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Albemarle (NYSE: ALB) 2021 third quarter earnings conference call, at 9:00 AM Eastern Time, November 4, 2021
Ladies and gentlemen, thank you for your support and welcome to the Albemarle earnings conference call for the third quarter of 2021. [Operator Instructions] Now I want to hand over the meeting to today’s speaker, David Burke, Director of Investor Relations. Thank you. please continue.
David Burke - Director of Investor Relations
Thank you, and welcome to Albemarle's 2021 third quarter earnings conference call. Our earnings were released after the market closed yesterday, and you can find our press releases, earnings reports and non-GAAP reconciliations under the investor section of our website www.albemarle.com. Joining me on the conference call today are our CEO Kent Masters; our CFO Scott Tozier; Catalyst President Raphael Crawford; Bromine Specialties President Netha Johnson; Lithium President Eric Norris can also conduct Q&A. As a reminder, some of the statements made during this conference call, including our outlook, guidance, expected company performance, and timing of expansion projects, may constitute forward-looking statements within the meaning of the federal securities laws.
Please pay attention to the warnings about forward-looking statements contained in our press releases and earnings reports. The same language applies to this call. Please also note that some of our comments today involve non-GAAP financial measures. Reconciliations to GAAP financial measures can be found in the appendix to our earnings release and our earnings presentation, both of which are posted on our website.
I will now transfer the call to Kent.
Kent Masters-Chief Executive Officer
Thank you, David, and thank you all for joining us today. In today’s conference call, I will focus on our quarterly results, provide updated information on our 2021 goals, and discuss the progress of our ongoing expansion plans. Scott will provide more detailed information about our results, prospects and guidance. We reported another solid quarter with net sales of US$831 million and adjusted EBITDA of US$218 million.
Sales increased by 11% year-on-year, and adjusted EBITDA was relatively flat compared to the third quarter of last year. Excluding FCS from our third quarter 2020 results, our net sales increased by 19% and EBITDA increased by 14%. Scott will detail our financial situation in a few minutes, including a favorable revision of our guidance. As we said in the earnings report released this morning, we added our guidance based on the third quarter results.
On the recent Investor Day, we discussed in depth our accelerated growth strategy and provided views on how we view the recent expansion of the lithium business and our rigorous investment approach. Since the event in early September, we are happy to announce some updates to these efforts. This includes signing an agreement to acquire Guangxi Tianyuan New Energy Materials, or Tianyuan, which owns a recently completed conversion plant near Qinzhou. We total to ensure that the factory operates in accordance with the advertisement, and expect to complete the transaction in the first quarter of next year.
This makes us expected to achieve the first sales of the plant in the first half of next year. In addition to this plant, we have recently signed two investment agreements in China to support two greenfield projects, each with an initial target of 50,000 metric tons per year. These projects enable us to initially increase the conversion capacity of up to 150,000 metric tons of lithium hydroxide per year to meet the growing needs of our customers. In addition, our MARBL joint venture announced the restart of the Wodgina lithium mine in Western Australia.
On Slide 5, you will see our goals for 2021. When we set these goals, our purpose in doing so is to challenge ourselves with radical but achievable plans. Towards the end of the year, I am excited about the significant progress made and proud of our team’s efforts to achieve these goals. As you can see in this slide, we have done most of the work we planned to do.
For example, we are successfully promoting high-return, fast-recovery bromine projects in Magnolia and JBC. These projects will enhance our capabilities and increase our operational efficiency. Our lithium growth project has also made significant progress. Let us now turn to slide 6.
First, at La Negra III and IV, our team continued to execute the plan. I am happy to announce that we recently achieved the first lithium carbonate production in late October, thus completing an important milestone. The initial output will be used to confirm the quality of the factory and materials with our customers to ensure that we meet their requirements. The qualification certification process is proceeding as planned and is expected to be sold for the first time in the first half of next year.
In Western Australia, ongoing labor shortages and pandemic-related travel restrictions continue to have a significant impact on almost all companies in the region, and there is no sign of relief in the short term. Despite these efforts and great efforts, our team successfully completed the construction of Kemerton I until the end of 2021. We now expect the construction of Kemerton II to be completed in the second half of 2022. Although we face challenges in these projects, our strategy is to integrate resources and prioritize the first train to continue to reduce additional risks.
On Slide 7, I will highlight the progress we have made on the Wave III program since we last spoke with you on Investor Day. At the end of September, we announced an agreement to acquire Tianyuan for US$200 million, including a recently constructed conversion plant near Qinzhou Port, which aims to produce up to 25,000 metric tons of lithium per year, with the possibility of expanding to 50,000 metric tons per year. year. We expect this acquisition will follow a similar path that we had acquired in 2016 in Xinyu and Chengdu factories. After the transaction is completed, it is expected to be completed in the first quarter of next year. We plan to make additional investments to bring the Qinzhou plant to Albemarle standards and gradually increase the initial output to 25,000 metric tons.
This acquisition allows us to accelerate the growth of conversion capabilities and leverage our world-class resource base. Together with our partners, we agreed to restart operations at the Wodgina lithium mine in Western Australia. Initially, Wodgina will start one of three processing lines, each of which can produce up to 250,000 metric tons of spodumene concentrate. This resource will be critical as we improve our conversion capabilities in Western Australia through the Kemerton site.
