Albemarle Corporation (ALB) Q2 2025 Earnings Call Transcript

Albemarle Corporation (NYSE: ALB) Q2 2025 Earnings Call dated Jul. 31, 2025

Corporate Participants:

Unidentified Speaker

Meredith H. Bandy — Vice President of Investor Relations & Sustainability

Kent Masters — Chief Executive Officer & Chairman

Neal Sheorey — Executive Vice President, Chief Financial Officer

Netha Johnson — Chief Operations Officer

Eric Norris — CCO

Analysts:

Unidentified Participant

Rock Hoffman — Analyst

David Begleiter — Analyst

Laurence Alexander — Analyst

John Roberts — Analyst

David Deckelbaum — Analyst

Christopher Perrella — Analyst

Aleksey Yefremov — Analyst

Joel Jackson — Analyst

Vincent Andrews — Analyst

Colin Rusch — Analyst

Ben Callow — Analyst

Arun Viswanathan — Analyst

Matthew Hettwer — Analyst

Rachel Lee — Analyst

Presentation:

operator

Sam IT. SA. Foreign. Hello and welcome to Albemarle Corporation’s Q2 2025 earnings call. I will now hand it over to Meredith Bandy, Vice President of Investor Relations and Sustainability.

Meredith H. Bandy — Vice President of Investor Relations & Sustainability

Thank you and welcome everyone to Albemarle’s second quarter 2025 earnings conference call. Our earnings were released after market close yesterday and you’ll find the press release and earnings presentation posted to our website under the investors section@albemarle.com joining me on the call today are Kent Masters, Chief Executive Officer and Neilshere Chief Financial Officer. Netha Johnson, Chief Operations Officer and Eric Norris, Chief Commercial Officer are also available for Q and A. As a reminder, some of the statements made during this call, including our outlook guidance, expected company performance and strategic initiatives, 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.

Kent Masters — Chief Executive Officer & Chairman

Thank you meredith for the second quarter we reported net sales of $1.3 billion, including strong volume growth in energy storage and specialties. Adjusted EBITDA was $336 million, reflecting year over year cost and productivity improvements and energy storage product mix. As a result of this performance and cash actions we pursued in the quarter, we also improved our leverage metrics and strengthened our financial flexibility. We are maintaining our 2025 outlook considerations and now expect to achieve positive free cash flow in 2025. Both assume the current low lithium market pricing persist for the remainder of the year. This is largely due to our team’s successful execution of measures to reduce operating and capital cost and preserve financial flexibility.

For example, as of June we achieved a 100% run rate of our $400 million cost and productivity improvement target, the high end of our initial target range. We are also further reducing our full year 2025 expected capital expenditures to the range of 650 to $700 million, down about 60% versus last year. Finally, we enhanced our financial flexibility by redeeming preferred shares we held for an aggregate value of $307 million. On a relative basis, we see macro conditions stabilizing and our end market and operations have generally followed the trajectory we expected this year. Lithium demand continues to grow strongly, with estimated global lithium consumption up about 35% year to date, including strong volume in stationary storage and EVs.

We continue to expect the direct impacts of tariffs announced since April to be minimal on our enterprise thanks to the exemptions and our global footprint. And finally, in the Middle east, our operations in Jordan have continued uninterrupted by the recent Iran Israel conflict. We’ll dive into these and other macro conditions later in the call. Now I’ll turn it over to Neil who will provide more details on our financial performance and outlook considerations. I will conclude our prepared remarks with an update on our macro and end market conditions, including further details on our lithium market forecast before opening the call for Q and A.

Neal Sheorey — Executive Vice President, Chief Financial Officer

Thank you Kent and good morning everyone. I will begin with a review of our second quarter financial performance on slide 5. We reported second quarter net sales of $1.3 billion which declined year over year mainly due to lower lithium market pricing. The pricing impact was partially offset by higher volumes in energy storage and specialties. Second quarter adjusted EBITDA was $336 million, also down year over year. Lower input costs and ongoing cost and productivity improvements helped to mitigate the impact of lower lithium pricing and reduced pre tax equity earnings. EBITDA improved sequentially largely due to higher energy storage and specialties volumes and continued cost savings.

Adjusted earnings per share was higher year over year due primarily to a prior year charge related to asset write offs and associated contract cancellation costs. Slide 6 highlights the drivers of our year over year EBITDA performance. Q2 adjusted EBITDA was down slightly due to lower lithium pricing and pre tax equity income, mostly offset by reduced cogs related to the timing of Taliesin inventory flow through as well as the benefits of our cost and efficiency improvements. The EBITDA impact of volumetric growth is primarily captured in the COGS impact as our year over year volume growth enabled improved fixed cost absorption and reduced reliance on third party tollers.

Our SGA costs were down more than 20% year over year due to our cost savings initiatives. Adjusted EBITDA increased by 35% in specialties year over year due to higher volumes and pricing as well as reduced costs. Corporate EBITDA increased primarily due to cost reductions and foreign exchange gains. Moving to Slide 7 as always, we are providing outlook scenarios based on recently observed lithium market pricing and on this slide we have presented Albemarle’s Comprehensive Company roll up for each lithium market price scenario. All three scenarios reflect the results of assumed flat market pricing across the year in conjunction with Energy Storage’s current book of business with ranges based on expected volume and mix.

