Good day ladies and gentlemen and welcome to the Q4 2018 Albemarle Corporation earnings conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions]. As a reminder, this conference may be recorded. I would now like to introduce your host for today's conference, Mr. David Ryan, Vice President, Corporate Strategy and Investor Relations. Sir, please go ahead.

Thank you and welcome to Albemarle's fourth quarter 2018 earnings conference call. Our earnings were released after the close of the market yesterday and you will find our press release, earnings presentation and non-GAAP reconciliations posted on our website under the Investors section at www.albemarle.com. Joining me on the call today are Luke Kissam, Chief Executive Officer, Scott Tozier, Chief Financial Officer, Raphael Crawford, President, Catalysts, Netha Johnson, President, Bromine Specialties and Eric Norris, President, Lithium. As a reminder, some of the statements made during this conference call including our outlook, expected company performance, production volumes, expansion projects and proposed lithium hydroxide joint venture may constitute forward looking statements within the meaning of federal securities laws. Please note the cautionary language about forward-looking statements contained in our press release. That same language applies to this call. Please also note that some of our comments today refer to financial measures that are not prepared in accordance with GAAP. A reconciliation of these measures to GAAP financial measures can be found in our earnings release and the appendix of our earnings presentation, both of which are posted on our website. Before I turn the call over to Luke, I would like to remind you that we closed on the divestiture of our polyolefin catalysts and components business on April 3, 2018. This business was part of our reported results in the catalyst segment. For simplicity in comparison of our results and guidance for 2019, all adjusted results and comparisons will be stated on a pro forma basis, excluding results from that divestiture. Please see our earnings presentation for more information on these excluded results. Now, I will turn the call over to Luke.

Thanks Dave and good [indiscernible] The fourth quarter marked our ninth consecutive quarter of year-over-year EBITDA growth ending what was the most profitable year in the history of Albemarle. In 2018, net sales were up 13%, adjusted EBITDA up 17% and adjusted EPS up 23% versus the prior year on a pro forma basis. All of our reported segments contributing with each delivering double-digit adjusted EBITDA growth on a percentage basis. And our EBITDA margin for the year was right at 30%, highlighting the quality of our businesses. 2018 was also another step forward in the four-pronged strategy that we laid out at our 2017 Investor Day. As you can see on pages five and six of our earnings presentation, we continued to make progress in each of our focus areas. Lithium delivered 19% year-over-year adjusted EBITDA growth in 2018 and our major capital investments in lithium remain on track to ensure that growth continues well into the future. We addressed some debottlenecks on La Negra II during the year and we are able operate near nameplate rates by year-end. In 2019, we expect to produce close to 40,000 metric tons of lithium carbonate at La Negra in spite of the significant rain event in the Salar de Atacama in January and February of this year that will cost us about 3,000 metric tons of production in 2019, all of which will occur in the first half. La Negra III and IV, which will increase lithium carbonate capacity in Chile to a total of 85,000 metric tons, remains on track to begin commissioning in 2020. In Xinyu, China, we achieved mechanical completion and started commissioning activities at the 20,000 metric ton lithium hydroxide expansion taking our total China capacity to 35,000 metric tons annually. Earlier this year, we shipped battery…

Thanks Luke and thank you everyone for joining the call this morning. As Luke said, 2018 was the most profitable year in the history of Albemarle with each business delivering growth in both volume and price for the year. We generated unadjusted U.S. GAAP net income of $130 million during the fourth quarter, bringing full-year 2018 net income to $694 million. This is up from $55 million in 2017. Net income during 2018 benefited from the growth of our businesses and the gain on the sale of the polyolefins and components business. 2017 was negatively impacted by the transition tax charge related to U.S. tax reform. We generated net sales growth of 11% and adjusted diluted earnings per share of $1.53 for the fourth quarter, an increase of $0.27 per share or 21% compared to fourth quarter of 2017, excluding divested businesses. All three of our recordable segments performed well, providing about $0.25 of that growth. Full-year 2018 pro forma adjusted earnings were $5.43 per diluted share, an increase of $1.03 or 23% over the prior year. Our businesses delivered about $0.96 per share and our share repurchase program contributed about $0.14. Net cash from operations nearly doubled to $546 million in 2018. The increase was driven by higher earnings and lower cash taxes compared to 2017 when we made the tax payment on the sale of Chemetall. Operating working capital continued to be a use of cash in 2018, primarily due to increased inventory of spodumene in the lithium segment in preparation for the startup of the Xinyu II expansion in China. Capital expenditures in total ended 2018 at $700 million, up from $318 million in 2017. Spending on our lithium growth projects continued on a successful ramp rate with total capital expenditures reaching $228 million during the fourth…

