Interview with Eric Norris, president of energy storage at Albemarle Corporation | Fast Forward podcast episode 5 transcript

You can read the full transcript of our interview between Andrea Hotter and Albemarle Corporation’s president of energy storage, Eric Norris, for Fast Forward podcast below. Or, listen to Fast Forward podcast on Spotify, Apple Podcasts, Amazon Music or wherever you get your podcasts.

Full episode transcript

Andrea Hotter [AH]: Welcome to Fast Forward, a podcast by Fastmarkets. I’m Andrea Hotter, special correspondent at Fastmarkets, and we are now into the fifth episode of our series focused on the critical minerals essential for the world’s energy transition. If you’re listening to this episode, then I know you would also enjoy episodes one to four, which are available to download on Apple Podcasts, Spotify, or wherever else you get your podcasts.

Now, today we’re going to be talking about something that can definitely be considered critical to the shift away from fossil fuels, and that is lithium. That’s because we need to produce lithium-ion batteries, which are crucial to batteries in electric vehicles and energy storage systems.

It’s even been called white gold as a result. But, prices have been on a turbulent journey, the supply chain remains heavily reliant on China, and the uptake of electric vehicles has faltered of late. So, who better to talk about all of this with us than Eric Norris, the president of Albemarle Energy Storage.

Energy storage at one of the world’s largest lithium producers. Eric has a background in specialty chemicals and joined Albemarle in 2018 as chief strategy officer. Later that year, he became president of the lithium global business unit, which became the energy storage global business unit in January, 2023. Eric, thank you for being here.

Eric Norris [EN]: Andrea, thank you so much for having me. It’s a pleasure to be here.

AH: I understand you’re in my hometown of London at the moment.

EN: Yes, we’ve swapped locations. I’m in London, but you’re not, so how about that?

AH: Yeah, I hope the weather’s treating you better than it was when I was there last, anyway.

EN: No rain, overcast, and a lot more pleasant temperatures than the southeastern US, I’ll say that.

AH: Okay. Well, that’s good. That is good news. So, I don’t know whether this is going to be good news, though. Let’s start with the lithium markets. It’s been a very volatile time for lithium, to say the least, although prices are doing a little bit better than they were at the start of the year.

I found the sentiment at the Fastmarkets Lithium and Battery Raw Materials Conference in Las Vegas seemed relatively lacklustre at best. Is that how you’re seeing things? What’s your view of the markets?

EN: It’s been a challenging time. I think it’s always important to keep perspective. We’re big believers in the energy transition and see this as a long-term growth trend.

Yet we’ve hit a speed bump, particularly in the Western world. If you look at EVs themselves, which is the big driver for us, our business, those of the whole industry. We’re still, as an industry, growing north of 20 percent in terms of EV sales, but the mix of that’s very different. And if you look at North America and Europe, they’re much weaker than expected, although still moderately growing.

Most of the growth’s in China through the portion of this year. And as you indicated, with that lower the demand than expected, we’ve seen prices fall quite a bit too.

AH: Do you think prices have bottomed? I mean, is there room for them to fall further? Are we there yet?

EN: As a company, we just reported our quarter. And at that, it was a strong quarter because of the growth we’ve had in our own volumes. Admittedly, those selling prices were a lot lower than they were a year prior. I can’t tell you if they bottomed. They’ve been unpredictable. I will tell you that they are below marginal cash costs and well below incentive cash costs. If you consider a Western expansion, even a China expansion now is questionable at these price levels.

I think for an industry that has to grow significantly, see demand growing two and a half times between now and the end of the decade, we’re going to need to see better incentive pricing, or we’re going to risk slowing down the energy transition, which is not a place we’d want to be. But again, economics have to support our growth.

AH: Right. This begs the all important question. Is anybody actually making any money at this price? As you just said, who’s going to expand in this market?

EN: I can talk to you about Albemarle and use that as a reference point for the industry. Where we are advantaged is in our low-cost resource position. And if you look at those resources, we have both brine and rock. We measure profitability at the resource level first and measure our returns and investment at that level. So hard to do for brine because there’s no market for brine, but there is a market for spodumene. If you look at spodumene prices and look at our cost position, we’re generating healthy EBITDA margins in our low-cost resource space.

However, the next step, we measure profitability from that resource to the customer in form of lithium salt. That’s where there’s a lack of margin. And that’s where frankly, a lot of capital needs to go. But even in China, but especially in the West, it’s hard to earn an acceptable investment return at that level right now with where these prices are.