Our approximately $9 per kg scenario is based on Q2 average market pricing. For reference, the average lithium market price year to date was also just over $9 per kg lce and if we were to assume current pricing held for the balance of the year, the price would similarly be about $9 per kg LCE. As you see here, we are maintaining our outlook consideration ranges. In particular, the approximately $9 per kg range is expected to apply assuming recent pricing persists for the remainder of the year. We’ve been able to maintain our outlook ranges due to a combination of successful execution of our cost and productivity improvements, operational excellence including energy storage project ramps and strong first half 2025 demand from energy storage contract customers.

Turning to Slide 8 for additional outlook commentary by segment. First in Energy storage, we now expect sales volume growth on an LCE basis to be near the high end of our 0 to 10% range thanks to year to date record production from our integrated conversion network plus improved mine performance at Wagina and strong performance at the Salar Yield Improvement project. Energy storage long term agreements continue to perform in line with our forecast and we have no significant contracts up for renewal. This year we realized a strong first half energy storage EBITDA margin of about 30% thanks to lower input costs and a higher than average proportion of lithium salts sold under long term agreements.

As a result, we experienced better than expected product mix in the second quarter. Second half margin is expected to be lower than due to a smaller proportion of our lithium salts sales being under long term agreements. Also, some spodumene sales that were previously expected in June shipped in July Net Net we continue to expect the full year EBITDA margin to average in the mid 20% range assuming our $9 per kg price scenario. In specialties, we continue to expect modest volume growth for the full year with Q3 net sales and EBITDA projected to be similar to Q2.

Finally, at Katchin we expect modest improvements in full year 2025. We see Q4 being the strongest quarter of the year with higher volumes for both FCC and cft. Please refer to our Appendix slides for additional modeling considerations across the enterprise. Slide 9 highlights our strong focus on cash management actions. As a result of our commitment to effective execution and converting earnings into cash, we continue to expect full year operating cash conversion in excess of 80%. Additionally, we now expect to achieve positive full year 2025 free cash flow as a result of our operating cash flow generation and our reduced capital expenditure forecast which we lowered to a range of 650 to 700 million dollars.

Turning to our balance sheet and liquidity metrics on slide 10, the measures we’ve implemented to control costs, reduce capital spending, enhance cash conversion and drive other cash actions have strengthened our financial flexibility. We ended the second quarter with available liquidity of $3.4 billion, including $1.8 billion in cash and cash equivalents and the full $1.5 billion available under our revolver. At the end of the quarter, we closed on the redemption of our holdings, a preferred Equity in a W.R. grace subsidiary for an aggregate value of $307 million, including $288 million in cash received in June 2025.

This transaction further contributed to our strong liquidity position. We continue to improve our leverage ratios, ending the quarter with a net debt to adjusted ebitda ratio of 2.3 times, well below the covenant limit. As a result of our cash performance and liquidity strength, we intend to utilize our cash for deleveraging. As a first step, we expect to repay our $440 million euro bonds with cash on hand as those bonds mature in November. With that, I’ll turn it over to Ken.

Kent Masters — Chief Executive Officer & Chairman

Thanks Neil. I’d like to start by covering more details on the end market and macro conditions starting on slide 11. First, I will cover our JV operations in Jordan. Given the recent activity in the Middle east, that business continued to operate safely and uninterrupted and even achieved record production in the second quarter. This is thanks in part to our NEBO project, which provides both financial and sustainability benefits. NEBO leverages innovative proprietary technology to recycle a CO product stream into additional sellable product. The result is higher volumes, lower cost and improved energy and water efficiency. The project reached mechanical completion in March and continues to ramp on plan.

Here. In the United States, the O Triple B was recently passed. It is a complex piece of legislation and we are actively assessing its implications to Albemarle as rulemaking continues to take shape. For example, there are several corporate tax implications that appear to be neutral to positive for Albemarle. As expected, the act also amends certain aspects of the Inflation Reduction act and reinforces the value of our global assets, especially lithium production in the United States and Chile. The 45x tax credit remains in place for US production of batteries and critical materials, with Phaseout beginning in 2031 and ending in 2034.

Albemarle continues to expect 45x tax credits for critical minerals production at Silver Peak and Kings mountain. As with 30D, some customers may be willing to pay a premium for domestic or free trade agreement lithium production. Finally, on the product demand side, global lithium demand remains strong thanks to strong demand for both stationary storage and EVs global stationary storage battery production was up 126% year to date through May with strong growth in all three major regional markets. Turning to slide 12 for more on global EV demand. 2025 EV demand growth continued its strong start led by China where ev sales were up 41% year to date.

Interestingly, Chinese BEV sales have been the strongest segment of the market, up 44% compared to PHEVs up 38%. This is in part due to recent subsidies in China that made the net purchase price for entry level BEVs very attractive for consumers. European EV sales continued to strengthen during the quarter with year to date sales up 27% through May thanks to a continuation of the step change in regulatory emission targets. The outlook in North America is less certain, particularly in the United States due to the potential impact of tariffs and the removal of the 30D tax credit in September.

North America is the smallest of the major regional markets with approximately 10% of global EV sales, which highlights its relatively low impact on global demand today. Strength in China and Europe more than offset weakness in North America, reinforcing confidence in the industry’s long term growth potential and highlighting regional dynamics. Turning to Slide 13, we continue to expect lithium demand to be more than double from 2024 to 2030, unchanged from our previous outlook, driven primarily by stationary storage and electric vehicle demand. We are also maintaining our expected 2025 demand growth range of 15 to 40%, including the anticipated impact of tariffs announced to date and the O Triple B.

