Earnings Call Transcript - ALB Q2 2021

Operator, Operator

Good morning, and welcome to the Q2 2021 Albemarle Corporation Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. Operator provided instructions. As a reminder, this conference call is being recorded. I will now like to turn the conference over to your host, Meredith Bandy, Vice President of Sustainability and Investor Relations. Please go ahead.

Meredith Bandy, Vice President, Sustainability and Investor Relations

Thanks, operator, and welcome everyone to Albemarle's second quarter 2021 earnings conference call. Our earnings were released after the close of market yesterday, and you will find the press release, earnings presentation and non-GAAP reconciliations on our website under the Investor Relations section at albemarle.com. Joining me on the call today are Kent Masters, Chief Executive Officer; and Scott Tozier, Chief Financial Officer; Raphael Crawford, President, Catalysts; Netha Johnson, President, Bromine Specialties; and Eric Norris, President, Lithium are also available for Q&A. As a reminder, some of the statements made during this call including outlook guidance expected company performance and timing of expansion projects may constitute forward-looking statements within the meaning of Federal Securities laws. Please note the cautionary language about forward-looking statements contained in our press release and earnings presentation, that same language applies to this call. Also note that some of our comments today refer to non-GAAP financial measures. Reconciliation to GAAP financial measures can be found in our earnings release and the appendix of the presentation, both of which are posted on the website. And finally, as a reminder, Albemarle will be hosting our 2021 Investor Day, the morning of Friday, September 10th webcast live from our Charlotte offices. Registration for webcast is also available on the Investor Relations section of our website. And now I'll turn the call over to Kent.

Kent Masters, Chief Executive Officer

Good morning, and thank you all for joining us today. On today's call, I'll highlight quarterly results and our recent strategic achievements. I'll also introduce the new operating model we are implementing to support Albemarle's growth strategy. Scott will give you more detail on our results, outlook, and guidance. Our businesses continued to execute well, as global markets improved. Second quarter net sales were $774 million and adjusted EBITDA was $195 million, both of which marked a slight improvement compared to the second quarter of last year. Note that we closed the divestiture of FCS on June 1, so second quarter 2021 included only two months of FCS results. Excluding FCS, net sales increased 5% and adjusted EBITDA was up 13% compared to last year. In our financial release issued yesterday after the close, we revised our guidance for the year, in part to reflect higher lithium performance, but also supply chain disruptions for our Bromine business. We've also updated full year guidance to reflect the sale of FCS. Scott will walk you through those changes in more detail in just a few minutes. We continue to execute on our next wave of growth projects to capitalize on attractive long-term fundamentals in the markets we serve. We recently completed construction of La Negra III and IV, as planned and we are progressing through the commissioning stage. Finally, I want to briefly describe the operating model we are launching to drive greater value, improve performance, and deliver exceptional customer service and you see that on Slide 5. Our operating model, which we call the Albemarle Way of Excellence, or AWE, serves as a framework for how we execute, deliver, and ultimately accelerate our strategy. AWE is based on four pillars: sustainable approach, includes responsibly managing our natural resources and engaging with our stakeholders, high performance culture, includes focusing on safety leadership and fostering an agile, engaged corporate culture; competitive capabilities means we are ensuring we have the right talent, resources, and technologies; and finally, operational discipline is about embracing lean principles and operational excellence across the organization. The operating model helps us connect our strategy with day-to-day initiatives, prioritize projects, clarify resource allocation, ensure accountability, and drive efficient and profitable execution. We will discuss the operating model in more detail at our upcoming Investor Day on September 10th. Now turning to Slide 6. We've completed construction of La Negra III and IV in Chile and are in the commissioning stage. We expect commercial production from these two trains beginning in the first half of next year ramping to 40,000 tons of lithium carbonate per year by 2024. This brownfield project allows us to increase existing capacity and leverage our world-class brine resource in Chile, just one of the avenues of growth that we have as an established lithium producer with a global footprint. We also continue to progress our Kemerton conversion facility in Western Australia. To mitigate risk related to the tight labor market and COVID-related travel restrictions in Western Australia, we have modified our execution strategy to prioritize Kemerton I over Kemerton II. Kemerton I remains on track for construction completion by the end of the year. We now anticipate completion of Kemerton II by the end of the first quarter next year, a delay of about three months. These delays and higher labor rates have also increased capital cost. It's been a difficult situation and a labor market that was already tight, but we have been able to maintain the schedule for Kemerton I with only a three month delay for Kemerton II. We continue to expect commercial production for both Kemerton I and II during 2022. Importantly, we are making progress on our Wave 3 lithium projects and we will provide further details at Investor Day in September. Site selection is underway, and we are negotiating with the authorities to include investment agreements. We're also expediting investments in bromine to meet increasing demand. We completed the first well at Magnolia ahead of schedule and under budget. Unfortunately, we are unable to take advantage of that additional capacity in the second half due to shortages of chlorine and the supply chain. We also have two projects in Arkansas that are currently in the select phase. These projects are designed to increase production capacity of clear brine fluids and hydrobromic acid. A third project to increase the capacity of our brominated flame retardants is in the evaluate stage. I will now hand the call over to Scott, who will provide an overview of our financial results for the quarter.

