© 2024 Alpha Spread Limited. All Rights Reserved.
www.alphaspread.com is not operated by a broker, a dealer, or a registered investment adviser. Under no circumstances does any information posted on www.alphaspread.com represent a recommendation to buy or sell a security. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The information on this site is in no way guaranteed for completeness, accuracy or in any other way. In no event shall Alpha Spread Limited be liable to any member, guest or third party for any damages of any kind arising out of the use of any content or other material published or available on www.alphaspread.com, or relating to the use of, or inability to use, www.alphaspread.com or any content, including, without limitation, any investment losses, lost profits, lost opportunity, special, incidental, indirect, consequential or punitive damages. Past performance is a poor indicator of future performance.
This means that the stock is removed from a stock exchange and can no longer be traded.
Delisting typically occurs when a stock no longer meets exchange requirements. Other reasons for delisting may include legal violations, bankruptcy, a decrease in the number of shareholders, and acquisition by another company.
You don't have any saved screeners yet
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good morning and welcome to the Fourth Quarter and Full Year 2019 Earnings Release Conference Call for the Livent Corporation. All lines will be placed on listen-only mode throughout the conference. After the speakers' presentation, there will be a question-and-answer period.
I will now turn the conference over to Mr. Daniel Rosen, Manager, Investor Relations for the Livent Corporation. Mr. Rosen, you may begin.
Thank you, Kelsey. Good morning everyone and welcome to Livent's fourth quarter 2019 earnings call. Joining me today are Paul Graves, President and Chief Executive Officer; and Gilberto Antoniazzi, Chief Financial Officer.
The slide presentation that accompanies our results, along with our earnings release, which includes our 2020 outlook can be found in the Investor Relations section of our website. The prepared remarks from today's discussion will be made available after the call.
Following our prepared remarks, Paul and Gilberto will be available to address your questions. We would ask that any questions be limited to two per caller. We would be happy to address any additional questions after the call.
But before we begin, let me remind you that today's discussion will include forward-looking statements that are subject to various risks and uncertainties concerning specific factors, including, but not limited to those factors identified in our release and in our filings with the Securities and Exchange Commission.
Information presented represents our best judgment based on today's information. Actual results may vary based upon these risks and uncertainties. Today's discussion will focus on adjusted earnings for all income statements and EPS references. Reconciliations of these terms, as well as other non-GAAP financial terms, to which we may refer during today's conference call, are provided on our website.
With that, I'll turn the call over to Paul.
Thank you, Dan. And good evening, everyone. Start with Slide 3. There are a few key topics that we will address today as part of earnings release. First Livent has provided its financial guidance for the full year ahead. We'll go into further detail on this guidance today.
But as we announced in early January, we are expecting profitability in 2020 to be lower year-over-year, as highest sold volumes are more than offset by lower average realized pricing and higher consumption of third party lithium carbonate.
We are guiding a wider range than usual due in part to the inherent uncertainty in the first half of the year, arising from the potential impact of the Coronavirus. In this context Livent reaffirms its prior guidance for 2020 volume growth in total LCE terms and expects to sale roughly 30% higher total LCEs versus 2019.
Again, reflecting the uncertainty inherent on the demand side in the first half of this year. We are highlighting that we may shift more volume towards lithium carbonate sales depending on how and where demand is and where opportunities arise.
We will continue to provide significant volumes to key strategic customers as they increase their use of hydroxide based capital chemistries in energy storage applications. And finally, we will provide an update on Livent's expansion programs and the drivers behind the decision to slow down the execution of these projects.
On Slide 4, I want to spend some time discussing where the lithium market stands today and its implications for 2020 and 2021. Let me begin by characterizing what we saw in 2019. Clearly, there was a slowdown in electric vehicle demand growth in 2019, largely driven by a change in Chinese subsidies.
Even then lithium demand continued to grow at a healthy rate, with lithium demand increasing by over 15% year-on-year to exceed 300,000 LCE tons. Specifically for hydroxide, we estimate demand grew to just under 100,000 product tons from approximately 65,000 tons in 2018, implying over 35% year-on-year growth
If you strip out the base demand from industrial applications, which did not meaningfully change, demand for lithium hydroxide for energy storage applications likely grew by around 75% for the year.
Despite this increase in demand, the short term or non-contracted lithium market experience a decline in pricing over the course of 2019 as significant new supply came online. This new supply was largely due to an increasing output of spodumene from Australia combined with an increase in Chinese conversion capacity.
A meaningful portion of the China conversion capacity was non-integrated, meaning the spodumene producers was separate from the converters that produced the final lithium products.
It is this non-integrated supply chain which was largely responsible for the excess supply, resulting in elevated spodumene inventory levels, lower operating rates, and therefore increased pricing pressure from converters.
It is this part of the supply chain and lithium hydroxide and carbonate that represents the marginal cost producer for the industry today given the inherent inefficiencies in this model. It is increasingly clear that today's short term pricing levels are not sustainable for the lithium industry, especially given the need to invest in growing future output to meet growing demand.