Slide 14 gives more detail on expected market balances. We estimate that the lithium market has been in surplus since late 22, as high pricing in 21 and 22 led to supply expansions at lithium pricing in excess of $70 per kg. Effectively every project was able to secure funding. Now, as pricing stays lower for longer new project development has begun to slow while demand continues to be robust. Year to date, lithium demand growth has outstripped supply growth by nearly 20% thanks to strong stationary storage and EV trends and supply curtailments announced over the last year. If current pricing persists, demand growth is expected to outstrip supply growth by up to 10% per year on average and between 2024 and 2030.

As a result, we expect that surpluses may peak as early as this year, with the market expected to be more balanced next year and potentially returning to deficits in 27 and beyond. This analysis assumes that recent pricing of $9 per kg does not support most new or greenfield projects. Low cost projects in particular brownfield expansions of existing low cost resources are assumed to progress. It is also worth noting that this analysis does not include any impacts from recently announced or prospective supply curtailments in China. We remain confident in the long term outlook of the lithium industry and the energy transition.

In the meantime, we will remain patient and disciplined advancing to Slide 15 as we shared before, we continue to progress broad initiatives designed to maintain our long term competitive advantages along these four optimizing our conversion network, improving cost and efficiency, reducing capital expenditures and enhancing financial flexibility. We are building a culture of continuous improvement. Our results this quarter once again showcase that mindset. Slide 16 highlights our progress on these actions in terms of optimizing our lithium conversion network. We started off this year targeting energy storage sales volume growth of 0 to 10%. Today we expect that to be at the high end of the range, thanks in part to record year to date production across our integrated conversion network allowing for better fixed cost absorption and reduced tolling volumes.

Second, we have continued to progress our cost and productivity programs. We began the year with a target of 300 to $400 million cost and productivity improvements by year end. Today we announced a 100% run rate against the high end of that initial range or $400 million. Over the past quarter we’ve executed projects to capture further reductions to non headcount spending, supply chain efficiencies and further volume improvements at key manufacturing sites. This isn’t a one time action. We’re building the muscle and mindset to identify opportunities to achieve savings and efficiencies. Third, we began the year targeting 2025 CapEx down approximately 50% year over year.

The team continues to identify additional opportunities to reduce capital expenditure by prioritizing only on the highest return, quickest payback projects and optimizing value and project scope on existing projects. As a result, we now expect CAPEX in the range of 650 to 700 million dollars down approximately 60% year over year. As a result of all these actions plus our focus on enhancing financial flexibility and driving cash conversion, we initially expected to be at break even free cash flow for the full year. We now expect to achieve positive free cash flow. In Summary on Slide 17, Albemarle delivered solid second quarter performance while continuing to act decisively to preserve long term growth optionality and maintain our industry leading position through the cycle.

We are maintaining Our full year 2025 company outlook considerations Building on the progress we’ve made to drive enterprise wide cost improvements and achieve positive full year free cash flow, we are progressing broad based comprehensive actions to manage controllable factors and generate value across the cycle. I am confident we are taking the necessary steps to maintain our competitive position and to capitalize on the long term secular opportunities in our markets. With that, I’d like to turn the call back over to the operator to begin the Q and A portion.

Questions and Answers:

operator

We will now move to our Q and A portion. If you’d like to ask a question, please press star5 to raise your hand. As a reminder, that is star5 to raise your hand. Also, please bear in mind this Q and A session is limited to one question and one follow up per person. Our first question comes from Rock Hoffman with Bank of America. Your line is open.

Rock Hoffman

Hi, thanks for taking my question. Could you just go into why the 2H mix may change between contract and spot versus where you were in 2Q? And does this mix potentially extend beyond 2025, implying less than a 5050 split. Between the two in 2026?

Kent Masters

No, and it’s probably not that exact. I mean it’s, it’s essentially about our customer demand. Right. And they draw more on contracts at a certain period and than others. Maybe it’s a little different than we had forecast, but it’s essentially our customers drawing more volume than, than we had anticipated in this quarter. And, and we don’t. We see it moving around between quarters which is why we. The comments that you see in our guidance.

Rock Hoffman

I see. And just as a quick follow up, given how volatile lithium pricing has been over the last handful of days, what numerically is your underlying assumption of flat pricing? And if pricing does fall off these. Current levels, how much can it fall before you risk? Kind of missing your low case guidance for EBITDA and free cash flow.

Kent Masters

Yeah, so we, our guidance says at the kind of current price in that range and we haven’t changed, we didn’t change our view of that since it moved in the last month. So it’s not something that’s based on pricing that moved in the last week or weeks. It’s kind of our view of where we are in the market. Does that answer the question?

Rock Hoffman

Yeah, I guess. Any numerical detail on that assumption? Is it $9 per kg for 2H which is assumed or.

Neal Sheorey

Yeah. Hi Brock, this is Neil. Yeah, as we said in the, in the prepared remarks and you’ll see it actually on our modeling consideration slide too, maybe this is an important point that when I think some investors look at just one price in one region to calculate a market price, and that’s not exactly the lithium market, we take a basket approach here. So not only Are we taking the price in China? We’re taking the price in Asia ex China. We’re also taking carbonate and hydroxide. But regardless, when you mix all of that together, basically no matter how you slice it, it’s been about $9 so far this year and that’s therefore the price effectively today.