We also signed an agreement to invest in two greenfield renovation sites in Zhangjiagang and Meishan, China. We plan to build the same conversion plant at each location, with the initial goal of producing 50,000 metric tons of battery-grade lithium hydroxide. These investments provide additional options for future growth and have potential for expansion. Due to our proximity to our low-cost Australian spodumene resources and many of our major cathode and battery customers, investing in China can provide capital-efficient and high-return growth.
As the battery supply chain shifts westward, we will continue to explore the global expansion of our conversion capabilities. Go to slide 8 to see our global project pipeline. As you can see, Albemarle is executing a series of powerful projects around the world. For example, our bromine business is undergoing incremental expansion in Jordan and the United States.
These high-return projects use our low-cost resources and technical knowledge to support customers in the growing diversified markets of electronics, telecommunications, and automobiles. In Chile, the Salar Yield Improvement Project allowed us to increase lithium production without increasing the brine pumping rate, using proprietary technology to improve efficiency and sustainability. In Australia, we continue to advance research work on additional Kemerton extensions to take advantage of greater scale and efficiency through reusable design. Finally, in the United States, we are expanding our Silver Peak plant in Nevada to double the production of lithium carbonate.
This is the first of several options for expanding domestic production in the United States. In King Mountain, North Carolina, we continue to evaluate and restart our mine. At our bromine plant in Magnolia, Arkansas, we are evaluating the process technology for extracting lithium from our brine.
We will continue to update our pipeline regularly for you. I hope this will give you an understanding of the diversity and selectivity of Albemarle as a global lithium producer. I will now transfer the call to Scott to see the financial situation.
Scott Tozier - Chief Financial Officer
Thanks, Kent, good morning everyone. Let's start with slide 9. In the third quarter, our net sales were US$831 million, an increase of 11% over the same period last year. This improvement was driven by strong sales in our lithium and bromine divisions.
Due to FCS sales and increased freight and raw material costs, adjusted EBITDA was basically flat year-on-year. The US$393 million GAAP net loss includes US$505 million after-tax expenses related to the recently announced Huntsman arbitration decision. As we continue to evaluate our legal options, we also begin to discuss potential solutions with Huntsman. Excluding this expense, the adjusted earnings per share for the quarter was US$1.05, a 4% decrease from the previous year.
Let us now turn to Slide 10 to view adjusted EBITDA by business. Adjusted EBITDA for the third quarter was US$218 million, an increase of 14% from the previous year, or US$27 million, excluding FCS sales. The higher adjusted EBITDA for lithium and bromine was partially offset by the $13.5 million out-of-period adjustment of our international location inventory valuation, affecting all three GBUs. Lithium's adjusted EBITDA increased by US$25 million year-on-year, excluding foreign exchange.
Due to the increase in charges from our Talison joint venture and the increase in spodumene shipments, we were able to offset the limited impact of the one-month strike by the Chilean Salars. Bromine's adjusted EBITDA increased by US$5 million compared to the previous year, because the price increase was partially offset by the increase in freight and raw material costs. Due to chlorine restrictions this quarter, sales were flat. Catalyst's adjusted EBITDA decreased by $4 million from the previous year.
This is due to lower sales and cost pressures, partially offset by higher-than-expected joint venture revenues, including favorable tax settlements in Brazil. Slide 11 highlights the company's financial strength, which is the key to our growth plan in the coming years. At the end of the quarter, our net debt to EBITDA ratio was 1.7 times, which is below our long-term target range of 2 to 2.5 times. This provides us with the ability to fund growth while supporting moderate dividend growth.
We do not expect the recent arbitration decision to affect our current growth plan, but it may temporarily reduce our flexibility to take advantage of upward growth opportunities. Turning to slide 12, I will introduce you to the update to the guide that Kent mentioned earlier. Higher full-year 2021 net sales and adjusted EBITDA guidance reflect our strong third quarter results. Due to the increase in delivery time to customers and the increase in raw material and inventory costs, the net cash generated by operational guidance remains unchanged.
As the labor market continues to be tight, Western Australia's COVID-related travel restrictions and accelerated growth investment, capital expenditures have been revised upwards. Go to slide 13 to learn more about each of our GBUs. Lithium's 2021 full-year adjusted EBITDA is now expected to grow at a mid-to-high year-on-year level. Due to the higher sales volume and price, this is higher than our previous guidance.
Sales growth was mainly driven by fees. Compared to 2020, our annual average realized price is now expected to be flat or slightly higher. As a reminder, most of our battery-grade lithium sales are long-term contracts, with structured pricing mechanisms, and some are exposed to the market. We also benefit from stronger market pricing for short-term technical-grade sales and spot and fee-based sales of battery-grade lithium.
The average profit margin for the full year of 2021 is expected to remain below 35%, due to the higher costs associated with the start of the project, and the increase in productivity partially offsets the toll. Bromine's adjusted EBITDA growth for the full year of 2021 is now expected to be in the low double digits. As demand and pricing for flame retardants continue to be strong, this is also higher than previous guidance. Due to sold-out and lack of inventory, our bromine capacity is still limited.