Recent announcements across the industry underscored just how challenging it is to justify investment in most projects at current prices. Not surprisingly, we have seen a number of development projects where traditional financing sources have been essentially non-existent.
This difficulty extends to better capitalized lithium producers and new entrants who have announced pullbacks or delays in their own expansion plans in light of revised anticipated returns. From these producers alone, in the last few months roughly 300,000 LCE tons of volume have been taken out of planned supply additions in the next three years.
Beyond expansion delays and cancellations, we've reached a point where prices have also impacted existing operations. Higher cost producers have disclosed their struggle to cover operating costs at today's prices, with some companies even have a relatively low cost position struggling to achieve profitability.
And we've seen hard rock produces concluded that it makes little sense to continue to deplete finite like resources at prices that are barely above cash operating costs, and significantly curtailing concentrate production as a result.
In light of all of this, it should come as no surprise that Livent is slowing down its own capacity expansion. We expect that the market will begin to see the impact of these production and expansion cuts, particularly as we head into the latter part of 2020 and early 2021.
In the near term however, there remains an oversupply, primarily due to elevated spodumene inventory levels that will need to be worked through as total demand continues to grow. We therefore remain cautious in indicating when we expect to see an inflection in the market and have not included any recovery in pricing for the year from today's levels in our 2020 guidance.
Today, we're also facing the uncertainty created by the Coronavirus and particularly the impact it may have on our end markets. In the immediate term, we’ve restarted all of our operations in China after the Lunar New Year and have had no operating issues at the plants themselves.
However, the logistics and transportation issues associated with moving products across provincial borders has created some disruption, both in terms of getting raw materials to our plants, and shipping products to customers in China and other Asian countries.
The larger challenge today is understanding what the impact of these restrictions will be on our customers and competitors. It is clear that there will be some headwinds in the first half of this year as a result of the epidemic.
And we are watching closely to understand how much of this will be recovered once China resumes normal operations. Consequently, we cannot yet predict with any reasonable certainty what the impact on our business will be for 2020. And we have therefore attempted to reflect this uncertainty in wider guidance ranges compared to prior years.
I will now hand over to Gilberto, to review fourth quarter financial results and the 2020 outlook, before I return to give more color on the status of our current expansion programs.
Thank you, Paul. And Good evening, everyone. Turning out to Slide 5 in our financial results to close 2019. For the fourth quarter of 2019, we reported revenue of $78 million adjusted EBITDA of $60 million and adjusted earnings per share of $0.05.
Versus original guidance provided November, performance was impacted primarily by about 800 fewer product tons of lithium hydroxide sold than anticipated, largely due to orders that were delayed into 2020 by customers.
Sequentially, average realized pricing remain relatively flat for hydroxide compared to Q3, while pricing for carbonate continue to decline. For full year 2019 revenue was $388 million, adjusted EBITDA was $100 million and adjusted earnings per share was $0.42.
The year-over-year revenue decline was driven by lower volumes and lower pricing. Higher hydroxides sales volumes were offset by a decline in carbonate volume sold. We also saw a decline in average realized price of both hydroxide and carbonate with carbonate prices falling by roughly 20 percentage points more than hydroxide.
Average pricing for butyllithium and high purity metals were higher on a constant currency basis. Specifically on the cost side, the largest contributors to low year-over-year profitability were the higher cost of purchased third party carbonate, onetime airfreight expenses and the VAT incurred on exports from China.
As you recall, we began 2019 with limited inventory. An abnormal rain event in Argentina the first quarter of last year caused disruptions in our supply chain that resulted in incurring additional costs, including airfreighting certain material.
Additionally, the roughly 1000 tons of lost carbonate production in Argentina meant that we had to source additional third-party carbonate above our initial plan to feed hydroxide customer commitments.
We ultimately purchased about 6000 tons of third party carbonate in 2019 and used roughly 2000 tons in hydroxides sales. The remainder we will be using 2020 to meat hydroxide customer commitments.
And lastly, while the VAT rate on Chinese exports was reduced in 2018, we incur higher costs on a total dollar basis due to higher sold volumes. Rounding out 2019 results. Foreign Exchange was a headwind for the year on the top-line, primarily from the RMB and the euro. Although it was more than offset by cost benefit from the valuation in the Argentine peso.
Turning now to Slide 6 and our full year guidance for 2020. We expect revenue to be in the range of $375 million to $425 million, just above 2019 results at midpoint. This is primarily driven by higher volumes being offset by lower price with average price on an LCE basis across the portfolio down by mid-teens.
2020 adjusted EBITDA and adjusted earnings per share are projected to be in a range of $60 million to $85 million and $0.18 to $0.31 per diluted share respectively. On Slide 7, we provide further detail on Livent's expected sales volume growth in 2020.
On an LCE basis, we plan to sell up to 28,500 tons of lithium in 2020 implying a roughly 30% increase from 2019 sales volumes at the midpoint of our guidance range. There are two points I'd like to call your attention to.
