Hello and welcome to Albemarle Corporation’s Fourth Quarter 2023 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speaker’s remarks, there will be a question-and-answer session. [Operator Instructions] I will now hand it over to Meredith Bandy, Vice President of Investor Relations and Sustainability.

Thank you. And welcome everyone to Albemarle’s fourth quarter and full year 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 Investor Section at albemarle.com. Joining me on the call today are Kent Masters, Chief Executive Officer; and Neal Sheorey, Chief Financial Officer. Netha Johnson, President of Specialties; and Eric Norris, President of Energy Storage are also available for Q&A. As a reminder, some of the statements made during this call, including our outlook considerations, guidance, expected company performance and timing of expansion projects, may constitute forward-looking statements. Please note the cautionary language about forward-looking statements contained in our press release and earnings presentation that also applies to this call. Please also note that some of our comments today refer to non-GAAP financial measures. Reconciliations can be found in our earnings materials. And now, I’ll turn the call over to Kent.

Thank you, Meredith. Now, starting on slide four, our full year results show continued strong volumetric growth, with 2023 marking the highest net sales and second highest EPS in Albemarle’s history. This highlights the focus and ability of our global team to succeed in a macro environment that remains challenging. We ended the year with net sales of $9.6 billion, up 31% compared to 2022, of which 21% was related to volume growth. Energy Storage delivered 35% volumetric growth in 2023. For the full year of 2023, Albemarle’s adjusted EBITDA was $2.8 billion or $3.4 billion excluding a lower cost or market charge recorded in the fourth quarter. Excluding this non-cash charge, adjusted EBITDA was in line with our previous expectations. In January, we announced a series of proactive measures to re-phase our organic growth investments and optimize our cost structure. These disciplined actions should allow us to unlock more than $750 million of incremental cash, advance near-term growth and preserve future opportunities. Today, we will provide our initial thoughts on our full year 2024 earnings. To help investors model Albemarle in the current environment, we will introduce scenarios based on recently observed lithium market prices. Neal will provide more details on this in a few minutes. We remain as confident as ever in the future of Albemarle and ongoing demand for the essential elements we provide to support modern infrastructure, including mobility, energy, connectivity and health. The secular trends of clean energy, electrification and digitalization continue to drive growth. We are uniquely positioned to capitalize on the opportunities in our end markets, in particular lithium demand. Over the past year, we have further strengthened Albemarle’s position and are committed to navigating the near-term dynamics in a disciplined manner to both support and capitalize on these global trends. I’ll now hand it over to Neal to discuss our financial results.

Thanks, Kent, and good morning, everyone. It’s a pleasure to join my first earnings call with Albemarle. I’ve hit the ground running, and in the coming weeks, I’ll be on the road meeting with our shareholders and analysts. I’m looking forward to reconnecting with many of you and building new relationships with those of you I haven’t yet met. Moving to slide five, I’ll start with a review of our fourth quarter and full year 2023 performance. In Q4, we reported net sales of $2.4 billion, down 10% compared to last year, as lower lithium market pricing was partially offset by increased volumes in Energy Storage and higher volumes in pricing in Ketjen. As Kent mentioned, we recorded two charges in Q4 that impacted results. The first was a lower of cost or market charge of $604 million and the second was a tax valuation allowance in China of $223 million. These charges were fundamentally related to the fact that in the second half of 2023, lithium market prices feel over a relatively short period of time. In the case of the LCM charge, market prices reached a level such that our cost of inventory, especially spodumene, which we purchased at a market price from our Talison JV, was above the market price of the final lithium salts, which resulted in us writing down the value of our inventory in accordance with GAAP. Similarly, in the case of the tax valuation allowance, the rapid decline in market prices led us to recognizing losses in China as we process the higher cost spodumene in inventory. In China, we are only allowed a five-year carry-forward period to utilize these losses. In accordance with GAAP, we recognize the valuation allowance against the losses. The company’s full year results excluding those charges met our…

