming from the line of Arun Viswanathan. Please go ahead. Your line is open now.
Just wanted to ask kind of a little bit more of a macro question. I mean, there's been a lot of noise on China and auto OEM builds over the last a little while. Have you guys noticed anything different in the environment in China from a demand standpoint? And I guess just looking out into next year, would any change in OEM builds or anything like that affect any of your progress?
Thanks.
Hi, Eren. This is Eric. So the short answer is we haven't seen any cure that might be some softening in demand. There hasn't been weak. We've seen, both in China and throughout Asia, where the bulk of our customer base is for the energy storage market continues strong demand with, as Luke referenced earlier, a bias we go forward towards hydroxide versus carbonate, from a specific, automotive production standpoint, we have a 1.3 electric vehicle, 1,300,000,000 electric vehicles thus far this year, which given the pace of growth, we expect to actually $1,000,000, which we expect to increase further in the Q4.
So I think we aren't seeing anything negative from a macro standpoint from EV growth or demand for product.
And Aaron, I would just add, I think if you look at total automotive production in China, there is a softening overall. However, it is concentrated in the internal combustion engines, not in electric vehicles as Eric's talked about. So we don't see it in our business.
Okay, that's helpful. And, I also wanted to ask a question on the contracts. I appreciate the detail. You also made a comment that, the 2021 2025 commitments are at or above 18 averages Could you just describe, the mechanisms you guys have to, I guess, increase prices the market is trending that way or, also defend against, lower pricing if, if, in fact, that that happens with increased production? Thanks.
Yes, Aaron, so we, it didn't differ materially different than what we've described before. Right? There is a range of contracts, so that it's hard to speak to it being completely uniform. But in general, they all have a provision by which there's a floor price. And that, that there's an opportunity and depends on the contract and in terms of its frequency or timing for Albemarle to invite and ask for an increase in the price at a point in time.
And at that point in time, the party, counterparty of the customer has an opportunity to, if they are to so desire to shop that volume. But there is a floor that is put in there for us that gives us security that Lucas discussed return on investment. And that floor is today as we strike these new contract is no less than 18 price, right? So that's that's the confidence that we have, in the contracts we have in terms of if we decide going forward.
Yes, if you look at from a pricing standpoint, point, my position is, if you look at it 'twenty one and 'twenty, 'twenty five, what you see on that page is the bear case.
Okay. Thanks. And then, just lastly, maybe you can just describe the input cost side. Would you expect any raw material pressure next year, I guess, I guess principally in lithium, but anywhere else, if that's material
Got it. Yes, I don't think we'll see. I mean, other than labor costs, which I'll exclude, but if you look at raw materials, I think we're fine in lithium. The other businesses, bromine is going to be driven primarily by oil derivatives. So it depends on what happens with oil.
If oil prices continue to move up, we're going to see pressure there. And we'll need to work on the market appropriately. In catalysts, it tends to focus more on the metals and so commodity based metals. So think about nickel polyptom on those kind of products. So again, I think it'll depend on what's happening.
We've seen kind of a mixed story in 2018 both with oil prices and commodity metal prices. So, hard to predict right now in the market that we're playing in. We our business and the chemical industry overall do not drive those prices. Obviously, it's other macro market drivers that that push it. We just need to react to it.
So, we know how to do that. We'll react appropriately and make sure we protect our margins.
Great. Thanks.
Next question is coming from the line of Josh Spector. Please go ahead. Your line is open now.
Hey, guys. Just a question around bromine. Continues to outperform a pretty good quarter with maybe record high margins. Just wondering how long you think that continues? And maybe what are the 1 or 2 biggest factors that drives that?
We expect the bromine market to continue to grow, slightly, projecting volumes in our flame retardants of 1% to 2% world. And we what drives that basically is the shortage of bromine in China, and that's a big significant driver to our world.