Since the last quarter, the prospect of chlorine supply has improved, but the market is still tight. Due to inventory changes and the timing of shipments, it is expected that the impact of rising chlorine prices in 2022 will be greater than in 2021. Year-to-date, higher bromine prices have largely offset higher raw material and freight costs. Catalyst's full-year EBITDA in 2021 is expected to fall by 20% to 25%. As the joint venture revenue is higher than expected, this is also an improvement over our previous guidance.
The year-on-year decline in adjusted EBITDA was mainly due to the impact of the US Gulf Coast winter storm, product mix and previously disclosed changes in customer order patterns earlier this year. Catalyst's profit margin in the fourth quarter will also be affected by its product mix, including lower margin FCC and CFT residual oil orders. FCC demand continues to improve with the increase in global fuel demand, while HPC orders continue to be delayed.
Overall, market conditions are improving, but sales and catalysts are not expected to return to pre-pandemic levels until the end of 2022 or 2023. In general, due to rising raw material, energy, and freight costs, we expect EBITDA margins to decline in the fourth quarter3 of our business. We are paying close attention to several key risk factors, including global supply chain disruption, the global impact of China's energy rationing, and chip shortages. Supply chain and logistics challenges are the most direct.
Our team works day and night to solve these port problems, lack of drivers and upstream supply disruptions to ensure that our customers receive orders on time. We also continue to pay attention to the global situation of chip shortages. We recognize that the automotive industry has been struggling to cope with these shortages. But so far, we have not seen a direct impact on our lithium or bromine orders.
With this, I will return it to Kent.
Kent Masters-Chief Executive Officer
Thanks, Scott. I will end the comments we prepared on slide 14. As Scott mentioned, we are disappointed with the outcome of the Huntsman arbitration award. But regardless of the final outcome of this dispute, Albemarle will continue to focus on executing our growth strategy.
As we emphasized on the Investor Day in September, we have a well thought out and focused operating model that we are implementing in our business. This model, Albemarle Way of Excellence, provides us with a framework to effectively and efficiently execute our goals, and will help us maintain our goals while pursuing important future growth opportunities. When we seek these opportunities, we will observe discipline in our capital allocation methods. Our first capital priority is to accelerate high-return growth.
This means that we will invest not only to expand scale, but also to create tangible shareholder value and maintain financial flexibility to take advantage of future opportunities. Through our low-cost resource utilization, we believe that our annual adjusted EBITDA will triple by 2026. In the end, the core of all this is sustainability. As one of the world's largest lithium producers and innovators, we are able to work closely with customers to create value for all stakeholders and promote better sustainable development results.
With this, I want to start asking questions. I will hand it over to the operator.
thank you, sir. [Operator Instructions] Your first question comes from John Roberts of UBS.
Matt Skowronski-UBS-Analyst
This is John's Matt Skolensky. In the past, you mentioned that Kemerton might be able to increase its production capacity to 40% to 50% within a year after the commissioning and certification process. Is this still the case for the first line that should be completed by the end of this year? Or will it take some extra time due to current restrictions?
Kent Masters-Chief Executive Officer
So I think we have to do it mechanically before we can get commissioning and qualification. So I think what we are talking about is that after that, it takes about six months. After that, we think we can increase to 50% in the first 12 months. This may be a bit radical, but that is our goal.
Then I think that labor and all these issues are mainly related to construction. We have staffed operators and are working on the ship, and they are helping with the commissioning. So what I mean is that the labor market will be constrained, and we may try to keep the market we want. I'm not sure, but the real labor problem has to do with construction.
Matt Skowronski-UBS-Analyst
Then, Scott, you mentioned that the Huntsman arbitration issue may affect your ability to opportunistically seize growth opportunities. Is this organic or just an inorganic opportunity?
Scott Tozier - Chief Financial Officer
Yes, I think it is really more-really two. I think partly in the organic aspect, this is our ability to accelerate or further accelerate our projects. We will be able to do something, but it is clear that this is a lot of resistance. Then the second is that any larger type of inorganic substance needs some kind of more creative financing to do it.
Your next question comes from the cooperation between PJ Juvekar and Citigroup.
PJ Juvekar - Citi - Analyst
Yes. Good morning. Therefore, since you expect lithium prices to be flat or rising this year, you will definitely expect double-digit price increases in the fourth quarter. Can you comment on this? Then, when you look forward to next year, what percentage of the contract will be renewed next year, do you have any plans for early negotiations?
Eric Norris-President of Lithium Industry
So PJ, good morning. Eric is here. I want to make sure I understand your first question. Your first question is, will they reach double digits in the fourth quarter? Did you say it?
PJ Juvekar - Citi - Analyst
Yes. I want to know if the price of Q4 is double digits?
Eric Norris-President of Lithium Industry
The way to think about pricing and flat to down comments is that it has been improving throughout the year. At the end of last year and the beginning of this year, the price was at its lowest point, and due to two factors, the price has been gradually increasing as we passed this year. One is our exploration and concessions to long-term agreements with fixed prices. The second is that the spot price changes of that part of our business are exposed to these markets. I believe you know, no, these prices have risen significantly in a year.
Therefore, just like Scott's guidance on next year's Investor Day, 2022 will increase by at least 15% to 20% year-on-year compared to 2021. Of course, this is a gradual trend. So, compared to a year ago, you can certainly see this growth starting in the fourth quarter.
PJ Juvekar - Citi - Analyst
OK. great. Then on MARBL, you will restart one of the three lines. The price of rocks soared.