Scott Tozier, Chief Financial Officer

Thanks, Kent, and good morning, everyone. I'll begin on Slide 7. We generated net sales of $774 million during the second quarter, which is a slight increase from the same period last year, driven by stronger sales from our Lithium and Bromine segment. Higher sales, as well as strong operating margins resulted in an adjusted EBITDA of $195 million, which was 5% higher year-over-year. GAAP net income of $425 million, includes an after-tax gain of $332 million related to the divestiture of our FCS business to W.R. Grace. Adjusted EPS, which excludes the gain on FCS was $0.89 for the quarter, up 4% from the prior year. Let's turn to Slide 8 for a look at adjusted EBITDA by business. Excluding FCS, second quarter adjusted EBITDA increased by 13% or $22 million compared to the prior year. Higher adjusted EBITDA for lithium and bromine was partially offset by higher corporate costs related to incentive compensation and foreign exchange movements. Lithium's adjusted EBITDA increased by $19 million excluding FX compared to last year, primarily driven by higher volumes as customers under long-term agreements continued to pull orders forward, and we shipped higher spodumene volumes from our Talison joint venture. Adjusted EBITDA for bromine increased by $16 million due to higher volumes and pricing. End market demand continues to be very strong. Following the winter storms experienced in Q1, we have very limited excess capacity or inventory to meet that additional demand. Catalysts' adjusted EBITDA declined just $1 million from the previous year. CFT volumes were down due to shipment timing. FCC continued to be impacted by a change in the order patterns from a large North American customer, although the FCC demand trend was generally higher. This was partially offset by excellent PCS results, which benefited from a favorable customer mix. Slide 9 highlights the company's financial strength. Since the beginning of the year, we have taken significant steps to strengthen our balance sheet. The strategic decision to divest our FCS business added cash proceeds to the balance sheet and reduced our leverage ratio to 1.5 times. That transaction further demonstrates our ability to drive value by prudently managing our asset portfolio. Our strong balance sheet and investment-grade credit rating gives us the financial flexibility we need to accelerate profitable growth and continue to provide a growing dividend. Turning to Slide 10, I'll walk you through the updates to our guidance that Kent mentioned earlier, and there are several key changes from our previous guidance. First, higher net sales guidance reflects higher lithium sales volumes and improving catalyst trends offset by our lower bromine outlook. Adjusted EBITDA guidance is the same, reflecting higher net sales, offset by higher corporate costs and foreign exchange expense. Guidance on adjusted diluted EPS and net cash from operations is improving from an expected reduction in interest expense and tax rate. The timing of working capital changes is also expected to benefit net cash from operations. And finally, we see capital expenditures trending toward the high end of our previous $850 million to $950 million range based on the tight labor markets in Western Australia, as Kent discussed. In the far right column, pro forma revised guidance ranges are adjusted for the sale of our FCS business on June 1st this year removing the guidance on FCS for the rest of the year. I'm turning to Slide 11 for a more detail on the GBUs outlook. Adjusted EBITDA for lithium is expected to increase by 10% to 15% over last year, an improvement from our previous outlook. Lithium volume growth is expected to be in the mid-teens on a percentage basis, mostly due to higher tolling volumes, as well as the restart of North American plants at the beginning of the year and improvements in plant productivity. Our pricing outlook is unchanged. We continue to expect average realized pricing to increase sequentially over the second half of the year, but to remain roughly flat compared to full year 2020. We also continue to expect margins to remain below 35%, owing to higher costs related to project start-ups and incremental tolling costs. Margin should improve, as the plants ramp up commercial sales volumes. Our outlook for Catalysts hasn't changed since the first quarter report with adjusted EBITDA anticipated to be lower by 30% to 40%. However, we are more optimistic, as fuel markets continued to improve globally. Lower year-over-year results are primarily related to the impact of the U.S. Gulf Coast winter storm in the first quarter and the ongoing impact from the change in customer order patterns in North America. Finally for bromine, we now expect mid-single digit year-over-year growth in adjusted EBITDA, which is down from our previous outlook due to a force majeure declaration from our chlorine supplier in the U.S. Like many industrial companies, we are experiencing increased costs and supply disruptions for raw materials, but it is partially offset by price and productivity improvement. Results are expected to be lower in the second half, as production is constrained due to the chlorine shortage. We are accelerating our expansion plans in bromine. However, we have been unable to take advantage of this new capacity yet due to the chlorine disruption. Looking ahead to 2022, we expect sales and EBITDA increases for all three businesses. Lithium results are expected to improve on the higher volumes, as the new plants ramp up, Bromine results are expected to rebound from short-term supply chain disruptions and the winter storm impacts and Catalysts results are expected to rebound strongly from 2021 levels assuming continued improvements in global transportation fuel demand. And with that, I'll hand it back to Kent.