Thanks, Neal. And now turning to slide 15. In markets as dynamic as ours, growth companies must be able to pivot and pace with disciplined decision-making and focused execution. This is especially true for Albemarle as a trusted leader in the markets we serve. At Albemarle, disciplined growth means carefully prioritizing CapEx timelines when pricing moves higher and re-phasing when the market shifts. As we look to 2024 and the current market dynamics, we’ve identified certain strategic investments and projects across the enterprise that do not need to grow as fast in the short-term. In short, the returns for new projects are not there at these prices, which we believe are well below reinvestment levels. As a result, we are reducing our CapEx in 2024 by $300 million to $500 million versus 2023 by refocusing our energy on the large, high return projects that are significantly progressed near completion or in startup. Additionally, we are aligning our OpEx to a slower pace of investment. We are taking action to reduce costs by nearly $100 million and we expect to realize more than $50 million of these savings in 2024. Our actions include reducing headcount and lowering spending on contracted services. We also continue to evaluate and execute the sale of non-core investments. For example, we recently monetized our Liontown holdings, given our decision to withdraw our non-binding offer. At the same time, we’re pursuing additional cash management actions, including optimizing our working capital. This includes initiatives focused on shortening the time from the mine to the customer in our supply chain. These measures together are expected to unlock more than $750 million of cash flow in the near term. This disciplined approach to managing the current market downturn reflects the actions that we must take to preserve our financial flexibility…

[Operator Instructions] Your first question comes from a line of Stephen Richardson from Evercore ISI. Your line is open.

Hi. Good morning. I just wanted to get a clarification on slide 12, which is always very helpful in terms of sales volumes. Could you comment on what were your fourth quarter sales volumes and what do you expect Q1 to be?

Neal, you want to take that?

Sure. Hi, there. Good morning, Stephen. So if I heard your question right, you were looking for volume growth that we had in the fourth quarter, as well as volume growth that we expect in the first quarter. So we haven’t -- with regards to 2024, we haven’t given the specific volume growth numbers across the specific quarters in 2024. As we mentioned, we expect 10% to 20% growth in the year in 2024 and really the growth trajectory in the year will be dependent on how quickly we can ramp our existing assets that are in startup at the moment.

Thanks. Maybe just a follow-up specifically on assets. The 10-K, which it looks like you just filed, suggests, just looking at those numbers, that the Atacama was flat year-over-year. Is -- could you just give us an update on the Salar expansion and what the status is in Chile right now in terms of incremental volumes?

Yeah. So I can start. Eric can fill in a little bit. So at the Salar, we were operating at capacity. We’ve done expansions at La Negra. We need brine to feed that. So that expansion is complete. But we need the brine from the Salar to feed that and then we -- we’re in commissioning of the Salar Yield Project. That’s the project that will provide the additional brine. But once we do that, it has to work its way through the brine system, and then we can, that’ll end up feeding the La Negra project. And I think that’s probably, Eric, a six-month lag, roughly, from a Salar perspective?

Yeah. I mean, for virgin brine that we pump, it’s -- I think the rule of thumb has been more like 18 months, but for the Salar Yield, it’s six months. We commissioned that in the middle of last year. That’s enabling, Steve, the growth that we will see in that 10% to 20% range. A big chunk of that is coming out from carbonate, from Chile, from the La Negra plant, enabled by Salar Yield.

Perfect. Thanks very much.

Your next question comes from a line of Colin Rusch from Oppenheimer. Your line is open.

Thanks so much, guys. Can you talk a little bit about what you’re looking for as triggers for either Salar and -- or re-accelerating some of the CapEx investments for the rest of the year?