So why is there only one line? Then where would you concentrate that stone? Is it in Camerton or China? Can you talk about it?
Kent Masters-Chief Executive Officer
Yes. So PJ, it's Kent. So what I mean is that we will start with one, and over time we will add other facilities, but this is indeed our conversion capability. So we are not really mining rock to sell spodumene to the market.
We are mining rock to convert spodumene into finished products. Then we will initially do this in Kemerton. I mean, I think we haven't figured out what logistics is. Therefore, this product may enter China, while other products will enter Kemerton.
So we only need to balance our facility purchases, but this is our next part of the product in that part of the world.
Your next question comes from the partnership between Laurence Alexander and Jefferies.
Lawrence Alexander-Jefferies-Analyst
First of all, with regard to bromine pricing, given the demand trends you are seeing, can you discuss what you think is temporary or sustainable pricing? Can you have any idea about the intensity of the chlorine headwinds this year so that-we have some better background for the bigger headwinds next year than this year?
Scott Tozier - Chief Financial Officer
Yes. I think in terms of pricing, we might think that most of them are temporary. It is based on the pricing of the raw materials we pay, and then our ability to absorb and manage it at the time of pricing. In terms of the impact of chlorine, this is more of a matter of time.
We will get more chlorine next year, and the price may be different from this year. So you will see that this will affect us mainly from the first quarter of next year.
Lawrence Alexander-Jefferies-Analyst
Then comes the catalyst. To what extent should the recovery next year lag behind or be consistent with the increase in refinery output?
Raphael Crawford - President of Catalyst
Lawrence, this is Raphael. FCC business is very important for mileage, which is related to oil refining output. So I think the FCC, as mentioned earlier, is continuously improving from a quantitative point of view. Therefore, the first thing you will see is that water treatment usually has a lag, that is, a lag of 12 to 18 months.
As refinery conditions improve, they can obtain more capital and then invest in HPC changes. So this has more hysteresis effects. But in general, look, we see continuous improvement. We have seen improvements in refining conditions.
We are closely related to our high-performance products. So we think this is a favorable prospect.
Your next question comes from a conversation between Bob Koort and Goldman Sachs.
Mike Harris-Goldman Sachs-Analyst
Yes. This is actually Mike Harris endorsing Bob. If possible, I guess a question about the lithium business. Looking at sales related to energy storage, why electric vehicle production may be one or two quarters behind, and these sales may actually lead?
Eric Norris-President of Lithium Industry
Yes, Mike, this is Eric. This is just one factor in the length of the supply chain. Lithium is consumed in the positive electrode material, then made into electrodes, put into the battery, then assembled the battery, and then put into the EV car. So this is just the length of time required and the geographical area involved.
Most cathodes—almost all cathode production and a large number of battery production are still in Asia. Of course, cars are produced in different locations around the world. So this is just the length of the supply chain. We see lag, but remember, we are in a good position.
We can supply it anywhere in the world. Therefore, we have the ability to grow together with the industry, but considering the length of the supply chain, this lag may always exist.
Mike Harris-Goldman Sachs-Analyst
understood. OK. This helps. Then only as a follow-up.
When I think about lithium recycling, can you tell me what assumptions you have made about recycling and the potential impact (if any) that might have on your business?
Kent Masters-Chief Executive Officer
Recycling is a phenomenon after the end of battery life, and the potential reuse of the battery must also be considered. Considering that most batteries used in automobile production have a guaranteed 10-year life cycle, this is the kind of lag you see. Therefore, it was not until 10 years later that we considered recycling the batteries produced today. When we see this, it means that we believe that as ten years have passed, recycling has become more and more important, but by the middle of the decade, the amount of lithium required in the supply chain is still quite small, and it may reach two. Digits-By 2030, low double-digit levels may reappear.
Your next question comes from David Begleiter of Deutsche Bank.
David Wang - Deutsche Bank - Analyst
This is King David here for Dave. I think, first of all, can you talk about your raw material compulsory strategy for adding 150,000 tons of lithium hydroxide production capacity in China?
Kent Masters-Chief Executive Officer
Feel sorry. So is this the raw material strategy for China's 150 new projects?
David Wang - Deutsche Bank - Analyst
Kent Masters-Chief Executive Officer
So they will be fed with spodumene from Australia.
David Wang - Deutsche Bank - Analyst
OK. Secondly, are there any increased headwinds or headwinds in the 2022 guidance you provided on Investor Day, especially bromine and catalysts? Or do you still stick to these guidelines?
Kent Masters-Chief Executive Officer
Yes, we have not updated our guidelines since Investor Day. So we are now implementing our annual operating plan process. In fact, the next meeting is next week. We will provide you with clearer guidance on the fourth quarter earnings conference call.
Your next question comes from the collaboration between Joel Jackson and BMO Capital Markets.
Bria Murphy-BMO Capital Markets-Analyst
This is Joel's Bria Murphy. Back to the pricing discussion in 2022. Can you explain more about these discussions with your lithium contract customers? Then our pricing mechanism will be similar in 22 to 21? Or are there more benchmark pricing initiatives?
Kent Masters-Chief Executive Officer
So in general, Bria, our discussions with customers are for next year's price increase, which is consistent with the guidance I just gave in the comments. I should say that we have a contract in our basket, which has been there for several years. The fixed part of those contracts will go back to the original long-term agreement, which in some cases is significantly higher than the average price we see in 2021. Then there are many contracts with variable components.