Kent Masters, Chief Executive Officer

Okay. Thanks, Scott. On Slide 12, we continue to execute on our strategic objectives for 2021. First, we are growing profitably. Construction is complete at La Negra, and we are commissioning this project with commercial volumes expected in the first half of next year. Both Kemerton trains are expected to contribute volumes in 2022 as well despite the restructuring of our execution plan at Kemerton. As previously discussed, we are making progress on our Wave 3 lithium projects and expediting investments in bromine to meet increasing demand. Second, we are increasing productivity. We are on track to achieve at least our targeted $75 million in productivity improvement this year. We expect to continue to build on these improvements, as we implement our operating model and build a culture of continuous improvement. Third, we are maintaining our disciplined approach to investments and continue to optimize shareholder value by actively managing our portfolio of assets, including the recently completed FCS divestiture. Finally, all of our efforts are being driven with sustainability in mind. In our annual sustainability report, published at the beginning of June, we disclosed initial sustainability targets, including plans to reduce greenhouse gas emissions and fresh water use. We are also working closely with customers, investors and ESG rating companies to make sure they are up to speed in all of these developments, and have a full appreciation for our efforts. So with that, I'd like to open the call for questions.

Meredith Bandy, Vice President, Sustainability and Investor Relations

Operator, we're ready for questions now.

Operator, Operator

Operator provided instructions. First question comes from the line of P.J. Juvekar with Citi.

P.J. Juvekar, Analyst

Good morning, Kent and Scott. Congrats on finishing La Negra III and IV. Now that's done, are you looking for new hydroxide conversion capacity either in China or elsewhere, and would you consider building a conversion plant in the U.S.?

Kent Masters, Chief Executive Officer

Good morning, PJ, and thanks for that. We've completed construction and we're still commissioning La Negra. As you see in our plans, the Phase III is mostly about hydroxide capacity in the near term. Kemerton will be coming on in the next year. The next wave of investments at the moment are focused on China. We do look for acquisition of conversion capacity, but it's a bit of a challenge to find the assets that we want and that are for sale. So we're pursuing both acquisition options and greenfield projects in parallel. If we did an acquisition, that doesn't mean we would stop our greenfield plans and projects; we would just do them in parallel. Regarding the U.S., we will look at the U.S., but it's not in the next year or so. Our view is most of the cathode capacity that's being built and we will be producing for the next several years is going to be in China or at least Asia. So we have time before we have to decide if we need capacity in North America or Europe.