And that’s what we’re drawing forward as well.

Rock Hoffman

Understood, thank you.

operator

Our next question will come from David Begletter with Deutsche Bank. Your line is open.

David Begleiter

Thank you. Good morning, Ken. Can you talk about what you’re seeing from a lithium supply standpoint? How much of global supplies offline, what’s happening in China vis a vis some of the integrated and non integrated producers on the spot side and the lipillide side. I’m sorry. Thank you.

Neal Sheorey

Yeah. So look, we continue, we continue to think that more capacity needs to come out of the market. It isn’t and I don’t think it’s changed dramatically this quarter versus previously. There have been a couple that have come offline in China. It’s not clear exactly why they’ve come offline.

So we’re watching that pretty closely. I’m not sure we’re drawing any big conclusions from that. And I don’t think it’s dramatically different than, than last quarter really. I guess the only change is a couple of sites coming offline in China and exactly why those came off. Not clear. Got it. And just back to the pricing question. Can you talk to what you think underlies the recent pricing volatility in China over the last call it months that we’re seeing month to five weeks here? Yeah, so I’d say it’s some of the uncertainty around the supply as well.

So and government policies. And as you know, the China market is very speculative. So it. Look we’re not, we’re watching that very closely but we’ve not read a ton into it.

David Begleiter

Perfect, thank you.

operator

Our next question will come from Lawrence Alexander with Jeffrey. Your line is open.

Laurence Alexander

Good morning. If that it takes several years to get back to tighter conditions. Can you maintain free cash flow positive if we’re at $9 per kilo on average in 2026, 2027, 2028 or can you walk through kind of what incremental adjustments or headwinds you would face in the next few years relative to 2025?

Neal Sheorey

Yeah. Hi Lawrence, this is Neil. Well look, certainly that is the goal of all the actions that we are taking and the things that. Going forward. Maybe just a couple of examples as we turn the page into 2026. Obviously today we’re very happy about reporting that we hit our 100% run rate against the high end of our cost and productivity target. So 100% of $400 million. Not only are we at the high end of our range, but we’re hitting that run rate six months early. So clearly you’ll get the full benefit of that as you turn into 20. Then of course, we’re also ramping our facilities as quickly as we can so that we can get the full capability out of our own facilities and we’re able then to back off on tolling and move more of our own material.

Through our own facilities. That will be a benefit as we move into 2026. And then I think one of the key things from a free cash flow, two key things from a free cash flow standpoint. The first is obviously we are in an unusual situation here in 2025 where our JV in Australia in particular is going through its own growth program. So clearly as that one gets to the end of that growth program and dials back its capital expenditures, it all depends on where pricing goes. But obviously that will potentially release some more cash for dividends and we can get back to more normal case with dividends coming from our JVs.

And then I just have to say in terms of our things in our own control, our own capital expenditures and the work that we’ve been doing already to continue to be just much more efficient about our capital spending, much more stringent about which projects are moving forward and which aren’t. You’ve seen how we’ve continued to whittle down our capex number through the year. And obviously we’re not stopping here. We’re going to continue to look at, at the book of projects and continue to work on that. And that could potentially be something that I think we can hold this kind of capex level at least for another year, if not longer, depending on how market conditions develop.

operator

Our next question will come from John Roberts with Mizuho. Your line is open.

John Roberts

Thank you. At the current capital spending level, do you fall back to flat lithium volumes here at some point in the next few quarters or what’s your volume growth outlook?

Kent Masters

No, so. Hi John. So I think we, I mean the investments that we’ve made and the programs that are, that are still going forward around that give us growth for a period of time. Eventually we run out of that. But it’s not in the next, it’s not the next few quarters. It’s years, not quarters.

John Roberts

Great, thank you.

operator

Our next question will come from David Deckelbaum with Cohen. Your line is open. Please ask your question.

David Deckelbaum

I’m just going to ask two questions on growth. Just one is Neil, maybe you can chime in as well but obviously the spends that you guys have rationalized this year go into next year. You know you’re finishing up some growth projects obviously in Australia should volume growth, is it solely going to be coming from greenbushes in 26 as you think of like the broader corporate portfolio?

Neal Sheorey

No, I think we’ve got will. It’s not going to be just green bushes. That’s probably the biggest, that’s the biggest piece of it. But we have capacity at Wajana and the Salar to Atacama as we ramp the solar yield project.

There’s still, there’s a bit more to come there. So it, and look we’re, we try at every asset, both conversion and mine standpoint to gain productivity in both costs but also in molecules on every asset all the time. So it’s not just green bushes that’s the biggest piece because that’s the, that’s the one big investment that will come on. But it’s broader than that.

Kent Masters

Yeah, maybe David, just to add to that too is obviously lithium. Those are the larger assets and bigger pounds. So you kind of tend to focus on that. But I do want to highlight that we are still pushing out incremental pounds from specialties and in the prepared remarks we talked about one example of that in Jordan where we’ve started up a project that has great financial and environmental benefits, but it also is pushing out more pounds incrementally. So I think there are a few different avenues across the company where you’ll continue to see growth.