Yeah. So, I mean, to be blunt, I think that’s going to be about the pricing levels that we see and the trends that we see. So, we see demand there. The volume growth in the industry is there and we start seeing some projects come out, operating projects, as well as projects on the books, like the ones that we described. So, for us to kind of re-accelerate, if you will, we’ll need to get a better view of what pricing is and the long-term view of that as well. So we think what the prices today are unsustainable. They’re below operating cash levels of some assets that are currently operating and they’re definitely below reinvestment levels, and as we said, particularly in the West, there’s not a particular price that kicks up necessarily a range of projects off. It’s all individual, depending on the resource, where it’s located, what the cost position is of that and the conversion asset, where that’s located. So, there’s not one number that we will look at, but we’ll look at it project-by-project, but it’s not going to -- if spot prices hit a number, that’s not going to necessarily turn us back into investment mode. We need to have a view that that’s a long-term number that we can rely on through the life of that asset.

Thanks so much. You’ve talked about inventory levels for the industry in the past and I wanted to get an updated view on what you think is a normalized inventory level for the channel to keep things healthy and moving and what you’re seeing right now in terms of inventories on hand through the channel?

Hey, Colin. Hi. It’s Eric. We’ve spent a lot of time looking at inventory and there’s been a drawdown effect that’s been on and off throughout all of last year and into this year. At the top of the supply chain upstream, looking at lithium salts and even the next level cathode production, we feel that inventory is normalized. The drawdown we’re seeing now, harder to predict and understand because it’s less visible to us, is at the battery cell, battery module and EV level. There are a lot of reports out there that vary on that. It’s not a highly quantitative or a highly known number, but I -- we think there’s probably a couple months’ excess as we exited last year, that will be drawn down this year that’s going to affect apparent demand. So that’s why our demand forecast is a difference if you look at, I can’t remember which slide it is, the lithium supply side towards the back of the deck between lithium demand growth and EV growth, and that is that drawdown effect happening at the battery and EV level.

That’s super helpful. Thanks so much, guys.

Your next question comes from the line of Steve Byrne from Bank of America. Your line is open.

Yeah. Maybe just continuing on that discussion, where is it that you see the glut of inventory that is driving spot prices down? Is it spodumene inventories at converters that is really where the glut of material is?

Hey, Steve. I’ll repeat what I said before. It is not upstream. We’re not seeing large inventory levels. We’re actually seeing projects, spodumene projects, go into care and maintenance. There’s several in Canada, or excuse me, in Australia, there’s one in Canada and some others that are questionable that we’re watching closely. And so it’s not there, it’s not at the conversion level. We track that as well, as well as the direct consumer for us, which is the cathode companies. We have very high visibility to that. That was at one point fairly high a year ago. That has since come down. The inventory that we’re seeing is further downstream, as I was saying earlier. It’s the battery and EV level of supply chain and that is affecting apparent demand to the lithium industry, albeit EVs are growing quite healthfully about 30% we see for the year going forward.

What would you say is driving the spot price of hydroxide to be meaningfully lower than carbonate in China and does it make sense for you to cut your operating rates to tighten that market up and drive an inflection?

Well, look, I’ll answer the price question. Maybe Kent would like to comment on the broader supply question. On the price question, I think what you’re seeing in China is particular, let’s remember China’s almost three quarters, two-thirds to three quarters of lithium supply is consumed in China. It’s very much the market where things are set and the trend there has been strongly towards, in the past year, towards carbonate for LFP production. That trend is the opposite in other parts of the world that are developing like Europe and North America, although we are seeing LFP interest. So those two products are starting to balance out, looking to be closer to 50-50 in their mix, although we have to watch it. It will move with time as technology and scale economies develop. That is causing that near-term, if you will, putting things upside down because historically hydroxide has been higher than carbonate. In the near-term, we’re seeing that flip. We would expect that to revert over time as the industry grows. Do you want to comment on supply more broadly, Kent?

I don’t -- I mean I don’t know if I have anything much to add to that. I think we supply hydroxide and carbonate. We tend to supply carbonate from Chile. So we are -- that capacity is growing, as we just talked about a little bit earlier. We will supply that into the LFP market. And then we are trying to be balanced between hydroxide and carbonate and catch those growing trends. It is a little bit more skewed toward carbonate at the moment and --but we think hydroxide catches up to that. Then your question about should we lower rates to bring that back into balance. So I don’t -- we are still ramping up and we still see growth in the market of 20% a year. We are 10% to 20% for us this year and the market is a little bit stronger than that. I think that demand catches up without us having to adjust operating rates. We are still trying to commission plants and catch up to that.