What it comes down to is your advantage if you have a low-cost resource base, your further advantage if you have process chemistry know how. But even still at these prices is challenging.

AH: One of the consequences of those softer prices, and you’ve touched on this already, is that starting last year, we saw a variety of measures undertaken by companies revising down production guidance, delaying expansion plans for lithium projects or ceasing production altogether.

So I’d like to know, do you think these are the long-term prices that we should get used to? We’re talking about, we will need higher incentive prices, but should we be getting used to these? And what does that mean for projects if we have to?

EN: Well, I’ll tell you, and you’ll hear me say this several times from our perspective at Albemarle. We’ve got to remain agile in this market. It could be lower for longer. Prices could be lower for longer. Certainly, at the beginning of the year we thought that might just be a 2024 phenomenon. It appears it might be longer than that. The second thing is leverage those competitive advantages I talked about.

That’s a key foundation for us to move forward. Then finally, it’s to be ready to pivot when the market shifts. So, I think companies need to figure out how to survive in the short term in this environment. I don’t think the price levels are sustainable for the growth that we’re seeing. Ultimately, they will improve. It’s just, I think we’re going to be in a period of time where It’s all about how to be competitive in this sort of environment, which is a focus that we have at Albemarle.

AH: Well, let’s dig into some of those projects at Albemarle just a little bit. I’ll start with January when the company deferred spending on a lithium refinery in Richburg in South Carolina, and also at the technology park in North Carolina.

Was this a response to prices and market environment, just as we’ve been discussing, or was there a more strategic reason going on, especially around hydroxide?

EN: No, I would tell you that the decisions we made in January were a response to market conditions. If you look at where we ended last year, we ended position for significant capacity growth.

We’re going to see the benefit of that out of some of our assets in Asia and in Chile. But we further had investments planned in North America. This is all about pivoting west. Providing a supply chain for security of Western companies for global diversity. And yet, we also have to be very mindful, of course, of our balance sheet and the market that we’re in.

As a result, we pulled back on the investments that were much earlier stage, that hadn’t really gone out to shoot yet, or had significant capital commitments associated with them. And that included the US investments. Which we believe is still promising. As you know, we continue to invest and sustain the permitting process for King’s Mountain Mine, which is a low-cost resource.

But as I told you a moment ago, that next step, which is pretty capital intensive, we’re seeing very low returns, which is in chemical conversion. We’ve paused that at Richburg. As well, we’ve slowed down some of our technology investments, at least in terms of the size of what we’re doing. We’re still investing heavily.

We have a research facility at our Kings Mountain facility. It’s really a three-part site. It’s got a mine, it’s got a chemical plant, and it’s got a research site. That research is ongoing. In new chemistries and new processes to continually strengthen our competitive advantages, but we’re going a little less fast than we were before. So we paused on a larger site that you referenced also in the Charlotte area.

AH: Kings Mountain, just for those who may not know, is that’s a mine in North Carolina that was closed in 1988, I believe, and that you’re in the process of restarting.

EN: At one time, that region, ourselves and one other produced, that was the world’s largest source of lithium.

Or at least the western world’s largest source of lithium. From the beginnings of the Manhattan Project, believe it or not, when lithium was strategic for the Cold War. And what’s old is new again in the case of EVs. And as a result, that resource now is probably a top quartile, if not a top decile resource. As the industry has grown and lower costers like Chile have been exploited in the case of the Atacama. This is the next best resource and one we really do want to bring to market.

AH: Okay. And then I’d also like to turn to Kemerton. I can’t let you off too easily on that one. So that’s obviously the lithium hydroxide processing plant you have in Australia.

Now you made some tough decisions there recently. You stopped construction activities at Train 3. You put train two on care and maintenance, and you said you would focus on the continued ramp up and qualification of train one. Can you just explain why?

EN: Kemerton is a first of kind plant of its size and nature, in terms of being a 50,000 ton, at least the existing trains one and two, the largest and one of the few such spodumene to salt conversion plants outside of China in the world.

As you will know, Australia is also a source of diversification, certainly, from northern Asian locations and one that has free trade relationships with the US, which in today’s more tense geopolitical world has a lot of advantages. These all account for why that’s a great and strategic location for us.

