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Operator: Ladies and gentlemen, thank you for standing by. My name is Sheryl and I will be your conference operator today. At this time, I would like to welcome everyone to Albemarle Corporation’s Q3 2023 Earnings Call. [Operator Instructions] Thank you. I will now hand it over to Meredith Bandy, Vice President of Investor Relations and Sustainability.

Meredith Bandy: Alright. Thank you, Sheryl and welcome to Albemarle’s third quarter conference call. Our earnings were released after the close of market yesterday and you will find the press release and earnings presentation posted to our website under the Investors section at albemarle.com. Joining me on the call today are Kent Masters, Chief Executive Officer; and Scott Tozier, Chief Financial Officer; Netha Johnson, President of Specialties; and Eric Norris, President of Energy Storage, are also available for Q&A. As a reminder, some of the statements made during this call, including our outlook, guidance, expected company performance, timing of expansion projects, and growth initiatives may constitute forward-looking statements.

Please note the cautionary language about forward-looking statements contained in our press release and earnings presentation, which also applies to this call. Please also note that some of our comments today refer to non-GAAP financial measures. Reconciliations can be found in our earnings materials. And now, I will turn the call over to Kent.

Kent Masters: Thank you, Meredith. Before we begin, I am sure most of you have seen that this will be Scott’s last quarterly call as CFO. Scott is transitioning roles to become a strategic advisor, while Neal Sheorey will join the company as Executive Vice President and Chief Financial Officer on November 6. Scott has had a positive impact on the company since he joined in 2011. With his leadership, we have advanced Albemarle’s growth strategy and maintained our commitment to operating with people and planet in mind. In this new role, Scott will provide strategic advice into our long-range plans and will also be on hand to assist with Neal’s transition. I know you will join me in thanking Scott for his contributions to Albemarle over the past 13 years.

Our third quarter results reflect strong operating performance and continued volumetric growth in a challenging macro environment. Our net sales were up 10% in the third quarter versus the same period last year. However, adjusted EBITDA was down due to softer lithium market pricing and timing impacts of spodumene inventory from our JV-owned assets. Based on current market prices, we have revised our 2023 outlook, which still contemplates an increase in net sales between 30% and 35% year-over-year. We remain bullish about Albemarle’s long-term growth, our role in enabling a more resilient world and our strategy to deliver enduring value. In the third quarter, we made significant progress advancing these efforts. During the quarter, we signed agreements with Caterpillar to collaborate on solutions to support the full circular battery value chain and sustainable mining operations.

As part of the partnership, we will purchase an all-electric mining fleet for Kings Mountain and make our North American produced lithium available for use in Caterpillar battery production. We will also explore opportunities to collaborate with Caterpillar on R&D of battery cell technology and recycling techniques. With this collaboration, we and Caterpillar will be both customers and suppliers of each other with shared goals to pioneer the future of sustainable mining technology and operations. We also received a $90 million grant from the U.S. Department of Defense to help support the expansion of domestic mining and the production of lithium for the nation’s battery supply chain. The grant will be used to purchase fleet of mining equipment in support of the Kings Mountain restart.

Earlier this month, we finalized simplified commercial arrangements related to our joint venture transaction with Mineral Resources. Under the revised agreements, Albemarle will take full ownership of the Kemerton lithium processing facility and 50% ownership of the Wodgina spodumene mine in Australia and retain full ownership of the Qinzhou and Meishan lithium processing facilities in China. I will now hand it over to Scott to walk through our financial results.

Scott Tozier: Thanks, Kent and hello everyone. On Slide 5, let’s review our third quarter performance. Net sales were $2.3 billion, up 10% compared to last year. This increase was driven by higher energy storage volumes, thanks to expansion of our mining and conversion assets. Net income attributable to Albemarle was approximately $303 million, down 66% compared to the prior year. Similarly, diluted EPS was $2.57, down 66%. Higher net sales were more than offset by higher cost of goods sold, primarily due to inventory timing and I will discuss these timing impacts more in a moment. Our year-to-date results reflect the strong performance and significant growth we have achieved this year despite recent softer lithium pricing.

For the 9 months ended September 30, net sales are up 55% year-over-year and net income is up 42%. Looking at Slide 6, third quarter adjusted EBITDA was $453 million, a decrease of 62% year-over-year, driven primarily by softer lithium market pricing and timing impacts of spodumene inventory and energy storage. The Specialties business was also down due to continued lower volumes and pricing related to softness in certain end markets. For the first three quarters of 2023, adjusted EBITDA was more than $3 billion, up 38% against last year. Again, energy storage growth reflects the majority of that increase with both volumes and prices up year-over-year. On Slide 7, as Kent mentioned, we are lowering our total company outlook for 2023. As has been our practice, this outlook assumes recent lithium market price indices are constant for the remainder of the year.