First you will see that we are showing projecting lithium hydroxide and carbonate sales volumes as one line item and as total LCEs. While we previously stated an intention to sell less than 1000 tons of carbonate in 2020. As Paul mentioned earlier, we want you sure we want enough flexibility in our plans to sell higher volumes should it make sense to do so.
The sales will not be at the expense of any hydroxide customer commitments and we would not expect carbonate sales to exceed more than a few thousand tons. Second, we have now provided projected sales volumes for LCEs related to our other product lines, namely butyllithium, high purity metals and other specialty compounds.
These products are all derived from lithium chloride as a feedstock and we expect sales volumes for these compounds to remain relatively flat year over year. On Slide 8 we provide additional detail on key drivers or projected adjusted EBITDA performance in 2020 versus the prior year.
First, we expect to grow total LCEs sold by roughly 30% versus 2019 sales volumes. The sales volumes which are higher than our annual production capacity are achievable given the decision to carry forward roughly 4,000 product tons of hydroxide inventory in order to meet customer commitments.
To reach these hydroxide sales volumes we will need to use up to 7,000 tons of third party lithium of carbonate which represents an increase of 5,000 tons compared to 2019 usage. This incremental use of third party carbonate, adds costs to our operations when compared to rely on our own low cost carbonate produced out of Argentina.
Additionally, we expect average realized pricing for lithium hydroxide in 2020 to be low to mid-teens percent lower than the average realized price for 2019. We also expect carbonate pricing to be down again year-over-year.
With respect to butyllithium, we expect both volumes and pricing to be relatively flat compared to last year. And finally we are anticipating some additional costs from inflation on some of our key raw material inputs as well as slight FX headwind.
I want to conclude on Slide 9 by commenting on cash flow as well as give you an update on our capital spending plans for 2020 before Paul addresses this in more detail. For the full year 2019 Livent generated adjusted cash from operations of $90 million in line with our expectations.
We deployed $189 million in capital spending for the year. And while the spending accelerated in the fourth quarter as expected, the total spend was below our guidance of $210 million to $240 million. We ended 2019 with that net of cash of [indiscernible] million.
For capital expenditures we are projecting total spending for 2020 to be in the range of $200 million to $230 million. This number is inclusive of growth capital, predominantly in Argentina as well as in main spending across the business.
As a reminder capacity expansion related to capital in Argentina is front loaded in both throughout 2019 and 2020 as we build out infrastructure that will drive us through future expansion phases.
With that, I will turn the call back to Paul.
Thank you, Gilberto. As we mentioned in Livent's January announcement, we are revisiting what the most appropriate execution strategy is for our near term expansion plans. Let me start by being clear. Our expansions themselves on the strategy that underpins them have not changed.
We remain committed to expanding a low cost carbonate operations in Argentina and to growing our capabilities in hydroxide to support our customers' growth plans. It is the pace of execution of the expansions the way of adjusting.
As part of the revised plan, Livent will be slowing down it's phase one carbonate expansion in Argentina, primarily to preserve our financial flexibility in these market conditions. As we outlined on Slide 10 we have continued to hit our key expansion milestones.
We have completed construction camps. Are fully underway in key infrastructure build out. And have had a number of carbonate modules arrive in Argentina from the fabrication yards in China. We have elected to delay the installation of the first carbonate modules until after the Argentine winter, which will push the startup of these units into mid-2021.
Since our current 5000 ton hydroxide expansion was lined up to process, the additional carbonate from Argentina, we're also shifting the timeframe for our hydroxide expansion completion to align with this.
We do not expect to this revised timeline to impact our ability to meet the needs of customers, many of whom see 2021 as the first year that they will look to increase their purchases from Livent with a larger ramp up coming in subsequent years.
In this fluid and rapidly shifting environment, we know it is critically important to stay flexible in our capital planning. And we will remain agile and adapt our plans based on market dynamics and customer commitments.
I'd like to finish on Slide 11 by sharing some key developments to keep in mind today, and as we look ahead. First, relative to even just a few years ago, it's increasingly clear that the shift to EVs is gaining traction.
Even if, the ability to predict the pace in the very near term remains difficult. This is apparent in all of the announced partnerships between OEMs and battery producers, as well as the substantial capital being committed and deployed across the supply chain.
It's even more visible in the number of new EV models nearing production, and the growing number of electric vehicles on the road. Global OEMs are also much more active in engaging further down the supply chain as part of their electrification strategies.
There have been some challenges as the supply chain struggles to keep up with the ambitious electrification plans set by these OEMs. The challenges to OEMs meeting their announced sales targets appear to be driven more from the supply side than the demand side.
For example, there have been several examples of OEMs specifically referencing a lack of sufficient battery supply from top tier suppliers as a reason for changing forecasted sales. It's also worth noting that there continue to be positive demand signals coming from both China and Europe, largely due to the key growth regions for electric vehicles over the next few years.