It has, however, been a challenging project, largely because it was built during COVID, which posed its own unique set of circumstances. But it’s also one that is higher cost in this price environment. And I wouldn’t single out Kemerton, Richburg or any other facility of its kind in the West, in developed regions, Australia, North America, Europe would have a similar profile.

It’s in general about three times the capital cost, and similarly about three times the operating cost, excluding the spodumene, to run these plants, and in this environment, it’s not as economic, yet we also need to keep a foothold and build upon that. So, this is a scaling decision. This is about pulling back and saving some of our costs that we’re generating to be competitive to the cycles I talked about.

Well, at the same time, continuing to prove it out on one train there. So, we’ve idled the second train, we’re running the first train, and we’ve stopped construction of three and four, also because of the economic conditions. So, it’s really a further response to what you saw in January. We’re going deeper, and we’re going deeper because I think we see this price situation lasting longer. And our aim with our advantage is to be competitive through the cycle.

AH: And what does that mean for the spodumene that Kemerton was due to process from the Greenbushes mine?

EN: One of the things that this will allow us to do is process that spodumene through tollers who are largely in China. So this will be a lower cost route to market.

It will also give us some flexibility. You referenced hydroxide. I think you were hinting on the chemistry choice of battery producers and automotive producers today. There has been a shift towards more chemistries that can be made with carbonate or may be preferred to be made with carbonate. And by sending that spodumene into a toluene network that can also make carbonate, This will gives us more product flexibility as well.

AH: So, are you going to be able to give me some good news from China, from the Xinjiao and Meishan lithium processing facilities?

EN: Oh, it is spectacular. I would love to welcome you or anybody to our site in Meishan in particular. Xinjiao is also a great site, smaller site, one we acquired. Meishan is one we built from the ground up. It was a greenfield site, and by most engineering teams accounts, and these would be engineering and APC firms in China, they’ll tell you it’s the fastest to ramp from commissioning to qualified product they’ve seen within China. It is a world class plant. It’s modern, it feels and looks like something you can see in any part of the world, with degrees of sophistication in terms of how the plant is run, the looks of the plant, quality of the products we make.

We shipped our first customer product late in the second quarter, well ahead of what we thought was possible. We only started commissioning that beginning of the year. So very excited about the progress of that plant and proud of our China team for what they’ve been able to do.

AH: If you think across the projects, refining is hard. Not everybody gets it right. It’s obviously going right for you there. Why do you think it’s so difficult to get right? So many companies are struggling.

EN: Well, I think it is fundamentally a chemical process. A lot of people who approach this industry approach it from a mining experience base, because this is also a mining critical industry.

But you need to have chemical processing know how to do this, for one. And if you go into parts of the world where you may lack some of that infrastructure, that educational base, that knowledge base, the vendor base that supports it, Western Australia is a good example. It may take longer. Other producers in Western Australia are having similar challenges, and it’s largely because of the skill and expertise that’s there.

That’s one factor. Another factor is that it’s actually pretty demanding to make to the customer specification that prevails today. And that spec is continuing to evolve. So it’s really finally tuning a process around the level of impurities, the morphology and particle size of the product, to the exacting demands of what a cathode and battery producer need to ensure a safe battery that they can warrant for 10 years of operation.

And that puts a big demand on the quality standards of what you make. So it’s difficult from a processing standpoint. And then I think the last factor would be capital intensive. These are large chemical plants, lots of steel in the ground, lots of unit operations to be strung together to produce this product.

And that capital intensity means you’ve got to have the funding to support it. For all of these reasons, whether it’s access to labor, the demanding nature of the making the product and or the access to capital, I think a lot of the industry has struggled with it. A lot of those things are muted or addressed in China. China has a strong talent base in this area. They have a great supply chain and know how in the region to do this. Design institutes, local vendors, and the like. And then finally, the capital cost is about a third of what it would be anywhere else. So, they’re advantaged in that regard, and they’ve taken advantage of that. Actually, not just in chemical, we’re finding all the way down the supply chain, right through to batteries.

AH: Yeah. China certainly seems to know what it’s doing as is demonstrated by its strong position in the market. We’ve talked a little bit there about Albemarle’s projects. Let’s talk now about the broader supply side of the market.

We’ve seen a lot of attention paid to Africa with new capacity coming from countries, including Zimbabwe and Namibia and much more planned. It’s been coming on hard and fast. Do you think Africa is going to be the new growth area for 2025, as some people predict? Or do you think these current prices, as we’ve just been talking about, might deter investment and project development?