And as a result, we have decreased the range for net sales. Under this methodology, 2023 total company net sales would be in the range of $9.5 billion to $9.8 billion. This range represents an increase in net sales of 30% to 35% over the prior year, driven by the ramp of our energy storage volumes. Our adjusted EBITDA outlook is expected to be in the range of $3.2 billion to $3.4 billion. This implies full year EBITDA margins of 34% to 35%. Our full year 2023 adjusted EPS outlook has also been adjusted to a range of $21.50 to $23.50. We expect our net cash from operations to be in the range of $600 million to $800 million. The decrease in adjusted EBITDA and net cash from operations reflects current lithium market prices and lower expected sales volumes at our Talison joint venture.

Our partner at Talison, elected not to take their full allocation in the second half of this year, and this has impacted our equity income for the period. Our CapEx guidance remains in line with previous forecasts at $1.9 billion to $2.1 billion, which as a reminder from last quarter, reflects 100% ownership of our conversion assets with the completed revised agreements with Mineral Resources. We expect to provide our full year 2024 outlook on our fourth quarter call in February. Turning to the next slide for more detail on our outlook by segment. Assuming recent lithium market prices remain constant through the rest of the year, we expect energy storage 2023 net sales in the range of $7 billion to $7.2 billion and adjusted EBITDA to be flat to slightly down on the year as timing impacts of higher priced spodumene more than offset higher net sales.

We are projecting that full year average realized pricing increases will be in the range of 15% to 20% year-over-year and energy storage volume growth in the range of 30% to 35% year-over-year. We continue to expect Q4 to see stronger production volumes as a result of project ramps. In 2024, volume growth is anticipated to continue as as Kemerton, Qinzhou and La Negra ramp to meet the expected demand from continued strong EV production. In the Specialties, we now expect net sales to be approximately $1.5 billion, with adjusted EBITDA expected to be down 40% to 45% year-over-year for the full year. This is due to continued softness in consumer electronics and elastomers, partially offset by strength in demand in other specialties end markets, including pharmaceuticals and oilfield.

We continue to monitor the situation in the Middle East and any impacts at our operations in Jordan. Currently, JBC is operating as usual without disruption to our supply chain. Macroeconomic and geopolitical uncertainties will impact market visibility in this business well into 2024. Ketjen’s 2023 full year adjusted EBITDA is now expected to be up 250% to 325% year-over-year due to higher pricing and volumes as well as productivity improvements. During the quarter, we saw higher volumes driven by high refinery utilization. We also saw benefits of higher contract pricing primarily for FCC products, which is expected to continue through 2023 and into 2024. We are encouraged to see inflation in Material and Energy costs moderating and expect this trend to continue through 2024.

On Slide 9, we have an experienced team that knows how to operate in a variety of price environments. Maintaining our disciplined growth mindset we are taking a comprehensive review of actions that will support our near-term profitability and cash flow. As we’ve done in the past, we’re reviewing our project spend and sequencing of our projects to preserve cash. We’re also implementing cost and efficiency improvements across our business. For example, we’ve reduced non-critical travel and are reducing discretionary spending. Our Albemarle Way of Excellence is the standard by which we choose to operate. Slide 10 provides an update to the targets we’ve made in manufacturing and procurement. We’re on track to exceed our goal of $170 million in productivity benefits in 2023.

In manufacturing, improvements to our overall equipment effectiveness to improve yield and utilization are expected to exceed $70 million in benefits. In procurement, we strategically sourced to capture lower raw material pricing. In 2024, we expect to increase these initiatives, targeting additional benefits across manufacturing, procurement and back office. Lowering operational costs in our business is critical to our success as we orient towards sustainable growth. As a reminder, most of our energy storage volumes are sold under long-term contracts with strategic customers. Our expected 2023 sales mix on Slide 11 remains unchanged from last quarter and reflects recent lithium market prices. We expect year-over-year energy storage volume growth to be in the range of 30% to 35% in 2023.

This is driven by successful execution and ramping new capacity as well as additional tolling. With additional conversion assets coming online in 2024 and beyond, we still anticipate a 20% to 30% CAGR in Albemarle sales volumes between now and 2027. And we remain on track to nearly triple our volumes to more than 300,000 tons. Slide 13, is the updated bridge for our energy storage adjusted EBITDA margins. Full year 2023 margins are expected to normalize in the 40% range from the very high rates we saw in 2022. As always, Talison equity income is included in our adjusted EBITDA on an after-tax basis, that tax drag impacted EBITDA margins by about 7% to 10%. The other impacts on the chart are relatively small and our offsetting. Higher lithium pricing is offset by other items.

This year, we had a 5% negative impact from MARBL JV accounting that goes away next year with the closure of the restructured MARBL JV. That leaves the largest impact to our margins at 20% spodumene inventory lag. We understand this inventory lag is complicated and can be difficult to forecast. So I want to spend a little bit more time on that. Through the Talison joint venture, Albemarle has access to one of the world’s best lithium resources. Greenbushes is a large, high-grade and, therefore, low-cost spodumene mine. We recognize our 49% share of Talison earnings in equity income and cash dividends. Our 50% share of Talison offtake also flows through inventories and cost of goods sold based on market pricing. The timing of inventories and sales can often drive short-term margin variations.