Okay, great. And just, I mean, in terms of prices, you seem to be handily offsetting higher raw materials. Do you see that continuing or is that primarily China tightness that you think might update when you go into next quarter, maybe like next year?
We'll see that continuing into the rest of this year. We've got great pricing discipline. We do expect some volume to come on next year. That may affect pricing. We'll continue to maintain our pricing discipline and adjust as necessary as market conditions allow.
Okay, great. One more on lithium pricing sequentially. I guess are you able to qualitatively say if you look quarter on quarter for battery grade products was pricing flat, up, down? Any kind of guidance around how things move quarter to quarter?
So this is Eric, Josh. So from quarter to quarter, pricing was, relatively flat, diminished by the up. It depends by customer, it was, it was would there was no downward pressure, it was probably upward. Once you factor in mix, you look at the, the roll up, it probably was more flattish overall quarter to quarter.
And I think when we're talking about mix, they were talking about customer mix.
Okay. All right. Thanks guys.
The next question is coming from the line of Robert Court. Please go ahead. Your line is open now. Hey, good morning guys. This is Dylan Campbell on for Bob.
A quick question on the environmental inspections in China sounds from what you've discussed is more of a market wide impact. And I know you mentioned it's really only a temporary impact for Albemarle specifically. But can you talk kind of your general conversations around the market, if you're hearing any rumblings of more prolonged outages where operations weren't up up to snuff as much to those inspections and whether that could result in longer term outages across the Chinese market?
Yes, I don't see that in that will be pure speculation on our So what we're assuming is everybody's going to be back up and running just like we are.
Got it. That's helpful. And then I noticed that R and D expenses decline low over 20% year over year. Do you have any color in terms of what drove that decline?
No, I think it's really just a mix of our portfolio and where we're spending at this point. So I don't think that I wouldn't draw any conclusions from it. Some of it's going to be foreign exchange, but at the end of the day, it's just a mix of our projects. And a portfolio across the company.
The next question is coming from Sebastian Bray. Please go ahead. Your line is open now.
Good morning, and thank you for taking my questions. I would have to please, the first is that on the volume development. Now that the Chile 5 Chile 6 project has been put on hold. What certainty can you provide that you're going to reach 2020 3 and you don't simply run out of volumes. I think there was reference made earlier to what is further available at Kemerton, but could you give any insights on to how you would expand your volumes in lithium post 2023?
That's my first question. My second one is on IMO sulfur legislation coming in 2020. Has the Catalysts division already started to see the uplift from this? Or is it simply the fact that refinery CapEx is picking up worldwide that is driving the growth? And would you expect this to continue for the next 2 or so years?
Thank you.
Yes. I'll let me take the first one and then I'll turn it over to Rafael to talk about IMO. First of all, post-twenty three what we've said is we're putting the chile went on the shelf right now, which is not proceeding, right now with chile 5 and 6. That could change. We have always said, Sebastian, that we are going to build out according to the demand of our customers.
And right now, we've got a bigger need in lithium hydroxide as we look out past 2021. So that growth is going to come from our ability to build out lithium hydroxide facilities and likely the ability to expand Kemerton to 100,000 metric tons over the next 5 to 7 years, which would take care of the drop side. In carbonate, we still have the ability to do Chile. We're just taking a pause on and see where it comes and let's see how that market develops. We may find out that we need even more, hydroxide or a couple of years we may find, we need lithium sulforal.
We may need more lithium metal. So what we've got to be able to do is be very responsive to the needs of the market both today and in the future. And the only way we can do that is by looking at what our customers are willing to commit to in the future and in sure that we have the capacity in place or the relationships in place to be able to meet that demand. And that's what we're trying to do because got to get a return on these assets as well. And if we can't get the people willing to step up to the plate to sign those longer term contracts.
And we don't have them. We're not going to build it for speculative demand. We're going to build it for what we know our customers are willing to supply us. That's what we've said. And we're going to maintain our discipline in that regard.