Thanks Scott. By now, you have probably heard some mixed messages on other earnings calls about the economic uncertainty for 2019. The fact of the matter is that the EV supply chain has not lived through a general automotive slowdown, so there is no past experience on which to rely. It's also a fact that bromine is the Albemarle business that historically has felt the impact from an economic slowdown the earliest and the most intensely. To-date, we have seen no evidence of a slowdown in the order pattern from our customers across our businesses, but we do have some customers in bromine who indicate they are watching the second half carefully. With that in mind, let me try frame up our business outlook for 2019. In lithium, 2019 is a volume story. Our 2019 production is almost fully committed under our long-term contracts. There was a significant rain event in the Atacama in January and February. The resulting dilution in the pond system will likely cost us about 3,000 metric tons of production during the first half of the year, but we are still expecting volume growth of over 20,000 metric tons from 2018 with 10,000 to 15,000 coming from internal production and the rest from tolling. We would expect to see flat to inflationary pricing trends with any variant from that coming as a result of customer mix. We expect lithium adjusted EBITDA to increase by a little more than 20% year-over-year. Quarterly adjusted EBTIDA will increase through the year as we recover from the rain event in Chile and qualify lithium hydroxide from Xinyu II with customers and ramp production and sales. Adjusted EBITDA margin should exceed 40% but could be below 2018 levels, largely due to increased tolling volumes to support customer demand and startup costs…

Operator, we are now ready to open the lines for Q&A. But before doing so, I would like to remind everyone to please limit questions to two per person to ensure that all participants have a chance to ask questions. And feel free to get back into the queue for follow-ups, if time allows. Please proceed.

[Operator Instructions]. And our first question comes from John Roberts from UBS. Your line is open.

Thank you. On the Mineral Resources JV, is it just financing and legal work that needs to be completed for the closing later this year? Are there any sticking points left to be done there? And just related to that, could you just remind us again, does Wodgina stage two capital spending come sequential to stage one? Or is it likely that they will overlap?

Hi. This is Luke. We have got two regulatory filings that we had made, one in Australia and one in China. We expect to get those approvals, but that's always a condition of a closing, John. So, that's an open item. And I would expect that the Wodgina phase two, it would be sequential. It would come after the phase one.

Okay. And is there any near-term anecdotal guidance you can give us on the China EV market? You are quite bullish here over the next couple years in your slide, but things have been pretty choppy on the overall automotive market in China in recent months. I don't know if the EV market is going through any short-term transition period here.

Hi. John, this is Eric. We continue to see and we saw this last year as well, Chinese government creating incentives for longer range, higher energy, density batteries. And that's what we expect, as Scott referenced, to happen in the next set of subsidy changes for this year. You are right. The Chinese automotive market has been choppy. The global market has been choppy. It's been down, as Scott has pointed out. But on the other hand, EVs continue to grow and the incentives that the government is putting in place we believe will continue to drive the kind of range that will drive a lot of lithium consumption. If you look at the demand chart we have in our presentations, you will see a BEV battery has four times the amount of lithium in it that a PHE battery would have, right. That incentive to longer range is beneficial to us and to the industry.

Okay. Thank you.

Thank you. Our next question comes from Robert Koort from Goldman Sachs. Your line is open.