Excluding these timing impacts, we expect energy storage adjusted EBITDA margins to be in the range of 30% to 40%, even at today’s prevailing market pricing for lithium and spodumene. Turning to Slide 15. In the Talison joint venture, we recognized profit associated with our partners’ offtake immediately. We recognized profit associated with our offtake when the product is converted and sold which typically takes about 6 months from when we first extract spodumene from the ground. Throughout 2022 in the first half of 2023, Talison pricing on partner shipments was higher than that realized on our own shipments. Timing differences between the recognition of our profit on our partner’s offtake and our offtake resulted in about $800 million of benefit to EBITDA during that period.

As spodumene market prices decrease, we expect this effect to reverse as we recognized higher priced spodumene and cost of goods sold and lower prices in equity income. However, we expect this timing-related impact to be temporary, with no impact to adjusted EBITDA at steady market prices. Again, assuming today’s market prices are held constant, we expect energy storage adjusted EBITDA margins to average in the range of 30% to 40%. Turning to Slide 16. Albemarle’s capital allocation priorities remain unchanged. First, investing in high-return organic and inorganic growth, second, maintaining financial flexibility and our investment-grade credit rating; and lastly, funding our dividends. Planned expansions to deliver volumetric growth continue to progress across the company’s global portfolio.

Although, as I mentioned before, in this softer market, we are taking a hard look at the level of our CapEx spending and the sequence of our projects. As it relates to inorganic opportunities, we announced a few weeks ago that we decided not to pursue a binding agreement to purchase Liontown and formally withdrew our non-binding offer. While we had productive engagement with Liontown and as we learn more, we decided that moving forward with the acquisition at this time was not in Albemarle’s best interest. This reflects our disciplined capital allocation and M&A approach. As we look forward, we continue to evaluate a broad range of M&A opportunities. However, in the current environment, the scale of those opportunities are not as big. And we have many options available across 3 areas: lithium resources, process technology for our core business and for new advanced materials and battery recycling.

Turning to Slide 17. Our balance sheet flexibility is a competitive advantage that allows us to grow both organically and through acquisition as well as support shareholder returns. As of year-end 2023, we expect our leverage ratio to be 1.2x to 1.3x net debt-to-EBITDA. And with that, I’ll turn it back over to Kent for a market update and closing remarks.

Kent Masters: Thanks, Scott. On Slide 18, we highlight the continued growth in EV sales that reinforces our long-term growth opportunity. Year-to-date through September, EV sales remain on track for 40% year-on-year growth and show end market demand to be resilient. While the U.S. and Europe make up only about one-third of total EV production in ‘23 and ‘24, near term, we see potential challenges for EV growth in those regions related to economic softness and higher interest rates. We are monitoring any economic impacts to the seasonal acceleration in EV sales at the end of the year. Our long-term view of secular growth continues to be supported not only by the adoption of EVs, but transformations across mobility, energy, connectivity and health.

Slide 19 provides a view of lithium inventories across the value chain. Both upstream and downstream producers have continued destocking with very low levels of lithium inventory at cathode producers. Cuts to higher-cost supply have continued as some lepidolite producers, and merchant converters have reduced production. Turning now to Slide 20. We remain on track to achieve strong net sales growth up 30% to 35% year-over-year. This reflects our continued growth investments and the strength of our portfolio that have enabled us to overcome the near-term pricing challenges. We are disciplined in both how we operate and how we allocate capital providing an edge across economic cycles. Albemarle is a global leader with world-class assets and a diversified product portfolio positioned to supply key growth sectors.

We have a competitive advantage with vertically integrated assets and innovative advanced solutions designed to meet our customers’ needs. The actions we took this quarter, including our collaboration with Caterpillar, and the restructuring and simplification of the MARBL joint venture help us build on this advantage. The long-term growth trajectory of our end markets remain strong including continued growth in electric vehicles. Our strategy is clear to capitalize on this opportunity with a disciplined operating model to scale and innovate, accelerate profitable growth and advanced sustainability. With that, I’d like to turn the call back over to the operator to begin the Q&A portion.

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Operator: [Operator Instructions] Your first question comes from the line of Patrick Cunningham with Citi. Patrick, your line is now open.

Patrick Cunningham: Hi, good morning. So one of your JV partners is not taking the full allocation at Greenbushes and do you still plan to take your full volume allocation? And do you see any risk of production cuts in the first quarter, perhaps its concentrated stockpile?

Patrick Cunningham: That’s helpful. And then just given some of the recent price weakness headlines, dialing back EV targets, I’m just curious on more detail on how you’re thinking about growth investments and trajectory going forward. How has your thinking started to change on regions, project spending and sequencing of those projects?