China began this year by issuing a strong statement to the market that it will not be making any significant cuts to its EV subsidy policy in 2020 despite rumors of a potential media phase out. This is just one example and a growing list of actions from China that reiterate its commitment to playing a leading role in the global push towards electrification.
While China will continue to be the largest market for electric vehicles, 2020 is widely viewed as a year when Europe will begin to close that gap, as OEMs need to sell more electric vehicles to avoid the financial penalties or reputational risk from not being compliant with CO2 emission levels.
While it’s still very early on in the year, some of the initial data coming out of Europe is positive. Despite the overall auto market being down in Western Europe in January year-over-year, electric vehicles continue to gain momentum, with penetration levels reaching all-time highs in some countries.
Longer term there has been additional support with the European Commission's pledge of EUR 3.2 billion towards battery technology development, unlocking an additional EUR 5 billion in expected private investment and additional announcements of planned European battery plans and capital material production.
Localization of supply chains is a growing topic. And there was an increasing realization that for lithium particularly, this cannot happen with the current concentration of the Australia China supply axis. There has also been a greater focus on the overall sustainability profile of the EV supply chain.
Given that the transition to electric vehicles is rooted in green environmentally conscious goals, and ESG principles more broadly, this is an area that will only continue to grow an importance over time. Today, topics such as water usage, carbon footprint, and local community impact are all being examined by OEMs and especially consumers when they consider the realities of electric vehicle production.
We're proud of Livent’s ongoing efforts to be a responsible sustainable producer, including the work we're doing to partner closely with the communities where we operate around the world especially in Argentina. We've spent the last year as a standalone public company, focusing our efforts on tailoring and strengthening our sustainability program for the future.
We intend to provide a number of updates on this front as we move through 2020. And we will continue to work closely with customers, local communities and other key stakeholders. In closing, despite the recent challenges experienced by the lithium industry as a whole, we are excited about the opportunities ahead.
The low cost and sustainable nature of our brand based operations, our partnerships with leading battery producers and automotive OEMs, our continued investment in developing next generation engineer lithium products, and our reputation for reliability, safety and quality that is second to none are all key differentiators that position Livent for future success.
I'll now turn the call back to Dan for questions.
Thank you Paul. Kelsey, you may now begin the Q&A section.
[Operator Instructions] And your first question comes from the line of Bob Koort with Goldman Sachs.
Good morning. This is Don Campbell on for Bob. Quick questions here on carbonate. It sounds like you're delaying your installation of the carbonate module. I'm curious kind of what the rationale is, they are considering kind of the net short position on carbonate and that would be a net cost saver.
And then I guess the second question on carbonate. I guess you mentioned that you could shift more volumes to lithium carbonate sales. Is there response to kind of recent chatter we've heard on the use of LFP capitals in China?
So let me let me tackle those questions in that order. So the rationale very simply is we want to make sure that we protect our financial flexibility. I think we've been pretty clear in the past that we see reaching leverage points of about 4 times debt to EBITDA was being something we're comfortable reaching for periods of time.
But we don't feel comfortable going north of that. And we made the decision that, frankly, it makes more sense to slowdown and to pace out the execution in order to maintain that financial flexibility on the balance sheet.
It's an interesting trade off with carbonate pricing where it is today. Granted, the cost of buying carbonate relative to the build is not as punitive as perhaps it will be in the future. And so, what we're really doing is delaying by 6 months, the ability to take those costs down.
I will say while it's while it's wasn't the basis for the decision. I think one way or the other, we likely would have had to delay expansion as well. We have certainly are going to have some issues getting our module carbonate modules out of China, given the Coronavirus, it certainly slowdown the fabrication there.
And I think as we've spoken about in the past. We run quickly into an Argentine winter where it is not particularly easy to do these installations at the 14,000 feet above sea level in the middle of winter. So it was never our expectation that we would be doing construction in the winter. And so we've delayed it on that basis.
In terms of the ship to carbonate. Frankly, the conversation around carbonate is always driven by our customers. It's not that we sit there and try and be more strategic about it. We certainly have customers asking if we can supply them lithium carbonate instead of lithium hydroxide.
Certainly in the short-term many of our customers make multiple types of capitals and therefore have a need for both. Many of them themselves are just responding to signals that they received from their customers.
It feels to us that and we are certainly won't be selling generally. The ability to bring flexibility and switch between hydroxide and carbonate at really very little cost is something that our customers appreciate. And in this environment where there's still a lot of fluidity, if you will about the technology developments and the pace at which they develop.
They value our ability to do that and reaching out to us on that basis. I certainly don't expect carbonate to suddenly be a massive peaking volumes for us. But I can't imagine that will be a few thousand tons higher this year than we originally thought we would be.
Okay. That's helpful. And I guess a clarification question on CapEx. Despite the production and production plans, and expansion plans, it looks like CapEx grows in 2020 or less at the 2019 what's driving that?
Yes, frankly as where we are in the projects, so we will have the first phase of the lithium hydroxide construction will be completed. So the modules will be completed, we just want to install them and will delay that till next year.
