Hello, and welcome to Albemarle Corporation's Q1 2023 Earnings Call. [Operator Instructions] I will now hand it over to Meredith Bandy, Vice President of Investor Relations and Sustainability. Ms. Bandy, please proceed.

All right. Thank you, Forum, and welcome, everyone, to Albemarle's First Quarter 2023 Earnings Conference Call. Our earnings were released after the close of market yesterday, and you'll find the press release and earnings presentation posted to our website under the Investors section at albemarle.com. Joining me on the call today are Kent Masters, Chief Executive Officer; and Scott Tozier, Chief Financial Officer. We also have Eric Norris, President of Energy Storage; Netha Johnson, President of Specialties; and Raphael Crawford, President of Ketjen available for Q&A. As a reminder, some of the questions -- some of the statements made during the call, including our outlook, guidance, company performance and timing of the expansion projects may constitute forward-looking statements. Please note the cautionary language about forward-looking statements contained in our press release and earnings presentation, which also applies to this call. Please also note that some of our comments today refer to non-GAAP financial measures. A reconciliation of which can be found in our earnings material. And I'll turn the call over to Kent.

Thank you, Meredith. Our first quarter was excellent. With net sales more than doubling versus first quarter last year, and EBITDA up almost four times to $1.6 billion. This reflects the high market pricing for our Energy Storage business at the end of 2022. Our Specialties business also had a strong quarter, up sequentially from last quarter on higher pricing. Looking forward to the rest of this year, we are adjusting our expectations based on the current lithium market pricing, and Scott will go into that in more detail. We move the business forward in a number of ways during the quarter, including selecting the site for our U.S. Mega-Flex lithium processing facility in Richburg, South Carolina, which is a strategic move that is even more important given the U.S. Inflation Reduction Act. We also announced the restructure of our MARBL joint venture in Australia. And we announced the separate investment by mineral resources limited into two of Albemarle as conversion assets in China. We expect those two deals to receive regulatory approval and closed later this year. This week, we announced the final investment decision to build Kemerton trains III and IVin Australia, which will be 100% Albemarle owned. The fact that we are advancing the Kemerton trains and the U.S. Mega-Flex facility points to our confidence in the long term growth and opportunities of the lithium business and in particular, our Energy Storage segment. Lithium demand in the EV market continue to grow at extraordinary rates. And with that, I'll hand over to Scott.

Thanks, Ken. And hello, everyone. Let's review our first quarter performance on Slide five. Net sales for the first quarter were $2.6 billion up 129% compared to last year. This is a $1.5 billion increase and was driven by Energy Storage as a result of both higher market pricing flowing through our variable price contracts and higher volumes. Net income attributable to Albemarle was $1.2 billion, up almost 390% compared to the prior year. Diluted EPS was $10.51 also up almost 390% which is another record quarter for Albemarle. Looking at Slide six. First quarter adjusted EBITDA was almost $1.6 billion, an increase of approximately 270% year-over-year. This $1.1 billion increase was almost entirely driven by higher net sales in Energy Storage. Our Specialties business unit was up due to increased pricing and some lower freight costs, which are partially offset by lower volumes. Ketjen declined slightly due to volumes associated with a winter freeze in Texas earlier in the quarter. And importantly, we saw year-over-year price increases more than offsetting inflation in the quarter. On Slide seven, we are adjusting our 2023 guidance to reflect current lithium market pricing. On average, lithium indices are down about 50% to 60% since the start of the year, based on our established guidance methodology, we're taking lithium market price indices as of mid-April, and holding them flat for the balance of the year. To be clear, we are not predicting lithium market pricing, we're simply taking the current price, holding it flat and running it through our contract structure. This is the same way we provided guidance last year. As a result, we now expect 2023 total company net sales to be in the range of $9.8 billion to $11.5 billion. This is up 45% over the prior year at the midpoint.…