Thanks. Good morning. Scott, I think maybe you or Luke talked about the conversion capacity that might expand in China but maybe not pressure your business because they have challenges qualifying. I wonder if you could help differentiate what you produce out of Xinyu? And why you are able to get that qualified and maybe some of these peripheral parties have a harder time?

Well, first of all, we are starting with a better feedstock because we are taking the Talison rock, which is the best spodumene concentrate in the world and we have got it dialed in. We also have the process engineers from around the globe that have a history with operating within the lithium business. So we have an advantage there. But it starts with the feedstock and it rolls into the know-how of how we have develop the design as well as the improvements we have made since we purchased Xinyu.

And Luke, if the Wodgina deal closes and they start producing spodumene later this year, what are you going to do with your share of that spodumene? Where will that be placed? Will it be converted by you or by tollers or sold into the merchant markets?

We have got a marketing plan that we are working with right now. Some of it obviously will toll. And we will work to place that volume with strategic converters in the marketplace. And one other thing I just want to be clear is, you talked about the share of MRL. We have marketing rights to 100% of that. We will market all of the spodumene, not just a portion of it.

Got it. Thanks very much.

Thank you. Our next question comes from Laurence Alexander from Jefferies. Your line is open.

Good morning. Could you clarify two issues? One is, can you talk a little bit about what the impact of mix was on the lithium business in Q4 and what you expect in Q1, just so we can get a sense for how much it's swinging results? And secondly, when you mention that you expect pricing to be flat, just to be clear, that is reported realized prices, not just the prices embedded in the contracts?

So, Lawrence, this is Eric. I will answer the first question. I am going to need some clarification on the second. As far as mix, in Q4, as you may recall, Q3, we had troubles from an operating standpoint for different reasons in both China, which largely is all hydroxide for us and in Chile, which is carbonate. The reason for the strong results we saw in Q4 versus Q3 and a sequential volume increase of 25% has everything to do with those plants running very well. The China plants ran very well, consistently through each of the three months and the La Negra or Chilean operations ran well during that time. The only thing that happened in Chile that might be slightly different is we were ramping up La Negra II in that period of time. We did get very close to capacity design rates there. So we had a successful startup, but there was a slight disruption there. It was a fairly balanced mix, is the bottom line. As you look forward into this year, you are going to see, as Luke mentioned, we are challenged in the first quarter on carbonate because of the rain event. Although we will not see necessarily a mix shift to hydroxide because hydroxide, that ramp up of Xinyu II is a staircase, if you will. It gradually steps up through the year with its weakest portions from a volume contribution standpoint to growth in the first half of the year. The other thing we are going to see is a lot more tolling. That's going to benefit largely carbonate. That's mostly what we toll. So you might see a shift towards carbonate and that would have, in the earlier parts, maybe a depressive effect on mix in the first half of the year. So it's a complicated story, but those are the factors. Your second question, could you repeat it please, for the benefit of all of us here?

What I was trying to get out there is there was a comment in your prepared remarks about how pricing lithium will be flat to up absent mix effects. And I wanted to clarify that that comment pertains to your reported lithium pricing that you will report on the quarterly calls, not just a comment about the pricing embedded in the part of the business that is contracted with the EV market? It's across the entire business including the industrial grade.

Hi Lawrence, this is Scott. So the pricing guidance that we gave is across the lithium segment. And it's not just related to our contracted business nor is it just related to our battery grade business. So it is intended to be across the business.

Perfect. Thanks.

Thank you. Our next question comes from Arun Viswanathan from RBC Capital Markets. Your line is open.

Great. Thanks. Good morning. I just wanted to, I guess, ask a question about the long-term outlook. It seems like you have provided a range that's maybe in the 850 million to 1.25 million tons of lithium demand in 2025 and 610 million of that would be coming from the EV side. And then you also provided supply of your own capacity being 325 million to 350 million. Would you be in a position to comment on what you are seeing from an industry capacity standpoint? Would it be balanced in that 850 to 1.25 million range? And furthermore, do you see around 600 million ton of supply as far as battery grade lithium or would it be less than that? Thanks.

