Albemarle Corp (ALB) — Q3 2025 Earnings Call Transcript

Thank you, and welcome, everyone, to Albemarle's Third Quarter 2025 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 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. In the third quarter, we reported net sales of $1.3 billion, including another record production period from our integrated lithium conversion network. Adjusted EBITDA reached $226 million, representing a 7% increase as cost and efficiency improvements more than compensated for lower year-over-year lithium pricing. We generated $356 million in cash from operations during the third quarter, marking a 57% year-over-year increase, driven by higher EBITDA and disciplined cash management. We are enhancing our 2025 outlook considerations. Based on our year-to-date financial performance, prevailing lithium market pricing and stronger-than-expected energy storage sales volumes, we now anticipate full year 2025 corporate results to be toward the upper end of the previously published $9 per kilogram scenario ranges. Overall demand for lithium remains robust, up more than 30% year-to-date, supported by the energy transition and rising global demand for electric vehicles and grid storage. Notably, global EV sales have increased 30% year-to-date, led by China and EU battery electric vehicles. Grid storage growth was even more pronounced, climbing 105% year-to-date with strong growth across all major markets globally. Additionally, we have made significant progress implementing cost and productivity improvements while reducing capital expenditures. Capital expenditures for the year are now projected to be approximately $600 million. We expect to achieve full year cost and productivity improvements of around $450 million, surpassing the upper limit of our initial targets. Considering these factors, we now project positive free cash flow of $300 million to $400 million in 2025. Turning to Slide 5. Recent portfolio actions further demonstrate our commitment to long-term value creation and enhanced financial flexibility. We recently announced 2 transactions. First, a definitive agreement with KPS Capital Partners to sell a controlling 51% stake in Ketjen's refining catalysts business. Second, an agreement to sell Ketjen's interest in the Eurecat joint venture to Axens. Both transactions are expected to close during the first half of 2026. Together, these transactions are expected to generate approximately $660 million in pretax cash proceeds, giving us greater ability to delever while also retaining exposure to future potential gains in the refining catalyst business. This new structure positions the Refining Catalysts business to leverage KPS' manufacturing expertise and access to capital to accelerate its growth opportunities. At the same time, we will be able to shift our attention to our core businesses, Energy Storage and Specialties to set Albemarle up for long-term success. This transaction reinforces our commitment to boosting shareholder value, improving financial flexibility and maintaining Albemarle's strong competitive position. Neal will now provide additional details regarding financial performance and outlook.

