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Good afternoon. And welcome to the Fourth Quarter 2021 Earnings Release Conference Call for Livent Corporation. Phone lines will be placed on a listen-only mode throughout the conference. After the speakers’ presentation, there will be a question-and-answer period. I would now turn the conference over to Mr. Daniel Rosen, Investor Relations and Strategy for Livent Corporation. Mr. Rosen, you may begin.
Thank you, Emma. Good evening, everyone. And welcome to Livent’s fourth quarter 2021 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, can be found in the Investor Relations section of our website. 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. Given the number of participants on the call today, we would request a limit of one question and one follow-up per caller. We would be happy to address any additional questions after the call. 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 include references to various non-GAAP financial metrics. Definitions of these terms, as well as a reconciliation to the most directly comparable financial measure calculated and presented in accordance with GAAP, are provided on our investor relations website. And with that, I will turn the call over to Paul.
Thank you, Dan, and good evening, everyone. There are a number of topics we will cover today, including how we finished 2021, what we are seeing at the start of 2022 and how we see the full year developing, an update on market conditions and what we think the medium-term holds for our industry, and how we are investing to meet the rapidly growing customer demand that is underpinning the growth we see. Starting with 2021, we delivered stronger results in the fourth quarter compared to earlier quarters, as record demand from customers throughout the year meant that we largely satisfied our annual volume commitments by the end of the third quarter, giving us a greater ability to take advantage of consistently improving market conditions in the final quarter. While we were able to recognize higher average prices across our portfolio in Q4, we will see an even greater increase in realized pricing in 2022, as we will discuss shortly. Full year results for 2021 came in at the top of our guidance as a result of the strong Q4 performance. Looking at our 2022 guidance, higher realized pricing will drive a significant increase in profitability compared to 2021. This is despite flat year-over-year volumes, prior to our capacity expansion, which will add incremental volumes in 2023. We expect this higher realized pricing to drive full year adjusted EBITDA up to almost three-times that of 2021 at the high end of our guidance range. Beyond 2022, we expect demand to continue to grow at rates similar to today. Supported by increased visibility and focus from our customers on securing reliable long-term battery-grade lithium supply, we are announcing today that we have commenced engineering work to add a further 20,000 metric tons of lithium carbonate capacity in Argentina, which we expect to be in production before the end of 2025. When combined with our current 20,000 metric tons of carbonate expansion, which we will give an update on today, this will triple our total capacity in Argentina compared to today, to 60,000 metric tons of lithium carbonate. So before I get into more detail regarding 2022 and beyond, I will turn the call over to Gilberto to walk us through our Q4 and 2021 financial results, as well as our 2022 outlook.
Thanks Paul, and good evening everyone. I will begin with our fourth quarter results on slide four. We reported revenue of $123 million dollars, adjusted EBITDA of $28 million dollars and adjusted earnings of $0.8 per diluted share. Revenue was up 50% compared to the same quarter in 2020, driven by higher volumes and higher realized pricing across almost all lithium products. Versus the prior quarter, revenue was also up 19%, with slightly lower total LCE volumes sold being more than offset by higher realized pricing, most notably for lithium hydroxide and lithium carbonate. Fourth quarter Adjusted EBITDA was nearly four times higher than the prior year and increased 85% versus the prior quarter. As discussed during our last earnings call, because Livent fulfilled most of its committed volumes for 2021 in the first three quarters of the year, we had more available volumes to sell in the higher pricing environment seen in Q4. Additionally, a greater proportion of these sales were in the form of lithium carbonate, where market prices were notably higher. Some of the margin benefit from much higher pricing was offset by increased costs due to broad inflationary pressures and continued global supply chain disruptions. Turning to slide five, for the full year 2021 we reported revenue of $420 million, adjusted EBITDA of $70 million and $0.18 of adjusted earnings per diluted shared. Revenue and adjusted EBITDA were both at the high end of our guidance ranges and resulted in year-over-year growth of 46% and 212%, respectively. The improvement was due to higher volumes and higher average pricing, partially offset by higher costs related to logistics, solvents and other raw materials. Despite flat carbonate production volumes in Argentina versus 2020, Livent’s 2021 total sales volumes increased by over 7,000 metric tons in LCE terms versus the prior year, primarily from higher hydroxide and carbonate sales, as we were able to draw on the inventory we carried into 2021 and were also supported by some additional third-party carbonate purchases. Average pricing on an LCE basis across the portfolio was higher than 2020. Average price -- pricing was better than our expectations 12 months ago and was largely a result of better than expected improvement in market conditions. It was also supported by the flexible nature of our operations and our ability to pivot to selling carbonate over hydroxide when it makes sense to do so. There were a few areas of higher cost that impacted our business. They included higher and less predictable energy costs and higher raw material costs, most notably in the solvents and lithium metal used as feedstock for our butyllithium business. Global supply chain challenges also resulted in higher shipping and logistics costs, while some unavoidable delivery disruptions created certain timing issues for us. We had $119 million in total capital spending in 2021, of which $25 million was for general maintenance and in line with historical levels, while remainder was -- while the remainder was for our expansion work. There was a notable ramp up in capital spending in the fourth quarter that we forecast will continue into 2022, as we move closer to the completion of our near-term capacity expansion projects in Bessemer City and Argentina. Let me now comment further on our financial guidance for 2022. Livent expects a substantial improvement in financial performance in 2022. For the full year, Livent projects revenue to be in the range of $540 million to $600 million and adjusted EBITDA to be $160 million to $200 million, representing growth of 36% and 159%, respectively, at the midpoint versus the