Yes. A lot of questions. What I would say is this, if you look around and look at announcements that have been issued over the last month or so, as we have always said, it's harder to bring this capacity online. It's one thing to issue a press release, it's another thing to go out and raise a little money. It's more difficult to do it. So I think what you are going to see is, you will continue to see in the long-run the big players, the Albemarles, the SQMs, Tianqi, the Ganfengs, those are the ones that are going to have to expand to bring this capacity online with the know-how of how to do it and the timeframe they can do it with the volume that's going to meet the big customers out there to meet that demand. As you look out long-term, the market tightens up, is our belief. We believe there will be enough to meet demand, but it's going to be tight. And in some instances, like we talked about in 2019, there's going to be a little bit of overhang. There is going to be some overhang of spodumene rock and carbonate could be long in some applications in 2019. That's going to burn off. And what you are going to see is the market is going to continue to tighten up. And I did some research on new technologies that come into the marketplace. And if you look at every new technology and you go back and look what the demand forecast was, every year when they came out of a new demand, it always got higher and the curve got steeper. And I think that's what we are going to see. I think that we have got realistic but probably overly conservative demand outlook out there. So I think we are going to be, in the long run, fairly tight. That's why it's so important for us to have resources on the balance sheet that we control, that we can execute additional capital to bring it to the market if we see the demand out there. If we don't, we just got resources for the future.

And just as a quick follow-up on the spodumene issue. Prices are down a fair amount year-over-year. And I just wanted to get your thoughts on maybe what's driving that and your own view that flat to up pricing in your overall portfolio, why that wouldn't be impacted by lower resource prices for spodumene, if at all? Thanks.

Well, this is Eric. It's a pretty simple answer. It's supply, right. As we all know or has been publicly published, there's new supply of spodumene coming into the market. I point out though that that is a very unproven quality, right. So I think that some of that supply will work better than others in meeting the converge demands inside China. But the more presence and more supply coming on has had the effect of creating somewhat lower prices.

And what I would point to on that is the strategy of the long-term agreements really comes into play when you have a situation like we have today. We are very confident in what our pricing model is going to be for 2019. We are very confident in the demand. We are very confident in being able to place the volume that we can produce in 2019 with customers under long-term agreements at set prices.

Okay. Thanks.

Thank you. Our next question comes from Ian Bennett from Bank of America Merrill Lynch. Your line is open.

Hi. Thank you. Your guidance calls at the midpoint for sales to be up around $400 million, but EBITDA is only up close to $100 million, which is a little bit less than what I would have thought. So could you outline some of the increasing costs that are occurring this year? And as we look forward in time, given we know your volumes and price on lithium, should EBITDA margins on lithium be increasing or stable? Just some context there will be helpful.

Hi Ian, this is Scott. The big driver for us on a year-over-year basis is the tolling mix that we are seeing in lithium. So all of that growth is not coming from our internal production. It's about 60% to 70% of it will be internal and the remainder will be based on tolling. And as a result of that, the tolling margins are quite a bit lower than our normal internal margins. So in 2019, we do expect that we will maintain margin north of 40%. It will likely be below what we had in 2018. Longer term, as you see that tolling mix change as well as the customer mix change, that will drive margins that will start to creep up over time.

Okay. And in the hydroxide market, we have seen some industry players talking about a slower adoption of NMC 811. And I was wondering, given your position in the supply chain, if you are seeing that same slower shift to the higher nickel cathodes and if that's having any effect on your relative mix of carbonate and hydroxide.

Yes, this is Eric speaking here. So on that, I would point out that 811 is our potential consumer of hydroxide and NCA is a consumer of hydroxide, right. So, yes, in 811, we are not seeing a rapid move to 811. The technology is interesting on an experimental level. On a commercial level, it's proving difficult to process, from a safety standpoint. It's having to be calcined several times versus straight 622 chemistry. And it does require hydroxide, but it has been challenged. The growth in hydroxide is being driven by NCA. The poster company for that is Tesla, of course, but there are other automobile manufacturers who are looking at NCA or incorporating NCA as well. And that is a 100% hydroxide-based chemistry.