Thank you, Kent, and good morning, everyone. I will begin with our financial results for the third quarter as presented on Slide 6. Net sales for the quarter totaled $1.3 billion, a decrease from the prior year, primarily driven by lower lithium market prices. This decline was partially offset by higher volumes in both Ketjen and energy storage. Adjusted EBITDA for the third quarter was $226 million, representing a 7% increase year-over-year. This improvement was driven by disciplined cost management and productivity actions, which more than offset lower lithium market pricing. Our adjusted EBITDA margin improved by approximately 150 basis points compared to last year. We reported a net loss of $1.72 per diluted share. Excluding charges, the largest of which was the noncash goodwill impairment related to Ketjen, our adjusted diluted loss per share was $0.19. Turning to Slide 7. I'll cover the drivers of our adjusted EBITDA performance year-over-year. We saw solid growth in sales volumes in both our energy storage and Ketjen businesses, and our consistent focus on cost discipline and productivity yielded positive results. By focusing on the actions in our control, we were able to offset lower pricing for lithium and spodumene. Turning to other segments. The Specialties team delivered an impressive 35% increase in adjusted EBITDA, largely due to cost improvements across the board in raw materials, manufacturing and freight. On the corporate side, we benefited from cost savings and favorable year-over-year foreign exchange movements. Turning to Slide 8. As usual, we're sharing outlook scenarios based on recently observed lithium market prices. This slide shows a full company summary for each price scenario. Our outlook ranges remain the same as last quarter, but we've updated a few key points. Specifically, we now anticipate our full year 2025 results will approach the upper end of the $9 per kilogram lithium price scenario for total company sales and EBITDA. This reflects our strong performance so far this year, including cost controls, productivity gains and slightly better market pricing. We expect lithium market pricing to average about $9.50 per kilogram this year based on year-to-date actuals and assuming current pricing persists for the remainder of November and December. Turning to Slide 9 for additional commentary by segment. First, in Energy Storage, sales volume growth is expected to be up 10% or more year-over-year, thanks to record integrated production, higher spodumene sales and reduced inventories. We are seeing most of that volume upside coming from a strong demand environment in China, where sales are at local market prices and not on long-term agreements. As a result, we now expect approximately 45% of our 2025 lithium salt volumes to be sold on long-term agreements with floors, primarily due to the mix impact of stronger-than-expected volumes in China. Our long-term contracts continue to perform in line with our forecast. Q4 EBITDA for energy storage is expected to be slightly higher sequentially. First, in terms of product mix, Q4 will have a greater proportion of higher-margin lithium salt sales versus spodumene sales. Second, Q4 is expected to benefit from current higher spodumene prices in JV equity earnings. In Specialties, we continue to expect modest volume growth year-over-year. Q4 net sales are expected to be similar to Q3, but EBITDA is expected to be lower, primarily due to weaker demand in oil and gas applications. Finally, at Ketjen, we continue to expect a stronger Q4 due to higher CFT and FCC volumes. Please refer to our appendix slides for additional modeling considerations across the enterprise. Slide 10 highlights our focus on running the business efficiently and converting earnings into cash. Year-to-date through Q3, our EBITDA to operating cash flow conversion has been over 100%. In Q3, conversion was strong due mainly to inventory reductions, along with a modest sequential uptick in dividends from the Talison joint venture. We continue to expect our full year cash conversion to average over 80%. The implication of that is that we expect Q4 conversion will be lower, mainly due to the timing of interest payments and higher working capital needs from increased revenues. Our strong cash conversion performance and reduced capital expenditures forecast mean that we now expect to be well into positive free cash flow territory this year between $300 million and $400 million. Slide 11 provides a comprehensive overview of our cash position and capital allocation plans in the near term. We closed the quarter with $1.9 billion in cash. Moving forward, we intend to repay with cash on hand, our Eurobond debt that matures later this month. Based on our free cash flow outlook, we expect modestly negative free cash flow in Q4. Moving into 2026, we expect to receive approximately $660 million of gross proceeds from the 2 transactions related to our Ketjen business. Considering these major cash items, we expect to have approximately $1.4 billion available for deployment across a set of disciplined and focused priorities as shown on the slide. With that, I'll turn it back to Kent to discuss the market outlook and provide updates on our operational execution.