prior year. This would imply an adjusted EBITDA margin improvement of 15% at the midpoint. Our guidance is based on flat year-over-year total volumes sold and significantly higher realized prices year-over-year across all product lines, partially offset by higher costs. Given the number of moving pieces in our guidance, let me try to provide a simple bridge from 2021 results to the midpoint of our adjusted EBITDA guidance. Starting with our 2021 result of $70 million, the increased pricing in our multiyear hydroxide contracts effectively doubles that number. In addition, the increased earnings from our non-contracted volumes, combining hydroxide and carbonate and priced by reference to China indices, is expected to add a further $60 million to adjusted EBITDA. Offsetting this, we see higher operating costs, such as labor, energy and raw materials of $15 million. And finally, as we complete our expansions, we expect a $5 million expense for ramp up costs. You will notice that we do not anticipate any impact to our profitability from butyllithium and high purity metal, since we expect higher input costs to be passed on to our customers through higher pricing. Before concluding, I would like to provide further guidance on select financial metrics for 2022. With respect to our balance sheet, we ended 2021 with $113 million in cash and no draw under our $400 million revolving credit facility. For the full year 2022, Livent is expecting to generate adjusted cash from operations in the range of $145 million to $185 million. We anticipate capital spending in 2022 to be in the range of $280 million to $320 million, as we complete our new 5,000 metric ton hydroxide unit in Bessemer City and the first 10,000 metric tons of our carbonate expansion in Argentina. This guidance is also inclusive of maintenance spending across the business at levels in line with historical spending. The combination of Livent’s current cash position, its ability to draw on the credit facility and a much stronger outlook for cash generation from higher volumes and pricing, provides confidence in the ability to fund its capacity expansion programs. I will now turn the call back to Paul to provide some additional context to our guidance ranges and how we are thinking about the year ahead.
Thank you, Gilberto. Turning to slide six, and as Gilberto already mentioned, we expect total volumes sold on an LCE basis to be flat versus 2021. No meaningful volumes from our capacity expansion projects are expected to be commercially available this year, even though we do expect mechanical completion and operational start up before the end of the year. This reflects the reality that in our industry it takes time to ramp up production levels, to resolve the inevitable startup challenges for product quality and consistency, and then to complete the processes related to customer qualification, especially for hydroxide. As a result, the first meaningful step-up in sales volumes for Livent will be in 2023. We expect a significant improvement in pricing in 2022, with average realized prices higher across all of our products. Specifically for Livent, 100% of our sales volumes in 2022 will be at prices either set in contracts entered into in late 2021 or at market prices determined on a monthly or a quarterly basis in 2022. We anticipate significantly higher average realized prices in our lithium hydroxide business, which can be characterized by two distinct segments. Around three-quarters of our hydroxide volumes are under multiyear, largely fixed price, take or pay commitments with a small subset of customers. This is in line with the company’s historical strategy and provides a base of stability and predictability around returns on its capital investment. Among these contracts, we expect to realize increased prices versus prior agreements of around 50%. For the remaining portion of hydroxide volumes, we have made volume-only commitments for 2022, with periodic pricing reviews that allow for more direct exposure to market prices. The majority of our hydroxide customers are transacting with us on this basis. With respect to lithium carbonate, which has seen some of the most dramatic recent increases in market prices, we will continue to be opportunistic in the near-term, selling small volumes on an uncommitted, month-by-month basis. Sitting here today, we would expect realized prices with these portfolios of customers to be more than double what we achieved in 2021. And finally, for our remaining key lithium products, such as butyllithium and high purity metal, we continue to commit volumes to our existing customers. However, price setting has shifted to be on a quarterly or even a monthly basis, as opposed to an annual basis as it has been historically. This price setting change reflects a different dynamic than in hydroxide or carbonate. For much of these lithium products, we are seeing significant and rapid cost increases in key inputs, especially solvents and metal. By moving to quarterly or monthly pricing conversations with customers, we are able to more effectively maintain profitability. Like many other businesses, we are dealing with the impact of general inflationary pressure, in both raw materials and labor cost. In addition, and specific to Livent, our guidance includes additional costs in the second half of 2022, as we commence the process of commissioning and ramping-up our new carbonate and hydroxide units. Lastly, there continues to be lingering global supply chain disruptions that originated at the onset of the pandemic, that add friction and cost to shipping and related logistics and while we would hope for some of these pressures to ease over time, it is more difficult to predict how this will unfold. The ranges of our guidance for 2022 are wider than historical ranges, reflecting the shorter term volatility and unpredictability we are seeing in some areas of the market. Delivering full year results near the high-end of our ranges would likely be due to even higher pricing than we are currently assuming, and conversely, results at the lower end would most likely be due to lingering supply chain challenges, impacting the timing of volumes delivered, or resulting in higher than expected costs. Now I want to spend some time discussing current market conditions on slide seven. The incredibly strong demand for lithium we saw throughout 2021 and now into 2022 has been led by record setting demand for electric vehicles. New energy vehicle sales in China grew by over 150% in 2021 to 3.5 million units, which is greater than the entire number of EVs sold globally in 2020. Additionally, NEV sales in China are projected to be well over 5 million units in 2022, despite plans for the country to cut incentives on zero-emission vehicles by 30% before phasing them out completely in 2023. In Europe, fully electric vehicle sales grew to 109,000 units in December, marking a monthly record for the top five regional markets and a penetration rate at a new high of 16%. And in the U.S., at least thirty new EV models are expected to be introduced to the market in 2022, more than double the number currently available. And the