Thank you.

Your next question comes from a line of Josh Spector from UBS. Your line is open.

Good morning. Good morning. So I had a couple of questions around your pricing scenarios. When you talk about $15 a kilogram on the Asian markets, what is implied in that scenario in terms of Albemarle realized pricing and really getting towards the impact of floors, if that is meaningful or not or if anything has changed in that regard?

Yes. Josh, it is a bit of a complicated picture, because as you may know, there are varied price indices out there. There are some for China and some for outside China. Those inside tend to be 10% to 15% lower just because of the structural differences and some other aspects that drive that. But in any event, as you look at an average price across the two, we are going to be higher than the index generally for a couple of reasons, as -- particularly as prices go low. One is floors, so it’s -- our price is a little more sticky, even though it is linked to the index. And then the other is our mix. We tend to be more biased to outside China than in. That being said, where the price goes, that will be the trend that our ASP, our average selling price, follows.

Your EBITDA ranges for 15% versus 20% versus 25%. It is the same change in EBITDA between each range. If there were floors in the high-teens, low 20s, wouldn’t the increment from 15% to 20% be a bigger step up than 20% to 25%? I guess, what would I be missing in that math?

Josh, we might need to look at the math you are doing, because actually the transitions between those different scenarios are a little bit different and actually if you do some averaging math in those scenarios, you will see how we have a little bit different jump between the three different scenarios.

Okay. I will follow up on that offline. Thanks.

Your next question comes from a line of Jeffrey Zekauskas from JPMorgan. Your line is open.

Thanks very much. I have a question on your Specialties forecast. For next year, you -- at the midpoint, you assume EBITDA is about the same and revenues are about flat. And last year in the first quarter, I think, your Specialties EBITDA was something like $162 million and maybe you finished the year at something close to $30 million. How can you get to flat EBITDA as a base case?

Yeah. Hi, Jeff. This is Netha. I think if you look at the way we are projecting, the way pricing plays out throughout the year, you are right. The first quarter will be a little bit challenging on a year-over-year comparison standpoint. We still saw the numbers you saw, which was about a 60% growth in Q1 last year. The decline from that was really, really steep, driven by pricing. If you play that out on an annual basis for us, we think we can get back to where we were last year with maybe some upside or downside based on the ranges we provided with the pricing we expect to see going forward, and as Neal stated, that really is about a second half ramp in market volume and market pricing that we see coming and it’s really driven by how we look at the forward indicators with semiconductors, which for us is a good proxy for electronics already up 25% in the first quarter alone.

Okay. And then for my follow-up, can you talk about what your either cash flow expectations are this year or free cash flow expectations for 2024?

Yeah. Hi. I’m sorry, Jeff.

Sure.

Sorry. So this is Neal. Jeff, good morning. So, yes, we have obviously several things that are in motion right now with regards to our cash flow and I just want to put a finer point on what we’re working on with regards to operating cash flow. Obviously, we’ve already mentioned that we are working hard on aligning our own OpEx to the current pricing in the market. We’re also working on several operational things from a working capital perspective. You should expect in a deflationary environment that we should continue to release cash from working capital. And additionally, we’re looking for other levers that we can pull to further reduce inventory in our network. For example, investors are well aware that we have a long time between the mine and the customer in our natural supply chain. So we’re looking for ways that we can reduce that and harvest cash from there. And then, of course, from a free cash flow standpoint, we’re reducing CapEx, as Kent mentioned earlier. In addition to that, we also have what I call non-operational cash flow items that we’re working on. This is things such as looking at what we can do with our working capital balances and generating financing from that. Now, all of that said, I realize that, some people may want a rule of thumb of how to think about this. So if you think about things from a cash conversion standpoint, and obviously, it will depend on what your lithium scenario is, but a cash conversion, if you look over the last three years or four years, this company has averaged a conversion of about 50%, plus or minus 10%. So that’s one example that you can use to think about how to model operating cash flow.