Thanks Scott. On Slide 13, the global outlook for full year EV sales remains robust. After slowness early in the first quarter due to China's reopening from COVID, global EV sales were up 26% year-over-year through March. Based on seasonal trends. China, EV sales are on track to achieve full year growth of 30%, an increase of more than two million vehicles over 2022. Outside of China, North America had a strong start to the year with 53% year-over-year EV sales growth. Demand has been boosted by government support the supply chain and increased model availability. In Europe, EV sales through March are up 7% versus prior year. A slower start due to supply bottlenecks and the phasing out of German plug in hybrid EV incentives. Lithium spot prices in China, particularly for carbonate have fallen primarily due to destocking of inventory in the battery supply chain. Outside of China, index prices for lithium hydroxide have remained relatively strong amid continued demand and less inventory pressure. Global lithium hydroxide prices are $15 to $20 per kilogram above Chinese carbonate spot prices, the largest spread on record. We have also started to see initial signs of tightening in the supply chain. Unlike Albemarle, non-integrated lithium converters purchased spodumene on the open market. Year-to-date spodumene pricing is down 30%, while lithium carbonate pricing is now more than 60%. As a result, some of the non-integrated producers are cutting production after their margins turn negative during the quarter. Following several months worth of destocking, customers have recently started to return to the spot market and as a result, Chinese carbonate pricing appears to have stabilized with spot prices up about 7% over the past week. We continue to expand our global lithium resource and conversion capacity based on our confidence in the long…

[Operator Instructions] Our first question comes from the line of Colin Rusch with Oppenheimer. Colin, your line is now open.

Can you talk a little bit about what you're seeing in terms of order size in the spot market? And how that inventory is clearing at this point? Are you seeing any real meaningful change here in the last, call it, 3 or 4 weeks?

Good morning, Colin, this is Eric. So you're talking about -- I didn't get your first part. You said order size and stock clearing, is that what you asked?

Yes, yes. Yes, this activity in the spot market just...

Yes. Well, look, I mean -- yes, I think what really transpired and what Kent referred to in his prepared remarks, we saw a significant destocking happened in China, which affected the spot market. Our contract customers around the world continue to buy at their contracted volumes, as Ken pointed out. We've seen close to 30% growth in EV sales in the first quarter across the industry and over 50% in the U.S., a little weaker in Europe. Overall, the markets are performing largely as we thought it would of a strong year with what we think will be a tight supply as well. But specifically in the first quarter, with that destocking, we saw the spot market be practically nonexistent at times during the quarter. There's very little activity going on as these stocks were drawn down. Stocks were drawn down the levels at the cathode level and battery level in China lithium stocks to -- and in some cases, below a week, clearly not in the long run, a level that's sustainable for sustained operation. To your question, what we've seen in the past couple of weeks, we've seen spot buyers return. We've seen -- and we believe that's partially what's affecting the price that is popped -- is leveled and then started to rise within China. And we can -- and we see no change in what our projected sales for the year in EVs of about 30% growth anticipated in China, closer to 40% for the overall market. I think the spot orders, it would be premature for me to say how large they are, but they are beginning as these cathode producers now start to restock and prepare for a more stable operation for the balance of the year.

That's super helpful. And then in terms of the competitive landscape around -- just on the refining side, as we've seen some new entrants into the space, are you seeing any real meaningful evolution in terms of the technology piece of this? And how folks get to the quality spec across the landscape? And I'm asking that question in context of looking at some of the evolving chemistries that we're seeing that are preparing to go into production?

Yes. I don't think we have visibility to that. So what we -- we've not seen -- I mean, the specs have not changed or whether people are getting qualified, taking longer to get qualified with some of this -- the newer facilities maybe that's some of the delays that we see, but we don't have visibility whether it's about qualification issues or just about production issues. I don't think we have visibility of that.

No. In terms of the competitive landscape, I would tell you in terms of the expectations of customer of us, it is a moving ball. The expectations go up on quality, particularly in the higher energy -- higher energy density chemistries, which tend to be the nickel chemistries. We recently completed upgrades in some of our workhorse plants like Xinyu to drive even higher quality standards to remain a leader in that area and in that regard. So it is something that it is a barrier for any new entrant to be able to achieve and to get to for sure.

Thanks so much, guys.

Our next question comes from the line of David Begleiter with Deutsche Bank. David, your line is now open.

This is David calling here for Dave. Just going back to the spodumene costs, can you talk about where the lower cost spots coming from in Q1 and probably how much was the benefit to margins in Q1? And also, is that higher cost of spodumene from the -- or is it from Greenbushes?