positive trends behind demand for lithium do not stop at electric vehicles. We continue to see increased demand expectations across all energy storage applications, including light commercial vehicles, e-bikes, stationary storage and mobile devices. Lithium-ion battery installations for EVs grew by 143% in China, and just over 50% of these new installations were for lithium iron phosphate or LFP batteries, marking the first time in recent years that it has become the predominant cathode technology. While carbonate and hydroxide demand both grew significantly in 2021, this shift towards LFP was clearly responsible for part of the acute tightness seen in the carbonate market. And this demand surprise, combined with the less-surprising failure of carbonate expansions to deliver volumes as planned, meant that demand growth outstripped supply growth. We saw inventory levels essentially disappear in the channels, whether that was spodumene concentrate, lithium carbonate or finished cathode materials. In this environment, it’s easy to understand that the China-based battery market, which had largely rejected multiyear fixed price contracts in preference for short-term pricing mechanisms, saw a rapid increase in prices for all battery materials. However, with lower costs one of the main reasons to adopt LFP over high nickel chemistries, we will be monitoring carefully how battery technology adoption evolves. With iron phosphate prices also rising rapidly, the higher carbonate prices have quickly negated the relative cost advantage of LFP-based cathodes. In fact, for lower margin applications we are seeing the financial rationale for LFP cathodes disappear. Today, these applications are non-EV in nature, such as stationary storage, but it does not take a great leap to see that some future EV launches, which were counting on low-cost LFP batteries to justify the decision, may not happen quite as predicted. Additionally, over time we expect there will be a greater focus on the higher average energy consumption required to produce an LFP-based battery versus an NMC-based battery, and especially, on the significantly lower metal recovery value per kilo watt hour when thinking about end-of-life recycling factors. Perhaps for all of these reasons, it is clear to us from our many conversations with leading OEMs that there is no intention of moving away from high nickel cathodes, which require lithium hydroxide, in their higher performance and higher margin vehicles. The entire lithium market remains tight today, and the extent of this tightness is reflected by just how high prices in the Chinese non-contracted market have climbed. Published lithium prices in all forms continue to rise and we are now seeing the pull through of contracts that matured at year-end being reset at meaningfully higher price levels. Non-integrated spodumene convertors in China continue to operate at lower utilization rates due to a lack of available spodumene feedstock and face significantly higher input costs as a result. This dynamic is driving up the price of finished lithium products in a similar feedback loop to what we previously saw when lithium prices were steadily declining, albeit in the opposite direction. In this rising price environment, there have been a number of other lithium suppliers that have chosen to walk away from existing supply agreements or have forced a shift to market based pricing structures. The dramatic near-term spike in the spread between carbonate and hydroxide prices has also caused some producers to switch to producing carbonate, effectively pulling back from their efforts to enter the hydroxide market. This withdrawal from the battery-grade hydroxide market is further supported as producers have seen at close hand the difficulty in getting qualified and the costs associated with not being able to sell low-grade hydroxide due to a lack of customer willingness to use it. Convertors that choose to withdraw from the hydroxide market will find it much harder to get re-qualified into the supply chains of the higher end battery and auto OEM applications in the future, where the time and effort needed from the battery producer to qualify supply requires a commitment from the lithium producer to remain a supplier for long enough to justify that effort. Looking at the forecasted lithium industry capacity additions that many hope will relieve some of the supply shortfalls, we continue to see both delays and cost increases. Part of this can be attributed to inflationary pressure and tight labor markets, but there are also some factors, such as environmental challenges and local opposition, that are creating delays and even some high-profile cancellations. As we have said in the past, lithium expansion projects are complex, they are both time and capital intensive, and they almost always have unique local challenges that require a great deal of sensitivity to overcome. These factors make it difficult to accelerate their path to commercial production in a material way, and in fact, more often than not, result in delays or cancellations. Given these practical realities, it is very difficult to forecast a sustained period of oversupply over the next few years. Despite some of the challenges seen on the supply side, we have not seen any auto OEMs back away from their electrification targets or commitments. In fact, in the past few months alone there have been new announcements of EV partnerships and joint battery cell manufacturing plans. And understandably in this environment, we have seen a heightened customer focus on securing long-term lithium volume commitments from reliable sources. As OEMs slowly develop their understanding of the lithium supply universe, our proven ability to meet battery grade qualification standards, and deliver on our commitments, makes us one of the first calls as OEMs look to secure their long-term base volumes. And it is this increased engagement with us by the ultimate consumers of lithium products that underpins our decision to invest in further capacity expansion. As shown on slide eight, within the next twelve months, Livent will add 5,000 metric tons of hydroxide capacity in Bessemer City and 10,000 metric tons of carbonate capacity in Argentina. And these two additions will allow us to meet our expanding hydroxide commitments to strategic customers, while eliminating the need to purchase third-party carbonate to feed our hydroxide plants. Beyond this, an additional 10,000 metric tons of carbonate capacity will be online in Argentina by the end of 2023, which will nearly double Livent’s total available LCEs from 2021 levels. This production growth over the next few years will see us deliver higher volumes to customers and help us to fund continued expansionary investment. And to meet the growing needs of our customers, Livent began the engineering work on a second expansion in Argentina, looking to add an additional 20,000 metric tons of lithium carbonate capacity. Following this expansion, which is expected to be complete before the end of 2025, Livent’s Argentina operations will have total annual carbonate capacity of 60,000 metric tons. This is in