Kent Masters: Yes. So we’re going through that at the moment. So we’re not prepared to really give guidance for next year’s capital plan, but we are taking a look at that. Everything we can do to cut capital, but without really impacting the long-term growth trajectory or the growth projects that we’ve developed out there. So there is some flexibility around sequencing and we will be able to put some projects out slightly without really changing the long-term profile for that. And that’s the work that we’re doing now, and we will be able to give guidance on that in the February call.

Patrick Cunningham: Alright, thank you.

Operator: Your next question comes from the line of Josh Spector with UBS. Josh, your line is open.

Josh Spector: Hi, thanks for taking my question. I guess, first, I wanted to ask on kind of lithium pricing and specifically the realized pricing for Albemarle. And just kind of thinking about a scenario where spot goes less than $20, so say, $18 per kilogram. What happens to the other 80% of your contracts? You’ve talked about floors, you’ve indicated that there above or at the high end of the cost curve. But what really does that mean? In that scenario, I guess, what does Albemarle realize in terms of pricing?

Eric Norris: Good morning, Josh, it’s Eric. As you know, we don’t give precise price guidance for our overall portfolio. But let me try to help and give you some perspective around this. First off, obviously, a spot price realized in China, will look different as you look at other market pricing around the world. There is – most of the supply or a lot of the supply comes from China, they are transactional and VAT considerations that would translate that to a higher price oftentimes outside of China. We have floors on our 80% of our index reference contracts. We have a variety of different floors. We don’t disclose that, but it’s designed to give us protection so that we can continue to operate well, continue to pursue growth capital in the near-term and to sustain the margins that Scott was talking about.

And as we look forward, I mean, we are – I’d have to little bit perplexed as to why price is where it is. These are levels that for a great number of the higher-cost projects we would expect supply to come off, and in fact, have seen supply come off, should prevail. We’d expect to see potentially other resources or other projects be slowed down. From our perspective, though, we have a growth plan that’s double-digit growth next year. We feel comfortable with the protection of our contracts give us and importantly, the low-cost position we have going forward in our portfolio.

Josh Spector: Yes, thanks, Eric. And I guess I wanted to follow-up just on the margin comments that you made, Scott. So the range that you gave, I mean, it’s different than you go back a couple of years ago, you talked about 45% plus. And I believe at that time, you said you could maintain those margins in a lower price environment. I guess I don’t know if I’m remembering right or if anything has changed, but what accounts for the difference?

Scott Tozier: Yes. I think the difference, Josh, is that when we made those mid kind of 40% comments, we were thinking about a mid-cycle type of pricing. As we look at this 30% to 40% that I commented on today, that’s really at today’s prevailing prices. And again, it’s based on constant pricing as opposed to some of the volatility, which is going to distort our margins either higher as prices go up or lower as prices come down.

Josh Spector: Okay, thank you.

Operator: Your next question comes from the line of Joel Jackson with BMO Capital Markets. Joel, your line is open.

Joel Jackson: Good morning, Eric. So I think Eric, you just said you were perplexed how low prices have come down to maybe low 20s here, LCE – so you said you’re considering reinvestment economics. So maybe you could talk about why you think prices have gone down to where they are? Is it lepidolite? Is it African spodumene? Is it something else? What do you think? Everyone is still there?

Operator: We are here. [Operator Instructions]. Thank you.

Meredith Bandy: Hi, can you hear us on the line?

Operator: We can hear you.

Eric Norris: Shanelle, can you hear us?

Operator: Yes, we can hear you.

Eric Norris: Okay. Okay. Sorry, not sure what happened there. So Shanelle, I’ll – if it’s okay, and you can hear me, just confirming?

Operator: Yes, I can hear you.

Eric Norris: Okay. So I’ll continue to answer Joel’s question. Joel, so I apologize for the interruption…

Joel Jackson: Can we start from the beginning, Eric, if that’s okay? I didn’t hear it anyway.

Eric Norris: Yes. So what I was describing is that we do a lot of work to model supply and demand. And if you look last year, this year, next year, remove for a moment, what we know has happened this year, which has been an inventory correction in the supply chain, the industries by our reckoning is operating at us if you look at supply or demand over supply about a mid-90s capacity utilization rate. So that’s the part that’s perplexing. And in any other market, at those levels, you wouldn’t see pricing fall like it has. Now we have had an inventory correction this year. It’s largely run its course, at least at the cathode level in the largest market in the world, and that’s one of the slides we shared with you. Any inventory correction further in the supply chain, we would expect on balance to occur or be behind us or certainly be behind us in the balance of this year.

And so as we look forward, we don’t see a rationale for why prices would fall to where they are because they are below reinvestment economics. As we’ve said many times, our concern would be towards the end of the decade that there needs to be a sufficient amount of capacity to serve the EV market. Here we are operating at a healthy – relatively healthy supply-demand utilization with prices where they are. So it’s very difficult to explain how that’s the case, Joel, but obviously, we’re well positioned with our cost position and our go-to-market strategy to weather that storm. It’s just – it’s going to be challenging for the industry at these levels. So that’s our greater concern is future availability and investment in supply to support the transition across the industry.

