Albemarle Corp Q1 FY2026 Earnings Call

Hello, and welcome to Albemarle Corporation's Q1 2026 Earnings Call. I will now hand it over to Meredith Bandy, Vice President of Investor Relations and Sustainability.

Thank you, and welcome, everyone, to Albemarle's First Quarter 2026 Earnings Conference Call. Our earnings were released after market closed yesterday, and you'll 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; Neal Sheorey, Chief Financial Officer. Mark Mummert, Chief Operations Officer; and Eric Norris, Chief Commercial Officer, are also available for Q&A. As a reminder, some of the statements made during this call, including our outlook, guidance, expected company performance and strategic initiatives may constitute forward-looking statements. Please note the cautionary language about forward-looking statements contained in our press release and earnings presentation. That same language also applies to this call. Please also note that some of our comments today may refer to non-GAAP financial measures. Reconciliations can be found in our earnings materials. And now I'll turn the call over to Kent.

Thank you, Meredith. I'm pleased to report that Albemarle's performance is off to a strong start for 2026. For the first quarter, we reported net sales of $1.4 billion, up 33% year-over-year. We also delivered adjusted EBITDA of $664 million, more than double the same period last year, reflecting higher pricing and volume in both Energy Storage and Specialties, as well as cost and productivity improvements. We continue to see strong end market demand, which I will discuss in greater detail as we get into the presentation. Our business is well positioned in resilient end markets. We are maintaining our outlook for strong lithium market growth led by energy storage demand, which is up 117% year-over-year. We remain focused on the areas within our control and made progress during the quarter, enhancing operational excellence, focusing on cost and productivity discipline and driving cash generation to enable long-term volume and earnings growth. In the first quarter, following the successful sales of our Eurecat joint venture and the controlling stake in Ketjen, we repaid $1.3 billion of debt, further strengthening our balance sheet and reducing interest expense. As Neal will share shortly, we are raising our 2026 outlook for Specialties net sales between $1.3 billion and $1.5 billion and adjusted EBITDA outlook between $225 million and $275 million, reflecting higher pricing and volumes in our Specialties business. Moreover, year-to-date, we've delivered $40 million in cost and productivity improvements and remain on track to hit our full year target of $100 million to $150 million. We're able to maintain our corporate outlook scenarios as these improvements offset supply chain disruptions. Now I'll turn it over to Neal to discuss recent results and outlook. I will then cover recent market trends and growth projects before we open the call for Q&A.