addition to our existing 9,000 metric tons of lithium chloride capacity in Argentina. The rationale for this decision was straightforward -- our customers want to secure more volumes from us than we can currently produce. As long as we execute supply agreements that can justify the capital commitments with respect to price, duration and certainty, we will continue to invest. Longer term, Livent will continue to expand its hydroxide production capacity, and in multiple geographies, in order to meet growing customer demand. However, we also anticipate the expansion in Argentina will provide the company with more operational flexibility and a pathway to be a larger participant in the carbonate market. Nemaska, a fully integrated lithium-hydroxide project located in Quebec, Canada, of which Livent currently holds a 25% ownership stake, is nearing completion of its previously announced optimization study. While this study is a few months behind schedule, we are confident that Nemaska will be producing lithium chemicals by 2025. I want to conclude on slide nine by providing a few sustainability updates from Livent. It is important to note that the next phase of our planned expansion in Argentina will be fundamentally different from our existing operations at the salar today. A primary focus of the preliminary engineering work is how we can expand capacity within existing infrastructure constraints. For example, by changing some of our existing processes we believe we can add this next 20,000 metric tons of carbonate capacity without requiring access to any additional fresh water. And by applying these same process changes across our existing operations in Argentina, we can increase yield and eliminate the production seasonality caused by unexpected weather events. And as we work to expand Livent’s production to meet the increasing demand for lithium, we remain equally committed to growing responsibly and delivering on our 2030 and 2040 sustainability goals. We will provide more detail on some of the specific sustainability initiatives we will be implementing for the new Argentina expansion, as well as the associated capital requirements, as we progress. Sustainability continues to be a key consideration in our decision making and investments, and we welcome opportunities to further strengthen and advance our program. Earlier this year, Livent announced that it was awarded 2021 Gold status for sustainability performance by EcoVadis. This is the second consecutive year the company has achieved a Gold sustainability rating and places Livent in the top 5% of the more than 85,000 companies assessed by EcoVadis around the world. We are proud of this recognition and it is a testament to the dedication of our teams to meet the needs of our customers while ensuring that we continue to operate in a safe, ethical, socially conscious and sustainable manner. And finally, Livent began a voluntary, independent third-party assessment using the Standard for Responsible Mining from the Initiative for Responsible Mining Assurance or IRMA. Livent is the first company with mining operations in Argentina and one of the first lithium mining companies in the world to become a full member of IRMA. We intend to continue our leadership in pushing our industry towards greater transparency and continuous improvement in all aspects of sustainability, including efforts to better engage with our communities. This is something our current and potential customers truly value, and believe it is another key area of differentiation for the company. I will now turn the call back to Dan for questions.
Thank you, Paul. Emma, you may now begin the Q&A session.
[Operator Instructions] Your first question comes from the line of Chris Kapsch with The Loop Capital Markets. Your line is now open.
Yeah. Good evening. Thanks for the color on the market trends. There’s obviously a lot of cross currents. So, one, my first question really is, I think, you have said, despite increased relevance of LFP, because of, I guess, higher cost of carbonate and maybe some sustainability considerations, many western EV supply chains are not really backing away from their commitments to high nickel cathodes. So, my question is, to the extent that they are looking for security of supply for hydroxide, and there’s battery specs that are tough to meet, do they have a preference for a brine versus hard rock based hydroxide in order to meet those commitments looking forward?
Not that I am aware of, Chris. I mean, we obviously don’t have a hard rock asset right now that’s operating and we don’t really feel that that there is any particular metric. Now, one caveat to that is that there are a couple of producers that have already thinking very much about sustainability, as well as inherently no reason why you can’t have the sustainable path to produce lithium hydroxide from hard lock. Today, at least much of it has got a huge carbon footprint because this is the way mining failure shifted to China, of course, those now shipped around the world. So there are certainly some that are looking at, I think, that model, the non-integrated model doesn’t work for us, not for base load lithium. But it’s not really the fuel spodumene per se, it’s actually about a waste spodumene is being mined and converted in the market today.
Right. Okay. Fair enough. And then, just to follow up the -- you alluded to the increased participation in the carbonate market, just can you talk about what the thinking is from a strategic standpoint, would making more volumes available for that market would be more opportunistic based on where the relative pricing is between carbonate hydroxide or are you -- do you have customers are looking to you for security supply of carbonate, as well as hydroxide? Any color there would be appreciated? Thanks.
Yeah. I think this idea that being a monolithic lithium producer is not necessarily a good idea in the long run. I mean we could be monolithic and only have one resource. We could monolithic in only making one product. And from our perspective, we are certainly heavily focused on lithium hydroxide and historical our diversification has been with lithium and metal based products, but they didn’t grow at the same way. And so we look forward and we would like to have some diversification. We also recognize that people want us, it only included sometimes to participate in what I call short-term market and look at today, right, the ability to participate in China requires you to have products that China wants to buy. Our 10 stores doing end itself in the same way to meaningful volume or short-term transactions company does. And so I do feel that there’s an opportunity for us to increase the diversification of our portfolio allow us to participate in more markets. It won’t change the fact that we consider ourselves primarily to be fully integrated lithium hydroxide producer and focused on the most demanding applications and they will blend themselves to short-term spot transaction, so we don’t expect to move away from long-term commencing customers. But we would like to have a little bit more exposure to lithium carbonate than we have today.