EN: When you say Africa, it’s like when you talk about any region. Not every project in Africa is equal to the other. Africa has some great resources and projects based upon those resources. By great, I mean large in scale, high grade. Such that the geology and the formation of the minerals in the rock lend themselves to a low-cost operation.

Now, some of those are in challenging regions, either conflict regions, regions where there are strong nationalistic tendencies where it might be challenging to work with the government, so getting a social agreement in place may be challenging, and are remote, so infrastructure, getting the product out plays a role.

Those are all things that will vary, obviously, because it’s a large continent and there’s a large geographic area where these resources are found that encompasses several countries. So, certainly some reveal it’s an area where Western companies have been challenged in the past because of some of the corruption and just overall ESG issues around operating and the standards that many companies like Albemarle have means we were just not comfortable going into regions like Africa, but many Chinese companies have. Africa you can think of as being a region that’ll very likely be a key supplier to China as China continues to grow out its energy base, its energy storage infrastructure.

AH: And obviously I’d also like to turn to the rapid growth in China in lepidolite production. Now, listeners, again, if you’re not familiar, lepidolite is a hard rock lithium bearing mineral that sits at the higher end of the cost curve. Eric, the view seems to be that despite the higher cost of this lepidolite production, Chinese producers will continue to grow producing it because they can offset losses with profits that they’re making elsewhere within their group. They’ve got effectively some flexibility to weather the storm. Do you agree with that opinion?

EN: I would say that lepidolite is very much, as you put it, high on the cost curve. There isn’t a country in the world that doesn’t have a serious focus on the energy transition. That isn’t thinking about how they advantage their local resources.

And China’s are different. And China is very aggressive in this regard in supporting its industry. Whether it’s subsidies and they exist around the world, not just in China, or it’s various forms of government support are important to keep the resources going. And then there’s also some forms of private enterprise, folks that are integrated, that are backward integrated into the material and the profits they earn in that part of the supply chain are less important than the profits they earn downstream in batteries or in automotive production.

So, they’re able to take advantage of profits elsewhere to subsidize profits there. My personal view on lepidolite is it’s a transitional resource. The aim of the companies that are operating them is to gain access to resources in places like Africa, or other places that might be more sustainable, might be lower cost, might even be more environmentally friendly.

I think one of the challenges of lepidolite are the tailings are In some regards, toxic. So there are some real challenges in operating it. But until that time, I think it’ll remain a supported resource in country to aid the transition.

AH: I would love also to know what you think about the entry of oil companies to lithium. The biggest to date is ExxonMobil. Do you think big oil could come in and just take over the sector, really dominate the upstream supply chain? Because it’s a real step change in just the past couple of years. Even when you attend a conference, there are a lot more oil companies there at the lithium event than there ever were previously.

EN: I think the good news about that is that the energy transition is being legitimized by those who are voting with their pocketbooks and who have a huge investment. So they see what’s coming. They see the future. It’s validating of everything we just talked about. So, when we sit here and talk about, woe is me, EV sales aren’t as strong in North America and Europe as we thought.

Maybe support temporarily has waned, either at a consumer or government level. It’s a speed bump. However, I think of all the things that they offer, and coming into this industry, obviously their biggest strength is their size and their experience in executing capital projects. So, when it talks about efficient capital execution, having a balance sheet, those companies have that capability.

Absolutely. But go back to what I was telling you before, in which I said, I might say a few times, the advantages that we’re pursuing are one to be agile, to expect prices to stay lower for longer and being able to operate competitively at the bottom of the cycle. And then also to leverage the competitive capabilities that you have to, in other words, have low-cost resources and processing technology.

So I think if you look at the oil companies for them to be players in the industry, they’re going to need to gain access to one of the key competitive advantages that others have, which is low cost resources. Smackover formation is a large resource. It’s not a very concentrated resource. It’s not a low-cost resource. It will require technology. Yes. That technology is often referred to as direct lithium extraction technology. It’s something we know well and are looking at in the smackover formation because of our bromine operations and we’re already there. We’re also looking at it importantly in the slurry to Atacama to enhance our yields and produce more from existing pumping rights that we have there.

And so it’s an important technology, but it, it enables something in low grade resources like the smackover formation where previously you could not extract lithium. It’s the only way to get to the lithium there. And I think it’s a good way to build a technology base. But to be serious in this industry, you need access to low cost resources in the long run.