Thank you, Kent, and good morning, everyone. I will begin with first quarter performance on Slide 5. First quarter net sales were $1.4 billion, up 33% year-over-year, driven by higher volumes and pricing in both segments. Energy Storage pricing increased 51%. Volumes for Energy Storage and Specialties were up 14% and 7%, respectively. Adjusted EBITDA for the quarter was $664 million, up $397 million year-over-year, reflecting higher volumes and price as well as ongoing cost and productivity improvements in both segments. Both segments also saw strong adjusted EBITDA growth with Energy Storage up 196% and Specialties up 30%. Our adjusted EBITDA margin increased by more than 20 percentage points compared to the prior year quarter due to higher pricing and our continued focus on cost and productivity improvements. We reported diluted earnings of $2.34 per share. Turning to Slide 6. I'll go over the key drivers of our year-over-year EBITDA performance. Q1 adjusted EBITDA increased by 148%, primarily due to higher pricing and volume in both Energy Storage and Specialties segments. In addition, cost of goods sold benefited year-over-year from cost and productivity improvements in both segments. By segment, Specialties EBITDA increased 30% year-over-year due to higher pricing and favorable product mix. Energy Storage EBITDA increased 196%, driven by higher lithium market pricing and increased volumes. Both segments' results were bolstered by cost and productivity improvements as well. The corporate EBITDA change reflects favorable foreign exchange impacts and the fully consolidated results of Ketjen prior to the divestiture. Turning to Slide 7 and our outlook. As usual, we provide total company outlook considerations based on recently observed lithium market pricing scenarios. We are maintaining our total company outlook for 2026 across all 3 price scenarios despite global supply chain disruptions related to the Middle East. We estimate that the unmitigated full year cost impact of these supply chain disruptions would be approximately $70 million to $90 million, and expect it to be offset by the following: Reduced interest expense following our debt reduction actions in Q1, and stronger-than-expected pricing and volumes in the Specialties business, which gives us the confidence to increase our full year Specialties outlook, which I will cover on Slide 8. The Specialties segment had a stronger-than-expected quarter. Net sales increased 12% year-over-year and adjusted EBITDA increased 30%, primarily due to higher pricing, favorable product mix and cost and productivity improvements. For the second quarter, we expect net sales to increase sequentially due to higher pricing for bromine specialties. EBITDA is also expected to increase modestly as favorable price and volume mix are partially offset by higher costs due to supply chain disruptions. Additionally, operations at the Jordan Bromine Company joint venture have fully recovered from the flooding event in late December 2025, and continue to operate despite geopolitical tensions and disruptions in the region. Looking ahead and taking all these factors into consideration, we are increasing the range of our full year outlook considerations for the Specialties segment. We are raising our guidance for net sales to $1.3 billion to $1.5 billion, and for adjusted EBITDA to $225 million to $275 million, and we now expect EBITDA margin in the high teens. While outlooks for end markets such as petrochemicals and oil and gas remain volatile due to geopolitical tensions, this increase in outlook reflects bromine price and volume opportunities that we see, coupled with our strong operational execution and the success of our cost and productivity improvements. Moving to Energy Storage on Slide 9. First quarter sales volumes were 53,000 tons lithium carbonate equivalent, or LCE, with an average realized price of approximately $17 per kilogram. The gap between our average realized price and market price is primarily driven by 2 factors: the 1 quarter pricing lag in our long-term contracts and sales of spodumene, which dilute our realized price on an LCE basis. First quarter net sales increased 70% year-over-year due to higher pricing and volumes. Adjusted EBITDA nearly tripled, supported by the same price and volume factors as well as the timing of consumption of spodumene inventories. For the second quarter, net sales and EBITDA are expected to be up sequentially, assuming flat lithium market pricing due to increased volumes and pricing lags in our long-term contracts. EBITDA margin is expected to decrease sequentially due to the timing of spodumene inventory consumption and higher costs due to supply chain disruptions related to the Middle East. On a full year basis, we are maintaining our Energy Storage outlook scenario ranges even after including the impacts of cost increases due to geopolitical tensions in the Middle East. Our volume guidance also remains unchanged. Turning to Slide 10. We continue to be successful in driving productivity improvements and converting earnings to cash. We are on track to deliver our full year 2026 cost and productivity improvements of $100 million to $150 million. Year-to-date, we have achieved $40 million in savings, primarily related to manufacturing and supply chain, including debottlenecking projects such as increasing spodumene utilization at our lithium conversion facilities in China and ramping new assets to their full production capability. We generated $346 million of operating cash flow and $248 million of free cash flow in the first quarter. Capital expenditures were $99 million in the quarter. We continue to expect full year CapEx of $550 million to $600 million. At the $20 per kilogram lithium price scenario, full year operating cash flow conversion is expected to be within our long-term target range of 60% to 70%. As previously noted, there are select headwinds to our cash metrics this year, including recognizing deferred revenue related to the customer prepayment we entered in 2025, which will benefit EBITDA, but not contribute cash, and cash costs related to idling Kemerton Train 1, of which approximately $25 million occurred in the first quarter. Turning to Slide 11. We took advantage of our successful cash and portfolio management actions to pay down debt and further strengthen our balance sheet and financial flexibility. During the quarter, we repaid $1.3 billion of debt, reducing our weighted average interest rate to about 3.1% and lowering our annual interest expense by approximately $60 million. We ended the first quarter with a net debt-to-EBITDA leverage ratio of 1x. And from a debt profile standpoint, we have no major maturities due until late 2028. Together, these factors offer us substantial flexibility and resilience to navigate the current environment. I will now turn the call back over to Kent to detail our market outlook.