Thanks, Neal. The 2025 global lithium supply-demand balance had started to tighten with global lithium consumption growth up over 30% year-to-date, driven by robust demand from both EVs and grid storage, while supply growth has slowed in part due to recent lepidolite curtailments in China. On Slide 12, EV demand growth for 2025 continues, led by China and Europe. China EV sales are up 31% year-over-year even after reaching over 50% market penetration, driven by strong growth in BEVs due to incentives supporting low-cost options. Europe is also up over 30%, supported by EU emissions targets. North America posted 11% growth, supported by prebuying ahead of the 30D tax credit expiration. Turning to Slide 13. Global battery demand for stationary storage is up 105% year-to-date. China remains the largest market for stationary storage installations with 60% growth year-to-date and further policy support announced in the 15th 5-year plan. Europe has shown similar policy support as the commitment to decarbonization drives demand for renewables paired with storage. North America is the fastest-growing region for stationary storage, up almost 150% year-to-date as rising data center and AI investment in the United States increases the demand for electricity and grid stability. Globally, data center electricity use is expected to more than double by 2030. With the increasing need for grid resiliency, LFP batteries are well positioned to continue meeting ESS demand, thanks to their low-cost energy density and established manufacturing base. As a result, we expect lithium demand for stationary storage application to increase more than 2.5x by 2030. Advancing to Slide 14. I want to provide an update on our initiatives to sustain our competitive advantages through market cycles. First, on optimizing our conversion network. We set an energy storage sales volume growth target of 0% to 10% at the start of the year. We now expect to finish at or above the high end of that range with record production across our integrated conversion network, increased spodumene sales and inventory reductions. Second, our cost and productivity programs continue to deliver. We began the year with a goal of $300 million to $400 million in improvements. Today, we've achieved a $450 million run rate, exceeding the high end of our initial target. Recent projects have further reduced manufacturing costs and improved supply chain efficiency. Third, at the start of the year, we target a 50% year-over-year reduction in 2025 capital expenditures. By focusing on high-return, quick payback projects and optimizing existing scope, we now expect 2025 CapEx of about $600 million, reflecting a 65% reduction year-over-year. Finally, our announced asset sales are expected to generate approximately $660 million in cash, providing significant additional financial flexibility. We continue to adapt in a dynamic environment, adding new measures as needed. We're building a culture of continuous improvement and the mindset to identify opportunities to achieve savings and efficiencies. These actions are contributing to positive financial results as shown on Slide 15. Our commitment to cost discipline is clearly reflected in our financials. Sales, administrative and R&D expenses are down $166 million or 22% since last year. Cash flow has strengthened, driven by targeted cost and capital reductions and strong cash management. As of Q3 2025, we're generating positive free cash flow year-to-date, and we expect $300 million to $400 million for the full year. Our efforts have allowed us to shore up and maintain healthy corporate EBITDA margins in the 20% range even as lithium prices declined. Thanks to these focused actions, we are well positioned to expand margins further as the market recovers with potential for adjusted EBITDA margins reaching 30% or more at $15 per kilogram lithium pricing. In summary, on Slide 16, Albemarle delivered strong third quarter performance while continuing to act decisively to maintain the company's industry-leading position through the cycle and capture upside as markets stabilize or improve. We are maintaining our full year 2025 company outlook considerations with notable enhancements to energy storage volume growth, improved cost and capital savings and strong free cash flow generation. With our world-class resources, process chemistry expertise and a strong balance sheet, we're well positioned to generate shareholder value through the cycle. I'm confident we're making the right moves to stay ahead and capitalize on long-term growth opportunities. With that, I'll turn it over to the operator to take your questions.

Strong results. I wanted to ask you about dynamics at Atlas. You mentioned you'll have better profitability because of higher spodumene prices. But how do you think this would evolve in maybe first half of '26? Would you see higher spodumene costs? Would that be again offset by higher equity income or not? If you could walk us through that dynamic for your lithium margins.

Yes. I will start, and Neal can provide additional insights. We do not intend to forecast the prices of lithium, salt, or spodumene. The market is tightening, and prices have increased slightly, which gives us some optimism, but we do not base our plans on that. From a spodumene perspective, if prices rise, the margin may either remain with salt or shift to spodumene. We are somewhat indifferent due to our integrated network. There doesn't seem to be a significant difference between the two. In the recent past, when prices changed, most of the margin tended to favor spodumene. Neal, would you like to add anything regarding Talison and inventories?

Yes. Aleksey, I think you're thinking about it right that in a rising spodumene price environment, we get one immediate benefit, which is obviously any sales that Talison makes to our partner, we get some of that benefit immediately through our equity earnings. But then, of course, our portion of the profit does go into inventory and it comes out over time as we consume the spodumene. So you're right, there will be some lag. It's usually 6 to 9 months that some of that comes through in our cost of sales. But whether it leads to margin compression or margin improvement really depends on what happens with salt prices 6 months from now. But I think you're thinking about it right. There is one component that we realize right away, and then there's another component that has to flow through our inventory.

You used the $9 price as a reference point. In China today, are we closer to $10 or $11?

So yes, you're probably closer to $10 today. But as we look at it on a full year basis, it's kind of $9, $9.50, something like that.

No, I wouldn't say that. We haven't restarted those operations, and we're only forecasting until the end of the year, which is just a couple of months away. It would take longer to bring those back online. They are not part of our current scenario, and whether we do depends on market conditions. However, that's not really part of our plan as we look ahead to next year.

Just a quick question. When you talk about the full year adjusted EBITDA margin potential of 30% or greater at $15 a kg, are you speaking of the energy storage segment or the company overall?

The overall company.

Okay. And then if I could ask in the capital allocation slide, you talked about with the $1.4 billion paying down or deleveraging, but then there's also another language about liability management opportunity. What does that refer to?