So that’s probably the best we can tell you in terms of our view at the moment.

Joel Jackson: Okay, thank you for that. If I can follow-up, on them. I think it was Kent too said, a little few minutes ago, you’re going to look at maybe ratcheting back your growth plans, it look like slightly, so slow down a little bit sequencing, but not changing anything in your longer-term plan. So what if you’re not right about your lithium price view here and what if prices are lower and the returns aren’t as good as you think and you’re going to go full team ahead on a lot of this growth, but ends up not being needed? How do you balance the risk of overspending and driving negative free cash for a long time with making sure you are supplying enough volume for the market over time and maintaining your market share?

Kent Masters: Yes. So that’s the balance, right? I think what we’re saying is we look at our capital programs, and we’re going to cut back where we can. And – but it’s not changing our overall strategy around growth – and again, our cost position protects us with that. So it’s not really the returns on the projects given what we see, but it’s more about the capital that we’re investing while the market is down. So we’re just adjusting the timing on that, and then we will be cautious as we layer those back in over time to make sure that we’re right around pricing.

Joel Jackson: Thank you.

Operator: Our next question comes from the line of Michael with Wells Fargo Securities. Michael, your line is open.

Michael Sison: Hey, guys. Scott it’s been great working with you over the last decade or so. So for 2024, can you still do or do you still expect demand to support sort of that 200,000 KTs that you’re expecting to expand to? And if you do, I guess, at these pricing levels, you could do 30% to 40% EBITDA margin?

Eric Norris: Why don’t I comment on the demand first. I think it’s an important topic, and then I’ll turn it over to Scott. This is Eric speaking. A couple of facts just to get a flavor of our business today. All of our contracts are performing. We’re able to sell product into the spot markets for that 20%. There is a lot of negative sentiment broadly in sort of media around the marketplace. It happens to be around maybe certain manufacturers announcements. I think you can’t lose sight of the fact that the bigger markets, China, are the bigger producers in the EV space, are continuing to grow their output, and that’s driving healthy demand. It is true that this year demand from a production standpoint – the need for new production is probably underperformed the 40% growth.

So the market for consumption it’s been closer to 35% growth year-on-year, where the EV market is growing at 40%, and that’s because of the inventory correction we see or have seen – but looking forward, that’s not a sustainable trend once inventory is running its course, there is a return to normalcy and/or potentially even a restocking that occurs. So we feel very good about what – we see what’s happening now is road bumps, but certainly not a determinant for the long-term growth we have. And as we look out to 2024, we will be bringing on capacity that will allow us to put against those contracts, as I said, are performing well, another double-digit year growth in 2024. As for margins, I’ll let Scott comment.

Scott Tozier: Yes. Thanks, Eric. So I think the way you should think about this is we’ve kind of illustrated on Slide 15 of our deck, we’re going to continue to see some level of the spodumene inventory lag affecting us in the first half of next year. And then by the second half, we will be in that kind of normalized 30% to 40% range that I talked about. So the full year is likely to be lower than that. However, we will get to normalized margins by the second half of the year, again, assuming if prices remain constant through that period. And we don’t see the price volatility that causes these ups and downs.

Michael Sison: And then I guess, if the industry is running in the mid-90s, and let’s just say demand does continue to grow next year. Stability in pricing hasn’t been the case, right, for the last year or so? I mean do you think there is potential for a quick rise again in pricing? Would that happen if prices – if folks restock?

Kent Masters: So look, this is – this industry – it’s still early in the industry, so it’s difficult to say. So we were anticipating some of the volatility coming out in this cycle, but that didn’t really happen. So it is difficult to say exactly how quick it responds, where it goes and where it comes back to. We anticipate over time the highs and lows in that volatility coming out. But the question is, what is that period of time?

Michael Sison: Got it. Thank you.

Operator: Our next question comes from the line of Jeff with JPMorgan. Jeff, your line is open.

Jeffrey Zekauskas: Thanks very much. Your cash flow through the first 9 months was $1.45 billion and you’re expecting cash flow for the year of $600 million to $800 million. Why is the cash flow in the fourth quarter, negative 6% or negative 8%? Is that one-time? Is it ongoing? And what do you make that?

Scott Tozier: Thanks, Jeff, for the question. So I think a couple of things are doing that. Of course, we’ve got lower EBITDA in the fourth quarter. As we look at our sales patterns, we’re back-end loaded in the quarter. So we have increased working capital as a result of that. And then we’ve got some one-time items, including the DOJ and SEC settlement that we did that flows through our operating cash flow. So those are the key drivers. And then right now, our CapEx is on track to be about the same as what it was in the third quarter. So those are kind of the moving pieces in our cash flow for the fourth quarter.

Jeffrey Zekauskas: Second, just what you said was that your EBITDA margin was being penalized by about 7 to 10 percentage points than your lithium business because of these timing differences. If you look at the EBITDA of energy storage, excluding equity income, in the quarter, it was about negative 15. And so if you take 10% of the energy storage revenues of $1.7 billion, that’s another $170 million. You netted out, that’s $150 million. So it looks like the EBITDA margin on your businesses, excluding Talison is about 8%. And – so what am I doing wrong in the math? What am I missing? And then why do the – so what are the returns on your business, excluding Talison and the changes in inventories?