With that, Rafael, you want to IMO, please? Yes, sir. Sebastian, this is Rafael Crawford. To our perspective on IMO 2020 is a a net tailwind for our business. The magnitude of that, we're still working through that with customers who have several different strategies for getting to the lower sulfur specifications for bunker fuel.
Certainly, we have a broad portfolio of hydro treating catalysts that can serve various needs of refiners depending on what their particular crude slate is, what their operations are in their market strategy. So we feel like our value selling approach with those customers, with our portfolio and the strong team of technical people we have, we'll be able to use our products to help them meet those sulfur specifications. Additionally, watching carefully and looking for ways for how we can participate in FCC catalyst as it relates to this trend as well. And maybe the case that over time, refiners are looking for higher diesel output out of FCC units in order to help meet the increased diesel demand that would locations, but at a high level, Sebastian, the overall trend, IMO 2020, as well as sulfur specs around the world, favorable for hydroprocessing catalysts going forward.
Thank you. Can I just quickly ask on the statements on the potential Kemerton expansion? Do you have TI key's agreements that you will accelerate the expansion already? Do you have the access to the rock material?
Yes. They've been previously announced what we're going to do with Talison. And if Talison goes through with those expansions, which we fully expect to do, we'll have sufficient rock to meet almost all of that 135,000 metric tons that we would have in China and in Cameron not, we can get it on the open market. We'll be able to buy rock on the open market. So I'm less worried about that.
We've always said we'd like to have a little bit more conversion capacity for hard rock than we actually had hard rock defeated. Which would give us some benefit there to flex up. So very all consistent with the strategy we talked about before and very confident in our ability not only from Talison, but if we have to supplement a little bit from outside parties, we'd be able to do that. So we've got all the agreements we need and everybody is aligned on what we need to do to be able to
The next question is coming from the line of Colin Roche from Oppenheimer. Please go ahead. Your line is open now.
Thanks so much guys. Just want to follow-up on that last question. There's obviously an awful lot of R and D going on in the battery year right now coupled with a lot of automotive configurations. Can you talk about the rate of change in terms of the needs of your customers and what you're seeing come back to, especially as you make these longer term commitments on capacity?
Yes. So, Colin, this is Eric. So first to address what the customers are telling us, I mean, we, as Luke just reiterate what Luke said earlier, we are seeing decidedly a stronger push and as they share their long term outlook for us from a consumption standpoint towards hydroxide. And that is symptomatic of going towards higher nickel chemistries, and so that means being closer to the 622 sorts of chemistries. There's been some speculation in the market that 811 is around the corner.
I think it's still some technical challenges to get there. And so we still see that not necessarily being within the next couple of years. That being a few years or more off, versus today. At a more technical level, there continue to be efforts to think through, how to get more incremental capacity out of a battery cell by looking at pre lituation technologies or novel anode configurations which would involve some potentially some lithium metal doping. And this is a sort of an incremental trend.
It's not going to move the needle and in 2018 or 2019 volume for us, but it is representative of that technology trend you're talking about. And in a period of 5 to 10 years could result in more significant demand on the metal side. We just have we watch that very care growing.
So Colin, if I could just add on that, Ed, what he's saying, that's another reason why our long term strategy is that we're going to have these long term agreements. Because we need to understand whether demand is either from a carbonate, from a hydroxide, from a metal or from what's next from our customers in time so that we can invest in and expand capacity, mood capacity, whatever the right thing is to be able to address the needs of our customers in the market and our and the customers, the big customers understand that, and they're on board with that approach. So we feel good about it.
Okay. And then these volumes that are under negotiation, can you give us a sense of the magnitude of demand for those those volumes? Or I mean, is it kind of a 1 to 1 sort of ratio? Are you looking at 3, 4, 5, ax, the actual available capacity that you're in discussions on?