Fair enough. Thanks.
Okay.
Your next question comes from the line of Joel Jackson with BMO Capital. Your line is now open.
Hi. Good afternoon. Good evening. We know what your capital plan was or capital expansion plan, CapEx wise was at the time of the spin of the IPO? Can you walk through how much CapEx is left to spend on the carbon expansions for the 20 coming up and the 20 after that. You have got $300 in the budget now, so how much we should expect to spend on this in 2023, 2024, 2025, 2026? And I guess talking about carbonate you can throw in what you have committed hydroxide to get to the 30 and then these things.
Yeah. I think I have to go back for a moment. Allow me to say, we have visibility over fiscal 2022 and 2023, because that’s essentially when that come and if you need expansion then. So I don’t yet have visibility on the new one that we have announced today. Overall, we don’t see any reason why we have any more capital expense then what we did already, but that needs to be proven out. I will let Gilberto walk through numbers as well, 2022 and 2023 and it went over into 2024 spending will be.
Yeah. So, Joel, so just put in perspective, between 2018 and 2021, 2018 and 2021, we found that the growth initiative is about $350 million. And frankly, is pretty much line will we always expected. So for this year, we are expecting to spend in the growth initiatives, the investments in Argentina about $275 million. So, the remaining of even over $150 million to $125 million next year to complete Phase two in Argentina. So that’s where we are looking to over rise. And actually, this year is a big spend because we have all the civil work, there’s no pre-buying because you spend a lot of money in the last couple of years be and buy the modules in China. They are all in ‘19. We are just really going through a lot of the steward that needs to be the people Argentina invest more.
Sorry. And I also had another question after this, but the $100 million to $125 million next year that you had to finish Phase two at the finished Phase two or Phase 2, I may have heard that wrong.
Well, it’s to finish the second 20,000 -- the 10,000 metric tons that we are already building that we complete next year.
To finish to post -- okay, you get to 40 kind of one to 125 next year?
It depends everything that we have announced by today.
Yes. Okay. My other question would be then can you talk about the process changes for the next 20,000 in Argentina and then elaborate a little bit more what actions you are considering what’s proven out? What do you have to do that sale?
I think expect to say none of the process change, we by technical innovation or revolution, but there was no technology that exists today, just haven’t been applied in the liking space and bank historically at the scale we were operating at just to justify to an extent and a high degree of engineering complexity that would be required. It is not massively different to what you will see some of the other projects in Argentina talking about, so it requires -- first of all, it will essentially eliminate funds. So we will now have a home system, but it’s not a very scale. And that’s good because to maintain they are expensive to maintain the locals don’t like them. And so it will soothe with that, and it will require us to create a much more close environment for the lot. So it will significantly reduce the amount to the use per kilo product produced. It also adds us to be on other stuff in terms of recovery of other waste streams that helps increase yield as well. So I can say that it’s just a difficult approach to it. The base DLE technology that we does not change, the base process does not change. It’s really about how we have to manage water more than anything else. And then how do you certainly concentrate the brand to the required levels.
Are you going to be doing a pilot of this so you don’t need to do that?
Yes. I think the engineering process will let us know whether we feel the need to pilot we don’t know.
Thank you very much.
Your next question comes from the line of Pavel Molchanov with Raymond James. Your line is now open.
Thanks for taking the question. Let me start with kind of a high-level question. We have seen the spot price of lithium carbonate increased six-fold in the past year. How high can that gap realistically before we begin to see some kind of demand destruction in the battery market or any of the other verticals?
That is a really, really key question that I don’t have a specific answer for it. There’s no doubt that, that one exists, I think it exists at different points for different products, different segments. I think in a premium vehicle using a high-nickel technology, I think a much higher number, right, because the relative cost of the battery is different. I think for one thing, anybody sells calls and how you regulate everybody, you don’t get a chance to sell combustion engines anymore or you have massive find potential because we give you to missions. So we don’t have a lot of choice. You have to find a way to continue to sell vehicles and put the batteries in them, so maybe a little less price sensitivity in there. But I think where there isn’t a regulatory push the everything are going to happen. I think one of them is you quite like to maybe launch different vehicles to start with, you need long in at the high premium ones are all and you build the smaller shorter engines that can carry a small battery pack to allow for the fact we get the more expensive. I think it also impacts quite significantly some of the maybe lower margin businesses, whether that’s commercial vehicles, whether it’s section storage, especially, which is great price on came price sensitive. I think even find some of these adjacencies of demand struggling before you find passenger EV demand. It also contributes a bunch of other innovations around the market. I mean there’s no doubt that we made triggering infrastructure. If the comakers have to go small batteries because they are so expensive, the incentive to invest in faster charging maybe comes along. So it’s really interesting question to sort of play out. But to my mind, there’s no doubt that prices as high as they are, has to have some impact on demand in the long term.
Okay. Let me zoom in on your Quebec opportunity. I guess it’s been about 1.5 years since you may be the mask investment. What would it take for you to pull the trigger, make a final investment decision on that?