And in Argentina -- look, it's a complex project in Argentina. And if we're going to hit these deadlines, we continue to have to finish and complete some key aspects of the infrastructure rollout. And once we've started these we’re not going to slow them down.
Some of it is just simply roll over a delay of costs from 2019 running into 2020. It was always expected regardless that 2020 would have been the peak capital spending year for this project.
Got it. Thank you.
And your next question comes from the line of Christopher Parkinson with Credit Suisse.
Thank you. So you spend a lot of time on the supply side and justifiably so and you hit on this a little bit. Can you further comment on your demand outlook in 2020 and 2022 and the development specifically, you've heard from your supply chain as it pertains to the adoption of NMC and MCA technologies. Just is there anything new on that front or is it kind of the status quo, which you've already given?
No, in terms of absolute levels of demand, I think the demand for lithium on an LCE basis continues to climb in that mid to high teen percentage rate year-over-year. That's what certainly what we see happening in 2020.
And we're certainly continuing to see a faster growth rate in lithium hydroxide, which reflects that shift to the higher nickel applications. I think we have frankly a lot more high nickel applications out there today than people realize.
I think this focus on the NMCA or on MCA and some of the some of those challenges in getting 811 into commercial applications as confused people and traveled the fact that really we're making a lot of NMC materials today that are north of 65% nickel. And that's the tipping point into lithium hydroxide use.
So while it may not be 811, or it may not be a broader adoption of MCA, it's certainly the case that the cathode materials today are rapidly shifting over to hydroxide, but really hasn't changed.
I understand the delay in your Argentinean, Korean expansion relates to the pace of construction and to maintain your financial flexibility. How should investors take the announcement in the context of your intermediate to long-term margin outlook?
We understand there's a natural benefit to reducing third party supply once you're up and running. But how should we assess to kind of the intermediate to long term margin framework? Just any color you could possibly give on that would be appreciated. Thank you.
Yeah. But I'll deal with the cost side of it, which is I think what you're pointing to, because clearly, [indiscernible] is a completely different conversation, but it doesn't really change anything frankly. All it does is it means that we're going to be short carbonate for six more months, that's the only real change instead of going in line at the end of 2020 with that first phase of the expansion, it'll be middle of 2021.
The second phase will follow right behind that. We’ve structured this so that there were significant infrastructure carryover benefits into the second phase. And so, we do not expect to go back into a short carbonate position once that first phase is up and running.
So the cost basis in Argentina, obviously allowing for some of the short term movements we can get in inflation and currency depreciation really hasn't changed its cost structure remains really where it has been for several years. And again we don't expect that to change either.
Thank you.
Your question comes from the line of Chris Kapsch with Loop Capital.
Yeah, good afternoon. Question about pricing in 2020. Is there any way you can characterize your outlook for pricing based and what is sort of locked in for the full year versus what could drift one way or another?
The reason I'm asking is because I'm trying to reconcile the downward revisionary in your guidance versus what you said earlier this year, primarily on the basis of pricing versus just oppose against what a lot of my texts are saying is granted, I understand we're over supplied right now.
But in hydroxide there's definitely more evidence of tightening hydroxide market. For example, I know it's unique circumstances perhaps around [indiscernible] but they introduced 10% price increase earlier last week.
But given the shift in demand favoring hydroxide that you just alluded to tightening hydroxide because there's not as much hydroxide in the inventory, the channel inventories. There is a notion that hydroxide pricing could be improving as we exit 2020.
So that's why I'm asking is there -- are you locked in on the pricing that you just sort of the outlook that you just conveyed or sort of the possibility that you could kind of confirm more favorable hydroxide pricing as we exit 2020? Thanks.
Sure. Hi, Chris. Thanks for that you can really come to the heart of one of the key challenges that we've had this year in terms of some of the decisions we've had to make. Clearly, there's a tradeoff we make.
Do we sit here and leave more pricing open on the expectation there will be a recovery in pricing from here, but it's hard to predict when or do we lock it all in? And so we sort of tried to balance that. We do have a bunch of contracts that rolled over anyway. And so those prices didn't change and haven't changed from 2019 to 2020.
We have other customers where we elected to pick the pricing even though it's lower year over year, just the nature of those customers we chose to that. Our guidance, as I said, does not assume an increase in pricing in the second half of the year.
I see the same external announcements that you've seen from people like Dan Fang [ph]. We've seen some commentary about challenges bringing hydroxide material plants online successfully. And so, yes, you can certainly see data points that suggests the tightening is going to happen.
It's really difficult today, Chris to answer the question as to whether it's changing. Because frankly, it's not a normal market. We're look at the impact of the disruption that's in China. That doesn't just impact China that impacts throughout the supply chain.
And even if it doesn't directly impact our supply chain, for example, lithium or the batteries themselves or the cathode materials. It's certainly the case that it's more difficult to build vehicles today. So even if you have enough material for the batteries and the batteries there not have enough other parts other components.
So it's frankly very difficult to pass through all the noise and to walk out whether you are in fact seeing signals or whether you are in fact just seeing noise at the moment.