Yes, Vincent, I can cover that. I don't have specifics to share today, but we are obviously looking at a combination of things, not just gross delevering, but also anything else that we can do with our debt towers just across our entire debt stack. So that's what is meant by liability management. It might not always be gross debt deleveraging, but it might be actually just thinking about our debt towers and being responsible with that.

Actually, this is Edlain Rodriguez for John. So when you look at EV domain, do you have a good sense of how much is energy storage versus EV? And how do you see those percentages moving over the medium term?

Yes, we do have a clear understanding, and those figures are reported separately. The numbers we are presenting are independent of that. We do observe some overlap since both involve similar base technology, but we believe we have a strong grasp of the trends and market developments. Currently, fixed storage constitutes about a quarter of the market, and it is growing at a significantly faster pace. However, we anticipate that in the long run, the market will be more focused on electric vehicles rather than fixed storage. This is the situation we are monitoring. Looking at the figures, if fixed storage is a quarter of the market, it might reach half, though it's uncertain. Ultimately, its future will be influenced by alternative technologies. I believe fixed storage is more vulnerable to substitutes compared to battery electric vehicles, and we will need to observe how this unfolds over the next decade to determine the actual direction.

Ken, for you and Eric, on Chinese lepidolite, how much supply do you think is being currently curtailed? And versus the high of lepidolite production, how much is production down today versus that high?

Yes. Eric can provide some specifics on this. Overall, the impact has not been significant, although there have been some effects. Companies have exited the market and then re-entered, which has likely been the most substantial factor. Several plants are currently seeking permits, but they are managing to operate during this process. Our understanding is that they need to obtain new permits and have applied for them, so they can continue operations. Eric, could you share some figures or additional details regarding what has exited the market and what has not returned?

Yes. I think since the middle of the year, about one-third of the production was affected by a permitting process and some operations being idle for a time. We are not fully aware of all the causes for this situation. There has been considerable discussion regarding policy developments in China. Nevertheless, that's what we have observed, which involves around eight different lepidolite operations, including the largest, which is CATL. This amounts to a reduction of about 30,000 tons annually. The key question is how long they will remain inactive during the permitting process. In the broader market context, should these operations resume, it represents only a small percentage of the annual supply, so it’s a minor issue, and we will continue to monitor it closely.

Very good. Regarding lithium demand, could you provide an update on your lithium demand outlook for 2030? If there hasn't been a change, has the bias shifted toward the higher end of the range, meaning 3 million tons or more, considering what you've observed in the last six to nine months?

Yes, we didn't present that. I would say it hasn't really changed, but it has likely moved up a little bit within that range. If you remember, we had a pretty wide range due to some uncertainties. I believe both for EVs and fixed storage, there is probably increased demand. It seems to be a demand-driven situation, and it's higher than we initially anticipated at the beginning of the year. So that’s been a pleasant surprise. The range remains the same and is well within that, but I would say it has shifted up a bit.

It's Chris Perrella on for Josh. As I think about the ramp of the extra train and Greenbushes and your production in La Negra, how much could your resource production be up in 2026 with just the scheduling of those ramps? And then also, do you have a first right of refusal on Wodgina? And are you guys discussing the future of that asset and the ownership with your partner down there?

La Negra is currently operating at full capacity with some minor improvements expected from Salar Yield as it processes through. We anticipate better feedstock at La Negra, which will provide a slight increase in capacity, although it is incremental compared to the overall ramp we've experienced in recent years. CGP 3 at Talison is set to begin operations at the end of this year, and we have plans to gradually ramp it up throughout next year. The speed of this ramp will depend on our execution, but we aim to achieve near full capacity by the end of the year. Regarding Wodgina, I'm not going to comment on the current developments there as you can find information in the Australian press. We are in communication with our partner and are informed about their actions, but we'll let the situation unfold.

Think another feature to bear in mind as we look to next year, Chris, is that a good part of our growth this year, as referenced in the prepared remarks, has been that we've taken a lot of inventory out of our supply chain this year, and that would largely be spot inventory in the case of energy storage that has fed growth that is onetime in nature. And so we don't get the benefit of the inventory reduction next year. So the factors that have been described are going to help to offset that. It's important to keep in mind as you think about next year.