P.J. Juvekar, Analyst

Okay.

Kent Masters, Chief Executive Officer

Regarding the market segmentation of customers, in the past we had a long-term contract formula and we were trying to use that strategy for all of our customers. What we've learned is that not all customers want to buy that way, so we're segmenting how they want to buy, which is good for us as well. We have longer-term contracts that look more like a fixed price and ideally move slightly with the market. On the other extreme, we will have contracts that move closely with the market, more like spot, probably longer than a year but still market-linked, perhaps dampened. Then you'll have some in the middle. From a portfolio standpoint, until we settle that with all customers, it's hard to be precise, but for lack of anything else it's roughly a third, a third, a third in how we see it now.

Operator, Operator

Your next question comes from the line of John Roberts with UBS.

John Roberts, Analyst

On the delay at Kemerton II, if you're having delays, is the entire industry having significant delays here? I mean, we've got the car companies accelerating their demand plans here, as the supply actually going to undershoot what the industry needs.

Kent Masters, Chief Executive Officer

I can't speak to other projects, but if you're building in Western Australia the availability of labor is extremely tight. Western Australia is known for a labor market that gets difficult when doing large projects because the resource industry draws all the resources. When prices, for example for iron ore, increase, it draws resources away from other projects. Today we also have COVID, and lockdowns have affected movement between regions. We can't move resources from other countries or even from other parts of Australia as easily. So we're largely limited to what's in Western Australia. I think that will affect anyone doing a big capital project in Western Australia or Australia, but it may not apply in the same way in China, for example.

John Roberts, Analyst

And then, when CATL announced its sodium ion battery, all the lithium stocks popped including Albemarle. Is sodium ion something that we need to pay more attention to?

Eric Norris, President, Lithium

John, good morning. Sodium ion isn't new chemistry, but CATL's innovation may make it more effective. It is a chemistry with lower energy density and heavier material, so it's applicable for the very low-end EV ranges and maybe grid storage. One of the attractive components is that sodium is abundant, so it may alleviate supply issues at the low end of the market if lithium supplies become tight as they have been recently.

Operator, Operator

Your next question comes from the line of Bob Koort with Goldman Sachs.

Bob Koort, Analyst

Good morning. Kent, I was wondering, you mentioned that La Negra is completed. It takes six months to commission. Is that a function of just the qualifying process, and can you inventory production while you're doing that, and then have a nice buffer of inventory to start selling from as soon as the qualification is complete or is it a function of making sure the process works properly?

Kent Masters, Chief Executive Officer

It's both. We are commissioning and qualifying in parallel. We do early commissioning to get qualification samples, but the plant has not been operating at rate yet, so it takes time to get it operating at rate. The long pole is the qualification process, but we're commissioning during the same time and we run them in parallel to save time. So both factors apply.

Bob Koort, Analyst

And then on Wodgina, we've seen some pretty spectacular spot prices out there some north of $1,000. When do you turn that on and do you imagine that would ever feed the Kemerton plants or will you feed Kemerton through Talison for the foreseeable future?

Kent Masters, Chief Executive Officer

Our plans are to feed Kemerton from Talison. As we either bring on other capacity or do an acquisition, we would use Wodgina for that. Our strategy about selling spodumene hasn't changed.

Operator, Operator

Your next question comes from the line of Edlain Rodriguez with Jefferies.

Edlain Rodriguez, Analyst

Quick one on bromine. So you've talked about the chlorine issue you have in there, but when do you expect that to correct itself?

Kent Masters, Chief Executive Officer

I'll start and Netha can add a little. There is a broader issue in the chlorine space. Our suppliers had some equipment failures and they expect that to last a couple of months. They have a short-term fix that should get us back to higher rates and then a permanent fix that will take a bit longer. They told us two to three months for the permanent fix.