Okay. And just as a follow up and maybe it's just way too early to see how this may affect sort of I guess supply chain thinking of major OEs. But given the Coronavirus and how disruptive it's been in sourcing from supply chains that rely on China.
Given that the vast majority of conversion of hydroxide happens in China say notwithstanding I guess, your conversion in North Carolina, maybe a little bit of some others. Do you have any thoughts on as this industry evolves and matures that -- would that put you in a better competitive positioning or worse competitive position you?
Do you have any sense conversations where downstream customers are going to involve to a point where they want to rely less on converging that takes place in China. Any feel for how that may play out overtime? Thanks.
Look, I think there is there has been for a while and it is too soon to know whether the Coronavirus will be a direct factor driving this. But there's been a concern for a while amongst many end users OEMs, particularly about the concentration of conversion capacity in China.
And specifically, around the desire to localize supply chains. There's political pressure to do that. There's environmental pressure to do that. But I think what is changing and has changed in recent months, from my perspective at least is that the OEMs spend a lot more time really truly understanding how and where lithium is produced.
And they are certainly starting to understand that it isn't like any other material that they've ever had to deal with. It's not like PGMs it behaves differently and is produced on a different basis and things like nickel, cobalt, copper, aluminum, et cetera.
And so they started to scratch their head and say, how do you localize the supply chain when it appears that most of the raw material is being mined in Australia and shipped at 6% concentration levels. Because that is extremely difficult to localize.
When they ask that question, they then turn to us and say you have a different model come and explain it to us, is this more able to be localized into your opponent to Europe and into the U.S.? So the answer is yes, we do have a lot more conversations around it.
I would not for one moment suggest that that we are at the point where people are making actual decisions on that basis. But they are certainly starting to ask the questions. And depending on who it is, express preferences for what they want their future supply chain to look like.
And your next question comes from on the line of Kevin McCarthy with Vertical Research.
Good evening, questions on your sales guidance which at the midpoint seems to imply growth of 3% in 2020, trying to reconcile that level of sales growth with the 30% volume that you indicate on Slide 7 and price erosion in the low to mid-teens. Can you help me reconcile that?
Sure. I think it's probably fair to say that we are being very cautious on pricing and on mix. You'd notice that we also shifted a hydroxide carbonate assumption into there as well. So we have a price decline for sure and hydroxide. Absolutely a price decline continued in carbonate.
We've also have price declines and set another day is particularly ones that are largely referenced to carbonate as a feedstock or light. Some of the metals based businesses that we have where with carbonate pricing declining it becomes more of an incentive to convert that into chloride and create metal based products.
So we also have some quite significant price declines in certain other areas as well. I think it's probably fair to say that in that that revenue guidance, as I said, we're being maybe a little overly cautious in some people's minds. But there is, as I said, no assumption whatsoever of any price changes away from where the market is today. And that's what's driving much of this.
Okay. And so as a follow up, Paul, is it the case that the total company, average price erosion could be greater than the mid-teens or is it the case rather that while you could sell 30% a higher volume what is embedded is, is something less than that?
I think a little bit of both. There's certainly a potential that it goes from mid-teens to high teens. I don't see going much further than that just because of the mix of how much pricing is already committed and agreed across our contracts.
Frankly, it's more likely that we sell less volumes. And I think when you look at the volume mains that we have out there, some of the volumes that we have in there are not particularly profitable business to be perfectly honest.
It's profitable but not hugely profitable. And we're not just going to place that with customers for no reason. It's going to be placed with little more important customers and the ones that make more sense.
If the market doesn't evolve that way, if we do get an impact in China and it doesn't recover in the second half of the year, we'll finally just pull those volumes from the market. We won't just sell them for the sake of it. So you should assume that there's a degree of flexibility at why the degree of flexibility in that volume estimates than there is maybe in price.
Understood. That's helpful. And if I may, I had a second question for Gilberto. What is the amount of working capital source or usage that's embedded in your cash flow from operations guidance range for 2020?
So we expect as we guide midpoint generate about $85 million of cash with the midpoint of CapEx of 250 [ph]. And in terms of or working capital naturally we build up a lot of inventory beginning of the year, Kevin.
And for this 4,000 metric tons that we mentioned earlier in the call as we draw on this inventory is going to accelerate our cash generation as well. So that's why our outlook for cash is actually higher than our EBITDA guidance.
Okay. So you plan to liberate some cash then from trade working capital.
Yeah. [Multiple speakers]
And your next question comes from the line of PJ Juvekar with Citi.
Yeah. Good afternoon. Hey Paul. You know, you mentioned that there is desire to become less reliant on China for supply chain. And how do you see that supply chain developing in Europe and as the US seems to be lagging behind, but is the industry doing anything to lobby the government in the US?
The issue in the US frankly is, you can't really move the inputs like lithium locally until you've really got the cathode material production locally and it's the lack of cathode materials. And that chemical infrastructure in the US that really is lagging more than anything else and that's less the case.