Yes. So the lower cost spodumene is really from the both Kemerton as well as Qinzhou just as -- sorry, Greenbushes. Just as a reminder, the reason it's lower cost is because of the timing lag and the rapid increase and then now decrease in spodumene prices. It's really not the operating cost of the minds itself that's causing this issue. In Q1, the benefit was probably in the kind of 15 to 20 percentage point type of range that we were seeing in Q1. And again, we'll see that reverse as we go through the rest of the year, and that will be a margin rate pressure on the business.

Okay. And what was the final cost for Kemerton and I guess what will Kemerton III & IV cost?

So we haven't -- we haven't disclosed the total amount. So it's probably in the $1.5 billion to $1.7 billion range for Kemerton I and II. Kemerton III and IV will be in a similar type of range, partly because we've got an employment village that we're putting in place to help with the labor issues ultimately.

Okay. Thank you.

Our next question comes from the line of David Deckelbaum with Cowen. David, your line is now open.

Good morning, Ken, Eric and Scott. Thanks for taking my question today. I wanted to just ask about long-term planning, particularly for you, Scott, how you think about the move to be spending, I guess, about $4.2 billion in '27 versus $1.8 million this year? You point out obviously that your guidance always just illustrates pricing if you held conditions sort of flat today. You talked about this year spending within cash flow. I guess that these conditions obviously persist that you would be outspending cash flow if you followed that CapEx plan. How do we think about that planning cycle while you maintain sort of a long-term structurally bullish view on the market, You're expanding your conversion quite a bit to get to those CapEx numbers? I guess how do we think about that CapEx trajectory every year? And should we expect it to be governed by sort of the beginning of the year outlook for organic cash flows?

Yes. So I think, as we've said, when we laid out our investment plans, but we look at the market and we'll adjust as we go through this. So what we put forward in January, those are our plans. And the market -- and our view of the market changes dramatically or significantly we'll adjust to that. So short-term cycles, if our view is right, we'll maintain and invest through those. But if our view of pricing changed longer term, then we would adjust our investment profile.

Yes. And I would just add, Kent, that given our volumetric growth at these kind of pricing levels, we'll continue to be generating significant cash flow to be able to fund that kind of CapEx growth. So the Albemarle story is not really about the price, it's about the volumetric growth. And the cash generation that's coming from this is significant. So...

I appreciate that. Kent, in your prepared remarks, you talked about the minimal impact for now of the Chilean governmental moves, particularly given your contracts expiring in 2043. You also, I guess, highlighted looking at things like extraction technologies, processing technologies. I guess, did the move change any of your long-term strategy in the country and might have accelerated some of the investments? Or, I guess, exploration around direct lithium extraction and applications in Chile?

Yes. So I guess we were surprised by the announcement that came out of Chile. We knew they were moving in that direction. A couple of things we learned in that. But our plans around DLA and our discussions with the government about using that in the Salar are consistent now and before. We're working to progress that as quickly as we can, and we'll do it in a number of places, but there's an opportunity to utilize that in the Salar as well. So I guess our view is -- I mean, we -- our concession goes through 2043, where the government has gone out of their way to assure us that, that's valid. But expansions and getting additional concessions will probably require us to use new technology and probably partner with the government as well around that. So we see that as an opportunity beyond our current concession.

Appreciate the answers, guys.

Our next question comes from the line of Josh Spector with UBS. Josh, your line is now open.

Hi, thanks for taking my question. I was wondering if you could talk about your thoughts around the EBITDA margin cadence in Energy Solutions through the year. I assume 2Q is probably going to see the biggest compression. But can you get back to that mid- to upper 40% range in fourth quarter? Or can you even get there with where spodumene prices are today once that does roll through?

Yes. So Josh, with where spodumene prices are and the projection that we've made using the mid-April prices, we'll be below that kind of mid-40% range in the second quarter all the way through the fourth quarter. So it's really, again, the pressures coming from that price being lower as well as that spodumene price drop or cost drop that is putting the pressure on the margins. If you were to stabilize that, I think you'd end up being more at the long-term expectations of that mid-40s to low 50% range. So really, this just as a reminder and repeat it again, this margin pressure is really just driven by the velocity and the change in the spodumene price flowing through our P&L.

Okay. And just to make sure I'm clear, just in your pricing assumption, I mean, are you assuming that your contracts stepped down with the lag in the next couple of quarters along with that? Or are you assuming your current contract mix extends?

