Allkem General Discussion, page-2700

I found this on the PLS threads and think it is very worthy. I highlight important sections. A big thanks to @Dizzle for sharing!

Consider the words very carefully. What is said about the market is very important to any forecast you may have on AKE and others. DYOR all.


Albemarle Corporation (ALB) 7th Annual Lithium Battery Supply Chain Conference (Transcript)
Dec. 07, 2022 2:15 PM ETAlbemarle Corporation (ALB)

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Albemarle Corporation (NYSE:ALB) 7th Annual Lithium Battery Supply Chain Conference Call December 7, 2022 8:00 AM ET

Company Participants

Eric Norris - President, Lithium

Conference Call Participants


Unidentified Analyst

There have been some concerns recently about EV demand growth in China perhaps moderating. What are you seeing from that perspective? What about Chinese lifting inventories looking out over the next few months here?

Eric Norris

So China, as many of you know, is the largest EV market in the world. It's also a market that's probably from a mix of vehicles the most diverse in that it goes from a very high end to very, very low end. Had a phenomenal year this year. In terms of EV penetration, the view was going into the year was maybe 5 million electric vehicles sold. And we believe it's going to be closer to 6 million by the year-end -- time of the year-end. We are headed now into a period of time of seasonal slowness, going into the holidays, going into the Chinese New Year. And that's compounded by the threat of uncertainty around COVID lockdowns, what those mean. And then you have the global overhang from a recessionary standpoint, what that might mean for China.

So if you look at all of those factors combined, I think we're seeing a period of time in the next month -- several months of some slowness in China. But that -- as we look at the fundamentals, that's not a slowdown in EV growth for the year. I mean as we look into next year, we believe EVs could be close to 9 million, 10 million vehicles sold next year. So it's really, as it often has been in China, a year in 2 halves, a slower first half, stronger second. And consequently, what you see with just the rapid build of this year, you're seeing at the battery level some inventory is starting to creep up because demand is just taking that pause we talked about. But the fundamentals are very strong. I mean we're not really concerned.

If you look at the China government's policy and posture towards renewable energy and electric vehicles, this is strategic and the consumer has seen widespread adoption there. So we're not concerned for the long term, maybe a pause in the near term here.

Unidentified Analyst

Inventories slightly increased but not too worrisome.

Eric Norris

Yes, at the battery level, more than anything. Or between battery and OEM, battery inventories. If you go from lithium down to cathode, inventories are almost, I would not say depleted but very low at those levels of the supply chain. It's at the battery level we've seen a little bit of building given, again, some seasonal slowdown in demand.

Unidentified Analyst

Got it. Beyond '23, your forecast, I think, 1.5 million tons in '25 and 3.2 million tons in 2030. What are some of the underlying assumptions behind those metrics? And how much of that is that non-EV demand growth?

Eric Norris

Yes. So if you look at some of our growth curves and we have some presentations on our website, it is -- just to answer your last question first, it's really all about EV demand growth. Furthermore, we will have a mini Investor Day that we'll do in January, really ahead of the earnings season, just to sort of recalibrate with everyone our views going forward. Because given the year we've had, a lot has changed, so we'll update and look at some of those numbers. But the fundamentals of the assumption, irrespective of how we update that number, are still the same, it's EVs.

Non-EV growth is not unimportant and also at the battery level it can be hard to differentiate, particularly between -- if you're down in the chemistry level, you can tell but which battery -- which lithium molecule from a demand standpoint is going into an EV versus, say, a stationary storage application. Those markets are -- we reckon are probably growing at about half or less or 1/3 of the rate of EVs. So again, it really is an EV story as we go through the middle of the decade and beyond.

Unidentified Analyst

And hydroxide versus carbonate, how is that demand -- as those demand trends go?

Eric Norris

It's dynamic. It is carbonate, as a proportion of demand over the past couple of years, has definitely creeped up as both in China and now outside of China, a portion of the vehicle mix where range is not as important and cost of battery may be more important and/or the availability of other co-metals like nickel and cobalt may be concerning. You're seeing a double-digit sort of percentage of the market being LFP chemistry which is most often served by carbonate. And that's, we reckon, it has been 20%, 25%, it's probably going to be in that range or higher as we go forward. So the dominant kind chemistry we still believe will be hydroxide but carbonate is going to have a strong growth curve as well.

And from our standpoint, we're well positioned. We have strong positions in both. And as we look out to expand and partner with our customers, we're very careful about trying to understand what their commitments could be to one or the other so that we can build appropriately.

Unidentified Analyst

Very good. On to supply. Yes, I was reading that BYD was saying they expect the market to loosen in '23 to new supply coming on the market. Can you discuss what your views of our new supply '23, '24, '25. And does the market ever get loose over the next maybe 2, 3, 4 years?

Eric Norris

Well, it is true that more supply is going to come out in '23. And I would say, thank God, because we are short currently. I don't see that, that supply catching up to the -- by our numbers, we would say '23 is even more in a deficit than we've seen for most of '22. So just to put some numbers on it and these are round numbers but maybe 100,000 tons of supply came on year-on-year to this year by the time the year is done. It might be twice at that level as you go into next year. But demand is going to be closer to 300,000 tons. So we still see -- in growth -- so we still see that deficit there that perhaps by the middle of the decade there's some more balance restored. But as you then go out to the end of the decade, we see a deficit potentially emerging again.

So there's -- it's -- there's definitely new supply coming on, it's needed but it's not going to be able to keep up with demand, in our view. That's the challenge.

