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A Lithium Investor Must Read - Q&A from ALB, page-5

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FlashFish

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10/08/18

11:56

Post #: 34855911
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Originally posted by Subs ↑

I've Compiled a "Lithium Highlights Package" for those short on reading time.

My favourite bit is when the CEO of Albemarle says he never looks at the Chinese Spot Prices, unless one of "you guys" asks me about it, lol. Then goes on to say it is irrelevant and in another question he speculates as to why the China Spot price has been moving the way it has.

Hilarious.

--------------------

Dylan Campbell -- Goldman Sachs -- Analyst

Hi, good morning. This is Dylan Campbell on for Bob. So we have seen some weakness in Chinese spot lithium prices recently, and -- but the year-over-year pricing remains strong for Albemarle. So I guess when you look forward to the second half of '18 and 2019, how are your contract or pricing discussions going with customers? And then also could we expect some further incremental pricing growth from just a laddering structure of your contracts?

Luke Kissam -- Chairman, President & Chief Executive Officer

Yes. If you look at -- as we've always said, because of our long-term contract strategy, China spot pricing has no impact on our pricing, and you shouldn't see a correlation. I think this quarter really -- you begin to see that as the China spot pricing is down and our pricing is up year-over-year. So we think that's a validation and we'll continue to see that.
As you look at pricing, I think we've said pricing would be in a similar range for the full year, year-over-year, and we don't see any change to that. It's a little too early to talk about '19, but we're having good conversations about contracts from a volume standpoint, from a commitment standpoint, from an extension standpoint, and from a price standpoint going forward. So more on that as we start talking about '19, but everything was good to-date.

Jeff Zekauskas -- JPMorgan -- Analyst

Sorry about that. When you look at the lithium market today, do you think the supply demand balance is becoming looser or tighter or staying the same, say, over the next 12 months?

Eric Norris -- President, Lithium

Hey, Jeff. Eric here. So our view is it's pretty balanced and about the same. It hasn't changed much. It continues to be challenging to produce where the growth is, which is in the battery area. You have the majors, ourselves included, expanding to meet that. But the time to bring that on as it corresponds to demand, we see that being about the same, pretty balanced.

Luke Kissam -- Chairman, President & Chief Executive Officer

And if you look at it over the next 12 months, Jeff, I don't see a whole lot of change. If you look at our forecasted growth, what our customers are saying and you look at what we're bringing online, we are going to be about where we are today from a sold-out position and still relying on some tolling. So it's about where it is now. In buckets you can look at carbonate versus hydroxide and see a little bit different story there. We won't be any tighter and won't be a little along, but from a pricing standpoint, from a demand standpoint, we're not seeing -- I don't anticipate anything in the next 12 months that would have a material impact.

David Begleiter -- Deutsche Bank -- Analyst

Thank you. Good morning. Luke and Scott, just on lithium pricing in 2018, is your guidance still up high single-digits for the full year year-on-year?

Scott Tozier -- Executive Vice President & Chief Financial Officer

Yeah. That's correct, Dave. We're right on track with where we actually entered the year and are tracking right on where we thought with that. So if you remember, we came into the year expecting high single-digit pricing in lithium, it would be higher on a year-over-year basis in the first half and declining as we go into the second half as those comps get more difficult.

Joel Jackson -- BMO Capital Markets -- Analyst

And I apologize if this question was asked earlier, but Luke, Eric, we all see the daily, the weekly, the monthly spot Chinese carbonate prices falling. There is a question about how good the information content is in that data. Can you maybe comment on that? Is there any connection between those data points and what you would see in your contract pricing in the next -- you've answered some of this, but is there any informational content really in that data?

Luke Kissam -- Chairman, President & Chief Executive Officer

Yeah. I don't look at it. I mean, the only time I bring it up is whenever you guys ask me about it, and I have to go ask somebody what the Chinese spot price has done because it's really irrelevant. What's relevant to us is what's the cost that makes our customers -- gives them the value that they're willing to pay for and gives us the return that we need to invest the capital. So we're -- I'm the wrong guy to talk about spot pricing in China, and well, it's relative or anything else, because I just -- I never look at it.

Joel Jackson -- BMO Capital Markets -- Analyst
Thanks.

Aleksey Yefremov -- Instinet -- Analyst

Good morning. Thank you. I'm sorry to come back to the China question. I recognize that you don't have exposure to China spot lithium market, but can you offer us your view of what is going on in that whole lithium to EV value chain? Is there anything that you see that has implications for EV sales in China and then therefore global demand for lithium?