David Deckelbaum

I appreciate that. Neal, maybe you can talk a little bit just about the cash deleveraging opportunities beyond the 440 that’s coming due in the fourth quarter of this year. How should we think about how you’re approaching the balance sheet in 26 is considering the cash balance that you have. But then also if we’re going to stay in this sort of 9,000 a ton reference range, how do you think about the next goals in the balance sheet or pushes and pulls in 26 and 27?

Neal Sheorey

Yeah, thanks for that question. Look, I think we’ve been very consistent that across the cycle we’re targeting a leverage ratio of 2 and a half times or less. We’re very happy to be there at 2.3 times as we exited the second quarter. But you know, we are at the bottom of the quarter or sorry, bottom of the, of the cycle. And so clearly we’ve made deleveraging really are one of our top capital allocation priorities. And so the first thing that I of course want to address is the maturity that we have in November. And hopefully we did that with our remarks today as we look forward.

You know, I think we’ll, we are studying that. It’s early for me to say exactly what our plans are around that, other than to say deleveraging does remain a top priority for us, mainly because I want to make sure, as you said, if pricing is going to stay at this level, lower for longer, then it behooves us to just make sure we strengthen the balance sheet and we’re prepared for that.

David Deckelbaum

Thanks for the responses.

operator

Our next question will come from Josh Spector with ubs. Your line is open.

Christopher Perrella

Hi, good morning. It’s Chris Perela on for Josh, could you just walk through the puts and takes of the energy storage margins going into the third quarter and then going into the fourth quarter, the assumptions there and with the pull forward on volume, have you sold out, maxed out your contract tons in the first half of the year? And that would imply, you know, the balance of the year is mostly spot.

Neal Sheorey

Chris, this is Neil. I’m happy to start on that question. So let me answer the back end of your question first. No, we haven’t maxed out the contract volumes. Really what we saw in the first half of the year is, as Kent mentioned, we just saw a heavier demand on our, on our contracts in the first half of the year. And that’s where we got a little bit better mix than we expected as we look additionally, by the way, I should say that, and we mentioned this in our prepared remarks, we had some spodumene sales that we expected to ship in June and they just, quite frankly, they just tipped over into the, into the third quarter.

So they have shipped now in July. So that’s really another part of the mix. If you think about the puts and takes for the balance of the year. Now this is, I’m saying this here in July, a lot of things could change. But as we look at the order book today, what we’re seeing is probably softer demand on those contracts in the third quarter. So to your point, you’ll probably see a little bit more spot mix from a mix perspective in the third quarter and then we’re seeing a little bit stronger demand from a contract perspective coming into the fourth quarter.

So that’s how you should think about things maybe across the back end of the year. But look, it’s July. Things can move Around. They have moved around as you’ve seen already for the first half of the year. But that’s the best visibility we have right now.

Kent Masters

Yeah. And I’ll just add to that just because it is mixed, not like our contracts are satisfied in the first half. That’s definitely not the case. It’s mixed. So it’s moved around a little bit. We expect to see it really in the. Between second and third quarter and then fourth should be more traditional.

Christopher Perrella

And then just to follow up the feedstock costs, you were expected to get slammed with that in the second quarter. Is that now going to hit in the third quarter or there was higher cost spodumene that you had to work through. Is that not the case anymore? What’s, I guess what’s depressing the margin even more in the third quarter?

Neal Sheorey

Yeah, Chris, the way it’s worked out, I think we did work through a little bit of it in the second quarter. But yeah, you’re right. It’s primarily more of it’s going to get worked off in the third quarter just based on how the inventory is flowing through the system.

Christopher Perrella

Thank you.

operator

Our next question comes from Alexey Yefremov with keybonk cm. Your line is open. Thank you.

Aleksey Yefremov

Good morning. I just wanted to follow up on the second half guidance. Should we just think about this as the basis sort of of the run rate for next year or is the mix maybe not representative? It’s. It’s sort of not rich enough because. It doesn’t have enough ltas in it. So really a question about second half as the basis to think about next year’s ebitda.

Kent Masters

Yeah, I think you’re reading too much into it. So it, it’s mixed between customers moving back and forth, we and our. We. It’s kind of about, we said about 50% of our mix now has got long term agreements with floors and that’ll be the case going into 26 and there. We do have a couple contracts that run off in 26 but as we said before, we don’t really expect those to run out. We will negotiate those and extend those. That’s our expectation.

So I think I wouldn’t get carried away between the first half, second half the mix is going to be the same and it moves around by quarter.

Aleksey Yefremov

Okay, that’s helpful. And I think I remember earlier, before you revise your capex lower for, for this year, you were signaling there would be additional opportunities to lower capex next year. Did you pull those opportunities forward or could you bring Capex down even more after you just stepped it down.

Kent Masters

So look, we’re, we’re pretty, we’re focused on, on CapEx and operating cost. I mean, we’re focused on all of those pieces.

I think you see us working kind of across that portfolio to drive cost out of the business, includes CapEx. So we’re not going to say what the Capex rate will be next year, but we’re, we’re very focused on it. Our goal would be to drive it down, but we’re going to, you know, we’ve got to see exactly what those are as we go into planning for next year. But we’ve adjusted our forecast for this year and we have a pretty good track record of hitting those when, when that’s the case. And then we’re very focused on driving that out.

But there is a, we’re getting close to the level where it’s hard to take big chunks. It’s getting to be smaller pieces as we go. But we, but we continue to be focused on that.