There's certainly more people out there and there are some pretty important cathode material producers based in Europe and committed to Europe. And there's also more state support or EU support in Europe, for that localization for multiple reasons.
I don't know how it's going to evolve this. I'm perfectly honest, I don't know what appetite markets have to have large bottoming mining operations. We know there are spodumene resources in the U.S. and in parts of Europe.
It's not entirely clear that there's an appetite for that mining to actually take place when you get into the local communities. I also think there's an acknowledgement and a recognition in Europe anyway, that this will result in higher costs.
We see that in the way that the very energy intensive capital material producers in Europe are paying extra to get wind or solar or other renewable energy sources, even though it costs them more. I don't know that that will be as acceptable in other parts of the world either.
So the dynamics as to how it localizes I think is starting to be understood more clearly by many of these interested parties is not a very simple so there's not a simple solution to it. I mean, clearly one way is we take the carbonate produced in South America and convert that locally in Europe, which is what we do. But not everybody use that as a good long term solution.
Okay. And then coming back to Livent. You mentioned that your CapEx in 2020, still around that $200 million to $230 million mark. What is the cadence beyond that, particularly in 2021? And then based on your outlook today on lithium, can you fund all that CapEx to your internal cash?
A little better touch on 2021. The short answer is yes. Right. I mean, so it's the same in terms of funding of our own internal cash. It's not clearly ideal, that we don't have the cash flow generation today that we had a couple of years ago.
But we do have the ability to just frankly, slowdown that expansion will it get done as quickly? No, it certainly won't. But I'll be honest with you my take on this is very straightforward. I think the market is speaking, customers are saying, hey, we'll take that risk, will take the risk that there will be a delay to new capacity coming online.
We will take advantage of oversupply today to drive prices down. And we recognize that that's quite likely to create a spike in prices in the future. That's the decision the market is making. We're listening to the market. We are slowing down. We'll add capacity at a slower pace. We'll add it frankly, as quick as we can without taking undue financial risk.
PJ regarding the CapEx for 2021, as you said, as you asked. So we expect to be ramping up normally finishing in '21, the [indiscernible] expansion, the Phase 1 expansion in Argentina, but also the BC. And will continue to have the about $30 million, all combined in 2020 month, we're looking at, it something the magnitude between $175 million, $200 million.
Okay. Great. Thank you.
Your next question comes from the line of Steve Byrne with Bank of America.
These 7,000 tons of carbonate that you're purchasing from third parties and converting into hydroxide. Do you need to do this to meet volume commitments or to absorb fixed costs of your conversion capacity in China? Is this profitable for you?
The good question, let me just quickly we will purchase 7,000 tons of lithium carbonate this year, some of that lithium carbonate is actually embedded in the inventory that we brought forward from 2019 into 2020. But the P&L impact is 7,000 tons or so lithium carbonate.
We're certainly not doing it to run the plants flat out, our China plants don't have any fixed costs because of the way we operate them. They have a higher variable operating fee, but we can turn them on, we can turn them off without any meaningful costs at all.
We've always been very clear, if it doesn't make sense to run them. And we can't sell the product profitably, we will just turn them off, we'll do something with this small lines that 5,000 tons lines, three of them.
And if we have to turn one of those lines off or slowdown, some of the lines will do so we certainly don't have a cost burden from doing that. But it's a valid question that we certainly today. This is profitable business we don't need to buy for example, battery carbonate to convert into hydroxide, we can use multiple grades.
So we have a lot of purchasing flexibility as to what we can use in those units. And that gives us a cost saving. Our plans are very efficient, especially the ones in China. So even with no fixed cost to allocate the variable costs that we incur is competitive and competitive with what we do in the U.S.
And so today even China pricing today we can still and do still make money on that particular business. It is not great business compared to what we want it to be and what the rest of our business is. And we certainly will only do it if it makes sense for long term benefits for our customers. We will not be trying to sell small amounts to non-important, non-strategic customers on that basis.
And, Paul, you got a long history there of improving the selective absorption of the brine solutions down in Argentina and continually improving that and reducing the amount of evaporation ponds. Do you see the potential for that technology to get to the point where you could eliminate the evaporation ponds?
Good question. Our technical team would love to eliminate the evaporation ponds. The short answer to that is yes. We absolutely -- we do have a plan to retire our evaporation ponds. We will keep the smaller ones.
I'm sure we have two types of evaporation ponds with the very large pre-evaporation ponds, similar to what you see in Chile. And then we have much, much smaller fraction of the size, basically finishing ponds of the brine-based for about a month or so after it's come out of the selective absorption process.
We will absolutely as part of the expansion eliminate those pre evaporation plans for two reasons. One of them is that evaporation in a lot of water leaves the environment. We know water is a scarce and valuable resource and where we could just let him not so much as it is in Chile perhaps but still critically important.
And it's important to us first to reduce that that water loss and eliminating the pre evaporation ponds does that. The second is that plenty expensive to maintain. We had a lot of salt buildup in the bottom of these ponds.