Scott Tozier: Yes. So Jeff, this is important because our strategy is to be an integrated producer. That means we’re going to make money throughout the chain from the mine all the way through the chemical conversion into the salts business. Given where the prices are today and how they dropped, the JV is making the joint venture and we will just focus on Talison, but the same is happening at Wodgina. The JV is making a significant amount of our operating income. And as those high-cost spodumene inventories being processed in the quarter and the second half of this year, primarily in China, we are actually seeing losses as you commented on that conversion. But that’s really just being driven by the timing of that spodumene inventory being processed.

If you were to normalize and again, in a flat rate and flat price environment, you would see normal margins in both the core business as well as the joint venture ultimately. And so again, I think as you look at the geography of our P&L, that’s the effect that we have been talking about with that inventory spodumene lag happening.

Operator: Your next question comes from the line of Aleksey Yefremov with KeyBanc Capital Markets. Your line is now open.

Aleksey Yefremov: Thanks and good morning everyone. On your fourth quarter guidance for lithium, if I look at your Slide 15 and sort of take the difference between your expected fourth quarter margin for the segment and expected normalized margin of 35%. I get about $300 million to $400 million EBITDA impact of this timing difference just in the fourth quarter. Does this sound about right to you as a dollar impact for this phenomenon?

Scott Tozier: Yes. That’s pretty close, Aleksey.

Aleksey Yefremov: Great. And another question is the – you mentioned the impact of lower equity income because your partner chose not to take their full allocation. Can you talk about the size of that impact in the fourth quarter? And also if you can talk about it directly, maybe you can speak about your equity income expectations in general in Q4.

Eric Norris: Aleksey, hey, it’s Eric Norris. It obviously because of that curve that you referenced on Slide 15, it would vary at any point in time. But in the fourth quarter itself, it’s over $100 million sort of in that $100 million to $200 million range.

Aleksey Yefremov: Thanks.

Operator: Your next question comes from the line of David with Deutsche Bank. David, your line is open.

David Begleiter: Thank you. You referenced some spodumene producers or lepidolite producers in China shutting down as well as maybe some non-integrated producers. When did you start see shutdowns to occur? And how much is being shutdown in your view?

Eric Norris: It’s Eric again. So, you may recall that we saw the same phenomenon in the – during the first quarter as well when prices took a similar dip and if you – and so there are a couple of factors going on. One, starting first with merchant spodumene producers, those are the producers we refer to as they are buying spodumene on the market, converting it in China. Their cost has – when you start to get certainly at current price levels, actually, probably when you get into the mid-20s and less, they start – their margins start to get upside down. In fact, the prior comment that Scott just answered around the negative margins that were pointed out in the quarter on a non-consolidated basis, for us are an illustration of what a non-integrated producer would be dealing with.

So, they shutdown at those prices or they have to, unless they can get their hands on lower-cost spodumene. Spodumene has been coming down, hasn’t been coming down at the same rate. The big question, obviously, that pivot point of when they shutdown depends on when or what the spread is basically to spodumene, but that is currently negative. Lepidolite is a bit of a different story. It’s a much higher cost material to produce and has had – there has been froth with environmental and start-up challenges. So, there has been both a moderation of capacity for those reasons over the course of the year as well as a moderation of capacity for the same reason I just referenced. Un-integrated lepidolite producers who buy lithium in the market and convert it are seeing a similar margin loss at these prices.

If you look at lepidolite producers from peak from where they started the beginning the year to now, it’s about a 40% reduction of which about 10% has come offline in the recent few months, some more came off in the earlier part of the year. So, those are the various factors that are driving closures within China at these prices. Obviously, price recovers, they could come back, of course.

David Begleiter: Got it. Eric, did you mention that ‘24 volumes in energy storage should be up around between a 20% to 30% range, that you were guiding to longer term?

Eric Norris: I don’t know that we have given a guidance fully on that yet. But I mean if you take the demand forecast that we gave you earlier in the year that were multiyear, you would see a similar growth rate projected for next year as we had this year. This year’s growth rate was clipped a little bit by – for lithium consumption. It was clipped a little bit by the inventory correction we saw during the year, but it’s well into the 30s for sure going into next year, we believe.

David Begleiter: Thank you.

Operator: Your next question comes from the line of David with TD Cowen. David, your line is open.

David Deckelbaum: Thanks for squeezing me in guys. I wanted to just ask maybe a non-lithium related question, I would say, I guess upwards of a year ago, you guys were looking strategically at that perhaps divesting the catch in business. We have seen a rebound in that business. And it seems like the outlook is fairly robust for the fourth quarter. Considering the balance with the energy storage side right now, is this potentially a strategic time of divesting that business or putting it under review or should we think of this as part of the going concern?