No one contract looks exactly the same as another, but variable components can-we will also see an increase. Some of these variable components are related to indexes. Others are only possible annual increases in nomination, our largest increase in nomination. Finally, we have a large number of technical-level contracts, and as we enter next year, we will see price increases, which are based on adjustments to the increase we have seen this year.
The last piece will be our spot business in China. It is difficult to say that we will see considerable growth this year because the prices in China are already very high. But we will continue to see that there may be some upside year-on-year, especially at the beginning of next year. So these are all the factors that drive our growth, and the types of discussions we have with our customers, which will provide us with great leverage—upward leverage to improve market conditions.
Bria Murphy-BMO Capital Markets-Analyst
OK. This is really helpful. Then I think it’s like taking into account the huge increase in LFP demand and the recent Tesla reviews. In this context, I just want to understand how you consider your investment in carbonates and hydroxides. It seems that your incremental investment is currently focused on hydroxides.
Kent Masters-Chief Executive Officer
We monitor this very closely. We have many analysis kits and dialogues with customers, upstream and downstream of the supply chain from original equipment manufacturers to battery and cathode manufacturers to evaluate these trends. What we believe and have been confirmed in discussions with customers is that although the demand for LFP has increased, the prospects for automobile production and electric vehicles have also increased. Where LFP occupies the best position is the lower cost and lower mileage of the vehicle portfolio.
For some automakers, this will account for a larger proportion of their product portfolio than other automakers. Most importantly, we see strong growth in both products, although we still see good growth-the growth rate of hydroxide will be even higher in the next five years. Therefore, we feel that we are in a very advantageous position. As we said, we are bringing in 40,000 tons of carbonate production capacity.
In addition to the Kemerton slope previously described by Kent, we also have a hydroxide expansion strategy. We believe that we have done a good job of meeting the LFP demand and the rising demand for high nickel cathodes.
Your next question comes from the cooperation between Jeff Zekauskas and JPMorgan Chase.
Jeff Zekauskas - JPMorgan Chase - Analyst
You have described that your lithium price may increase by 15% to 20% or more next year. Is 15% to 20% representative? Given market conditions, will it rise by 30%?
Kent Masters-Chief Executive Officer
Well, I think it depends on what you might think, Jeff, depends on market conditions. Part of our business is exposed to pure market conditions. Most of our business, even if they are under these long-term contracts, has a variable component, that is, the anchor around it will revolve around a fixed price, that is because we The exploration and concessions given, the price is also rising. So at this point, it may be too early to say that we have a view on prices higher than 15% to 20%, because our guidance is at least 15% to 20%. Therefore, as the quarter progresses and discussions continue, we will have to provide you with guidance as we enter the February conference call, and we will conduct the earnings conference call in February.
Jeff Zekauskas - JPMorgan Chase - Analyst
OK. Then there was my follow-up, when I checked China's bromine offer. Maybe they have risen by 60% since August, and so on? Is this a representative price of what is happening in the market or not a representative price? Or can you talk about the pricing of bromine in Asia and its development direction and trend? What drives it?
Netha Johnson - President of Bromine Specialties
Yes, Jeff, this is Netha. This reflects several things. First, the demand in the entire market has risen significantly, and the prices of raw materials have risen to produce the required brominated products. So what you see is the reason for the excessive increase in China's spot prices.
Your next question comes from the series of Ben Kallo and Baird.
Ben Carlo-Baird-Analyst
One thing we are considering is that I would love to hear your point of view that materials may be a bottleneck in the production and sales of electric vehicles. That’s how you think this is a risk, but overall, is lithium enough? Is there enough copper? Is nickel enough? Then I guess how customers can contact you and your competitors to ensure security in the supply chain. Does your size and diversity of resources give you an advantage over others trying to end.
Kent Masters-Chief Executive Officer
So we will talk about lithium. So copper and nickel, I don’t know we want to weigh these. But I will make some comments, and then Eric can add some details. But what I mean is that we are investing heavily to keep up with this demand and maintain our share. This has always been our strategy.
Therefore, we invest together with our customers. Supply security has always been a key part of Albemarle’s value proposition for its customers, especially in terms of lithium. As you mentioned, the diversity of resources, the diversity of our production locations, we have carbonates, and we have hydrogen today. Oxides, and then as the market changes, we will continue to develop these chemicals. Therefore, I think the network we build actually has a lot of attention to supply security and part of the key value proposition that we are constantly discussing with our customers.
Eric Norris-President of Lithium Industry
Ben, I just want to add to the lithium aspect of material risk, there is enough material. There is enough lithium there. The problem is the investment required to get there. In fact, it will cost more, right? When you use low-quality lithium resources, the cost curve will slope upward.
Our discussions with customers are a deep desire for commitment and partnership. This is not only the existing capacity we have, but also the new capacity we hope to target as we introduce new capacity. These are all links in the value chain, but I will tell you that the most important and lively discussion around safety is the closer you are to the automotive OEM. So I think our execution record will definitely give us this advantage.
I think this is the focus of the discussion, because we are a base load partner for any of these car and battery companies. So I do think we definitely have an advantage.