Netha Johnson, President, Bromine Specialties

As we look at the broader chlorine market, we think there will be opportunities to get it back and balanced by Q4. We're hopeful for that.

Edlain Rodriguez, Analyst

Okay. Makes sense. Quick another one. In terms of M&A, you've done the FCS deal, so you monetized that. But when you look at the rest of the portfolio like, is there anything else in there that you think might be below somebody else. Can you talk about the rest of the portfolio, what you're seeing in there?

Kent Masters, Chief Executive Officer

We looked at our PCS business, ran a process and didn't get the pricing we wanted for it. PCS is performing well and we decided to keep it; it's now part of our catalysts business. For the broader portfolio, bromine, lithium and catalysts are core businesses and that's our fundamental portfolio. PCS is now part of catalysts.

Operator, Operator

Your next question comes from the line of Joel Jackson with BMO Capital Markets.

Joel Jackson, Analyst

Good morning, everyone. My first question, I follow-up on spodumene. We've seen pretty interesting surges in spodumene prices in the last while. Why shouldn't we say there is lag, contracts and stuff. It also seems like conversion margins, the proxy conversion margin, will be extremely strong, so are those price increases more of a lagging indicator or do you think they're setting up another run up in spot prices?

Kent Masters, Chief Executive Officer

It's hard for us to project where the market is going. We see prices for spodumene, carbonate and hydroxide up. The only place you really have visibility of spot prices is in China for carbonate and hydroxide, and those have not fully translated into contract prices, but we do see contract prices moving up. Spodumene has gone up and come back down a little. I don't know that we're in a super cycle, but I do think prices will be higher than they have been in the last couple of years.

Eric Norris, President, Lithium

Joel, the China market is very dependent on imported spodumene for its growth and there is a shortfall of available supply to meet demand given rapid growth, particularly in carbonate in China. In that regard, spodumene may be a bit of a lead because it's in short supply. However, we expect more supply to come into China from other parts of the world. Prices have gone up and stayed up with demand. From Albemarle's perspective, we don't sell a lot of chemical grade spodumene; we mainly participate via tolling opportunities, which is part of our improved guidance, and that allows us to participate in the favorable spot market.

Joel Jackson, Analyst

Thank you for that. So my follow up would be just looking out to 2022 for LCE volume increases. I think you talked about maybe gaining about 30,000 tons LCE volume for next year with the different expansions ramping on. Kemerton II is delayed a few months, maybe you've been pushing out a little more tolling now this year. Is it about 30,000 ton still the right number to think about for next year?

Kent Masters, Chief Executive Officer

We haven't stated a single 30,000 ton number. You have to break it down by project and ramp rates. Kemerton has a three month delay to the second unit and we expect to get to full run rate capacity by the end of the second year for that facility. Similarly, carbonate ramps have different dynamics. Our run rate for carbonate by the end of 2022 will probably be around a 30,000 run rate basis as it ramps. Between those two, you can calculate guidance, but changes are driven by the slight delay at Kemerton and how much tolling is available in the market for us to take.

Eric Norris, President, Lithium

It's also a function of how fast we commission and ramp. You can make product during commissioning at lower rates and then ramp up over time; it's hard to speculate on the speed of that ramp curve.

Operator, Operator

Your next question comes from the line of Arun Viswanathan with RBC Capital Markets.

Arun Viswanathan, Analyst

Thanks for taking my question. Could you provide color on spodumene, carbonate and hydroxide supply-demand? Spodumene obviously had oversupply in years past, but it seems most of that is slowly working itself out. Maybe characterize supply-demand in each of those areas?

Kent Masters, Chief Executive Officer

As the industry grows, each capacity addition becomes a smaller percentage of the total industry, so you shouldn't see the same extreme oversupply or undersupply dynamics as before. Spodumene is pretty tight today. Conversion capacity needs to grow to match the growth rates we see. These dynamics apply to both hard rock and brine conversion. We are in the process of executing projects and commissioning them, and execution and ramp performance matter.