Unidentified Analyst

Right. We look at '25, even '30, as we forecast pretty large deficits in supply over the next 5 to 8 years. How do we -- how does the industry solve that problem?

Eric Norris

Yes, it's going to be -- you're going to get a lot of views on this today from the people you've gathered because you've gathered a great group of people within the industry. And you'll get different perspectives. But I think if you summarize at the end what you're going to hear is, if we look at the projects that are in the market today and the risks and the know-how it takes to bring those on, there's most certainly deficit as you go, as you said, into the second half of the year. You're also probably going to hear and we're involved in looking at these as well, is that our existing resources that we have can probably be larger. So the workhorse resources in Australia and South America under the right circumstances can be larger.

In some cases, that's permitting. In some cases, that's exploration. In other cases, it's technology that's going to be required to know how to get them larger. And then further still, you're probably going to hear that it's going to take new resources with new ways of extracting. These resources will be higher on the cost curve, they will be more complicated to process. It will put more of a burden on know-how and technology. So it's really going to take more know-how broadly within the industry, more investment within the industry with continued investment in the industry and more technology know-how to try to tap some of these areas.

The challenge when you look at any lithium cost curve is that, a), it's an upward sloping cost curve because the best resources have already been tapped and those being the high -- rich or high in quality lithium, low on the cost curve. But as you go out, you don't see any -- if you think of cost curve as being the high and with being how much you can contribute to the market, the width of this is very narrow. You're talking about small bites and many, many, many projects being required to get there. So that magnifies the complexity of growing in this industry.

And it speaks to, I think, advantages that people who have done this before and/or have positions in these large resources. It speaks to the advantages a company like Albemarle has to try to drive that growth. But it's going to take a lot of others in the industry to rise to the occasion, for sure.

Unidentified Analyst

On the cost curve, where are we today in the marginal cost production? And how do you see it trending up over the next 5 to 8 years?

Eric Norris

As I said, to answer the last question first, it's upward sloping. Back in the 2019 period, we would have said it was a mid- to -- mid- to high single-digits cost, marginal cash cost. It's probably several times that today when you add in a -- in order to bring these resources on. And then if you add sort of the risk premium or the incentive margin required for someone to take a big bet or take a risk on some of these areas, I think you have to consider that as well on just top of plain old marginal cash cost to bring these resources on. That's why you're seeing prices now where they are and why I think it's -- while it's -- no matter what anybody tells you in this room, it's very hard. No one knows quite where price is going to go. But it's going to remain elevated because, a, because of that cost curve and, b, because of the supply deficit.

Unidentified Analyst

Great segue to pricing. I think we've seen Chinese price this year up roughly 90%. What's driven that increase on our first cut?

Eric Norris

I think what you're seeing is a market that's saying we need more lithium. We're willing to bid up the price to get it if we can. I can't look at that and I don't think -- you can pressure other guests -- I don't think you can look at the price and say, "Well, that correlates to this cash cost plus this incentive margin." It has become disconnected from that because of the shortfall. You could argue that in a more balanced market, certainly, it would be -- it could come down but we don't see that happening for quite some time. And as we just discussed, we see a deficit by the end of the decade.

Unidentified Analyst

Longer term, almost all price forecasts call for a normalizing of price over the next maybe 3 to 4 or 5 years. If supply demand is not going to get any looser, why should price drop at all from current levels, not move higher?

Eric Norris

It's hard to say, David. I don't know anybody knows where price will go. I think if you go back to what I told you a while ago, beyond cash cost being several times higher than they were some 5 -- 3, 4, 5 years ago and beyond the incentive above that which is required to invest in some -- what today seems like speculative and hopefully in the future less speculative resources because of investment in technology, you can see that prices have to -- they will not resemble the past. The peak-trough will not remember the past peak-trough. It will be at a substantially higher level. It's hard to say when prices might come off. You could see short-term blips. We talked about China inventory correction but the reality is that would be short lived as time goes on. So I'd be hard-pressed to sort of give you why the price will do, what it will do but it should remain elevated.

Unidentified Analyst

Got it. In terms of the Chinese spot prices versus maybe the pricing you might realize actually, how should we think about those prices either normalizing and converging over time?

Eric Norris

Look, price indices, spot prices, the price reporting agencies around the world, it's a very immature, I would say, early stage for them. Spot -- China for a far longer time has had spot prices than any other industry. But if you look at actually the amount of volume and the types of buyers that are buying on that, it's very small and not very representative of the global standing. But it is a way to see the tone what's going on in the industry. If China spot prices remain elevated for a long period of time, you would expect these other industries to converge with that over that same period of time. But although I think we also see is given the thinness of how it is traded, it's very volatile. So it will be more volatile than some of the others as well.

Unidentified Analyst

Last question, M&A, what role does that play in your long-term lithium strategy?

Eric Norris

It's significant, I would say. First and foremost, it's resources. I mean, I just talked about we have more resources and some of the biggest resources in the world. We're advantaged relative to our competitors. But even if I look out to the end of the decade and talk about maintaining a leadership in this market, we're going to need more resources. So resources either in early stage or at a later stage are our target for M&A. Technologies, processing technologies, including potentially if we have some in-house DLE technology, maybe we continue to look at outside forms of acquiring that.

And then finally, other technology that might be product-based for solid-state forms or solid-state chemistry and recycling. And we have the back end of recycling, I mean we'll continue to look at our strategy and sort of say what sort of partnerships or acquisitions are important for us to play in that area as well.

Unidentified Analyst

Great. We'll stop there. Eric, thank you very much.

Eric Norris

Thank you. Appreciate it. Thank you.