Luke Kissam -- Chairman, President & Chief Executive Officer

Yeah. I really -- the only thing that I could hypothesize is that there is some lower grade carbonate that's in China that when you look at the Chinese regulations moving to a longer storage and a longer battery, is having a tough time finding a place in the marketplace for EV because it won't meet that standard for that longer draw out time under the new regulations in China. And somebody -- so it's of less value and somebody is trying to find a spot for. If you -- that's the best I can offer there. I don't think it's going to have any impact at all on our business.

Michael Sison -- KeyBanc Capital Markets -- Analyst

Hey guys, nice quarter. Luke, you kind of opened up and talked a little bit more positively again on EVs. Can you maybe just update us on your outlook for lithium? Has it increased since the beginning of the year, and to what degree, and you had a lot of nice highlights on what you think the demand should be at the beginning of the year -- beginning of the call?

Luke Kissam -- Chairman, President & Chief Executive Officer

Yeah. No, if you look, our demand model remains fairly consistent with what we talked about earlier. And if you remember at one of our -- at our previous calls, and in some of our decks that we've got online and we've used that, some of the seminars that we've been to, in 2025, we're seeing a total demand of around 800,000 metric tons. Transportation would amount to 550,000 met tons of that; consumer electronics, 110,000, and all other industrial uses about 140,000 metric tons. So we haven't changed in that, although what I was trying to point out is the data that we've seen, the demand from our customers, the steps taken by our customers' customers committing the capital is all consistent with that demand model that we laid out early this year. So during the course of this year, we've gotten even more confident in our demand model and even more confident in the growth that we anticipate between now and 2025.

Michael Sison -- KeyBanc Capital Markets -- Analyst
Hey guys, nice quarter. Luke, you kind of opened up and talked a little bit more positively again on EVs. Can you maybe just update us on your outlook for lithium? Has it increased since the beginning of the year, and to what degree, and you had a lot of nice highlights on what you think the demand should be at the beginning of the year -- beginning of the call?

Luke Kissam -- Chairman, President & Chief Executive Officer

Yeah. No, if you look, our demand model remains fairly consistent with what we talked about earlier. And if you remember at one of our -- at our previous calls, and in some of our decks that we've got online and we've used that, some of the seminars that we've been to, in 2025, we're seeing a total demand of around 800,000 metric tons. Transportation would amount to 550,000 met tons of that; consumer electronics, 110,000, and all other industrial uses about 140,000 metric tons. So we haven't changed in that, although what I was trying to point out is the data that we've seen, the demand from our customers, the steps taken by our customers' customers committing the capital is all consistent with that demand model that we laid out early this year. So during the course of this year, we've gotten even more confident in our demand model and even more confident in the growth that we anticipate between now and 2025.

Michael Sison -- KeyBanc Capital Markets -- Analyst

Great. Then as a quick follow-up, but there still seems to be some concern that lithium pricing could significantly fall over time. Do you see a scenario where your contract pricing can fall significantly over the next couple of years?

Luke Kissam -- Chairman, President & Chief Executive Officer

No.

Michael Sison -- KeyBanc Capital Markets -- Analyst

Great. Thank you.

Expand

Morgan Stanley would argue the opposite and the Chinese spot price is the vindication of their misguided report. Yes, spot prices in China are down but only for Li Carb that does not make the grade. I also read that the big players are under cutting these smaller players to gain market share and drive them out of business. I wouldn't be surprised if the larger chinese/korean battery makers orchestrated the Morgan Stanley/UBS... down ramping, with an end game to pick up a couple of cheap mines/chemical plants.

"Aleksey Yefremov -- Instinet -- Analyst
Good morning. Thank you. I'm sorry to come back to the China question. I recognize that you don't have exposure to China spot lithium market, but can you offer us your view of what is going on in that whole lithium to EV value chain? Is there anything that you see that has implications for EV sales in China and then therefore global demand for lithium?
Luke Kissam -- Chairman, President & Chief Executive Officer
Yeah. I really -- the only thing that I could hypothesize is that there is some lower grade carbonate that's in China that when you look at the Chinese regulations moving to a longer storage and a longer battery, is having a tough time finding a place in the marketplace for EV because it won't meet that standard for that longer draw out time under the new regulations in China. And somebody -- so it's of less value and somebody is trying to find a spot for. If you -- that's the best I can offer there. I don't think it's going to have any impact at all on our business."

GXY Price at posting: $2.79 Sentiment: Hold Disclosure: Held
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