Yes. So what we do is we're taking our current contract mix as of today or let's just say, mid-April. We're applying the market indices that are referenced in those contracts, flowing that through and that generates what we think -- what the revenue will be. And so as you look at that on a sequential basis, we'll see price reductions each quarter. And as you look at it on a year-over-year basis, our first half of the year, we actually see price increases. In the second half of the year, we're seeing price decreases on a year-over-year basis. And again, that's just really just reflecting how those contracts are structured and the lags that are built into them. And a couple of the contracts have caps and floors that we'll have to take into account.

Okay. Thanks, Scott.

Our next question comes from the line of Mike Sison with Wells Fargo. Mike, your line is now open.

Hey, good morning, guys. Nice start to the year. In terms of inventory destocking, I understand there's been some in the industry, but your volumes were up in the first quarter. So are you not seeing destocking from customers? And is that a risk as you get into the second, third and fourth quarter?

Hi, good morning, Mike. So this is Eric. The way I would qualify that as again that the destocking has happened specifically in one country, it's China. Now it happens to be the largest country in the market where almost all the spot volume activity is that's 10% of our mix, as we described on an annualized basis. All of our contracts are everywhere else around the world, including even some long-term contracts that are sourced into China are all operating according to the projected plan prior to beginning of the year prior to any destocking that happened in China, meaning the EV growth story is intact everywhere, all that's happening in China to destocking what's specifically there. And everywhere else, volume continues to flow. We're not seeing destocking as a widespread phenomenon just something in China and specific to the spot market.

Got it. And then, so when you think about the volume growth as you head into the second half of the year, there -- it doesn't sound like there's a lot of risk to that on your end, right? Customers want that product and it's within your contract. So what is the risk for volume in your second half, if any?

This is -- everything that's happened and that we've talked about on destocking has to do with a temporal effect in China. It has nothing to do with fundamentally demand that we've seen. It is true. The year started out a little weak in China on demand. Recovered rapidly by the end of March. So we saw a weak start in Europe, but that's a hangover effect, we believe, from what has been expiring incentives largely in Germany and the U.S. started off with a bang for the year. All of that is consistent with our look, our view at the beginning of the year, our view now that we're looking at a 40% year-on-year growth in demand, our customers need the supply. And frankly, we see the market as still being tight for the balance of the year. So this is a market that's healthy in that regard. Independent of what's going on with price now, the supply-demand fundamentals are very favorable.

Yes, Mike, I would just add to that, as you look at our projection, I mean, it's really an operational risk because we're ramping new plants, right? So it's really just our ability to ramp those plants, and we think we have it dialed in, but things can go wrong. So I think that's really the risk and also potential opportunity because if things go better, then we'll have more volume.

Thank you.

Our next question comes from the line of Arun Viswanathan with RBC Capital Markets. Arun, your line is now open.

Hey, thanks for taking my question. Appreciating that it's a very volatile market that's constantly evolving. Could you just kind of review some of the drivers that you think are influential on price lithium spot prices? And maybe just give some perspective on the market? The declines that we saw were very swift and would indicate destocking and very high inventory levels, especially in China. I know that there's been some other factors like discounting on ICE vehicles over there, but maybe you can just provide your own perspective on what you're seeing?

Yes. So it's difficult to say what's really happening in the spot market, kind of the fundamentals we rely on are the supply and demand balance. We spent a lot of time working on that, making sure that we understand that. We think we understand that and it kind of works where it's a tight market for a pretty long period of time. And the previous question, we're probably more concerned in this year about volume and being able to produce the volume as opposed to the demand that's there for the product. In the spot market, I mean, in China and the movement that we've seen, a lot of that is about destocking and that volume running down and shifting to different areas in the supply chain between the battery makers, the cathode makers and then the raw lithium salt providers like ourselves and converters that sit in the market as well. So it's moved around within that space. And then it's been -- there's been a lot of destocking in that. That's really driven the pricing. But it's in the spot market, as we've said before. It about 10% of our portfolio, has a big impact on the broader portfolio because we indexed our prices indexed to those with a lag, but it does have a bigger impact on our portfolio than just the 10% that we represent. Eric, do you have additional color?