Eric Norris, President, Lithium

Today, all three are extremely tight. If we had more carbonate or hydroxide to sell, we could sell it readily. We have some idle capacity on the spodumene side, so we are not feedstock limited, which is a strength. What we are limited by is the ability to get conversion capacity in the ground quickly, which is part of our plan for next year. Long term, hydroxide will likely see a higher rate of growth off a smaller base. Carbonate has done well recently due to the LFP trend for lower-end vehicles, particularly in China. The key to higher EV penetration is higher energy density, which points to hydroxide and ultimately advanced chemistries. So hydroxide may be the tighter market over the long term.

Arun Viswanathan, Analyst

And any concerns from elevated logistics cost or the container shortage?

Kent Masters, Chief Executive Officer

Across all our businesses the supply chain is a concern. Ocean freight is a big issue, and chemical supply chains in the U.S., particularly chlorine, have hit us. We are working hard to manage it, digitize the supply chain for better visibility, and streamline operations. We're making progress but it's still a concern.

Operator, Operator

Your next question comes from the line of Vincent Andrews with Morgan Stanley.

Vincent Andrews, Analyst

If I ask about bromine, it doesn't sound like your electronics sales or your auto sales are seeing any real volume issues from the microchip shortage. Is that being offset by other parts of the business or is it just not an issue year-to-date or into the back half of the year?

Kent Masters, Chief Executive Officer

From where we sit in the supply chain, we're not seeing demand impacts from the semiconductor shortage. Demand in those areas has been steady.

Vincent Andrews, Analyst

On the Analyst Day and the Wave 3 projects, should we expect a material update on those at the Analyst Day or are those events distinct?

Kent Masters, Chief Executive Officer

We will give progress on where we are, but we're still in the planning phase for Wave 3. We're not moving dirt on projects yet, and we won't have final investment decisions next month.

Operator, Operator

Your next question comes from the line of David Begleiter with Deutsche Bank.

David Begleiter, Analyst

Eric, a couple of questions on lithium pricing in Q3. Is your guidance for pricing to be up year-over-year in Q3?

Eric Norris, President, Lithium

Yes. In the first quarter we were down 10% and in the second quarter down 4%, and we're staying flat for the year overall relative to earlier guidance. We will be up year-over-year. Since the fourth quarter last year, we've been at the low point. As spot prices move up for the small portion of our business exposed to spot, and as concessions to contracts given during the pandemic roll off, we expect prices to rise in the second half of the year and into next year given current market tightness.

David Begleiter, Analyst

Also, there has been progress on a DLE project near your operations in Southern Arkansas. Can you discuss the viability of a DLE project for you guys in Southern Arkansas going forward?

Eric Norris, President, Lithium

We continue to look at Magnolia brines where we operate our bromine operations; that could be a spot for lithium processing and DLE technologies. DLE is a mechanical extraction process rather than evaporation and is typically applied to lower-quality brines or those with higher impurities, which is often true for oilfield or geothermal brines. DLE is more capital and energy intensive and can consume more water. We're studying alternatives and optimizations that consider cost and sustainability. Given our high-quality resources and near-term growth plans over the next five years, DLE may be considered later in the decade if the technology and cost profile are appropriate.

Kent Masters, Chief Executive Officer

We didn't include DLE in Phase 3, but it's something we look at. We have access to brines and operations at Magnolia and could leverage that if we get the technology and cost position right. It would likely be considered in a later phase if appropriate.

Operator, Operator

Your next question comes from the line of Jeff Zekauskas with JPMorgan.

Jeff Zekauskas, Analyst

Thanks very much. In your Talison operation and equity income in lithium, sometimes you are in the $30 million range and sometimes $15 million or $16 million. What's the difference between the two? When we've had some $15s and $16s, are there any seasonal effects to come?

Scott Tozier, Chief Financial Officer

Jeff, the equity income in Talison is affected by two things: one is the volume that's being shipped both to ourselves and to Tianqi, and the other is the transfer price, which tracks the spodumene market price. When that price is high you'll see higher equity income; when it's lower you'll see lower equity income. Generally this tracks with about a six-month lag to market indicators. With current higher spodumene prices, you should expect that equity income to increase in the second half.