Aleksey Yefremov

Thanks a lot, Ken.

operator

Our next question comes from Joel Jackson with BMO. Your line is open.

Joel Jackson

Hi, good morning. Your JV partner at one of your JD partners at Greenwiches talked about, you know, first or at CP3 end of the year? Not first. Concentrate. It’s a bit of a nuance there, but is that right? Are we not expecting really any volumes now into maybe early into 26, maybe even early to mid 26? What’s your thoughts there?

Kent Masters

Yeah, I would say it’s probably before we start seeing volumes there, it’s going to be 26 or I’d say early in 26. Probably not. Maybe not day one, but early in 26.

Joel Jackson

Okay. And then also a bit of a different question. We obviously saw what happened with empty materials over the last month or so. We know the DOE has been out there with programs, DoD has money. You know, lithium is not rare earth. But looking at Kings Mountain, is that a project that is strategic to the US to the point where ALMA would want to start doing due diligence with. Different government organizations trying to get the. Profile of that project up and maybe. Trying to look at a way to. Be something like an empty materials kind of importance for the country?

Kent Masters

Yes, I would say. Look, we’re encouraged by the focus that the Trump administration has put on critical minerals. As you say, rare earth is kind of at the very top of their list. But lithium is something that they’re looking at as well. We’ve been saying for some time that to build out a US full supply chain, primarily conversion as well. You need public private partnerships and it’s interesting to see government moving on something like empty materials to do exactly that in the rare earth space.

And we’ve been talking with the government for some time about the need for those type things. So, you know, we think it’s encouraging. We like the focus that the government is putting on critical minerals and we’re very happy to have conversations about it.

operator

Our next question will come from Vincent Andrews with Morgan Stanley. Your line is open.

Vincent Andrews

Thank you. Good morning. Just wanted to ask on the mix, is there a production geography aspect of it too? In other words, do your contracts skew a little bit more towards atacama volume or they evenly split geographically in your production facilities?

Kent Masters

So yeah, I would say that, I mean it’s, it’s, it’s split around. Right. It’s not exactly in one location. All of our contracts pretty much are western with western players. Now that, that doesn’t talk about the facility that it comes from or actually where the ship to location is necessarily. But almost all of our long term agreements are with western players.

Vincent Andrews

Okay. And as a follow up, obviously nice job reducing the capex. Could you just give us a sense of most recent reduction? What is that coming out of? And also do you have an updated maintenance capex number for us now that the capex numbers move lower again?

Kent Masters

Yeah, so we’re not, we’re not giving guidance on kind of maintenance versus growth capital, but it’s coming out of a lot of small places. Right. And it’s just focused on capital pushing things out, tightening things up. And as we get into planning for next year, then maybe we can give you a little bit more detail on that.

But this point we’ve lowered our guidance this year and we would anticipate continuing to drive capital out of the plan. But it’s getting harder, I would say.

Vincent Andrews

Okay, thank you very much.

operator

Our next question comes from Colin Rush with Oppenheimer. Your line is open.

Colin Rusch

Thanks so much. I guess I have a two part question. One, thinking about the government involvement with Market dynamics on critical materials. Have you seen any indication that they might start setting pricing in the market? And then a secondary question is around refining capacity and technology. You guys had been kind of adjacent or involved in a project around dry, dry processing. Just want to get an update on how you guys are thinking about potential technology evolution around some of the conversion and refining process technology in North America.

Kent Masters

Okay. So I guess, I mean it’s two quite different questions.

So the first around government involvement and pricing. So we’re not, we don’t See that they’ve not really been involved in that. I guess the closest thing you see is the MP materials deal is they’ve done purchases from a DoD standpoint they, they did set a price for that, but that’s, I don’t see that as getting involved in the market. So we don’t really, we don’t really see that or we haven’t seen that. And then on the technology, I’m not exactly sure we look at process chemistry as a key advantage for us in conversion, but that includes like dle which is probably the biggest focus we have on, on new technology.

But it’s also streamlining the technology that we have in our hard rock conversion assets. I’m not sure what the dry comment was, what technology that is around dry processing because I’m not familiar with that.

Colin Rusch

Yeah, that was, it was a process that Tesla was working on, you know, in, around their San Antonio facility where they were doing that with a different close loop system. But I can take that offline. I guess the follow up question here is around China, China policy. You know, you guys have gone through a number of policy cycles around EVs and obviously that government is focused on short term sales historically then following up with incremental policy adjustments to maintain market integrity.

Can you just give us an update on your current thoughts on evolution of the EV policy in China and how you see that evolving over the next two to three years?

Kent Masters

Yeah, so I mean look, you’re right in that you see them making adjustments and incentives. I think those are around the edges. The broader policy is, I think it’s a key technology for the Chinese. They see it as a way to own a segment and do an export to the world around that. So they’ve spent a lot of time in development on R and D all the way through the value chain from EVs and batteries, cathode, even the lithium supply chain.

So I think they see it as a strategic segment for them, as a way to export materials from China and create more jobs in China. And then a lot of what you see on the increment around incentives for EVs I think is just kind of trying to balance activity and what that, what’s happening around that. I don’t read that much into those short, those are short term incentive programs. But I think long term they see it as a strategic segment.

Colin Rusch

Great, thanks so much guys.

operator

Our next question will come from Ben Callow with Baird, your line is open. And Calla with Baird your line is now open.