Well, if you look on page 1213 of our earnings that we laid out yesterday, we tried to give a view of what that was, both from a carbonate endpoint as well as a drought side standpoint in both 2021 2025. The other thing I'd add is on 2021, we put nameplate of the units on there of our collective production capacities. That because that is what's public. I it's not realistic to believe in any of these sites that will be operate nameplate from a actual production capacity in 2021. We're going to ramp up over time And as we've seen with the La Nega too, as we've seen with other things coming, you're not going to start it up on day 1 and be able to operate at nameplate capacity.
So that's not an indication that that's the volume we're going to produce in that year, but we want to be consistent with what we told the Street previously to give you a benchmark. So as I sit and look at it, we're we have much more opportunity, then today, we believe we will have the production capacity. So I feel excellent. Looking even out in 2025, which is 7 years away to be able to confidently save we're going to be well above our goal of 80% subject to minimum volume contracts.
All right. I'll take it offline then. Thanks.
The next question is coming from Joel Jackson. Please go ahead. Your line is open.
Hi, this is Robin on for Joel. Thanks for taking my questions. First off, you mentioned that you saw approximately $35,000,000 loss revenue on the 3000 tons of lower sales volume from the various production issues. So does that mean your average price realizations are around $12,000 a ton? And following that, what are your initial expectations for lithium price realizations in 20 team?
Well, so, I mean, you can do math as easy as I can. If you take the numbers that got red, you can get to an average number, but that's a combination of, of, carbonate hydroxide. Technical grade. It's a combination of customers. So I just don't think there's not one price.
You're not selling the commodity that's trading on some exchange is different, but that's how the math works.
Yes. So there's, this is Eric. There's clearly a mix of different products that are in there. So as you know, we don't disclose because it does vary widely by product. We don't get into details of closing price because there is no one one price there.
Okay. And just on your initial expectation for price related? Oh,
I'm sorry. You can have second question on 2019. Yes. It's too early to get into 2019. We believe we have said before is that increases would be more of an inflationary type basis as we're going forward in the future years.
That is, seems representative of what we can expect based upon contracts, but it's a, but we haven't given you a revised outlook for 2019 yet. We'll do that in a number of months and get more precise at that time.
But what we've always said is, 2019 will be more about volume than it will be about price. And if you look at what bringing online with La Negra 2 being wide open, starting up Xinyu II operations, certainly would expect we'd see volume growth year over year. And I think that whenever we get around to doing the number, it's going to be more about volume growth than it is pricing. But as we've said, pricing. I don't expect any downturn in pricing.
I expect a slight tailwind in pricing, but you'd also see significant tailwind on on volume.
And if I can just sneak in one more. Have you discovered anything in your initial feasibility work that might suggest the pawn, you'll increase technology wasn't going to deliver as expected or what is it that C Chen doesn't understand with their special improvement process that is stowing the approval?
It's C-ten doesn't have to do anything, first of all. So we're asking do something they're not required to do. And all they want to see is some proof that it's going to work before they give it to us. That's it. It's it is not a big deal, okay.
It's not a big deal. If we built, we only need it if we build 5 and 6. So in due time, all the data that we're working on when we get approval for that yield improvement project we'll sit down with C Chen. And if we build 5 and 6, I'm confident we'll have the ability to sell it.
And I think it's also important to know because I just want to make sure this is clear. In our spending, a capital spending guidance, there is spending for that yield technology. That continues onwards. As Lou said in his prepared remarks, and the way you can think about that is providing buffer in the event that ultimately we do proceed with 5.6 or choose to proceed or whether that's used to further, enrich the quality of the brine we have to feed the net growth 1 through 4. It is in our spending going forward, but 5.6 is on hold.
The next question is coming from Alexei from Please go ahead. Your line is open now.
This is Matt Skowronski on for Aleksey. Just touching on a question earlier, you were on track last quarter for 10 KT year over volume growth. I assume less 3 kilotons this quarter because of the outages, that would make it 7 or am I missing some inventory?