Kent Masters, Chief Executive Officer

Keep in mind that when transfer prices change, our input cost for conversion goes up as well, so it tends to wash through between equity income and what shows up in the lithium P&L.

Jeff Zekauskas, Analyst

For my follow up, historically would your long-term lithium contracts have been above the market? Given recent tightness, are your long-term contracts now more comparable to current prices?

Kent Masters, Chief Executive Officer

It depends on what you call current. If you're talking about spot prices in China, that's probably correct. Contracts outside China are probably in line with or above those. I would say they're probably still above those if you look at typical contract pricing outside of the China spot market.

Operator, Operator

Your next question comes from the line of Ben Kallo with Baird.

Ben Kallo, Analyst

Good morning, guys. Thanks for taking my question. A couple on lithium and one on bromine. First, on recycling: Redwood Materials raised a large sum. How do you see the players in recycling working with your competitors? Second, on LFP we see increases there; how do you make investments into carbonate versus hydroxide with increased LFP demand? Third, on bromine, how comfortable are you around timing of the expansion? Thank you very much.

Eric Norris, President, Lithium

Ben, recycling is happening globally with companies in the U.S. and Europe; it's a regional business model due to collection and regulations. As a global player we're engaged with many of these companies and view them mostly as partners rather than competitors. We bring process knowledge and can help remove lithium or take lithium-rich byproducts from recycling operations and return them as feedstock. Many of the early recycling efforts focused on nickel and cobalt; lithium is often a byproduct. We partner with recyclers and customers to support their sustainability goals and to recycle lithium back into the supply chain. Regarding Tesla and LFP, what they described is consistent with our outlook. LFP is applicable for lower-end vehicles and offers cost advantages. For mid and higher-range vehicles, higher energy density is needed, which favors hydroxide. On bromine timing, I'll let Netha speak, but from our perspective we're executing a strategy to build capabilities with lower capital intensity and higher returns, and Magnolia is a strong place to do that given our deep experience and jurisdictional advantages.

Netha Johnson, President, Bromine Specialties

Ben, on the timing of our bromine expansions, we feel very good about the markets we participate in and their projections over the next few years. We're executing the company's strategy to build capabilities to accelerate lower capital intensity, higher return growth. Magnolia is a great location: we've been there over 50 years, we know the asset well, and we can produce every product from that facility. That gives us high confidence in the projects and the timing of execution.

Operator, Operator

Your next question comes from the line of Matthew DeYoe with Bank of America.

Matthew DeYoe, Analyst

As you ramp Talison to meet Kemerton demand, what do you expect your partner to do? I know they have their own hydroxide plans that have been pushed. Do you expect Talison output to increase by the 50,000 metric tons you'll need or will it be closer to 100,000 metric tons? How do you see that timeline and the joint dynamics playing out?

Kent Masters, Chief Executive Officer

It's a joint discussion; Talison is a JV. We'll optimize supply. Our portion of Talison is ours, but physically we'll swap product and optimize economics. Talison's production will feed our needs and other products may feed partners' needs. It won't be a simple one-to-one mapping; we'll swap to optimize economics.

Eric Norris, President, Lithium

We can't predict Tianqi's exact actions. They have public statements about their own facilities and capacity. The JV produces product that is allocated based on ownership; we are always entitled to at least 50% of what's available, and allocations can vary if one partner doesn't take their share.

Matthew DeYoe, Analyst

If you look at the last cycle with peaks in 2018 and trough in 2020, can you provide context on how the new pricing approach would have changed realized prices historically? How much higher at the peak and how much lower at the trough — any sense if this is a net winner or loser over time?

Kent Masters, Chief Executive Officer

We have done analyses internally about what prices would have been under the new model. Generally it would have been higher at the peaks and lower at the troughs, which is the point of the change. I don't have the precise numbers to share. Also, the portfolio mix matters — how much of our business is in market-linked contracts versus long-term fixed contracts — and that affects outcomes.

Eric Norris, President, Lithium

Also note there were no automotive producers materially involved in prior cycles; now they are and demand dynamics look different. The size of growth and supply additions will change the volatility profile. The pricing structure will continue to evolve; we have contracts that fit the structure today with a mix of fixed and market-linked terms.