This is Harris Fein on for Chris. Just curious maybe if we could talk about the stronger volumes this quarter. How much of that was just you being opportunistic on spot sales because of price volatility? And I guess dovetailing off of the last question, how should we be thinking about the impact on volume growth next year versus the higher baseline?

Yes. There has been a bit of us being opportunistic. The inventory reduction Eric described is part of our cash management efforts, which contributed to our growth this year. However, we won't have that same opportunity next year as we have significantly reduced our inventories. The market remains strong, with both demand and pricing being slightly better than they have been. We are optimistic about this, though we are not fully relying on it. Over the past quarter, and possibly a bit longer, demand has shown strength, particularly in both electric vehicles and fixed storage. Fixed storage has been a significant upside surprise this year, and we expect that trend to continue.

Great. I also wanted to touch on the recent news regarding critical minerals support, particularly in light of what happened with Lithium Americas. I'm curious to hear the latest insights you have. If the government begins to engage more concretely in localized energy storage infrastructure, what are your thoughts on how that might impact your strategy moving forward?

We're very pleased to see the U.S. government and other governments worldwide focusing on critical minerals. It's essential to develop a globally diverse and competitive lithium supply chain, and this attention from governments is fantastic. While we engage with governments everywhere we operate, I won't speculate on potential outcomes. There won't be a single solution; rather, it will require a combination of factors to achieve reinvestment levels in the Western market. This may include tax incentives, trade policies, and possibly direct investments. A mix of public-private partnerships will also be necessary to tackle this significant issue. We have been discussing this for a couple of years, and it's encouraging to see government interest in it.

So as you look at the way policy is shifting both in Latin America and in the U.S. What do you see as kind of the appropriate return hurdles for you to engage in new projects as opposed to just focus on your existing assets and/or opening up Kings Mountain?

I don't believe our return criteria have changed; we've been quite consistent in that regard. The challenge we face relates to market pricing, which prevents us from achieving those returns and is why we are not currently investing. Our focus has been on managing our balance sheet, reducing costs to enhance our competitiveness at lower price levels. We are not able to predict lithium prices, nor do we intend to rely on them. Therefore, we need to prepare to endure through the economic downturn, which is why we have concentrated on cost management and cash flow to position our business accordingly. We are making progress, but there's still work to be done. While we are preparing for the bottom of the cycle, we remain flexible to capitalize on opportunities when they arise. There are still viable investment opportunities available, such as Kings Mountain, and we have valuable resources to leverage as we move forward. Conversion remains a possibility, but the current economics for Western conversion are not favorable. So we're not forecasting for next year yet; we'll address that next quarter. We've successfully reduced costs and developed a cost-focused mentality, especially in our operations. While we can improve in overhead and back office areas, we're making progress and will keep pushing on that front. It's important for us to continue managing costs. Given that this is still a new and dynamic market, we need to navigate both the ups and downs effectively. While I won't make any predictions about next year today, it's crucial to view our business as one that ensures resilience during downturns while also seizing opportunities during upturns.

Just a couple of related follow-ups to your last comments. I guess, anything else you're looking at in terms of productivity savings program into next year? And what would be the size of sort of the incremental carryover? I know you reached run rate sometime in the middle of the year.

Yes. Neal can discuss the run rate carryover, but we continue to implement productivity programs across all areas of our business. Our operations programs are the most developed, which is expected given our history as a specialty chemical company. However, they are quite advanced, and we are progressing in all other areas. Our supply chain is slightly less developed, and our back office is even less mature than that, but we are enhancing our capabilities and drawing from our manufacturing programs. We will consistently pursue productivity initiatives and objectives. Even in a strong market, we will remain focused on reducing costs and improving productivity in our business. This is expected and should be characteristic of a thriving business.