Thanks, Neal. Turning to Slide 12. Before we dive into the details of the lithium markets, I wanted to take a moment to look at the company more holistically. Our overall portfolio is well positioned in resilient end markets, and that gives us confidence in the long-term outlook for our business, even with the current geopolitical uncertainties. As a market leader with globally diverse operations, we can pivot to meet dynamic market needs. More than half of our net sales are in new energy end markets like electric vehicles and energy storage with strong secular growth trends. Both Energy Storage and the Specialties segment benefit from these trends. Our Specialties segment end markets are diverse, including electronics, semiconductors, building and construction, and energy. AI demand strength continues to drive strong electronics demand, particularly in Asia and the Americas. Building and construction demand continues in line with our forecasts. While less than 5% of our net sales are in oil and gas markets, we anticipate near-term demand growth as investments shift away from the Middle East towards other regional markets. Now turning to Slide 13. Global lithium demand is tracking in line with our forecast. So far this year, lithium consumption is up 37%, towards the upper range of our 2026 forecast of 15% to 40%. We are holding our outlook steady due in part to geopolitical uncertainties. That said, our early estimates suggest that lithium demand will be relatively resilient to the situation in the Middle East. For example, demand could be slightly up due to greater emphasis on energy storage or electric vehicles, or slightly down due to broader supply chain disruptions. Either of these scenarios falls within our 2026 forecast range. Importantly, lithium demand continues to diversify with 2 key end markets, energy storage and electric vehicles. Now turning to Slide 14. Strong growth in the energy storage sector more than compensated for weak EV sales volumes during the first quarter. In China, seasonal weakness during the Lunar New Year and prebuying in December ahead of subsidy changes led to reduced EV sales in the first quarter. 2026 Chinese subsidies have shifted support to premium vehicle segments in Q1 leading to a 20% increase in average Chinese battery size and increased demand for lithium hydroxide. Due to the increased average battery size, global EV sales were up 3% year-over-year on a gigawatt hour basis despite a 6% drop in unit sales. In the United States, EV sales were lower year-over-year, largely attributed to reduced incentives. However, I'll note that the U.S. market now represents less than 10% of the global EV market. Developing markets in other regions such as Brazil, India and Australia have collectively grown 74% year-over-year as EV penetration continues to diversify globally. European EV sales continue to show robust growth as well, driven by greater policy support, particularly in Germany, France and the U.K. Overall, we remain on track to hit our 5-year CAGR for energy storage volume growth of 15%. We achieved 25% CAGR over the first 3 years and expect to deliver moderate growth over 2026 and 2027 as our large projects complete their ramp. It's important to note that completing this phase of growth requires little to no additional CapEx. Our scaled, low-cost, world-class resources are performing well today with capital-efficient brownfield opportunities to fuel future growth. Turning to our joint ventures on Slide 16. Operations at both Wodgina and Greenbushes are operating well and in line with our expectations. At Wodgina, we have a clear line of sight to operate all 3 trains at full capacity. Ore quality is expected to drop slightly over the next 2 quarters before improving in the December quarter as the Stage 3 pit deepens and availability of higher quality ore increases. Greenbushes is a world-class asset, and we are confident in the path forward and strategic direction. The CGP3 investment there is operational and ramping as planned. Our team is working closely with Talison's management team on value optimization studies to unlock the additional value as part of a multiyear transformation. As a result of these studies, the team has identified productivity improvements, including lower waste movements and a smaller truck fleet operating at higher utilization, helping to reduce the impact of fuel price increases. To date, neither operation has been disrupted by global fuel supply interruptions, with good visibility of ongoing supply. Having access to both of these high-quality hard rock resources plus our low-cost brine position at the Salar de Atacama positions Albemarle well for global growth. Slide 17 shows our progress as our longer-term projects at the Salar de Atacama in Chile and Kings Mountain in the United States. At the Salar de Atacama, we have initiated the environmental permitting process for a commercial DLE project. While the permit evaluates up to 6 trains of DLE, I want to stress that these investments would be phased in a prudent manner, contingent on approvals and investment decisions. Our pilot plant at La Negra has now operated for over a year and has achieved quality and recovery targets, including greater than 94% lithium recovery. We are evaluating numerous adsorbents and membranes, including proprietary and third-party technologies, and we've been able to incorporate findings from the pilot operation into our early engineering for the commercial plant. At Kings Mountain, we are currently obtaining the required permits and conducting comprehensive economic and environmental predevelopment evaluations prior to making a final investment decision. The project recently received federal mining permits, a meaningful milestone, and we continue to engage with local and state entities to obtain their respective approvals. As we continue drilling and engineering work, the more we learn about Kings Mountain, the more confident we are in the long-term strategic value of this asset. We look forward to sharing our progress as there are further developments. To summarize, we're off to a strong start in 2026 as we continue to demonstrate operational excellence and capitalize on the secular growth opportunities supported by our end markets across mobility, energy, connectivity and health, including the global need for long-term energy security. We are continuing to take disciplined actions to enhance our long-term competitive advantage and leveraging our strengths, including our world-class resources, expertise and innovation to position us for sustainable growth and value creation over the long term. With that, I'll turn it over to the operator to take your questions.