Operator, Operator

Your next question comes from the line of Mike Sison with Wells Fargo.

Mike Sison, Analyst

Nice quarter. Just curious what your thoughts are on industry lithium demand percent or tons in 2022?

Kent Masters, Chief Executive Officer

We have a demand model we published earlier this year which remains broadly consistent with our views. We're seeing bigger demand here in 2021 due to the post-pandemic recovery. For overall market growth, it's in the 25% plus range, so expect at least that order of magnitude for 2022 year-over-year.

Mike Sison, Analyst

When will you have all capacity available to sell for Wave 2, La Negra and Kemerton — is it 2023, 2024, 2025?

Kent Masters, Chief Executive Officer

La Negra and Kemerton between them at full rates ramped up and selling everything would be a 2024 full-year run rate.

Operator, Operator

Your next question comes from the line of Chris Kapsch with Loop Capital Markets.

Chris Kapsch, Analyst

A nuanced follow-up on increased volumes implied in your guidance: most of that is coming from more volumes via Greenbushes and spodumene being converted downstream via tollers. Is that accurate? You have stated in the past that you don't rely on toll conversion for battery grade chemicals but only for technical grade. In this case it seems like extra volumes are carbonate feeding into the LFP cathode market. Should we think of these carbonates via tollers as LFP-grade technical product? And when La Negra is ramped next year, will you maintain these tolling relationships or will you shift volumes to your own production?

Kent Masters, Chief Executive Officer

Our year-over-year volume growth is largely driven by increased tolling and plants coming back online and productivity improvements. In the first half versus second half, the increased volume is primarily tolling. When we toll in China, that carbonate is going into the LFP market. The tolling network can produce the grades required for LFP in China. Regarding what we'll do after La Negra ramps, it will be a mix: some La Negra volume will be under contract commitments for customers, and some will be used to build customer relationships. In the current tight market it's also opportunistic to participate in the spot/tolling market while prices are favorable, so we'll maintain a mix of tolling and our own production.

Operator, Operator

Your next question comes from the line of Kevin McCarthy with Vertical Research.

Kevin McCarthy, Analyst

Thanks. On your Catalysts business, margins in the first half are running maybe half of historical levels. In prepared remarks you indicated you anticipate a rebound. Can you flesh that out in terms of what you're seeing in refinery catalyst order books and when margins might get back to historical levels? Could that be 2022 or more likely 2023 or later?

Raphael Crawford, President, Catalysts

Good morning, Kevin. There were several effects in the first half: the winter storm had an impact, and the pandemic led many customers to down-trade from high-performance catalysts to more workhorse catalysts, affecting mix and margins. Looking forward, as markets recover and changeouts occur at a faster clip in 2022, we expect the higher-performance catalysts — for which we're known — to come back into demand. That will improve our mix and margins. We already see customers needing higher-performance catalysts as they operate at higher rates. We expect this favorable trend to start materializing in 2022.

Kevin McCarthy, Analyst

Thank you. For Eric, the U.S. announced a target of 40% to 50% of new auto sales as EVs by 2030. Is that incrementally accretive to your demand outlook or are automakers already tracking to similar levels?

Kent Masters, Chief Executive Officer

That announcement is early and, as I understand, not mandatory. It may be a little more aggressive than some automakers' plans but it's generally in the same ballpark. From our perspective it doesn't materially shift our model today and is essentially neutral.

Operator, Operator

And now we will turn the call over to Kent Masters for closing remarks.

Kent Masters, Chief Executive Officer

Thank you, and thank you all again for your participation on our call today. As you can see, we have a lot to be excited about at Albemarle, and we see extraordinary opportunities for growth. We are implementing a comprehensive operating model that will enable us to execute on our objectives effectively and efficiently. We look forward to discussing this in greater detail during our Investor Day on September 10, and we hope you will all be able to join us then. Thank you, and that concludes our call today.

Operator, Operator

Ladies and gentlemen, this concludes today's conference. Thank you for your participation, and have a wonderful day. You may now disconnect.