Great. Thank you very much.

Your next question comes from a line of Vincent Andrews from Morgan Stanley. Your line is open.

Thank you very much and good morning. Maybe just following up on that, just looking at the balance sheet at the year end, your receivables are up year-over-year, your inventory is up year-over-year, your payables are about flat and that’s in a -- obviously, the lithium price ended the year much lower at the end of 2023 than it did at the end of 2022. So what’s the bridge on that that caused that working capital to build despite the lower prices?

Yeah. Good morning, Vincent. So it’s a few things. I think one of the important ones with regard to inventory is, remember that we have several assets that are in startup. So there has been a natural build in inventory through 2023 and you will continue to see that to some extent in 2024 as we build that inventory and work through the commissioning and startup of these new facilities that we have around the world. Remember, too, that there’s a timing aspect to this as well and so you have the timing of shipment and how that flows through our working capital, and so when you look at an end of year punctual period, you won’t necessarily see the impact of the timing of those shipments and so when we take a snapshot at the end of the year, it might not accurately reflect sort of the lag that we have in our supply chain. But just to link your question, Vincent, also to what Jeff just asked, as you think about whatever your lithium price scenario is, and as you think about working capital cash release in 2024, depending on the scenario that you pick, if you use the scenarios we put in our deck, we’re looking at a sales decline of somewhere between $2 billion to $4 billion, depending on the scenario, and historically, we use a rule of thumb here at the company that working capital is around 25% of sales. So you should expect in 2024 that we can release cash to the tune of $500 million to $1 billion, depending, of course, on how those scenarios evolve in 2024.

That’s very helpful. Thank you. And Kent, can I just ask you to refresh us on what return on invested capital you’re looking for when you put CapEx to work in the Energy Storage business and I don’t know if you want to define it differently by geography, but just sort of what those rough hurdle rates are and if they’ve evolved at all over the last few years, given the price movement.

Yeah. So we -- I mean, we kind of have a benchmark that we use to where we say at trough pricing, we want to get our cost of capital and double that at kind of the mid-cycle pricing. So now those numbers have moved around on us, but that’s kind of our -- still our aim when we do projects is, when we look at it at what we believe is trough pricing, that that would generate a cost of capital and then kind of twice that at mid-cycle pricing -- average pricing.

Thanks very much, guys.

Your next question comes from a line of David Begleiter from Deutsche Bank. Your line is open.

Thank you. Good morning, and Neal, welcome aboard. Kent and Eric, Energy Storage EBITDA guidance, if you were to mark-to-market that guidance to current prices, assuming no change in prices for the rest of the year, how much lower would your EBITDA guidance be for Energy Storage?

Yeah. Hi, David. Good morning. Look, I think we’ve provided the numbers here for people to interpolate as they would like to between these different lithium price scenarios and so you can do your interpolation based on what you think the market price is at the moment. The only caution that I would give you as you think about a lower price scenario, which I think is where your question is getting at is and you can see this in our scenarios, as you get to these levels, it’s not unreasonable to think you’re bumping into some of the floors that we have in our contracts and those are at varying price levels, but you will see that in the math of our scenario. So I wouldn’t necessarily take that interpolation one for one if you’re going down further than the scenarios we’ve given.

Understood. And Eric, just on lepidolite production in China, how much do you think has been shut in? How much do you expect to be shut in? Why has there not been more shut-in up until now for lepidolite production in China?

Well, thanks for the question, David. A couple of things I’d say. When we look at shut-in capacity or capacity that’s exited the market in general and a big chunk of it is lepidolite, but some of also non-integrated spodumene and some of it is spodumene itself that’s come offline or is about to come offline because it’s very high cost, it’s above current spodumene costs even or prices rather or the cost is above current spodumene prices. But that is about 200,000 tons in total that has come off. Lepidolite is probably close to maybe a third to a half of that, somewhere in that range. The non-integrated lepidolite production has come off. Some of the integrated lepidolite production that is of weaker grade is well below -- the price is well below the cash cost of that. It’s very hard for us to -- we know that, we know what the economics are, we can’t necessarily understand why some of it’s there. It’s still operating, because otherwise it should be -- our math tells us it should be coming offline. So we can’t quite understand what’s going on there, but there’s still quite a bit, there’s still some capacity in the market that’s, well, like I said, at current prices, cost is well above those prices.