The operator provided instructions to participants. Our first question comes from David Begleiter with Deutsche Bank.

Kent, have you seen any — at this higher level of lithium pricing, have you seen any change in buyer behavior either getting ahead of or whatever else to deal with the higher pricing in the lithium market?

Thanks, David. So I don't know that we've seen a real change in behavior. It is evolving, and it's only been a few months since price has changed. I wouldn't say we've seen a change. The conversations may be a little different. Eric is a little closer to it, so maybe you can comment.

Yes, David, I would substantiate what Kent said. It's fairly new. Most of the growth has been on the ESS side, as we described in the call here. There's a lot of interest in the carbonate supply chain. That contrasts with EVs outside of China, which are a little weaker on the hydroxide side in terms of sentiment. All in all, though, we've got a pipeline of customers who are very interested in talking with us about spot bids and contracts, and we're being very cautious as we look at that in terms of how we think about where we want to take that contract mix over time.

Very good. And just on the DLE opportunity in Chile, any early thoughts on potential cost improvements or benefits from this route versus your traditional solar evaporation route?

Yes. So it's more about being able to access more lithium in the Salar at the cost position we're at rather than trying to do a cost improvement program. It's not really a cost improvement program—it's about being able to access more lithium in the Salar under the environmental conditions there.

Our next question comes from Patrick Cunningham with Citi.

Kent, you seem to hint the broader deployment of renewables as a result of the crisis could be a potential positive for lithium demand. Is that anything that you've seen already? And how would you expect the market to respond to higher embedded risk premium in oil, concerns around energy security?

Yes. There's a lot there, and it's difficult to see that in the market. We think that may have an impact on both EVs and the Energy Storage segment. Energy security and grid resiliency is probably one of the bigger drivers around that. I'm not sure that's just about the Middle East crisis, but it's clear that's a big driver around the world.

Got it. And then just on Greenbushes, I think one of your JV partners noted some issues around grade recoveries and production stability, maybe even suggesting that they're more systemic. Is this in line with your assessment? And how does it affect the ramp-up at Greenbushes?

Greenbushes is operating in line with our expectations and the outlook considerations that we put forward. Every year, we look at all of our assets, and we make a risk-adjusted forecast around that, and we're fully in line with that. The ramp of CGP3—we started that up at the end of the year, and we expect it to ramp through this year. I would say that ramp is on schedule and fully in line with our expectations and our plan.

Our next question comes from Mike Sison with Wells Fargo.

This is Abigail on for Mike. As you look further ahead to your brownfield projects, what are the hurdle rates for these? Is there any scenario in which any of these don't happen? And then how much capacity do you think these would add beyond 2027?

We are now ramping investments that we've made that get us through the profile we showed. It slows down a little bit of growth into 2027. That's ramping the bigger investments that we've made over time. The next phase would be those brownfield investments, and we think that gets us somewhere in the high single-digit growth rate for that period of time. Those are at existing assets—for example, Greenbushes, Wodgina, and the Salar de Atacama. Over time, after that, there are more significant investments we could make on resources that we own, Kings Mountain, for example, and then further trains at the Salar de Atacama. We have a pretty good line of sight for growth, but the first tranche would be those brownfields. The returns depend on market growth, pricing, and asset costs, and we'll make those decisions at the time based on how we see the market.

Okay. Got it. And then for the 2026, 2027 projects, you're talking about requiring minimal additional CapEx. Can you just give us a feel for size there? Any color you can give would be helpful.