No. I mean I think the market is changing as well at the automotive level. I mean there's now more models, more vehicle producers, aggressive competition for share. So that's a dynamic that's going on within our customer base. But that's the industry rising up to meet the demand that's there for these vehicles. And it doesn't change the need for us to execute well in order to meet our customers' expectations. And as Kent said, the market for spot material is isolated largely to China. And so what you're seeing now is some dynamics playing out in China, which when you think about an inventory drawdown, it's temporal in nature with strong demand. We are going to pretty soon go to a point where many of -- much of the supply chain needs to start restocking in addition to just meeting its growth that move before it

Great. And then just as a quick follow-up, then you also noted that there potentially are some observations of a supply response in that some of the newer capacity that's potentially at higher cost levels may not come on or is being played. Could you just elaborate on that? What are you seeing there? Is that meant to also imply that maybe the mid-30s is the marginal cost of some of that new capacity, how should we think about that?

Yes. I'm not sure we didn't -- we weren't talking about new capacity coming on that's been delayed. We were talking about converters in China that were shutting down because their math didn't work any longer between lithium prices and spodumene prices. So I'm not sure -- I'm not aware of anyone who's delayed a new project as a result of the current market pricing, although that could be the case, I'm not aware of that.

No. I don't know that we have any intelligence that says a new project is delayed. There's still a fair amount of interest in bringing supply in order to meet the demand, which we believe will be necessary given the shortness in supply. But we know because we both compete, of course, in the China market against some of these converters who buy spodumene on the open market, but also toll with some of these individuals from the behavior that we have in that market, we've seen that market, we know very clearly that more tolling capacity is available because they cannot make money on existing spodumene conversion when they buy this spodumene themselves. So that's part of the evidence package we have that some capacity has been leaving the market at current prices.

Our next question comes from the line of Vincent Andrews with Morgan Stanley.

Thank you. Good morning. Scott, I'm wondering if you can just help us on the inventory on your balance sheet. Just looking at the end of the year, it was a little south of $2.1 billion. And then at the end of the quarter, it's almost $3.2 billion. So what were the mechanics of that increase? I'm sure some of it is price, but how much of it is volume? And then I think you made an accounting change at 3Q in terms of how you deal with the unrealized profits from your JVs, and I think those now reduced inventory. So if you could just help us bridge the increase from 12/31 to 3/31 that would be great?

Yes, Vincent, I think -- so a significant amount of that increase is due to price. So as the price has moved up, obviously, there's an impact on our -- on the value. Also, we've got increase in volume as we're ramping both the expansion at Greenbushes as well as Wodgina. So you're going to see increases coming from that. And to your point, we did have an accounting change where we've changed how we're recognizing the profit in inventory that now is reflected in our inventory line as opposed to our investment line. That reduces the effect. So those are kind of the muting pieces.

Okay. And then the other follow-up I had was just on your spodumene cost. It's very easy to understand what your -- what and how you're assuming lithium prices based on what you've said. But the spodumene cost that you're running through your guidance, are those the mid-April cost? Or do you have a sort of more of a projection on those that's baked into the guidance?

No. It's the same methodology is based on that mid-April -- that mid-April cost. So we don't take -- we're not taking a position on what that's going to do.

Our next question comes from the line of Christopher Parkinson with Mizuho. Christopher your line is now open.

This is Harris Fein on for Chris. So there's been an effort over the past few years to increase the variable portion of your lithium tons All of your expansion plans are still going forward. It seems in tracking in line with expectations, and you're still generating a lot of cash. But I guess in light of what's going on in the market, can you speak to how comfortable you are with having this level of volatility in your results? Thanks.

Yes. So there was quite an effort from us to move toward index-based pricing as pricing was moving, whereas historically, we've had more fixed price or at least agreed prices for a period of time. And it does create a little volatility in our results as the price moves, but it's a volatile market and this is a space, and it's probably going to move around like that for a period of time. So it could we, at some point, want to change that structure. But you never say never. It could be the case at some point. But given where the market is now, I think being indexed to the market, we like that. We think it's right for us and our customers. No one is really out of the market, either one, and that's kind of how we're going to operate now. It creates volatility in our results, and we just have to live with that in the near term.

I also think that it's reflecting -- you can see in our performance that our low-cost resources and our low-cost operations benefits us. So we can handle this volatility better than many of our competitors, just given our cost position as well as our scale. So...