Kent Masters: So, I think we went through that process a year ago and couldn’t get the value for catching that we were thinking about. So, we rebranded it. we are treating it as a wholly owned subsidiary, and that’s kind of the go forward for the moment. I don’t know that we would think about it long-term as part of the overall strategy. But in the near-term, that’s part of the plan.

David Deckelbaum: Got it. And I guess just maybe a question for Eric. On the energy storage side, you talked about the Talison JV and partner electing not to take shipments in the fourth quarter. We have seen some other of your peers building inventory in the fourth quarter here. Do you anticipate doing that in any of your assets or advocating for incremental inventory stocking or slowing down at any of the other assets in Australia?

Eric Norris: The best way to answer that, and you are right, every supplier has a different situation and the situation for our partners at Talison that they have unique issues and challenges that are different perhaps than ours. When we look at our rate of capacity addition downstream for conversion, and that includes Qinzhou coming up and includes Kemerton I and II coming up in that part of the world, and continuing to run [Technical Difficulty] in our Qinzhou facilities at full capacity and then look at ramping Meishan later in the year next year. We see demand for more spodumene to obviously serve that growth. We haven’t given precise guidance on what that volume growth is for next year. We will do that in three months’ time.

But as I have said, I think earlier, it’s a double-digit type growth we are expecting again, which has a demand on spodumene. Our mandate is to run efficiently in this environment, right, because cash preservation to support our growth is critical. So, we are not in a mode of trying to carry working capital that we aren’t going to put into – convert into cash in a reasonable timeframe. So, building inventories is less of a strategy than ramping production to match the conversion demand downstream. And again, we will give more guidance on all of that in a number of months.

David Deckelbaum: It sounds like you guys aren’t going to be coming back to the market with an update, like you did last January that we should wait until February with the fourth quarter earnings?

Kent Masters: Yes, the thinking at the moment is that we will do that in normal course to be the February earnings.

David Deckelbaum: Thank you all for the answers.

Operator: Your next question comes from the line of Kevin McCarthy of Vertical Research Partners. Kevin, your line is open,

Kevin McCarthy: Thank you and good morning. On Slide 11, you indicate that a $10 per kilogram change in market indices would equate to a change of $5 to $7 per kilogram in your realized pricing for this year. My question is, would that sort of rule of thumb apply to 2024 as well, or might it be different?

Scott Tozier: Yes. Kevin, so that should apply. And just as a reminder, that’s on a full year basis. So, it has to move by $10 over the full year and the full year impact of that kind of 5% to 7% range [Technical Difficulty] it’s a little bit confusing because that moves up and down like we did this year that makes it a little bit harder to track through that. But that ratio carries forward into 2024. Yes. So, the only – I would say we except from that is if you were to get into the contract or it’s correct. So, that number is kind of – when we put that out there, it was a higher number, wasn’t anywhere near the floors.

Kevin McCarthy: Thank you for that. And then coming back to Slide 15 and maybe the subject of the spodumene concentrate inventory flow-through, tempted to ask, Scott, how do you see the quarterly margin pattern progressing, or put differently, which do you think would be the trough margin quarter as you digest the expense of spodumene, might it be the first quarter of next year, the second quarter, or is it difficult to tell at this point?

Scott Tozier: Yes. I think as you look at that chart, you can kind of see where those lines start to converge and that the trough would be in this fourth quarter of 2023. Of course, as you look at that, you are going to have some impact in the first quarter. So, I think as you look at the next year from that impact that the trough in 2024 would be in the first quarter.

Kevin McCarthy: Okay. Thanks so much.

Operator: Your next question comes from the line of Vincent Andrews with Morgan Stanley. Vincent, your line is open.

Vincent Andrews: Thank you. Kent, can I ask you on the balance sheet philosophically? If we think back a couple of months with Liontown, you are going to debt finance that acquisition. And if I recall correctly in the slide deck, you had a range of outcomes on price, and I think the better case was about 15,000. So, how do you think about – or how do you think about using the balance sheet for M&A versus your growth CapEx plans, because I am just thinking about your comments from earlier that you might push things – change the sequencing or so forth. And I guess I am also wondering, are you less interested in debt financing, organic growth versus acquired growth? And as you think about the next couple of years, do you need to be free cash flow positive, or are you willing to let the leverage come up a little bit if that’s what happens?

Kent Masters: Yes. So, there is a lot in that question, and it depends on how things play out. I mean I guess the things – we want to make sure that we kind of set fundamentally, we want to be investment grade, and we kind of have a – we have a target or a kind of a ceiling that we kind of work to is about 2.5x around that. So, we want to be – and obviously, that’s under stress period, so we want to stay below that, and we will have to make adjustments to do that, right. So, we want to preserve our organic growth plan that we have because we have got resources for that. Our acquisitions have been focused on a couple of different areas. We will still look at M&A, but it’s not going to be at the same scale that we were frankly looking at six months ago.