Yes. And Patrick, maybe the other thing I can add is just to reiterate, so we see line of sight to a $450 million run rate in cost and productivity savings this year. So obviously, we'll have to see how we finish up the year in terms of the actual savings, but you're already seeing those savings come through in our S&A line and our R&D line and so on. But obviously, some of those will continue to roll into 2026, and we'll give you an update on that with the next quarter once we finish the year. But let me give you an example of what you can expect to hear as you get into 2026. Just a small example, though, is that we continue to ramp our facilities to full rates. That's a perfect example of the productivity measures that we're really working on. Kent kind of highlighted that in Chile, we're almost to the kind of top end of what we could do with La Negra. Our Meishan facility in China is, I think, about a year ahead of schedule in terms of its ramp, and it's getting almost up to full rates as well. So you can expect that kind of continuing to sweat the assets as kind of a key theme in our productivity on top of any other additional cost actions that we can take as well.

Got it. That's helpful. And then maybe just a quick one on bromine. It seems like there's some strong demand there in areas like electronics, but maybe some offsets that have pulled performance down and have seen some normalization in prices. How have sort of the bromine supply and demand trended throughout the balance of the year? And what sort of outlook are you seeing for the fourth quarter?

Yes. This is Eric. First, regarding demand, it's a mixed market, reflective of the GDP-oriented growth markets we serve. For example, sectors like electronics and pharmaceuticals have shown strength, while building construction and oil and gas have weakened, especially in the second half of the year due to a drop in oil prices. Looking at supply dynamics, we noticed some tightness mid-year, and you've likely seen the prices of elemental bromine from China rise, but they are now starting to decrease as the market stabilizes. We are approaching a time of year where seasonal production in India and China may come offline due to winter, which should keep the market fairly balanced rather than pushing it into a tight situation. Therefore, we don’t see it as significantly oversupplied or undersupplied, and the pricing for elemental bromine remains stable as we head into the end of the year.

I guess does the energy storage volume beat contain any pull forward? And just given the stronger near-term volume assumptions, where would you expect the contract spot mix to shift in 4Q and thereafter?

Yes. So the pull forward, as you described, that's mostly inventory, right? So we had inventory that we were able to use that. The market is strong. So we're selling into a strong market. But it's not we're pulling next quarter's volume forward, but we are bringing to some degree, capacity forward by selling inventories that we had. It's also just us being leaner on cash and inventory, so us being leaner and operating around that. That's the piece. The other piece, I guess, we saw from a pull forward would be the expiration of the 30D tax credits in the U.S. So there was a bit of a rush for people to buy EVs in the U.S. It's 10% of the market. So it's not going to be dramatic overall, but that is one where demand did get pulled forward a little bit.

I'm sorry, Rock, I think you had asked about contract spot mix going forward. I just wanted to add one point, which is, look, I think Kent had mentioned in the prepared remarks that our contracts continue to perform. We don't have any major contracts that are rolling off until you get towards the end of 2026. But look, the demand has been so strong in China, in particular, where we don't sell volume on long-term contracts. So if that trend continues into 2026, just based on mix alone, you can probably expect that our 45% that we're at this year will tick down just because of where the product is going and the fact that it's not going on these long-term contracts. But it's not a shift in our long-term contracts. It's really more about geographic mix of sales.

Makes sense. Just as a quick follow-up. Any preliminary thoughts on 2026 CapEx? And I guess, more broadly, when you would need to turn on CapEx in order to incentivize any meaningful volume growth after 2026? Yes, we've managed to reduce our capital expenditures carefully and thoughtfully. Unless we decide to make some new investments, which I'm not considering at the moment, we expect to maintain our current spending level or possibly decrease it slightly. We are focused on improving efficiency without compromising our assets due to the cuts we've implemented. This gradual approach, especially regarding maintenance capital, has been intentional. Without predicting any future investments that might arise if the market improves, we anticipate a potential small further reduction in spending. However, any reductions will be incremental rather than drastic; we are not planning to make significant cuts of 50%, but rather something around 10%.

I guess I'm just curious to get your thoughts on spodumene and the impact on pricing. So it looks like prices are for both carbonate and hydroxide are kind of settling out at marginal cost levels. Would you agree with that? And would it take spodumene maybe to go up to $1,200 or $1,500 to see some more robust activity in lithium salt pricing? And if so, what would drive that? spodumene, do you feel that supply/demand is balanced or tight or loose? Or maybe you can just comment on that relationship.