For 2026 and 2027, it's really ramping up the projects that we've built. Probably the most significant would be the full ramp of Greenbushes CGP3, and getting Wodgina operating on three full trains. We're operating three trains today, but we anticipate working through a more difficult part of the mine. We expect quality of the resource to improve in the fourth quarter. That's where those incremental volumes come from, plus normal productivity improvements like better recoveries and Salar yield at the Salar de Atacama.

Our next question comes from Josh Spector with UBS.

It's Chris Perrella on for Josh. Can you unpack the puts and takes to the Q1 energy storage margin? Given the $20 a kilogram spot price you guys experienced in the first quarter, I would have thought margins would be closer to 50%. So why were they so much better?

Chris, the main driver is the traditional lag that we see in spodumene costs and how we consume spodumene through our supply chain. There was a small uplift in margin because we were consuming spodumene purchased from our mines in the fourth quarter, which was at a lower price than what you saw in the first quarter. That uplift is minimal. Our full year outlook, if you assume flat pricing across the year, has Energy Storage potentially being in that mid-50% range. There was a little uplift in the first quarter due to that timing, but that will normalize through the year assuming pricing stays consistent.

All right. And then just as a follow-up, the Specialties outlook—you did $75 million, $76 million in the first quarter EBITDA, higher in the second quarter. What's causing that to drop off in your outlook in the back half of the year?

It is really the uncertainty that Kent mentioned in the opening remarks. Right now, the visibility that we have is at least through the middle of the year, and we are driving some price and volume initiatives that give us confidence around the second quarter. We'll continue to update as we go through the year. There's a lot of uncertainty stemming from the situation in the Middle East, and we're watching that closely.

Our next question comes from Vincent Andrews with Morgan Stanley.

Just wanted to follow up a bit on the brownfield opportunity and get some color. Kent, were you saying that these assets could potentially start up as early as 2028, or would the timeline be a bit longer? If you could help us understand the lead time.

None of the projects are finalized. There are opportunities now that we've discussed, and we'll bring those on when we think it's the right time. A couple are with joint venture partners, so we need alignment. It's clearly after 2027 in that timeframe, and we think that is the next leg of growth. Bigger investments like Kings Mountain would be after that, so these brownfields fill the gap between those phases.

Neal, on Slide 10 you talk about, at $20/kg, operating cash flow conversion would be 60% to 70%. As prices ramp higher than that, how much of that drops down to cash versus how much would go up to working capital? Would we stick with the 60% to 70% range, be higher, or lower?

It depends on the shape of how pricing moves. If it's a sudden move up late in the year, cash conversion will compress short term because working capital runs up. If it's gradual, the 60% to 70% range seems right from our modeling. If it's more ratable, we'd expect to still be in that range.

Our next question comes from Arun Viswanathan with RBC Capital Markets.

Congrats on the strong results. Apologies if this was asked earlier, but did you discuss the reduction of output at Greenbushes? It looks like it's about 10% to 15%, and how does that affect your own operations?

We had said that in an earlier question. Greenbushes is operating in line with the plan we have. We build our plans, risk adjust, and the mine is operating to those plans, including the ramp of CGP3. We started that project with first ore at the end of 2025, and we believe we can ramp it through the year and be at full capacity as scheduled.

Okay. And you noted that ESS demand could be a little stronger, and we did notice stronger EV demand in the last month versus the first few months of the year. Are you seeing demand improvement? You're still guiding to about flat volumes—any upside this year or more likely next year?

The market is growing and strong, but we are working through seasonality—Lunar New Year in China has a big impact. We're off of that now. Demand is strong, but we're not ready to say it's at a different level just yet.

To add, battery companies, particularly in Asia who produce for this market, have order books full from now through the beginning of 2027. Demand is very strong in Energy Storage, driven by grid reliability, renewables, AI, and behind-the-meter storage. Favorable trends are driving that outlook.

Arun, on our volume forecast for the year, it's flat with last year. Underneath that is an assumption about resource ramping through the year—CGP3 and improvements at Wodgina. Everything is going according to our plan, which is why we're holding that volume outlook. If we see upside, we'll update you, but our volume growth potential this year is driven by how well those resources continue to ramp.