Ben Carlo-Baird-Analyst
Don't overtake yourself here, but assign it to customers. So you pick your customers more than they pick you? Or not like that?
Eric Norris-President of Lithium Industry
So I want to say that this is the advantage of the partnership and the reason for our discussion, because anyone-anyone who is not committed to our volume for a long time. Therefore, this may be a spot buyer in the battery, or a technical-level buyer in the industry, because we may not be able to get the quantity they want when we enter 2022. This is the basis for our partnership discussions. What we have again is the desire for supply security. In view of the point and time when the supply will be tightened in the next five years, they are very nervous now.
Your next question comes from the collaboration between Vincent Andrews and Morgan Stanley.
Angel Castillo - Morgan Stanley - Analyst
Hi. This is Vincent’s angel Castillo. Thank you for answering this question. Going back to Huntsman arbitration, I wonder what other options are there for termination of the process? I know you mentioned that you have started discussions on settlements.
So, from a legal point of view, what other options are there? So how should we consider the timing of all this?
Kent Masters-Chief Executive Officer
Okay, I think this is a range, right? We will not discuss this positive process too much. Therefore, whether through the arbitration process or through discussions initiated by us, it is possible for us to reach an agreement and resolve the issue. But these are all choices, and the time frame is wide.
Angel Castillo - Morgan Stanley - Analyst
Understood. Then when we consider Kemerton and your ability to fulfill these contracts, I think, especially Kemerton II, because of the longer delay. Will these be achieved through more fees? Or how should we consider the type of transaction volume and how to allocate it? I guess when we consider next year or 2023, will the overall transaction volume decrease or the profit margin of the fee will decrease?
Kent Masters-Chief Executive Officer
Well, I think you will see us-we will fill it with a fee. Through this acquisition that we have completed, we hope to speed up relatively quickly. I mean there will be some-we want to make the right to meet our standards and the quality we want, but we will be aggressive in this regard. These will be the two methods we use to maintain the plan.
Your next question comes from Kevin McCarthy of Vertical Research.
Cory Murphy-Vertical Research-Analyst
Hi. Good morning. This is Kevin's Corey Murphy. I want to continue-I think this is a question about Wodgina before PJ. You said that you are starting a production line. It looks like it may start production in the third quarter of 2022.
Can you help me understand what the delay is or why the restart process seems to take more than 6 to 10 months. Considering the price of spodumene, why don't you start or try to start all three production lines? Can you sell spodumene on the spot market? Or is it not done because of the contract?
Kent Masters-Chief Executive Officer
Well, the real strategic reason for its sales of spodumene is that we want to convert it and sell the finished product to our promised customers. We have long-term arrangements. So we may sell some spodumene everywhere, but this is not our strategy. Then just started. I mean, we want to start the first train and not the other train.
This is really in line with our conversion capabilities. Then the timeline or no matter what time frame you mentioned to achieve it, you encountered labor problems in Western Australia, and to some extent, we faced the same things we did in Camerton there. In fact, the delivery time depends on some large-scale equipment required for mining. Some people call it the yellow equipment and its delivery time necessary to operate these mines.
Cory Murphy-Vertical Research-Analyst
Understood. This is very helpful. Then I also want to ask about charges. Due to labor shortages or strikes in Chile, this sounds like it has caused more tolls.
What is the trend of your trading volume without any fees? When do you expect to terminate the fee contract related to the La Negra startup. I think you said that you are bridging some capabilities.
Kent Masters-Chief Executive Officer
right. Well, I would say that charging is our strategy for bridging. That is correct. We do this.
We expect to continue to charge for La Negra and Cameron business next year. Look, I mean, this is a transition strategy, but the market is very strong right now. Since Camerton is delayed, we can use spodumene. As long as we have qualified charging partners and have a good relationship with us, we believe in our quality.
We have a business relationship, we can work together, and then we will use it to connect and take advantage of the strong market in front of us. So I think this is for various purposes. When it launches, it's hard for me to say, but we will definitely make it part of next year.
Your next question comes from the collaboration between Colin Rusch and Oppenheimer & Co.
Colin Rusch - Oppenheimer Corporation - Analyst
Thank you very much for providing all this information. I'm very curious about your customer's order model, which is inter-unit. If you see any type of double ordering, you can track or try to track the sales of these individual customers. It seems that some people are trying to build some inventory, or really trying to prepare for any other incremental demand they can pay.
Eric Norris-President of Lithium Industry
Colin, Eric, from the perspective of lithium, what I want to say is that we are involved in all aspects of the supply chain. So I don't see any double sorting. In addition, to support this statement, what I want to say is that in our discussions with customers, we know that they do not have any inventory. They are hand-to-mouth.
So we know that because there are crises in the global supply chain, you can imagine that we are not always able to accurately determine the week or day of the arrival of the goods. This will cause pain to our customers, right? It is true for us, and it is also true for them. in this way. Therefore, the lithium market is still very tight.
Netha Johnson - President of Bromine Specialties
Colin, with regard to bromine, we have not seen any double-ordered quotations. Customers will not try to build inventory at their site because of an expected supply chain disruption. The supply chain is tight and things are difficult, but we have been able to manage it to a certain extent so that we can deliver within a window they can accept. Therefore, we did not see those double orders or customers trying to increase inventory by ordering more than they currently need.