Thank you.

Your next question comes from a line of Joel Jackson from BMO Capital Markets. Your line is open.

Hi guys. I’m not sure it’s Joe Jackson. So I wanted to ask a question about some of your sales guns for Energy Storage. If I take your guide, it’s $15,000 a ton, 10% to 20% more volume than the 150,000 tons you did Energy Storage last year. That would imply sales just a bit below $3 billion, maybe $2.9 billion for Energy Storage for this year. We’re going to, I think, $3.3 billion or something like that. What is the $400 million or $500 million difference in sales? Is that an accounting thing, spodumene, can you explain it, please?

Hi there, Joel. No. It is not an accounting thing. I am wondering what volumes you’re using, because the ranges that we set here in our scenarios are based on the range of volumes that we’ve put here on the slide, slide eight in our deck and so we’ve adjusted the ranges based on that. So there’s definitely no accounting noise in that revenue number. Additionally, I should say this, too. Maybe this explains it. Just remember that for Energy Storage in total, there are other products that are in Energy Storage that don’t necessarily move one for one with lithium market price. So maybe that’s another piece of what is in your math as well.

Yes. Okay. Fair enough. I just wanted to also ask you about the U.S. strategy. So as this industry was really looking at regional supply chains and you really were going to go after Kings Mountain and U.S. Mega-Flex, you put those plans on hold, but you’re still doing the permitting, of course, at Kings Mountain. As you know, it takes a while sometimes to get mine’s permit in the States. Is this -- how important is this U.S. strategy going to be? Is this something maybe that will have to be reassessed? Can the DoE or DoD with some of the different funding options help revive some of this? It seems like there’s a bit of a damper here on some of the objectives of political and the industry.

Yeah. No. I think there’s a big impact on that. I’m building this, we say in the West, so called Europe and North America, but focus is and we were a bit more focused on North America, we have access to a great resource at Kings Mountain, but where prices are today, the economics aren’t there for those projects. So we continue to progress, as you said, the permitting, the kind of real long lead time items that are not real capital intensive, in anticipation of prices coming back to where we’d be able to do those investments or some support or another way that we maybe could do those. But they’ve been pushed out. I mean, our -- at Richburg, we haven’t, that’s not a canceled project, it’s been delayed. So we’re still doing some of the long lead time permitting there, but no construction and we stopped engineering work on it. And Kings Mountain, we’re progressing with the permitting because that’s long lead time. We hope to work out a solution, but it requires better pricing in order to execute on those projects. And those are prom -- and those are kind of the two of the best opportunities to start the supply chain. We need a lot more support, not just, we can’t do it ourselves, but that would be the first project we would bring to market in North America, and probably, as others as well, particularly around resources.

Your next question comes from a line of Mike Sison from Wells Fargo. Your line is open.

Hey. Good morning. Could you just remind us, given your new CapEx plans, what your -- what capacity you’ll end with in 2024 and then could you give us an update on how you think that will unfold in 2025, 2026, 2027? So where do you think you’ll be in capacity to offer the market over the next several years?