Our next question comes from Laurence Alexander with Jefferies.

Two questions. First, are there any advantages or disadvantages for you if LFP producers need to switch to yellow phosphorus to reduce their sulfur consumption, and how are higher sulfur prices affecting your economics versus your peers? Second, longer term, if you undertake something like Kings Mountain, what would you see as a desirable range for your balance sheet and what balance sheet metrics would you use as boundary conditions?

Eric, maybe you can talk about LFP chemistries and sulfur impacts.

We talked about raw material costs rising $70 million to $90 million across the enterprise, and one of the drivers is sulfuric acid. I don't think we are advantaged or disadvantaged versus others who buy sulfuric acid in Asia; acid roast and leaching processes are impacted broadly. Regarding switching to yellow phosphorus, many cathode producers in China have upstream capabilities to access phosphorus in various forms. Trade-offs are not impacting their ability to deliver quality, from what I've seen. If we learn more, we'll share it.

Laurence, on Kings Mountain, we're nowhere near a final investment decision. As a company, given recent volatility, we're taking a conservative stance on the balance sheet. We'll evaluate metrics and decisions as we get closer to any final investment decision.

Our next question comes from Joel Jackson with BMO Capital.

You're talking about Q2 margins guidance as if spot prices hold Q1 levels. Market prices are actually higher in Q2 than Q1. What quarter-over-quarter price increase would you need to hold Q1 margins? Or how would you frame it?

A portion of our volume is on contracts—about 40%—and there is a pricing lag in those contracts, typically one quarter. As pricing moves, you'll see adjustments as the quarter progresses. We're not forecasting prices, but that lag is the function of our contracts, and margins will move up as long as prices remain.

If you hold everything flat, to get from a $20 scenario to a $30 scenario, everything scales linearly. To get to a higher margin, you need a higher price realization in the second quarter, all else equal. It comes down to pricing assumptions.

And Kent and team, one more on Greenbushes. One of your JV partners publicly noted safety concerns in their prepared remarks and was aggressive about calling out what they feel is happening at Greenbushes. Why do you think your JV partner is speaking publicly? Is this about negotiating mine plan, production, throughput, concentrate grades? You have different interests being a customer of the spodumene; why might they be so aggressive publicly?

I'm not going to comment on their perspective. They are our partner's partner. We have had many conversations with the management team and our partners about safety at the mine. We're not happy with the safety position; we've had plans and are improving. Safety takes time—it's a long-term program. We feel we're on the right track. The mine is operating to the plan we built for the year, including the ramp of CGP3. We don't see a variance in our plan, and I can't comment on why our partner speaks publicly.

Our next question comes from Colin Rusch with Oppenheimer & Co.

As we look at some NDA compliance deadlines coming up at the start of 2028, how are you planning to meet those and what can we think about from a CapEx perspective if there is any to meet those requirements for supply chains in North America?

That's a segment of the market we'd want to serve. We have lithium produced in the U.S. today at Silver Peak processed at Kings Mountain; it's a small volume but we can serve that through locations and allied countries like Chile. Kings Mountain would be one opportunity to serve that volume. We're not over-indexed on it, but military applications in the U.S. are an opportunity.

Our next question comes from John Roberts with Mizuho.

Assuming this year plays out according to plan, where do you think your debt level should be this time next year? What would be a targeted debt level?

John, there's a lot of estimating, but if you take flat pricing from where we are today and run that through the year, we exited first quarter at 1x net debt-to-EBITDA. At these prices, we'd probably trend down from there below 1x. Our stance is conservative because of volatility, and that's our posture for the year.

We've brought ourselves through a tough period and want to be conservative. We're building a company that can work through the cycle regardless of where it goes and be opportunistic at the bottom of the cycle. The balance sheet is an important part of that strategy.

Our next question comes from Kevin McCarthy with Vertical Research Partners.

Can you speak to the quarterly cadence of your lithium sales volumes? You're guiding flat for the year. In Q1 you had 53 kilotons, up appreciably. Comps are tougher in the back half, so how do you foresee volumes flowing through Q2 and the balance of the year?