We’re in the early stages of the oil companies looking at this space. They’re leveraging known capabilities they’re having in pumping and drilling. We’ll see where that goes long term.

AH: Well, as with anything, a really fast way for oil companies to get involved in lithium is through M& A. Now, we’ve seen a little bit of M& A broadly in the sector. Do you think there’s going to be more?

EN: You know, it’s interesting. I’ve been in and around this business for 15 years or more now. And I will tell you, when I came into it, it was a much more concentrated industry than it is today. With the rapid growth and excitement around it and the need for mining expertise in particular, because the legacy producers would tend to be more chemical producers, you’ve seen a proliferation of companies involved.

So, it’s become more fragmented. The supply base is incredibly fragmented today. Some of that’s the nature of the resources. The resources tend to be smaller. They’re not large mega resource like you see in iron ore, perhaps, or copper, but part of it is Just the evolution stage of the industry. I think consolidation will invariably occur like lithium prices I just can’t tell you when, when lithium price will go up or when consolidation will occur, but I think it’s inevitable. Look at us. We’re the largest in the industry and we’ve survived as a company at high profit levels in at price points that are lower than they are today. The challenge we have is how to do that going forward and keep spending on growth.

And obviously, we’ve had to pull back a bit. So size matters. Size of balance sheet matters. We have one of the biggest in the industry, and we have to be cautious on how we exercise things. Now take an even smaller producer. You can question whether they can survive at prices like this long term. You’re going to need bigger enterprises with bigger balance sheets for sure in time. I just can’t tell you when that will occur.

AH: Yeah. I was going to ask you about Albemarle’s position on M& A, obviously we saw the Liontown bid last year. Are you planning to get involved again? Any approaches or discussions you’d like to tell me about just between us?

EN: Just between us? A little secret?

AH: Yep.

EN: We have an active pipeline of things we always are looking at, and we’ll always consider that as an avenue. It’s been at multiple points in our supply chain, so it’s been things like going to the very beginning of the supply chain, it’s resources, and Liontown was an example of that. The decision we made on Liontown at the time was a prudent one in retrospect, a very prudent one in retrospect.

We were going forward at a very full valuation on a good project that actually, as we learned more about it, may have not been as quite as strong as we thought. And at the price we were paying in the market with what was happening in the market, You look back and you say, okay, okay. That was a good decision, but we’ll continue to look at resources.

We’ve made a small investment in Patriot battery metals in Canada, and we have active projects at even earlier stages where you’re just acquiring a concession of land and a few people doing work. So we have a range of various levels of how we look at resources. Conversion is another. We’ve done well by buying conversion.

Those assets today only exist, however, in China. And obviously we love our China business. We love being a big partner to Chinese companies and having that Chinese supply base in the world’s largest market for lithium. However, as the market grows, we want to have capacity outside as well. That acquisition opportunity is less obvious now outside of China in the conversion space.

And then the third area of acquisitions, what we would look at is technology, whether that’s a process technology, direct lithium extraction, or even technologies that will enable the future batteries, which I think is most exciting. I mean, I think we’ll look back a decade from now at what we have today and sort of say, wow, those are pretty simple chemistries we were working with.

If you look at come of the innovations that are in the pipeline today around solid state chemistry, lithium metal anodes, and the energy density they provide is truly revolutionary in terms of what it’s going to do for transportation and any other forms of e mobility.

AH: Watch this space then. Okay. So now we’ve been talking about supply. I’d like to discuss the demand side of the equation. As I mentioned earlier, lithium’s role in battery means electric vehicles are central to the demand story for the sector. Before we go on though, a personal question for you, Eric. Do you drive an electric vehicle?

EN: I do. I’m on my second one. So yes.

AH: Very good. Good to see you putting your money where your mouth is, as they say.

EN: And I’m proud to say I came to my hotel in London today in an electric car as well. It’s funny, you, you hear about electric vehicles in the US. They talk about, wow, I don’t know. I think this trend, maybe it’s not going to happen. The average consumer might feel that way.

And then you come to Europe. The first thing you get into an electric vehicle, because frankly, petrol cars aren’t very welcome in the city of London.

AH: That is true. It is expensive to drive them there. Okay. So, we can appreciate why electric vehicles are a key part of the energy transition. But as we’ve touched on earlier, growth in their sales has stalled over the last six to nine months.