And so every few years you have to drain them and one way or another remove that salt. That itself is expensive. But also creates another waste product which is the sodium magnesium chloride to build up in the bottom of the pond.
So long answer to say, yeah, we absolutely will expect that within the next couple of years we will be retiring those pre evaporation ponds.
Thank you.
And your next question comes from Mike Harrison with Seaport Global.
Hi, good afternoon. I apologize if I missed this. But can you comment at all on the expected cadence of earnings in 2020? Obviously, we're coming off a Q4 that was $16 million in EBITDA. And at the low end, your $60 million EBITDA guidance $65 million implies something like $15 million a quarter for 2020. So any thoughts on how that progresses over the course of the year?
Yeah. My response is going to be a huge surprise to anybody. Clearly, the first part of the year is going to be more challenged given the disruption that we've seen in China and given how much of our business and how much of our customers, and how much of our product ultimately finds his way somewhere another through China.
So we're certainly expecting the first half to be weaker than the second half. I don't have the confidence yet from the data that I've seen to know how long that lasts how deep it is or even whether in fact we will get everything that we lose in the first half back in the second half.
There were questions around all of those. But what I can say reasonably confidently is that certainly, compared to the second half, the first half is going to be softer.
Alright, and in terms of the customer delays that you saw during Q4, can you give a little bit of color on what led your customers to delay? And I guess, help us understand what's in your contracts that maybe give them flexibility around when they take deliveries? I guess I would have assumed that those volumes are committed that maybe they would have to take them.
Look it's a complex question on the demand side. Number of customers that, as we mentioned before, this is a fluid market. We've had -- they themselves have their own customers changing demand, changing orders, changing structures.
And so there's no single reason behind some of these delays other than perhaps this constant flux that we have in the supply chain today with maybe a higher degree of uncertainty over who is making what and how much they're making.
Our contracts -- we have various types of contracts with customers multiple ones. We do not think it's in anybody's interest to force product on to customers that frankly don't need it. Lithium hydroxide especially does not have as long shelf life as lithium carbonate.
It is not in our view a healthy relationship with a customer to force them to take material that they don't need at that point in time. We have tended to find overtime. And we still see this holding up today, that when on our life of contract basis of customers live up to their commitments, they take the volumes that they've committed to take from us.
Sometimes they take it more quickly than they think. And that's an upside to us in the short term. And in other times they have delays and that's the downside to it in the short term. But we certainly don't have or not have yet at least, any major customers not living up to their volume commitments.
Thanks very much.
And your last question comes from the line of Joel Jackson with BMO Capital Markets.
Hi, good evening. I want to follow up on some of the CapEx and the expansion question. So beyond the first phase of carbon hydroxide or the next phase of carbon hydroxide expansion here, what would be the cadence you think of adding the next round of expansion. And then how would your capital budget kind of phase out here or phase down or project over '22, 2024 as you maybe head on your next lag as capacity thing?
Yeah, good evening Joel. It's weird saying good evening, by the way on an analyst call, I have to say. So, phase two of Argentina, clearly we will continue to go ahead with it. The expansion was designed to essentially break into two groups; phases one and two and then phases three and four.
And phases one and two really do go hand in hand. So once phase one is completed, even before it's completed, we'll start to turn our attention to phase two hence no real slowdown in capital spending likely to come in 2021.
On the hydroxide side, we do not expect to add any more units in hydroxide or some element of visibility today or anything other than maybe a unit in China. I think we see an opportunity to add another small unit in China. But as you know, that's a relatively low capital outlay for us, it's just a very different way that we do it in China compared to in the US.
Beyond 2021, look, I think we're not going to make any decisions yet at the moment. The only commitments we've made or what I just described to you on and on that basis we will see a significant ramp down in capital spending -- that’s a word, ramp down in capital spending in 2022.
I think we reserve the right that if market conditions change, if customers make appropriate commitments, then there's a likelihood that we will move into more phases either with hydroxide or lithium carbonate, but we're certainly not making that commitment today.
Just I interpret that so right now, the 9500 ton addition to carbonate 5000 ton addition to hydroxide, that's in the book that will finish you may add a little bit more hydroxide in China or somewhere, but you have nothing's in the plan right now.
And another 9500 tons of lithium carbonate in the Phase two in Argentina. When we done with this. So compared to today, we will have more than double the carbonate, of about 10,000 tons more hydroxide.
And so the first year you might get down, if you don't do anything other than that. The first year, you might get down to like a true maintenance capital cost might be 2023. What year would that be?
Yeah, probably second half of 2022 we’ll be in that place. So on a full year basis '23 correct.
Okay. And just my other question was, have you give a view on the new Argentine export royalty? Are you assuming that gets regulated into law full time?
You must be referring to the one that the previous President has issued, that's supposed to be finished. So that has this year to go still. So we haven't heard anything different from what was said before.
You are looking at short term.
Yes.
Thank you very much.
And that is all the time that we have for today. This concludes the Livent Corporation fourth quarter and full year 2019 earnings release conference call. Thank you.