Thank you very much.

Thank you. Our next question comes from Colin Rusch from Oppenheimer. Your line is open.

Thanks so much. Could you guys talk a little bit about seasonality with the battery purchasing from the battery OEMs, given that about two-thirds of China's demand is coming in the back half of the year and they are constituting about 60% of the overall EV and PHEV demand at this point?

This is Eric again. I don't know that there's really seasonality in buying patterns. There's an ever-increasing demand. So you are going to see demand increase as we go through each year being larger at the second half of the year. There are certainly effects in China in the January, February time frame that have to do with the Lunar New Year festivals, of course. But outside of that, there is no seasonality. We see some seasonality, as do other brine producers, in the production of brine, that has to do with making a carbonate in solar evaporation. But outside of that, that's the only seasonality we could ever point to in our business.

Okay. Great. And then in terms of just total lithium content per kWh, can you talk a little bit about the opportunities to start doping the anode layers with lithium? Is that a near-term opportunity? Or is it something a little bit more longer-term?

Well, it's Eric again. I would say that solid state, that holy grail of solid state is a longer term phenomenon. What we are seeing, to your point, is the gradual doping of the anode increasing and the amount of lithium increasing as we go forward over the coming five to seven years. It's built into our demand forecast. It's not a big driver of lithium carbonate equivalents for us. But it is happening. And many of our R&D efforts are directed at trying to enable that to happen. And it's happening with the large producers that represent our current customer base for carbonate and hydroxide.

Great. Thanks so much,, guys.

Thank you. Our next question comes from David Begleiter from Deutsche Bank. Your line is open.

Thank you. Good morning. Luke, can you comment on what your lithium sales volume was in 2018? And what you think it will be in 2019?

Yes. Somebody's looking at what the volume was in 2018. I think what we said is our volume is going to be up around 20,000 metric tons, at least 20,000 metric tons in 2019 from that 2018 base.

And if you don't have the 2018 base, do you have that?

It's around 75,000 to 80,000, I think. Is that right, Scott?

Yes.

Yes. That's right. So around 75,000 to 80,000 and we ought to be up at least 20,000 metric tons in 2019, about 10,000 to 15,000 of that coming from internal production and the rest of it coming from tolling.

Great. And Luke and maybe Scott and Eric, the impact of the 3,000 tons of rain impacted production in Chile, is that about $35 million of sales and $15 million of EBITDA?

Well, you have to put in whatever you have got as your lithium carbonate sales price because it will all be carbonate, multiply that out by 3,000. You will get a revenue number and then whatever you have got for our margins, it's not dissimilar from what our overall margins are. So that would get you to the EBTIDA number. So you are probably not far off.

Thank you very much.

Thank you. Our next question comes from Aleksey Yefremov from Nomura Instinet. Your line is open.

Thank you. Good morning everyone. How should we think about the ramp of the 40 kiloton La Negra III and IV in 2020? And related to that, would your overall volume growth accelerate in 2020 versus 2019?

Yes. I think that 2020, you wouldn't see that much of a ramp, not a significant ramp in 2020 because we are starting commissioning activities. So what you would see there would be commissioning in 2020 and see a bigger ramp in 2021 from La Negra III and IV. Let us get through this year and see where that commissioning comes and you will see it. What I would expect next year is, we would be able to run La Negra I and II at full flat-out rates, which ought to give us about 45,000, that kind of level, 44,000 or 45,000, something like that. And we are certainly not going to be able to run Xinyu II at full rates this year because we are just doing qualifications right now. So you will see an additional, I would expect, nameplate next year out at Xinyu. And then we will get some for La Negra III, but not a significant ramp. But let us get through the year. Let us get more timing on the mechanical completion of III and IV and the commissioning and we will have more data to you towards the middle to end of the year.