Ben Callow

Sorry about that. You talked about contract renewals for things that roll off next year. And I’m just wondering like from your customer perspective how contracts are structured with the, with the current prices where it did that. And then my second question is on the prepayment that you guys got, I think last quarter, how was that contract versus what’s out there right now? Because the prepayment to my mind thinks that it’s at cheaper prices instead of prepay.

Kent Masters

Okay, so Ben, that was a little unclear. So you were asking about the contract structures and then the prepayment.

So I think that they’re two different things. Right. I don’t think you would. Our traditional customers are people through in the value chain. The prepayment is kind of was a unique deal that we did. I don’t see that changing our overall contract structure. Overall. And maybe Eric can comment on the how. I think you were asking how our customers are seeing our contract structure versus spot market.

Ben Callow

No, when you renew. Sorry about that. When you renew it. When you renew it next year. Like how they’re, they’re viewing current prices and restructuring the contracts.

Kent Masters

So we have, we have an active. Pipeline process where we’re for existing customers and potential new looking out 3, 4 years just as we traditionally have done. Admittedly in the low price environment we had slowed that a bit. But we’re seeing renewed interest as OEMs look towards the end of the decade and have their own calculus around how they see supply playing out, that they want the security. We have two contracts that towards about. Yeah, one or two contracts that towards. The end of next year come off. Both of those were in discussions at. Various stages with those two customers to get to extend them or to renew or enter into new contract. The structures are going to be similar. To what we’ve done in the past. They’re going to be exposed to the market. But there’s also some measures of protection that we’re looking at for ourselves and security obviously that the customer is looking at for themselves. So more to come. But that’s a part of our ongoing process.

Neal Sheorey

And Ben, this is Neil, if I can just circle back to your prepayment. I think what I was hearing is you were asking something about the price that kind of underlies the prepayment. I just want to highlight and we said this when we struck the deal back in the first quarter. It’s market indexed so I couldn’t quite hear your question. It sounded like you were asking if it was outside of the market. It isn’t. It is. The, the way the mechanics work is. It’S linked to the market.

Ben Callow

Okay. And you know, you guys had the grace. I think you said early redemption and that that’s a good lever for the balance sheet. Is there anything else like dividend or anything else like if we stretch the 27 where like your, the chart shows pricing still where it is or there’s excess supply, are there other levers like the dividend or anything else that you pull for cash?

Neal Sheorey

Well, Ben, I mean, this is. Neil, again, that’s exactly what we’re working on every day here is we, we are constantly pulling on all of these different levers. Whether that is capex, whether that’s cost savings, whether that’s productivity measures, pumping more volume out of our plants so we get better fixed cost absorption. So the simplest answer to your question is yes, there are definitely additional levers that we keep working on to make sure that we can, we can generate a strong cash performance. In this case, we had a unique moment where we were able to do the pic redemption.

But you know, this just highlights that we’re looking at all kinds of things that we’ll work on. Traditional and non traditional. That’s right. But we’re, I think the message we want to leave is that we’re pretty focused on it. Yeah.

Ben Callow

Thank you very much, guys.

operator

Our next question will come from Arun Vishwanathan with rbc. Your line is open.

Arun Viswanathan

Sorry about that. Thanks for taking my question. Hope you guys are well. Yeah, just wanted to ask about the guidance as well. You know, looks like midpoint of your scenario is, you know, still about 900 million, which kind of implies a pretty low EBITDA level for the second half. Could you just walk through some of those dynamics, I guess on the pricing and volume assumption side? Or is there. Yeah. If you’d add anything else as well. Thanks.

Neal Sheorey

Arun. This is Neil. I can start. And if others would like to add on. It really is. I hate to be repetitive, but it kind of goes back to some of the things that we said on the Q and A. It really is a mix effect as we kind of move through the quarters of the year. I think the important thing to start with is we are still hanging on to those modeling guidance ranges. Even though pricing has kind of dribbled down in the first half of the year, we still, if we draw the pricing across for the rest of the year, we’re still holding onto that, that range because of all the things that we’re working on.

But yeah, just the way things have worked out, we’ve just seen stronger demand on our energy storage contracts in the first half of the year as we move through the back end, back half of the year, we’ll see some of that not quite as strong but really it’s just been that some of the volume has been more in the first half than it has been in the second half. It’s really nothing more than that. And then outside of, outside of that, in terms of things in our control, we have been going much faster on our cost and productivity actions.

We’ve been ramping our plants, I’d say even better than what we expected. So it’s really the confluence of all those things that lets us, even in this low price environment to hang on to those, those ranges.

Kent Masters

Yeah. And just to and reiterate on that, I mean the price has moved down from when we were doing this in the beginning of the year and we’ve held on to those ranges at, even at this price range. So it’s the second half half of our, our book of business is roughly exposed to the spot market. And so as that drifts down it gets more difficult and the actions are offsetting that. So that’s how I would describe it.

Arun Viswanathan

Okay, apologies if I missed this earlier. You mentioned that you do think more capacity could come offline.

I guess. What do you expect to see there over the next six to nine months? How much of capacity is say on economic and are there any further comments on inventory levels that you could share as well? Thanks.

Kent Masters

Yeah. So look, we’re not going to speculate on who might come offline. I mean that would be complete speculation. So. But we do know people are under a lot of pressure out there and the ones you would look at are people that are have one asset, that’s the only way they’re generating cash and they not generating cash now.