What you're doing is you're missing some of the tolling. Some of that 3 that we talked about was related to tolling. We're a little we're going to be south of 10,000 metric tons from our actual production. And but part of that is not all of the 3 because some of that 3 was tolling.
Understood. And then in Catalyst, you mentioned that HPC has been good so far this year and that visibility is pretty clear through the fourth quarter. What are you seeing into 2019? Can we expect another tailwind from HPC demand or is your visibility not that great?
At this point of the year, this is Rafael, Matt. At this point of the year, we have some visibility to what's going to happen in HPC. A lot of the HPC business or all of it's related to change outs of catalysts can be a lumpy business, but we expect a year in 2019 to be somewhat consistent with what it looks like, with 2018. There's no known known changes to our outlook for HPC demand. Overall, there certainly are macroeconomic tailwinds as it relates to sulfur locations.
Just like in FCC, there's tailwinds as it relates to Olefins output. So overall, the fundamentals of catalysts are good. And I wouldn't expect big differences next year in HPC versus this year in terms of overall performance.
Understood.
Is coming from Mike Sison from KeyBanc.
Luc, any changes in your outlook for EV adoption? It's over the years, the EV adoption rates have increased just thought I'd get an update on what you're seeing from your folks in terms of the trend there.
No, we have not, we've not publicly updated our demand model. I will say that there have been some other models are coming around that would push that up a little bit. The demand that we're seeing from our customers is certainly consistent with that demand model that we've put out there. So still feeling more confident in that model, in that model that we put out but not any real significant change that I would talk about today.
Right. And then in terms of the lithium outages in the third quarter, it doesn't seem like you were alone there. A lot of have unplanned outages. So is this something that we should think about as kind of a routine every year, every some facilities will go down? And then how do you think your customers will react if that to that?
I mean, obviously your long term contracts make are more important to them. But just your general thoughts on that?
So, Mike, this is Eric. I think it's just I think the way I need to look at this is the standards are going up. So that's why you see people getting caught with these these sort of unexpected outages. In our case, we, we have a, I'll add underway for some instance, we've owned these assets, a plan to address them. A good number of the improvements that we aim to make to make it a more sustainable operation going forward are connected to the bring on continue to, so the site wide sort of infrastructure is going on.
As Luke said, of the authorities clearly understand what we're up to and how we're going to address that. They are very anxious to see in production increase. This is a country that, as you know, really wants to see as much domestic lithium production as possible. So I think it's it is a one time sort of change in expectations. And in our case, it's associated with a longer, passive addressing things that, that'll be more complete or complete with, vis a vis the remediation plan we have with the government by the time the region needs to be fully online.
Great. Thank you.
The next question is coming from Mike Harrison from Seaport Global Securities. Please go ahead. Your line is open now.
Just on the lithium business and the, the shortfall that you had in terms of volume and revenue there, You mentioned what the EBITDA impact would have been there, but just looking at the margin number, I think it was surprising that your margin performance was still pretty solid, pretty similar to issues didn't have more of an impact on your bottom line?
No, I think, I mean, at the end of the day, we had some some cost improvements that we're starting to see in the third quarter that were not affected by the turn the outages. So Again, some of it comes down to mix of product as well. So as Luke said, we had some portion of that outage was tolling as we said previously, tolling is a quite a low margin, versus our internally produced volume as well. So that has a bit of an averaging impact on us as well. So, we feel good where that margin came in for the quarter.
All right. And then I want to make sure I understood. Sorry, one more quick one, just on the yield increase project and the increased lithium recovery. I want to make sure I understand that your quota is a life time quantity of lithium. It's not an annual quantity.
So you can actually exceed that 80,000 metric ton number if you wanted to, it just means you burn through the quarter faster?
That's exactly right.
Okay. We'd like to thank everyone for participation in today's conference. We appreciate your time. This concludes Albemarle's 3rd quarter earnings call. Thank you.
Year, everyone. That concludes your conference call for today. You may now disconnect. Thank you for joining and have a lovely day.