Great. Thank you Luke. And could you give us a quick update on state of your lithium hydroxide and carbonate contracts over the long-term? Have you been able to extend the portion of your future business on the contract around a fixed price?

Yes. We haven't seen a significant change. It's a slight change up from what we talked about and what we presented in the third quarter. I think that was as of November. We gave you an update. It's relatively similar to what it was then. What I would say is there are more discussions going on, on additional volume than we had at that time. But no material new contracts that have been signed.

Thank you.

Thank you. Our next question comes from Chris Kapsch from Loop Capital Markets. Your line is open.

Yes. Good morning. So you kind of touched on this, but the follow-up question is about the partial reliance on tolling volumes and the impact on mix and margins, I guess, in 2019. So is it right to assume that those tolling volumes would be for production in addressing non-battery-grade applications?

Hi Chris, this is Eric Norris here. So in the past, that has been the case. It's been non-battery carbonate. And increasingly now, in some of the low-end battery-grade carbonate applications, we are fulfilling some of our agreements using tolled material. And then the third use of destination of that tolled material is internal consumption for our downstream uses.

Okay. And then is the relationship with the toller years ago that ended up resulting in your acquisition of Jiangxi Jiangli. And I am just wondering if there is other toll converters that have that sort of quality capability in terms of conversion that you may think about that? Or is your conversion strategy focused totally on just expanding the existing capabilities you have?

We have laid out a plan on Kemerton. That was a build-or-buy decision. So we made the decision at that point in time with what we saw that it was better for us to move forward in Western Australia as opposed to attempting to acquire a converter. So we always looked to see what options we have that would accelerate, de-risk our strategy and drive a better return. And we will continue to do that.

Thanks.

Thank you. Our next question comes from Joel Jackson from BMO Capital Markets. Your line is open.

Hi. Good morning. Mineral Resources last night talked about they expect 20,000 to 30,000 tons of LCE contents of spodumene coming out this year from Wodgina. Do you have any of this baked into some of your numbers in 2019 guidance or none of it?

It's not baked in because we haven't closed the deal yet.

And then as a follow-up to that, would that mean that knowing your numbers, do you have the incremental, about $1.1 billion of debt, baked into your interest expense projections for the second half?

Joel, this is Scott. We have not baked in anything on closing the Mineral Resources deal. So no volume upside or the debt purchase at this point in time.

Would you be owed some deferred payments in 2020 on some of the initial LCE spodumene sales in 2019?

I am not sure I follow your questions.

If Wodgina starts to sell spodumene before the deal closes, will you be owed to later on a payment?

No. That does not. That all accrues to Mineral Resources. Although, we are marketing that.

Okay. Thank you.

Thank you. Our next question comes from PJ Juvekar from Citi. Your line is open.

Hi, this is Scott on for PJ. Thanks for taking my question. I just want to take a look at the tax rate given your outlook for 2019. You mentioned that the shift in geographic mix might push it higher compared to last year. Given that lithium appears to be driving most of the growth in 2019, is it safe to say that lithium is responsible for most of that geographic mix shift? And if it is, can you talk about what countries you are shifting more lithium products to?

Yes. Scott, this is Scott Tozier. So the growth that we are seeing geographically is in Chile, of course, as well as China. And so in both of those cases, you have got tax rates that are above 30%. So as you grow in those areas, you are going to have natural pressure up. I would say, the other factor we have got in the tax rate is as the final regulations and rules in the U.S. tax reform get settled out, we do see some effects from the so called beat and guilty taxes that flow through in 2019 and hopefully get stabilized at that point in time. But we will have to keep you updated because those rules don't get finalized until the end of June.

Okay. Got it. And I don't mean to belabor the tolling point here. But I guess one, does your increased tolling cost this year reflect the impact from Talison expansion starting up? And does that tolling cost headwind persist into 2020, given that your own conversion capacity may not start up until the 2021 timeframe?