We don’t control the reins of that clearly so. And that’s appropriate, we only own 25% and the government of Quebec owns 50%. So it’s clearly appropriate that it rents is process independently. We are providing a lot of technical support. So we have a very clear insight into what is going on there. But just to remind everybody that, first of all, the Nemaska is a very good spodumene resource. There’s no history yet of mining in such a remote coal location might do this all the time, but you then going to transport into media product long distances before you process it to a chemical, the implications as to environmental footprint cost of the unit of production, etc, they just need to be working carefully. And the same is true to building the chemical conversion fund, I think you have heard from us and you have heard them even more experienced producers producing the spodumene conversion is not easy. We have seen emits out there meeting or fares are hundreds of millions of dollars worth of waste of capital failures out there. And so it’s really important to do it right. I would argue as well, by the way, that this isn’t necessarily a huge rush to broken out material from Nemaska to the market-wide essentially for the next two, three years. The only really growing market that they might had is China, and it’s questionable about whether it’s practically to import have upside in large quantities into China different customers dues given shipping the logistic challenges around that. It’s certainly possible. But I think Nemaska absolutely geared toward the development of a battery industry in North America and in Europe. And it’s probably fair to say that’s still pretty nice and probably won’t be meaningfully evolve much before ‘24, 2025. Having said that, we still think it’s a fantastic project and has an important place to play in the industry in the long run.
Thanks very much.
Your next question comes from the line of Chris Parkinson with Mizuho Securities. Your line is now open.
Thank you. Can you just discuss the 28% to 43% growth assumption for ‘22 on the top line? I think we all presume that it’s the pricing due to flat volume assumption, but if you could just hit on the portfolio differentials between hydroxide, carbonate, lag of spacing versus your primary competitor? And just, Paul, if you could quickly comment further on just the changes of the evolution of your pricing contract structures, that would be incredibly helpful. Thank you so much.
Sure. Okay. So let me deal with the last question, the evolution our pricing contracts. Time handing all that much at all in terms of the largest contracts, we remain committed to multiyear fixed-price contracts, and that’s what the bulk of our hydroxide volumes are sold. But the whole customers have typically wanted to reset pricing every year. And this is much more volumes that typically not batteries where is typically increased in other industrial applications. And frankly, you can move them to like if that’s the market, if you don’t want to make long-term commitments, then let’s just price to market. And we have made it very clear that we always have the option and particularly in hydroxide to sell the carbonate instead. And so whenever there’s a market if the company that we can sell to them rented for short-term hydroxide customers like that and just have to keep up. And I think that’s got an evolution, and we typically not referenced pricing we can carbonate pricing. But the reality is that’s where we are today and where we don’t like it to be in the foreseeable future. In terms of the 20% to 23% growth rates, I think we mentioned about three quarters of hydroxide volume, but it’s all pricing our three quarters of our volume and our mix is different, by the way. We are going to sell more hydroxide in ‘22 to mediate in 2021, but we don’t have any more LCE. So by definition, carbonate log will go down. But the port of the hydroxide volume is up around 50% or so pricing-wise. The remainder of the both hydroxide and carbonate, which has been priced against the alternative or otherwise to sell it into the spot markets in China. Today, at least we would expect our pricing to be at least double, if not three times, depending on where the market goes what it was in 2021. You get a bit of a in the top line is a little bit confusing as well this is our utility and metals businesses, which were about $120 million or more of revenue in 2021. They are hugely sensitive to run-up in lithium metal pricing. The lithium metal today is running out incredibly quickly because the alternative for metals of the world in China is to sell carbonate instead. And so as carbonate pricing goes out, they need a higher price to justify the metal. Therefore, the price of metal for us continues to climb, we will pass that on to customers directly out to customers. And so the top line is likely to grow, but the dollar margin will change, and so we won’t necessarily contribute any extra EBITDA, but it will add something to the top line. So you also take there will be a bit of a disconnect when you mean caused by this pass-through cost in the view of the metals businesses.
Got it. And so that’s helpful in pricing. And just a very quick follow-up. Just can you give us our updated thoughts or your updated thoughts on transportation logistics, labor, just what are the ultimate variables we should be monitoring for both this year and any current view on ‘23? Thank you.
I don’t see that being a massive changes as the way it’s been like great. I mean, it’s predictability, cost are the two biggest challenges that we have later and less than a shopping the inflationary pressures in labor around the world, and that’s the shortage of labor in certain places. So we tend not to suffer with that as much as other except maybe the expansions and capital deployment. There’s just a shortage of people to do the capital deployment around the world. But in terms of other costs, we have seen increased energy cost for sure. We are seeing difficulty sometimes in securing slots and it can be disrupted for lots of different things. We have a port in Chile today that’s going through some industrial action, which is can disruption quarters. We have had issues in the past where ships that we have got to just didn’t buy the stuffing in Argentina and just kept going. And these kind of disruptions and impacts on predictability more than anything else that are the biggest challenge. And I don’t have an answer to as to where it’s going to go or whether the costs are going to go up or down. It’s just going to be simply meeting for a while so.
Still helpful color. Thank you.
Your next question comes from the line of Steve Richardson with Evercore. Your line is now open. Mr. Evercore is disconnected, so we will move on to Kevin McCarthy with Vertical Research. Your line is now open.
Thank you. Good evening. Paul, with regard to your first expansion in Argentina that’s set to come online in 2023, has any of that output been contracted already?