So if they are or startups that are trying to start up and are not getting the revenue when they anticipate it. So those are probably the ones that I would look at. But we’re not going to speculate on who might come out.

operator

Our next question will come from Kevin McCarthy with Vertical Research. Your line is open.

Matthew Hettwer

Hi, this is Matt Hatler, I’m for Kevin McCarthy to maybe frame the supply question in a different way. Where would you estimate that global lithium operating rates were in the second quarter and where do you think they would need to be to restore pricing power in a sustainable way?

Kent Masters

So look, we know on a convert hard rock conversion in China operating rates are about 50% so there’s way excess capacity in conversion. So then it brings it back to the resource and that’s what we talk about, people coming offline. So I’m not sure when the, what the operating rates are.

I mean, they’re pretty high and people are, you know, they, and that’s how you kind of operate mines. They need to operate that way, otherwise they become big problems from a cash standpoint. So conversion has a very hard rock conversion, and that’s all pretty much in China. We, that’s, that’s a known figure. It’s about a 50% rate. So there’s, there’s a significant overcapacity there. That means you need to look at the resource, and those are probably operating pretty high.

Matthew Hettwer

Okay, thank you. And then regarding your lithium demand forecast, you left it unchanged at 15 to 40% for this year.

And given that more than half of the year is in the books, why did you decide to leave the estimate so broad, you know, other than tariffs, you know, what’s driving the uncertainty and that you didn’t feel comfortable narrowing that range?

Kent Masters

Well, there’s a lot of, I mean, there’s a lot of uncertainty. I mean, tariffs are part of it, but you got regulation in multiple jurisdictions around that. So US has been a little weaker. Europe and China has been stronger. So that was our forecast at the beginning of the year. And with all of the uncertainty that we saw, frankly, none of that uncertainty has gone away.

It may have broadened a little bit, but given the environment we’re in, that’s the forecast that we see. It’s been, and it’s been puts and takes right. US Looks a little bit weaker than we’d originally anticipated, but Europe and China are significantly stronger and the energy storage market is significantly stronger than we’d anticipated early on. But there’s still a lot of uncertainty. So we, we just, we’ve left the range.

Matthew Hettwer

Okay, thank you.

operator

Our last question will come from Patrick Cunningham with Citigroup. Your line is open. Hi, this is Rachel Lee, actually on for Patrick.

Rachel Lee

Can you dive deeper into the 400 million house and productivity savings achieved and what are expectations for incremental savings in the back half and into 26?

Kent Masters

Oh, so the cost. Okay, sorry, I wasn’t sure that I heard that. But yeah, that’s pretty much just the program that we put out. Neil, you want to talk about some of the detail?

Neal Sheorey

Yeah, sure, sure. So, you know, first of all. A. Decent part of that, if you remember, it’s not quite 50 50, but we had put out a target of, you know, a certain amount of this was going to be headcount related, SGA type of savings and we went after that very, very quickly. And so that is something that we obviously worked on, you know, sort of rapidly as we were exiting last year. And then another chunk of that is a manufacturing cost and productivity set of actions. And that one, we have been progressing that really well. And obviously now one quarter on in here through the second quarter, we’re now getting a lot more traction around that.

That’s what’s really allowed us to sort of push to the high end of this range. So we’re just doing, you know, block and tackling around this, just working on all of the different things that we have in the pipeline around cost out and productivity and just going after those things. In terms of going forward, it’s a little early for me to say where we go beyond 400 million. I think you heard Kent say earlier on the Q and A, we’re not stopping here. We’re continuing to look at what we can do from a cost standpoint, from a capex standpoint.

A little early for me to give any, any commitments on that. But we’re still looking at that obviously in this environment.

Kent Masters

Yeah. And I would say our process for taking this on and building a culture around cost out, I think it’s, it’s quite mature in the manufacturing space, less mature in the other areas. So supply chain a little less. The broader supply chain for manufacturing a little less mature. Kind of our back office processing, getting cost out of that is less mature than that. So we’re, we’ll continue on manufacturing and then we got to build the capability to be stronger in the other areas. So a lot of what’s come out of this now is overheads and quite a bit from manufacturing.

It’ll probably start skewing toward the other directions.

Rachel Lee

Got it. Thank you, that’s very helpful. Just another quick one is you’re now guiding to free cash flow positive. What are your expectations for working capital. In the second half?

Kent Masters

You know, look, generally speaking, as we get into the second half of the year, that’s obviously a little bit of the higher season, particularly in the lithium business. And so I would expect working capital to be actually a tailwind to cash you probably have seen so far this year. It’s been a little bit of a headwind as we’ve been building up to the high season. So I think the combination of that plus obviously pricing is slightly lower too. So there could be a little bit of a release of working capital. So net net. I do expect working capital to be a source of cash as we go into the back end of the year.

Rachel Lee

Got it. Thank you.

operator

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

Kent Masters

Thank you, operator. And as we conclude, I want to acknowledge our team’s quick response and the ability to execute in this fast changing market. These are the qualities that drove our strong results this quarter and the ones we’ll lean on going forward and will help us sustain our long term competitive advantages and preserve growth optionality as markets improve. Thank you for joining us today. We look forward to seeing you face to face at the upcoming events. I think those are listed on slide 18. But thank you for joining us. Stay safe and take care.

operator

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