Yes. So first of all, Scott, it's got nothing to do with Talison. What this is, is after we take the Talison spodumene concentrate and we look to convert that to lithium carbonate and lithium hydroxide to meet the demand that we promised our customers. When we don't have that conversion capacity, we have to toll it. And what we are saying is, the actual cost being charged by the toller is up and the amount of volume that we are having to have tolled is up. So that puts downward pressure on our margins as you move more volume through that.

Okay. Thank you.

Thank you. Our next question comes from Kevin McCarthy from Vertical Research Partners. Your line is open.

Yes. Good morning. With regard to your catalyst business, I was wondering if you could comment on what you are baking into guidance for price and volume on the HPC side? I think you have got a strong position in distillates. And perhaps you can put your outlook into context as it relates to the pending IMO 2020 regulations that kick in next year.

Hi, Kevin. This is Raphael Crawford. So we are expecting increase in volume and a nominal increase in price for HPC catalysts for 2019. As Luke had mentioned at the start, relatively more strength in distillates and in FCC pretreat as we are driving the volume side. And distillates is one of our more profitable segments. So that's contributing to a price mix effect. With regard to IMO, that's generally a positive trend for us. IMO increases the demand for diesel as a substitute for low-sulfur fuel oil and it's also going to increase the need for catalysts for the conversion of high-sulfur fuel oil to meet those specifications. So, in total, we expect mid single digit demand increase for HPC catalysts.

Okay. And then second on lithium. I appreciate the demand detail on slide 14. I was wondering if you could speak briefly to the near-term supply considerations. You mentioned the rain event in Chile. I think a few of your competitors have cited similar dynamics in Argentina. Is that enough to have any impact short-term on either market pricing or customer's willingness to engage in long-term contract discussions? How would you characterize those events in the first half?

Well, Kevin, one could speculate about the market, but let me talk about us. All volumes are all under contract. It's committed. So this makes it difficult for us to manage because we are sold out. And so we have to manage to meet the demand. But it has no issue, really, on price because we are contracted.

Understood. I guess I was thinking more in line with the future contract discussions or tightness in the broader market.

Yes. I think if you listened to one of the early questions, Kevin, in the short-term, that spodumene rock going into China is probably going to be converted into lithium carbonate. So I don't see 3,000 to 6,000 met tons across, it will be soaked up. Somebody will be able to supply it. So could it have an impact on price? For those people who are out there short-term trying to move some carbonate short-term, it could. But for us, we don't look at it that way. We look at the impact on our long-term agreements. We don't see any. And we still have a number of conversations going on with customers who are interested in those long-term agreements. So I don't see it impacting that at all as well. We just have got to be able to produce the volume because 2019 is a volume story. So if we can't produce it in the slough, we have got to get a toll to produce it and we have got to replace it and that may mean toll volume, which could be lower margins and push our margins down a little bit. But overall, we still believe all that's within the range of the estimates that we have provided to you today.

All right. Thank you so much.

Thank you. Our next question comes from Jim Sheehan from SunTrust. Your line is open.

Good morning. Could you discuss your recent agreement with Corfo in Chile? Some of the details around that? And also if you could clarify, how would you expect to establish terms for local cathode manufacturers in that market over time?

Yes. This is Luke. We did reach an agreement with Corfo. And it related to the price and the terms, how it would be calculated. And so we have got an agreement. We are comfortable with it. It's figured into our short, medium and long term analysis and forecast and it doesn't change our view of the market, our profitability or Chile in any way.

Thanks. And then in the bromine segment, you talked about how you are not really seeing any impact yet from macro pressures. But historically, this segment has seen such pressure. So could you frame what you think the downside could be? And also do you see any changes in enforcement of Chinese pollution standards?

Hi Jim. This is Netha Johnson. As we look out, we did have a couple customers express concerns. At this time, our flexibility and production and business model allows us to incorporate that. We don't see a change from our guidance in that in 2019. In terms of the Chinese environmental regulators, we see a continued enforcement of the current standards that they have, which pressure on the Chinese bromine manufacturers.