We discussed this earlier, and I think you're onto something. Currently, conversion costs are at marginal levels in China. When prices change, the value tends to remain focused on these marginal costs while shifting to the resources. This trend has been consistent for at least a year, as most value redirects towards resources due to the overcapacity of conversion in China. The situation is somewhat different outside of China, but the bulk of the market is based there. However, we're beginning to see the market tighten, which is likely contributing to rising prices. This is primarily a demand-driven situation; demand has exceeded our expectations while supply growth has fallen short, leading to this tightening. Inventories of both salts and spodumene are decreasing across the system. So, while it's largely a demand issue, it also highlights that supply hasn't been as robust as we initially anticipated. Consequently, the market is tightening, and currently, most of the value is being redirected to spodumene.

Great. And then could you also comment on your potential commercialization in the energy storage market? What are you seeing there? And what do you kind of expect over the next few years from a demand standpoint?

It's largely the same supply chain and value chain as with batteries for electric vehicles. There are specialists in this area, and the fundamental technology is quite similar. From our perspective, it's about the same, as we sell the same materials regardless of which value chain they go into. In many instances, it's the same customers who operate in both the energy storage and electric vehicle sectors. The growth has been robust, driven significantly by grid stability, as well as by renewables and storage in places like Europe and China. In North America, factors such as grid stability and data centers, along with artificial intelligence, are key drivers. The market is quite dynamic. There's often a discussion about whether lithium-ion is the right technology, and while it's the one available at scale today, the supply chain is established, and it has a notable cost advantage over alternatives like sodium-ion, which has not achieved scale yet and remains more expensive. In the near term, we anticipate that most technology will be LFP, though in the long run, sodium may begin to integrate into the mix. However, we project that about 80% will continue to rely on lithium-ion technology.

Kent, you talked about for a while and today about really being able to ride out the cycle here. What do you think Albemarle is going forward? If you're not really doing any growth beyond CGP3 and some conversion in China and you're looking at taking CapEx maybe down a level, economics don't justify new builds or new capacity. What is in this growing, rising sector, EV and ESS, what will Albemarle be? Are you worried about not growing proportionately with the industry?

Yes. We are focusing on preserving our growth potential as we move forward, but we need to ensure there are strong business cases before proceeding. We are being disciplined in our approach, which may limit some of our upside, but we want to navigate through the downturn effectively and seize opportunities when the market improves. We have growth prospects ahead of us and believe that having the right resources is crucial to that. Our goal is to manage our balance sheet and market opportunities wisely to avoid being unprepared. We aim to create an agile business that can adapt quickly to invest in projects when the conditions are favorable. Well, Eric can comment on that, but I think the most tangible aspect is the volumes we are witnessing. They are shipping and going into battery production. That's not just a forecast; it’s legitimate and real. The market exists, and Eric can provide more specific details.

Yes, it's similar to the previous question about what's happening in this market. It's not a different channel; it's the same major battery companies involved in the EV sector. In China, the largest market and the home of LFP technology, we are seeing strong demand. All discussions with cathode, particularly LFP cathode, and battery producers in China indicate that their cell lines are fully utilized to meet both domestic and international demand. The grid storage market has a different global perspective compared to the EV market; it doesn't focus solely on Europe, China, and the U.S., but also on the rest of the world, where grid demand, stability, and renewable energy are crucial. In North America, the primary driver is more related to AI data centers. Additionally, we have numerous battery partners collaborating with OEMs in the U.S. who are retrofitting facilities to develop ESS technology, whether by shifting to lower nickel or LFP technologies. We are also observing a significant increase in interest, driven by both EVs and ESS, particularly in China, but also now from Korean and Japanese companies aggressively pursuing their own LFP technologies. This growing interest reflects the current enthusiasm in the market.

I understand you're not guiding to 2026, obviously, but I was just wondering about your expectations for underlying EV demand as we look to next year.

Eric, do you want to...