So depending on where we land -- Mike’s is Eric, depending on where we land in that range of 10% to 20%, you’re talking something that could be close to, it’s going to get close to 200,000 tons, 190,000 tons, 200,000 tons at the top end and that is being driven, just to be specific, by more production out of Chile, which we discussed earlier and that’s realizing some of the efficiencies of the Salar Yield Project and the bottlenecking capacity downstream for La Negra to drive that growth. It’s also being driven by increased spodumene production out of Australia and the ramp of Kemerton, Qinzhou as well, where Meishan is more of a 2025 item for the time being, but that plan is ramping nicely for that period of time. That then brings me to how you think about the future. Kemerton I and II will continue to ramp as you go into 2025. Meishan will start to ramp in 2025 and 2026. The interesting thing about our near-term volume picture is we’re going to be looking at that sort of 20% plus volume growth for some years to come, based upon the investments we have made already. The things that we have idled or paused from an investment standpoint that Kent earlier referenced were longer term, further out, sort of really second half of decade in terms of what they were going to deliver. So the impact of slowing those down, should prices stay low and we not return to investing those projects will be felt in the latter part of the decade, which is, I’ll also remind you, is a point in time where we see industry supply already getting tight relative to demand. So there’s some real challenges because we don’t see demand slowing down. We certainly see weakness in certain parts of the smallest market, which is North America, but on the whole we see a very strong growth and a challenging environment for supply to be able to meet it in the long term. But we have good growth, I would say, in the coming years for multiple several years ahead of us.

And some of that is just the lead time and getting these investments on the books and then executing against it. It’s a number of years to get those out there. So the projects we’re pulling back on, as Eric said, impact the back half of the decade.

Got it. And just a quick follow-up, and just because I figured you guys be better off knowing what the potential is for lithium prices. I know you don’t want to get into a specific forecast, but what do you think needs to happen to get pricing back to greenfield economics?

Well, I mean, prices stay where they are. You’re going to see production come off and projects come off the books and that will eventually bring prices up and balance will happen. And then hoping we’re in a cycle where lower highs and higher lows starts to prevail, but -- and that was what we were anticipating in this cycle. This is still higher than the last low, so maybe it’s just not quite as mature as we had anticipated. But we need to get into lower highs and higher lows so that there is some consistency in the industry and people can see through to an investment case for new projects.

It’s not an understatement to say, Mike, that if prices stay where they are, which is well below marginal cash costs, and as we said, we thought it would be less volatile, is that you’re going to see -- we believe, you’re going to see enough projects ultimately come off that that inflection point where we start to get structurally short on supply moves forward from the latter part of the decade into the middle part of the decade. So that only -- what that says is excessively low prices only aggravate excessively high prices potentially down the road. That’s the challenge. We, and certainly our customers, would love to see a much more moderated cycle and as the market does recover, we’ll look to try to find ways to reduce that volatility in our mix. But certainly we’d hope that for the industry more broadly as well.

Got it. Thank you.

Your next question comes from a line of John Roberts from Mizuho. Your line is open.

Thank you. Does that lower end of the 2024 volume growth at 10% include a sequentially flat March quarter or sequentially down March quarter in volume?

So sequentially from the fourth quarter, is that what your question, I guess, year-over-year…

Correct.

Just to clarify the question.

We start the year out without any growth sequentially.

Yeah. I mean, I think, there’s going to be a difference between production and sales. I think you -- if you look at what happens seasonally with EVs, it is -- each year is a rapid rise to December and then a drop seasonally in January. So from a production standpoint, we’ll be sequentially up. From a demand standpoint, seasonal demand plays a role for the whole industry, including us.

Okay. And then on slide 19 that has the industry EV growth and the lithium growth, so battery sizes are getting smaller here in the near-term, but it looks like it flips and the assumption here is that full EV start -- before the end of the decade, full electric start out growing hybrids again?

Yeah. Well, and it’s hard to generalize that, John. I mean, I think, you have to go by region. So what I’d tell you is in China, there was a nice growth in plug-in hybrids last year. By our reckoning and our estimates, the estimates we had at the beginning of the year where we didn’t anticipate that, that plug-in hybrid growth came at the expense of internal combustion engines, not at the expense of battery electric vehicles in China, which is the largest market. It’s 6% of the market. In Europe in the past year, you’ve seen the opposite trend. Battery electric vehicles have been growing faster than plug-in hybrids. The U.S., which is the smallest market is in a pivot point now, which I don’t, we’ll have to see which direction it goes. There’s a lot of discussion about how certain automotive producers are struggling with demand and costs to play and so I think they’re looking at plug-in hybrids as an alternative, but it is on the margin it’s the smallest market. So I think it has the least effect on lithium demand. By and large, going back to your original question, battery size grows, may grow at varying rates year on year on year, but it grows over time as we go forward.