And my second question is I would think that spodumene is the more commoditized product versus the downstream lithium salts. So I guess, why do you think that spodumene prices are holding in better more stable on a relative basis versus the downstream chemicals?

Yes. Look, that's speculation, but there's just a longer lag in the way that works its way through our P&L and through the industry. So we kind of rely on what happens in the market where prices get set. It's not that material for us because we're integrated all the way from spodumene into lithium salt. So the real impact it's timing and the tax impact from the joint venture that hits us. That's kind of why you see that volatility. So it's -- but I think it lags just because of the timing of how long it takes to adjust those prices and how long it takes to move that material through the supply chain.

Kent, I'd also add that fundamentally, this is an inventory drawdown in a period of time that won't last, we believe long, and we're seeing and we think it's fact transpired and it's behind us, and we see strong demand. I think the spodumene market is reacting to the strong demand and the need for the supply. So there is a time lag, but there's also just the supply/demand fundamentals are, again, very strong for growth going forward. So I think we can speculate, but some of that's at play as well in.

There are no more questions?

Everyone -- sorry, it seems that the operator dropped and we're getting our operator back. So everyone, if you just hold a moment. The next question is going to be from Joel Jackson at BMO. I don't know. It looks to me like your line is open, but we may have to wait for the operator.

Meredith, can you hear me?

Yes, we can hear you. Go ahead, Joel. Thanks.

A couple of questions. So -- and maybe this is simple. I want to make sure that I understand. So when you talk about mid-April market pricing is what you're using for the rest of the year, are you talking about spot indice prices in the market? Or are you talking about so where we were mid-April? Or are you talking about the realized price that was going through your book in mid-April with your lags? And then what is that price level in mid-April that you are referring to?

Yes. So Joel, we're using the indices that are referenced in our contracts. So it's not just taking like the China spot or just 1 index where you're actually taking the actual indices that are referenced in our contracts as of mid-April, holding that flat and then calculating through the contract structures and the lags and caps and floors and all that kind of stuff to generate what that forecast is. And if you look at that as of mid-April to today, it's basically the same. So don't really move much in that time difference.

Great. But that is the unlagged mid-April market indices price?

That's correct. That's correct.

Of course, there will be different in China versus outside China as well is a point yes. But it's -- as you know, they're very

It's a blank.

Yes. That's correct.

Understood. Okay. Another question would be conversion margins have been negative for some months. And so like your actual business where you are buying spodumene, say, from Greenbushes -- excuse me, from Talison at the market price, that business of converting it is a negative margin business. I understand when you put the whole thing together, you're actually making money. But how do you think about that business that is negative? How does that change how you do things? And going forward, how do you think the mix of earnings mix of profitability should steady state out between conversion margins and spodumene production margins?

We don't look at it that way. We're in the lithium business, and we're fundamental from the resource through to the salts that we sell to the customers, and we think of that as one business. And if the margin moves from one part of the business to the other, there are both ours, it's not that relevant to us.

The next question is coming from John Roberts with Credit Suisse. You may proceed.

Thank you. On your contracts that have caps and floors, do you expect to hit the floor on any contracts in 2023?

I don't -- we've not disclosed that, right? We've not talked about specific contracts. I don't think we want to.

Okay. And then second question. I know it's small, but can you remind us of the main limitations of sodium-ion batteries and why the range won't improve over time for them?

John, it's Eric. Its sodium-ion batteries are just less energy dense and heavier on weight for this comparable energy density. So while it may fulfill maybe a city, low-range vehicle, and that could help ease some of the ability of the industry to meet electric vehicle demand given the shortness of lithium we see in our forecast, it cannot replace it in whole in any significant way. However, it could be a viable technology in grid storage. So it just has inherent limitations given the energy density and weight to energy benefits.

Thank you, Mr. Roberts. The next question is from Chris Kapsch with Loop Capital. You may proceed.

A couple of follow-ups. One is on the pricing discussion. Just trying to get a little bit more granular because it sounds like you have good visibility on volumes. And then the variability is going to come from the pricing assumptions. But you alluded to the sort of the bifurcation in hydroxide and carbonate prices. Can you get more explicit in sharing with us like where the assumption baked into your guidance is on each of those chemistries? Is it that $15 to $20 delta that you're currently baking in your revised guidance?