We continue to focus on our long-term forecast. We did not include this in our presentation slides as we have in the past. We anticipate a 2.5x growth in total market consumption for lithium between now and 2030. While we discussed AI data centers and grid storage demand in the previous question, that accounts for about 25% of demand. The majority, over 70%, of lithium demand is driven by electric vehicles. China remains strong, and interestingly, it now represents over 50% of the market. Costs are well below the tipping point, with pack costs often under $100, and in some cases, even lower, making electric vehicles highly competitive with internal combustion engines. Consumers in China have a wide variety of vehicle choices, and there is healthy demand for both battery electric and plug-in hybrid vehicles. As the market expands, the percentage growth rate will decrease due to the law of large numbers, but we still expect ongoing penetration. We're optimistic about the situation in Europe and foresee continued growth into next year. There is considerable discussion regarding long-range emission targets, and we must stay alert to forthcoming policy decisions. In the short term, there is a commitment to reducing CO2 emissions across fleets. Although some leeway was granted for slower progress this year, manufacturers will have to accelerate production to meet the average three-year targets. The U.S. presents a more uncertain environment for electric vehicle growth. The technology trends we mentioned should be favorable for costs and adoption, and we are approaching the tipping point on pack costs here as well. However, policies may not align with this progress. Currently, the U.S. market is the smallest of the three major regions, representing only about 10% of lithium demand, impacting our outlook for next year.

I did want to follow up and maybe with Neal, just post Eurecat and Ketjen partial monetization, obviously, a significant amount of capital coming in. One, I'm trying to think about how much capital you'd be saving on the CapEx side, '26 just from divesting those assets. But more importantly, once the proceeds come in, in the first half of '26, I think you've talked about it increasing your ability to delever. What do you see doing with those proceeds near term? Or has this just become a cash hoard to opportunistically look at the balance sheet?

David. Let me address all your questions. Regarding the CapEx from Ketjen, you should anticipate that approximately 10% of our CapEx will be related to Ketjen moving forward, and this may decrease as we approach next year. We still need to determine when the transaction will close, so there could be some Ketjen-related CapEx in our numbers for next year, likely just in the first half. This year, Ketjen's CapEx was somewhat higher due to the completion of its growth investment project called ZSM-5. Although that project is finished, we did experience higher CapEx throughout the year connected to Ketjen. As for the second part of your question regarding our plans for that cash, we have consistently indicated that reducing our debt is a top priority for the company, and we are at that stage now. We have sufficient cash available to pay off the debt that is due shortly, which will occur as expected. Once we have more clarity about the proceeds from Ketjen, we plan to be more proactive in utilizing that cash. We do not intend to let it sit on the balance sheet for an extended period. We have ideas on how to allocate these funds, focusing on both debt reduction and other capital priorities within our presentation. While I cannot provide specific timing details, we are currently developing our plans.

Thank you for your thoughts. I wanted to bring up something for Neal or Kent. First, I want to acknowledge the fantastic job this year in achieving free cash neutrality. I understand part of this was supported by a customer prepayment, although it's happening at the lower end of a pricing cycle. Looking ahead to 2026, many have inquired about the free cash outlook. One specific factor I'm interested in is the potential for dividends from Talison, especially with CGP 3 nearing completion. Do you think this could serve as a reliable advantage heading into 2026?

Yes, David, I can start on that. So we kind of covered that a little bit earlier in the Q&A, just to go back to that is that CGP 3 is basically in the tail end of the investment part of things, and it will start to ramp as we go through 2026. But you should think about kind of the majority of 2026 really being the ramp period for that facility. So 2 big things, I think, that the Talison dividends will be dependent on is, obviously, number one, how well or quickly that unit ramps up, and we're working with the JV right now to understand what that's going to look like as they tip over into start-up. But then the other part, of course, is pricing. And so it's a little early for me. We never do try to call pricing. It's early for me to call pricing for spodumene across the balance of 2026. We're also working with the JV also through their budgeting to understand the levers that the JV has as well. All the partners are very interested in dividends out of the JV, especially as we get through this investment phase.

Thank you, operator. In closing, I want to thank you all for your continued support and trust in Albemarle. Our strong results this quarter, enhanced outlook for 2025 and ongoing focus on operational excellence position us well for the future. With our world-class resources, leading process chemistry and commitment to customer success, we're confident in our ability to create lasting value for our shareholders and seize opportunities ahead. We appreciate your partnership and look forward to connecting at our upcoming events. Stay safe, and thank you.