Raphael Crawford - President of Catalyst
Nor is it a catalyst, Colin.
Colin Rusch - Oppenheimer Corporation - Analyst
OK. Then there is the lithium content per kilowatt hour. Do you see any real trend lines because some of the battery chemistry has changed and you are also looking for ways to optimize certain materials. Do you see the lithium content increase, decrease or remain stable? Where would you choose that level now?
Eric Norris-President of Lithium Industry
In most cases, I think when we sit here and look forward to 2021, we have not seen any substantial changes. Of course, as prelithiation enters the equation on the anode side, and as solid state or lithium metal anode technology advances, we expect it to continue for several years, which will definitely increase the content, obviously, energy intensity, which is the innovation of these technologies Focus. But I want to say that when we sit here today, I think the technology trend is active, but once every quarter in 2021, we really haven't seen any noticeable changes.
Your next question comes from the collaboration between Arun Viswanathan and RBC Capital Markets.
Arun Viswanathan - RBC Capital Markets - Analyst
great. Thank you for answering my question. I think I have a question about the contract process here. In terms of length, what do you hear from customers? Will these lithium contracts now be extended to 4, 7 or 10 years? Then, when you sign these contracts, how do you bridge the gap between the huge spot price of more than $28,000 per ton and the price that is more reasonable and more in line with the contract price increase.
I think I’m just asking, do you see a substantial increase in the cost curve, which justifies that the contract is closer to the spot?
Eric Norris-President of Lithium Industry
Arun, I want to say that the duration of customer requests is increasing. I think our past characteristic is that, on average, it is about three years in our current portfolio. The new contract under discussion will be for the expansion of China or the future expansion of Kemerton as described by Kent. I'm sorry, even our possible expansion in the United States. These discussions are either for more than five years, or they have not even started until 24 or 25.
Therefore, we are discussing with certain customers who have signed contracts to increase the time in the future, such as '23 to '26 or '24 to '28. These are the durations that people are considering, which are mainly driven by investments in automobiles. From a pricing point of view, you can imagine that if these buyers do not have to pay the spot price due to rising prices, they would definitely want to represent these buyers. But the reality is that they either-if they want a certain degree of stability in the pricing terms, the discussion will either move towards a higher fixed price, or we will price based on a set index so that it rises over time.
Now please remember that when you say more than $28,000 per ton, the price you give is the price of spodumene. China’s US-based pricing is as high as more than 20 US dollars, and the delivery basis is close to 30 US dollars. When you look at many indexes around the world, most of these people are buying mixed indexes.
Therefore, the surrounding pricing is not that high, but if it were not for the twenties where many pricing indices are located, it is still high in the teens. Therefore, we continue to discuss with our customers, these are some of the dynamics that are in play, which has led us to sign long-term contracts with price potential much higher than what we have seen in the past.
Arun Viswanathan - RBC Capital Markets - Analyst
great. Thanks for that. Then I thought I just wanted to ask if you see any risks in Chilean politics. Yes, I think, in the next one or two months or so, this is just a broad question.
Kent Masters-Chief Executive Officer
Yes. Well, a lot has happened in Chile. So there must be political risks in Chile. They rewritten the constitution, and things are changing.
We pay close attention to it and operate there. So we are very close. I mean, we are very close to the government. We see what is happening, but they are rewriting their constitution, and Chile will change.
I think Chile wants to participate in the lithium industry. They want to expand their participation, and the contracts and agreements they signed with us are very advanced, so as prices rise, they participate. So this is a benefit for them. So I believe they want to participate economically, but a lot of things are happening in Chile at the moment, and we are paying close attention.
Your next question comes from Matthew DeYoe from Bank of America.
Matthew DeYoe-Bank of America Merrill Lynch-Analyst
So we talked about fees. But I want to go a little deeper, because I know you said that this is a bridging strategy, maybe we can make a fool of yourself. But you have a considerable amount of potential capacity in Greenbushes. The news read seems to be that processors are struggling to find sufficient commercial supply of spodumene to actually continue operations in some respects.
So why not become more aggressive in volume? I have to think, one, the current price is really attractive. However, the two are almost a bit worrying because it has to do with the possibility of overinvestment and overheating in the market and things like that. I think you may have the ability to adjust your volume a little bit.
Kent Masters-Chief Executive Officer
Yes. So I will comment and Eric can add some colors. I mean, we don't-we can't open toll booths just because they want to give our customers, we have to qualify them. So there is a process there.
Not all of these toll collectors meet the requirements of our customers. So we can't just open them. Even if we have a product, it is not that simple. So now we are adding and getting more spodumene, from a spodumene point of view, we can choose the future, but we still have to make sure we choose those, as Eric talked about before, someone-we have a charge Qualified relationship between employees and our customers before or now.
So you have to incorporate all these elements into it. And to really improve it, this is not a six-month strategy. It will take longer to achieve this. Eric, do you want to add anything?
Eric Norris-President of Lithium Industry
OK. No, I think you handled it well. I don't think these conversions are a dime. There are people in the industry, but there are only a few people that we would consider to be partners or meet our standards for customer service.
So this is why the length involved in the qualification process. Therefore, if there is an opportunity, we will take advantage of them. However, when providing services to customers, we are very different in how we handle this.