And our final question comes from a line of Kevin McCarthy from Vertical Research Partners. Your line is open.

Yes. Thank you and good morning. Would you comment on the expected quarterly cadence or phasing of your adjusted EBITDA and Energy Storage in your $15 per kilogram scenario? I thought I heard a comment in the prepared remarks that you would expect to be at a 30% margin by the end of the year. So perhaps you can kind of walk through that margin escalation expectation.

Yeah. A couple of things to -- Kevin, good morning. This is Neal. Just a couple of things to think about as you think about the quarterly ramp. First of all, as we mentioned in our prepared remarks, in Energy Storage, we expect most of the volume growth or at least two-thirds of the volume growth to occur in the back half of the year as our plants ramp up. So remember that we are still ramping these facilities through the first half of the year and then you’ll start to see that volume kick in as we get into the back half of the year. That’s point number one. Point number two is that as we move through, particularly the first quarter, we are still working off some spodumene inventory that is higher priced. And so as we mentioned again in the prepared remarks, you should expect that that will weigh on our margins in the first quarter. That is just by nature of the inventory lag that everyone’s very familiar with as we process that spodumene. Why margins then start to improve as we go through the year and we exit the year at this sort of stronger 30% margin that I mentioned in the prepared remarks is because as things normalize and you have a spodumene cost running through our P&L that’s more indicative of the lithium salt prices, you start to see come through the margin strength of our Energy Storage business even in this lower priced environment, which you would expect when you’re sitting on some of the best resource in the world. And so I would -- my counsel here is to think about margins rising as you go through the year in one part because of volume, but also in another part as we work through this inventory lag and then get to the back half of the year.

That makes sense. Thank you for that. And as a follow-up, if I zoom out the lens and look at your segment margins during the last cyclical trough for lithium, they were around 34% or 35% under the old definition of adjusted EBITDA. And so my question would be if prices persist at the $15 per kilogram scenario, what do you think the new trough margins could be moving forward into let’s say 2025 plus? Is that mid-30% level still representative or indicative or do you think they would be materially higher or lower than that?

I mean I’ll jump in here. I mean I think that it’s -- let me tell you the variables. The answer is it’s going to be fairly similar, we believe, because what are the factors? One, we are on -- again, once spodumene prices are indicative of lithium prices. They haven’t been most of all last year and into the early part of this year just because of the accounting we’ve talked about, the lag we’ve talked about within Talison. And once they are, you’re dealing with a margin. That’s one benefit that gets us back to where we were before. When you talk about the last cyclical trough, prices were even, well, they’re about where, they were lower than where they are now and we’re earning a 34% EBITDA margin. But the difference then is spodumene was a smaller percentage of our sales mix. It’s a much larger percentage now. It is a slightly higher cost than Chilean brine. That’s one thing to note at these prices. The other is that we didn’t have nearly as many plants in the commissioning stage and these are plants that take a couple years to ramp. They have a fixed cost associated with them. That’s a drag when you’re ramping those plants. The upside benefit of that is, without any further capital investment, we’re going to continue to grow for the next couple of years, as I said to Mike earlier. The downside is it’s a drag that brings your margins down. So that’s -- these are the factors that would lead us at these prices, which are, as I said, at this trough, above last -- the prior trough, amid sort of 30%s EBITDA margin.

Very helpful. Thanks a lot.

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

Thank you and thank you all for joining us today. Albemarle is a global leader in transforming essential resources into the critical ingredients for modern living, with people and planet in mind. Our strategy and path to capitalize on the opportunities of electrification over the coming years is clear and we will continue to operate with the discipline operating model to scale and innovate, deliver profitable growth and advance sustainability. We continue to work to be the partner of choice for our customers and the investment of choice for both the present and the future. Thank you for joining us.

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