Yes. So I think what -- I mean we're looking at the market as it is today or middle of April, right? And we're using those spot markets to guide us for the balance of the year by the different chemistry. So carbonate would inform -- the carbonate business and hydroxide would inform the hydroxide business. So we're holding them flat as they were in middle of April from an indices standpoint. And again, the index that are for our different contracts we talked about the main.

Okay. And just to be clear, you have different indexes for both carbonate and hydroxide inside China and outside China?

That's right. Yes, we've got indices for the different products. You also have different countries, different regions, and some customers actually blend some of the indices. So it's a mix, right?

Makes sense. Got it. And then a follow-up just on the market intelligence about the nonintegrated converters shuttering in China. Just curious too, we had heard that. That's definitely the case with lepidolite. Just wondering if your commentary where you're talking about sort of more conventional SC6 feedstock users or for lepidolite or just across the board in terms of nonintegrated converters being uneconomic as where recent spot carbonate prices have been?

Well, generally speaking, Chris, what we view lepidolite producers is tending to be more integrated producers from mineral resource of lepidolite all the way through conversion. Our comments on what we're seeing and who we'd be tolling with are obviously those who consume spodumene and who have to buy spodumene in the market to run their business. That's where our comments were focused on.

Got it. Thank you.

Our last question is from Ben Kallo with Baird. You may proceed.

Thank you very much for filling me in. If you could give us some help on marginal cost of the industry and you guys point about being integrated, not how you look at the margin in mining versus conversion. But how do we think about the marginal cost of the overall industry? And any way you can frame that for us? Because I think that's the biggest question when what everyone is looking at price is like how low can it go? And if you're the cost leader, then you set that price theoretically? And then I have a follow-up.

Yes. So Eric can probably add details to this. But I would say, I mean we look at it and we think you should look at it our integrated producers are producers that are not integrated, and they probably set the marginal cost right, the ones that aren't integrated. So you spodumene price, you can see, for the most part, it's pretty transparent around that. And conversion on top of that to make a margin that -- those are the marginal producers when -- I guess it moves around depending on where spodumene sits, but you can see that and probably can determine that.

Yes, I'd just add, Ben, that as when the spodumene when the battery-grade carbonate price -- spot price in China on the various indices across from the 30s into the 20s, you started to see that pain. We started to hear more producers who are having trouble operating. You start to see even more activity within China to try to find ways to sort that from falling further. You could tell -- we could tell from the market sentiment that, that was a point of pain from any of these producers. And it substantiates what we've said for some time that prices need to be at least in the 20s for this industry to operate if not higher.

And then you see as new resources come on, right, and new technology comes to play, those could very well move out that cost curve as well as lower quality resources come to market with different technologies, that cost curve kind of it grows.

Thank you. And then just on -- I think we see this already to some extent, but a bifurcation, if that's the right word, of pricing that comes out of China versus elsewhere? And then if you wanted to go elsewhere to specifically in the U.S., I know there's not a lot of volume that comes out of the U.S. But in your discussions, how much of a difference is that pricing across different regions and where -- whether it's spodumene or carbonate or what have you the difference in pricing based on region?

Yes. So yes, China is a big part of the market. And historically, it's kind of set that -- all of those -- that pricing historically. I think as the other regions grow and we start shipping volume into other regions, that's going to change. And it will start bifurcating and being different around the world. But I would say now, it's kind of one market. It's kind of -- it looks like it's wanting to separate a little bit, but I would call it one still.

And it's particularly true then for carbonate, 70%, 80% of the world's carbonate is consumed in China. And so if China is destocking, that's going to have a disproportionate impact on carbonate in China.

And so the IRA the intent of the RA to move supply chain out of China has started impacting the market pricing yet?

Yes, there's no real consumption around that at the moment. But it's the speculation around it has started. But there's not a lot of volume shift that's changed since that law came into effect

That is all the time we have for questions. I will now pass it back to Kent Masters for closing remarks.

Okay. Thank you, and thank you all for joining us today. So it's clear we're a growth company that continues to provide added value to our markets. As a global leader in minerals that are critical to mobile, connected, healthy and sustainable future, we remain the partner of choice with customers and key stakeholders. Thank you

This concludes today's conference call. Thank you for your participation. You may now disconnect.