Kent Masters-Chief Executive Officer
Yes. For us, the key is, again, supply safety, customer quality, and customers must trust us. Therefore, if we want to charge a fee, we must ensure that the product meets our specifications and customer standards.
Matthew DeYoe-Bank of America Merrill Lynch-Analyst
Yes, that's correct. We have almost solved Jeff's problem, but if you look at the bromine price in China, I know that in the past, some comments may be incorrect on an absolute basis, but from the perspective, it is consistent with what you have seen. So I mean considering this move, should we think that this move is real and can be captured in any way? If so, is this a two-year process, a one-year process, a three-year process? There seems to be a lot of room to offset the higher cost of chlorine, but I am not sure if this is the case.
Netha Johnson - President of Bromine Specialties
Yes, this is Netha. These prices are real, and they are indeed driven by demand. Demand exceeds supply. It will take nearly two years to truly increase the supply of bromine in a meaningful way.
As a result, you will continue to see demand in short supply, similar to what we said on Investor Day for the next planning period we use, and we think this situation will continue. What is the problem. We have already announced the process and content we want to add, and I believe others will also have it. But now, it is not complicated.
Supply exceeds demand, which is why the price of bromine in China has risen.
Your next question comes from the series between Christopher Parkinson and Mizuho.
Harris Fein - Mizuho Securities - Analyst
This is Harris Finn for Chris. Go back to Vogina. So how should we consider the costs associated with putting it back into production? Then learned that Greenbushes is unique in terms of cost per ton, how should we consider the relative cost of spodumene from Wodgina?
Scott Tozier - Chief Financial Officer
Yes. This is Scott. So I think, as you said, Talison spodumene is world-class, yes, low-cost in the world. Wodgina, we haven't operated yet, but we believe it will be relatively close.
In the end, it does have a lower concentration. So it will not satisfy it, but it will be closer.
Kent Masters-Chief Executive Officer
Maybe, for example, on the court.
Scott Tozier - Chief Financial Officer
Kent Masters-Chief Executive Officer
I think Scott, this cost, Harris is asking how to think about this, and we captured them in the guidance we provided, including capital and cash flow. Acquiring the yellow equipment we have discussed and expanding the size of the joint venture is mainly the cost of joint venture capital.
Harris Fein - Mizuho Securities - Analyst
understood. Then many third-wave announcements you have made so far, in fact, all that has been disclosed are actually planned in China. So I am curious about the strategic basis for paying so much attention to China. I want to know if this is a problem of lower capital costs, or if you see the Chinese market shifting more towards high nickel, do you expect most of these tons to stay in the country or enter other markets?
Kent Masters-Chief Executive Officer
Yes. So I mean, Eric can go into the details, but it's a bit high-level. I mean we do see lower cost of capital there. That may not be the driver’s driver.
This is the market today. Then the product can serve the Chinese market as well as export. Then I mean we expect the battery supply chain will shift to the West, and then we will invest before that. But in the short term, we see the market in China today.
Then we see the kind-as we move forward, you hear us talk about North America and Europe in a way, but we see the westward move, and then we will invest in it. Eric, do you want it?
Eric Norris-President of Lithium Industry
I mean I think that if you look at the percentage of cathode output on the world market, China is far more than half today, and this percentage will increase from now to the middle of the decade. Therefore, China is the center of all cathode technologies in the world. Many of them are currently under development. The supply chain is being developed forward-looking to eventually enter and match the battery production in North America and Europe.
This is why we have a plan to solve this problem. We will discuss these localized supply opportunities. This is our active plan. But as we have said many times, Wave III is mainly centered on Asia and pays great attention to China, because this is where the market is. We will establish the repeatability of capital design and execution there, which will be good for us to continue to develop worldwide. This is also where a lot of our resources are located in Asia. Although it is Australia, it is located in Asia, not in the western part of the world.
Therefore, these are the elements of this strategy, and we look forward to growing with customers as they expand to the West.
There are no more questions. I now want to turn the call back to Mr. Kent Masters' closing speech.
Kent Masters-Chief Executive Officer
OK. Thank you, and thank you again for participating in our conference call today. As we approach the end of the year, I am very satisfied with the progress and focus our team has shown. I look forward to updating you when I announce the full year results in February and provide more detailed information on the 2022 goals and outlook.
This concludes our call, thank you for your interest in Albemarle.
David Burke - Director of Investor Relations
Kent Masters-Chief Executive Officer
Scott Tozier - Chief Financial Officer
Matt Skowronski-UBS-Analyst
PJ Juvekar - Citi - Analyst
Eric Norris-President of Lithium Industry
Lawrence Alexander-Jefferies-Analyst
Raphael Crawford - President of Catalyst
Mike Harris-Goldman Sachs-Analyst
David Wang - Deutsche Bank - Analyst
Bria Murphy-BMO Capital Markets-Analyst
Jeff Zekauskas - JPMorgan Chase - Analyst
Netha Johnson - President of Bromine Specialties
Ben Carlo-Baird-Analyst
Angel Castillo - Morgan Stanley - Analyst
Cory Murphy-Vertical Research-Analyst
Colin Rusch - Oppenheimer Corporation - Analyst
Arun Viswanathan - RBC Capital Markets - Analyst
Matthew DeYoe-Bank of America Merrill Lynch-Analyst
Harris Fein - Mizuho Securities - Analyst
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