Yes. Any downside that we see today, we have included it in the downside piece of the earnings. To the extent that changes during the course of the year because you are right, bromine is the first business that we have that normally feels that pressure. We will obviously update everybody.

Thank you.

Thank you. Our next question comes from Mike Harrison from Seaport Global Securities. Your line is open.

Hi. Good morning. I am wondering if you can give us a little bit more detail about the customer contract loss in the PCS business and just overall what you are seeing in that business? It sounds like that's going to be quite an offset to otherwise solid growth in the refinery catalyst business.

Yes. Mike, this is Raphael. We are not at liberty to disclose the specifics on the customer. But there is pricing pressure on the PCS business and this is a consequence of that. That being said, we are taking action to continue to operate that business efficiently, looking for ways to fill volume and make up some of that gap in the future. But it is a circumstance that we are dealing with. On the whole, refining solutions is doing very well, did well in 2018, will continue to do well into 2019.

And then a question about your lithium business in China. One of your competitors referred to some uncertainty related to potential changes in EV subsidies. Just wondering if you have seen some reluctance among your Chinese customers to sign longer-term contracts? And if so, how have you responded to that trend?

Mike, this is Eric. So, I think we have said and it's still true today, most of our business is based outside of China in the EV value chain. That's both because of the type of demand we play into, from a quality perspective. And it's also a reflection of the fact that Chinese account customers had been reluctant for some time to commit to longer-term agreements. So in periods of time when there is uncertainty in their home market and certainly there's been macroeconomic weakness in China and changing subsidies, subsidies which don't necessarily advantage local manufacturing, which is largely carbonate-based as opposed to hydroxide-based, it creates uncertainty for them. So I don't doubt and we have certainly seen that. But it's part of a longer-term trend that we also note in terms of their preference for partnering on long-term contracts.

All right. Thanks very much.

Thank you. And our next question comes from Sebastian Bray from Berenberg. Your line is open.

Good morning and thank you for taking my questions. I would have two, please. The first is on the evolution of the lithium demand forecast that you set out at the start of your presentation. I think the guidance over the last two years has been that the lithium market is broadly imbalanced, which would imply that the upward revisions to demand have been matched by increases in supply. Where exactly is this supply coming from and why has it proven easier, if this is the case, for larger manufacturers to bring this online? That's my first question. And my second one is on the delevering profile laid out after the call late last year for the Wodgina joint venture acquisition. If you are going to spend about $800 million of CapEx per annum, I have difficulty getting to the rate of delevering guided, which is, from memory, it's about 1.5-ish, 1.6 times post-2021. Could you step me through the moving parts? Thank you.

This is Eric. I will answer the first one on supply. The way both this year and in prior years and in future years we see the growth being met, knowing that growth is largely EV growth and increasingly for higher quality batteries, hydroxide, hy- nickelate based chemistries. It's coming from, what we call, the integrated majors. There's about five of us. Luke referenced their names earlier, ourselves, Livent, SQM and in China, Ganfeng and Tianqi. These companies benefit not only from an integrated resource in most cases, but also secondarily from a processing know-how over time in terms of how to tune their conversion assets to their specific resources. And then finally, they have the financial capabilities to fund whatever significant capital expansions required to meet and use markets. So these are the companies that are meeting that demand. And we see likely being the ones that will provide that increasing demand into the future. Scott?

Yes. Sebastian, on the deleveraging question, assuming we close on the Wodgina deal in the fourth quarter, we would expect to have a net debt to EBITDA ratio of around 2 to 2.1 times. And as you think about the deleveraging, there's two components to it. One is that the Wodgina JV will start to produce earnings immediately because of the spodumene sales. So that helps. And then the second part to this is just our growth as a company overall drives a significant amount of that deleveraging. So as you look at our earnings growth with no change in debt level, we are about to drop down into that 1.5 to 1.6 times that you referenced in 2021.

Thank you. And that does conclude our question and answer session for today's conference. Ladies and gentlemen, thank you for participating in today's call. Everyone have a great day.