Vincent Andrews: Okay. And then, Eric, if I could ask you on the Chinese converters or the non-integrated converters, kind of referenced this earlier that at current spodumene prices, some of them are backing off. At least on our calculations, spodumene prices could still go down quite substantially and most spodumene producers would still be quite profitable. So, is there a reason why that won’t happen that those spodumene producers won’t – just lower price to keep their customers operating so that they can make sales and generate cash, or is there something in that market dynamic that’s not obvious to me?

Eric Norris: Well, I mean I think in theory, you are right. I mean there is margin to give from a spodumene mine producer. But then on the other hand, there is market demand, what’s required. That’s the counter effect to price, obviously. And with the amount of capacity that will come off, while the room for spodumene prices to potentially come down at some point, there is now demand for salts in the market that is not being met, and that would turn things the other way around, right. So, it’s about the demand equation, which I think generally speaking, the market is to soft, not the trade, not the lithium market. But the broader global markets, stock markets are a little down on is that the demand is not as weak, we see it as weak as being portrayed and particularly in China.

So, as that – and in China, as a reminder, is about 70% of the world’s consumption or production of EVs. So, I think it’s the demand factor that would be the mitigating factor on further spodumene prices. But to your point, I don’t know we know exactly where spodumene prices will go because we keep – it’s hard to predict relative to when there is a stimulus on demand that pulls them back up.

Vincent Andrews: Okay. Thanks very much. I appreciate it and congratulations, Scott, on retirement. I appreciate all your help over the years.

Scott Tozier: Thanks Vincent.

Operator: Your next question comes from Colin with Oppenheimer. Colin, your line is open.

Colin Rusch: Thanks so much guys. With the inventory hanging out at these lower levels, we are seeing some new balances in terms of a variety of supply chains. What’s your expectation around where that normalizes in terms of days of inventory? It seems like the industry is running awfully lean at this point. And then if you could also address what you are hearing from some of your longer term OEM customers around concerns on security supply as they adjust some of their EV production plans?

Eric Norris: So, Colin, it’s Eric. On your first question, I don’t know that we have a good answer for that. It’s because it’s perpetually operated, particularly if you look at Chinese cathode producers at levels which are less than a week, this is – contrast that with our supply chain and this inventory lag that is one of the most popular and understandably popular question being asked today, the reason we have that is it takes six months to go from mine to product on our side. And if there is any disruption in the supply chain, five days of supply at a cathode producer is not going to be enough. So, it doesn’t feel sustainable, but they have been able to operate that way throughout the year. So, there are some question marks we would have about what’s a sustainable and responsible way as a company to operate your supply chain for security purposes.

And I just I got to believe that it’s got to be higher downstream at some point than it is, but I don’t think we know exactly what it could be. And then in terms of the global OEM sort of concern on security supply, there is no letup from OEMs on interest and long-term off-takes in securing supply. Yes, it is true. There are some OEMs who have announced some changes to their or expressed some concerns about their targets. But I think if you look at the larger players in the EV space, keeping in mind that, that isn’t necessarily the companies that are now announcing that they are pushing out their targets. Those larger producers are going to continue to increase their output whether they are here or in China or in Europe and they are continuing to demand security and supply because they realize they cannot fulfill the large investments they are making downstream in electric vehicles without lithium.

So, I think that demand – that dynamic is still there with the OEMs.

Operator: Our final question comes from the line of Steven [ph] with Bank of America. Steven, your line is open.

Unidentified Analyst: I just wanted to ask you whether you would be looking at any new technologies to extract more lithium out of the brand deposits in Argentina, anything that you are – you think could bolster your production there at a more capital-efficient way in any of these technologies in development that you see could potentially lower the reinvestment economics?

Kent Masters: Yes. So, we – I mean look, we have a broad R&D program and extracting lithium and converting lithium to salt and other materials is the big part of that. From the program, it sounds like you are referencing would be around direct lithium extraction, which is a variety of technologies. It’s not just one particular thing, but a variety of technologies that tends to be unique for each brine. And we have a program around that, that’s – it’s kind of broad in nature, but it’s very focused on the resource we have in Magnolia and the Salar de Atacama. It would also apply in Argentina as well or to any brine resources. But what – at the moment, the work is particularly focused on the Salar de Atacama and the brine to Magnolia, Arkansas.

Unidentified Analyst: Very good. Thank you.

Operator: That was all the time we have for questions. I would like to turn the call back over to Kent.

Kent Masters: Okay. Thank you. Thank you all for joining us today, and I apologize for the technical difficulties. I think we have got the line on the speaker side muted for a period of time. I apologize for that. Albemarle leads the world in transforming essential resources into the critical ingredients for modern living with people and planted in mind. We are confident in the market opportunity and our disciplined strategy to achieve both short-term and long-term results. We continue to work to be the partner of choice for our customers and the investment of choice for both the present and the future. Thank you for joining us today.

Operator: Ladies and gentlemen, that concludes today’s conference call. Thank you for your participation. You may now disconnect.