In essence, it largely has, right, because we have been buying the carbonate converting its hydroxide commitments we have then started to show covenant and have to buy some as soon as it’s up to monoline. And one of the reasons we can bring in our needs with it quickly is that we don’t have that same level of qualification process with customers because a lot of it is going into our hydroxide plan. It still takes time to ramp it up, but the qualification is less of an issue in essence, as I said, we moved some needs to purchase the bitcoin. So it helps us for sure significantly in a margin when it comes online. I think there are a lot of conversations going on more than that the second phase that can 2022 into 2023. But that’s why we will be assuming we do nothing else, pretty long income given maybe 10,000 to 12,000 tons of carbonate. And so we do have two conversations going on with customers, customers that would love to contract for that carbonate and customers that are willing to incentivize us to bind hydroxide plant to convert it into hydroxide and they will take the adopt from us. We will sit do one of those 2, I suspect, ahead of that second expansion coming online.
Okay. And then secondly, how would you characterize the quarterly cadence of your earnings this year? Is that mainly going to be a function of how prices behave within the one quarter of your hydroxide volumes that’s essentially floating as I understand it?
Yes. I think it’s going to be -- there’s no fundamental reason that we or any quarter that’s different to many other quarters. They will be if I look at different cars and shipping different mix in quarters depending on customers, and we will certainly have different pricing to certain products during the quarter. But we don’t have anything that fundamentals going to drive different cadences. The other thing that maybe will change that will be when we incur the cost to start up both basins hydroxide and Argentina carbonate because the start-up expensive stuff before mechanical completion. And so if we are fortunate in that, for example, to mechanically complete a month or too early, we will likely start start-up costs and, therefore, the expenses to as well. So that’s the only real obvious seasonality in our performance. Now having said that, we have never done four quarters, I don’t expect the sheet to be any different, but I have nothing that I could roll out to you to explain that.
Great. Thank you for the color.
Your next question comes from the line of Steve Richardson with Evercore. Your line is now open.
This is [inaudible] calling for Steve. Sorry about that earlier, had a phone issue. In terms of 2022, I was wondering if you can just go back to the underlying earnings power of the business. It’s clear that things have kind of gone back to the 2018 baseline or even stronger due to pricing. But in terms of the cost structure, as inflation moderates slightly declined throughout the year, how should we think about the cost and margin profile of the business on a go-forward basis in ‘22 and in ‘23?
Yes. First is a hard one, because most of the customer expense they go up, they are going to go down. Let me other commodity like solvents, for example. A lot of costs is fundamentally a higher cost to do business. And I think it’s a reality of the life business, by the way. The costs don’t go down as we expand. I mean, the low-cost assets have all been developed, the easy low-hanging fruit has been developed. I think trying to retain supply, which I think will become a cost stuff not down as you are not always in the lowest cost locations when you do that, I mean, for us, I think the costs compared to 2018, we have a higher cost of being a public company, cost for example, and other factors, we have higher labor costs. We have more people and a lot of that is ahead of our expansion. And so again, they are not going to go back down in the future. I think 2022 margin profile is clearly a healthy margin profile. But most of the increase in margin we are going to see in the future is even in a big price of leveraging higher volumes. It’s not necessarily a fundamental change in the cost structure.
Great. Thank you. And then just one quick follow-up, earlier today, one of your peers increased their long-term within demand bigger to about 1.5 million tons of 25 million or another doubling by 2030, I was just wondering your insight on long-term demand dynamics of the business, sustainable price response. And frankly, if there’s enough supply out there to reach demand? That’s it. Thank you.
I think on that call earlier today, I think one of your peers made the correct comment is it doesn’t matter what the fundamental demand is if there’s no supplier there’s no supply, no amount of price will change because this is not an industry. When you look at the growth that we have had, there’s no idle capacity sitting grams you have got growth growing at this way. I mean looking at numbers today that show growth in hydroxide and carbonate demand for next year be 40% this year over last year, 45% in hydroxide and 35%, 40% in carbonate. But when you line that up with the supply side than the supply that for that. And so I think you have no choice but to look at the supply say that we will be the limited spectrum of demand be wrong. There’s a lot of supply can come to market and will come to market. And I also don’t believe that the answer to this is going to be pristine. So I actually think what will happen is that there will be more cooperation participation with the ultimate consumers to contract a sensible prices to put in real commitments and to find preferred partners that they will support to make sure the expansion happens, whether that’s providing technical support, capital, whatever it may be. But there’s no doubt that if we just carry on that attempting to Livent China-based prices to drive investment decisions. It’s not going to end well. So my view would mean if there was a lot more supply, there will be a lot more demand.
Your next question comes from the line of P.J. Juvekar with Citi. Your line is now open.
Hi, good evening Paul, your lithium prices are up somewhere between 50% to 100%. I am looking at this China prices, what’s the impact on the supply chain? Do these cathode and battery guys have pricing? Or are they the ones who are going to get squeezed? Who in the supply chain faces the squeeze? Or is it being passed on to the final consumer?