Kevin, Q1 is typically our softest quarter because of Chinese New Year and seasonality. Expect volumes to pick up in Q2 and Q3. I wouldn't expect Q4 volumes to be as strong as last year because we had inventory reductions at the end of that year. That's why we're guiding to a flat volume year-over-year—tougher comps as we go through the year.

Do you have visibility into whether your lithium molecules end up in an EV versus an energy storage system? If you do, do you care? Is there any strategic or commercial effort to influence your mix one way or the other?

We do see where much of it goes, though not perfectly since it's often the same customers. We have discussions and understand order books and end uses. It matters because we want to plan capacities and approaches accordingly. We have pretty good visibility based on customer conversations and transparency with us.

That's right. Someone buying carbonate for LFP production could go to EV or ESS, but our on-the-ground knowledge helps us ascertain the difference. It matters for planning our capacities and market approach.

Our next question comes from Mazahir Mammadli from Rothschild.

If current market conditions persist, what kind of supply response would you expect over the coming year or so? Would current prices be high enough for some of the unconventional supply from 2022-2023 to come online?

It takes time for supply to come back. If you've idled capacity and kept it in the right shape, you can bring it back quickly; if it's in care and maintenance, it takes longer. Mines require equipment and time—brownfield is a couple of years; greenfield longer. I don't think current prices will trigger massive supply adjustments. People learned lessons from the last cycle. I don't expect a huge supply response at current prices; some projects are back to the numbers used to justify them, but not a massive wave of new supply.

Follow-up on the Specialties business: bromine price in China is almost as high as the 2022 peak. In 2022 this segment generated over $0.5 billion in EBITDA. Is that a trajectory to expect if bromine prices stay at this level, or are there other moving parts?

Prices did peak and have come off fairly quickly recently. We're below the 2022 performance level. We have operational cost issues we need to address and are working on improvements. Also, the visible index price you see in China reflects a small amount of our bromine sold on that basis; it's an indicative index but a small part of our bromine sold that way.

To add, our overall Specialties sales include lithium specialties and bromine specialties; about 20% or less of our sales are exposed to that kind of upstream index prevalent in China. Regional markets differ and downstream derivatives are priced more like specialty chemicals. Current pricing has been driven by anxiety around supply early in the year, our own issues at JBC which we resolved, and the Middle East crisis. We've positioned ourselves as a reliable global supplier, which helped, though Chinese seasonal production has led to some price easing. These factors affect visibility for the second half of the year, which is why we're cautious.

Our next question comes from Rock Hoffman with Bank of America.

With current Chinese spot near $27/kg, is there upside to that $20/kg market scenario guide if pricing stays at current levels? And how would you assess any near-term supply shocks in Zimbabwe, Jiangxi province, or elsewhere?

If Chinese price stays at $27, there's upside to our $20 forecast—yes. Regarding supply, there's in-and-out movement. Zimbabwe has short-term issues we don't see as long-term—they're likely negotiating positions and should come back in months or quarters. Lepidolite in China is harder to call and some have been offline, sometimes due to permitting. These are frequent occurrences in the lithium market; the market is larger now so such events influence the market but are not necessarily huge shocks.

Understood. As a follow-up, any updated views on the two major contracts which roll off at the end of this year? More broadly, how should we think about potential shifts of that product mix from the current 60% spot, 40% contracted?

We don't have anything to update on those contracts. Business as usual—we're having conversations with customers and will adjust as we go through the year. No updates on those particular contracts at the moment.

We continue to evaluate paths forward with those customers and have a pipeline of prospective contract customers. We're evaluating terms and whether they meet our objectives and will update when we have better clarity toward the end of the year.

Thank you. That's all the time we have for questions. I will now pass it back to Kent Masters for closing remarks.

Thank you, operator, and thank you, everyone, for joining us today. We've managed through a challenging period and actively positioned the company for future growth and resilience. As we look ahead, I'm deeply optimistic about our company's trajectory. Our team is dedicated to delivering operational excellence and sustainable growth, and our efforts are bearing fruit. Together, we will continue to leverage our competitive strengths and world-class resources and process chemistry expertise to capitalize on the opportunities created by the energy transition. I look forward to sharing more milestones and successes with you in the coming quarters. Thank you.

This concludes today's conference call. Thank you for your participation. You may now disconnect.