Well, I would say a couple of things. You just have to look at the earnings profile of the CTLs and the LDS of the world to suggest it’s not the battery guys that are bagging the costs. In my experience from what I have seen, the cost does get passed to ultimate to the OEM. And is why the end, I think the OEM has to play a bigger role in these decisions because they are not carrying cost. I don’t know if it’s been passed on to the ultimate consumer because, again, an EV is competing with other options, not least of which keeping your old cars. So there don’t so much you can pass on to the consumer. But there’s not battery automotive OEMs probably more than anybody else are going to be the one selling the pinch as disclosed to the supply chain. It’s a difficult one because as I said before, China, the prices you see in China may you can up the number, but all the capital materials and have been made in China, and there’s obviously a lot in Korea and Japan, but it’s really in China. And so by the way, it’s a captive domestic market, it’s going to impact the Chinese EV market, first and foremost. And I think as you have seen with some of our peers talking about, when you start to sell and price outside China, it’s just a different market dynamic. The tax backs are not as extreme, they are still meaningful, but they are not as extreme. This is the price collapses but nowhere near as large either. So I do think that there’s certainly plenty of market in the chain to sustain higher lithium prices. I don’t think there’s enough margin in the chain to in perpetuity is sustained $60 to $70 margin. It looks as why none of the overcomplicate levels because laws of economics do tend to keep back in given that time.
Great. Paul, that’s helpful. And we have been also hearing that LFP costs are now higher than NMC. Does that mean NMC begins to get back share maybe in China? Or does that mean it can incentivize adoption of other batteries like sodium ion batteries for some other applications, maybe not in automotive, but in ESS?
I certainly think there’s an opportunity for non-lithium ion batteries in ESS platform. We don’t care about weight. Sometimes people are going to start asking those questions. I don’t know whether it’s sodium by the way, but I am sure there’s other alternative technologies that people will I am sure be looking at take back market share, but it continues to grow right absolute growth rate of high net RMs higher than LFP has been. It’s just from a small base. I think that we will continue to see NMC grow and develop in the way that we have predicted that it will grow and develop in passenger EV applications. Nobody was trying to use it in other applications, other than maybe power tools and bags and futures that kind of space. But I can hand nickel. Nickel is really going to continue doing what it does. And if it run into some challenges that nickel at some point, it’s not yet, but we have all started talking about the nickel challenge because LFP prices have caught people’s attention, but there’s still going to be a nickel challenge for those high nickel batteries as well.
Great. Thank you.
Your last question today comes from the line of David Docebo with Cowen. Your line is now open.
Thanks for squeezing me guys. Paul and Gilberto, thanks for all the color tonight. Curious, Paul, just a housekeeping item. You talked about Bessemer City mechanical completion, obviously, is on time for this year, but we expect first sales, I guess, or revenue coming in ‘23. How do you think about, I guess, that time line when you present the expansion at Solar Embra mechanical completion happens next year. When do we think about the revenue impact versus the chart of mechanical completion?
Yes. My engineering and operations team are promised that there will be no leaking guidance some of these can some, but in this case, the process will be pretty quick from mechanical completion to production. Similarly, what are you producing the best is, it’s just going to have to get qualified that it was the best one in the world of a short way of lithium, nobody wants to take a chance on hydroxide quality in a high-nickel battery because nickel is pretty expensive. So we don’t really see any hints easing despite the tightness in supply of qualification processes. Now we can start that force pretty quickly, and we have the mechanism and the relationships in place. And so we do expect that to go quickly. When you talk in three to six months quickly, not two to three months, so the hardest predict in the company because it’s less about qualification aspect about getting the plant up and running and producing the to correct fine-tuning the processes because that’s really all about getting the empties out making sure you have of money. I would hope that we will be running both of those plants at full production rates by the second half of 2023. It doesn’t mean that we have 0 in the first half, but it will take two quarters probably to run them all on to full production capability.
That’s helpful. And then just a follow-up for me is, I think you gave some guidelines earlier around the additional 20,000 ton per annum expansion getting up to 60,000 tons per annum at Solar Embra. Should we think of that because it sounds like it’s an engineering tweak that leverages existing infrastructure in place and process redesign, should we be thinking about that expanded capacity as being significantly more capital efficient from a sort of a dollar per ton perspective relative to the initial two 10,000 ton expansions? Or should we be thinking of it as roughly equivalent as a starting point?
That isn’t really now going to answer. I don’t know the answer to that. And that is why there’s a degree of capital inefficiency in the phases that we have just done camps for the contractors, water treatment capabilities, water pipeline, some were we don’t need to do again. And so that’s not an insignificant amount of capital, but funds aren’t that expensive to put in relatively speaking and on what we replace them with will probably be more of capital income. We don’t have much more again until we have engineered all of that. So it’s tough to know whether there will be a massive difference. Certainly, our first look suggests that the second 20,000 tons will be no more capital intensive than the first 20,000 tons and possibly maybe even a little less capital intensive, but that’s a very prudent lock.
I appreciate that. And then I guess just the last one is just the decision point to get everything up and running by 2025. When does that presume that work again? Is that 2023?
It presumes we slightly engineering today. We will leverage as much of the engineering that we did on the previous work. So it’s not a complete from scratch. Engineering process, not the whole process doesn’t come some part of it change. I would hope that we can start our process before the end of the year. And certainly, assuming that we get this is viable, but in order for us to meet that 25-day language so they are going to have to start ordering the only time items sometime in 2022. Just think about that. That’s not unique to our process. Any project needs to think two and three years out for long lead time items. That just has the long it takes to get some of the critical equipment but it’s big expansions.
I was actually thinking conversely, it’s a relatively compressed time line for expansion. So I appreciate that.
Just a ball time. It’s a simple ball time.
It sounds easy.
This concludes our Q&A session for today. Mr. Rosen, I turn the call back to you.
Thanks. That’s all the time we have for the call today, but we will be available following the call to address any additional questions you may have. Thank you, everyone, and have a good evening.
This concludes the Livent Corporation fourth quarter 2021 earnings release conference call. Thank you.