The early adopters have come in, the corporate incentives have. plateaued. As you mentioned, it does depend on where in the world you are. US and Europe are struggling with sales. China, not so much. We do seem to be operating in phases. We saw a period where there was demand for electric vehicles, but not enough supply. Now there’s enough supply, but demand is slowing. So what’s next? Where do we go from here? What does the rest of the decade and the 2030s look like for electric vehicles?

EN: So much of this, Andrea, is wrapped into government policies. When I was at the Fastmarkets conference in Las Vegas, we talked about building a US supply chain and what it would take in order for a domestic, whether that’s domestic to Europe, domestic to the US, automotive EV base is dependent upon a domestic supply chain. The preference of any supply chain is to have it as close at hand as possible. And to provide that synergy, proximity and collaboration that comes from having your vendors right next to your automotive plant, and having the whole supply chain, not just a part of it.

That government will and support, there’s been attempts to go after it. But if you look at things like the IRA and the 30D credit, which is the consumer credit, I remember at last year’s Fastmarkets conference in Amsterdam, I sat on multiple panels or attended panels where people saying, woe is me from a European perspective? Why couldn’t we be more like what they’re doing in the U S and have this strong carrot approach versus a stick approach to EVs. What’s interesting about those credits is that they stay at the bottom of the supply chain, meaning at the point closest to the consumer, as they should be. So they allow a level of affordability to the consumer and a benefit to the OEM producer.

But half of that credit Is dependent on the critical raw materials all the way up the supply chain being produced either in country or in a free trade friendly country. Yet none of that sent of any of that benefit goes to such producers on product. So the big question we talk about the future. I believe we’re still going to be in somewhat of a global economy where there will be parts, components, pieces, products coming from various parts of the world, including Asia, including China, but with the tariff regime that’s been set up today, that’s getting more difficult, and yet the supply chain in the countries themselves, the European countries and in the US is a far shadow of what it looks like in China or is just not as capable to enable this transition. My biggest challenge of what the future looks like is that I would like to believe I’m an optimist that we will have better global collaboration, less tariffs, less hostility. But also stronger regional supply chains that comes from each region of being able to supply a significant amount, if not a majority of its needs from its own network or potentially even in country.

If that should happen, then I think we’ll have a very healthy energy transition, a very strong growth that I think, as I alluded to earlier, will go to technologies that are even more advanced than what we have today. We see demand growing two and a half times. One of the most important measures of what the future could look like.

It’s the U. S. dollar, 100 a kilowatt hour benchmark. China now is below that benchmark. And that benchmark is considered the parity point between EVs and ICEs. China’s below that mark. Provided the US and Europe continue to invest, they will get below that benchmark as well. That’s the tipping point. At that point, it doesn’t make sense to drive an internal combustion engine car any longer.

It’s all about electric vehicles. So I think it’ll happen. We’re just going to have to make the right decisions, the right investments around the world to do so. You need the right incentives, whether that’s support from the government or the right sort of economics from a pricing standpoint to support it.

AH: For sure. And you’re going back again to that same point that you made earlier that the West needs to become more competitive against China because China’s always cheaper when it comes to lithium. I think that seems to be an obstacle. The idea of everyone working and collaborating though, I’m not sure whether we’ll ever get there because there seems to be such a push amongst regulators to move away from and over reliance on other countries, which in this case is China because it dominates the battery raw materials supply chain.

EN: And the energy transition is more than just about the transition. It’s about energy security and who has the technology comes down to even national security becomes important. So I think you only get there when everybody’s got sufficient capabilities such that they can look across the ocean at one another and get along because they both have their own supply chains.

We’ll have to see. The energy security is what drives a lot of the policy. I think if you look at private industry, there’s far more collaboration with Chinese producers and vice versa than the public narrative might lead you to think. However, national security becomes the prevailing issue we have to be attentive to and that’s what drives a lot of policy right now.

AH: Yeah, absolutely. So just because you mentioned the Amsterdam conference last year, I’m just going to cheerlead a little bit for Fastmarkets and mention that everything we’ve been discussing today will be featured at the Fastmarkets European Battery Raw Materials Conference in Amsterdam again, which is coming up on September the 16th to the 18th. So set your diaries and hopefully we’ll see you there. Now Eric, you’ve been touching again on this. Thanks. The price. So a consequence of this reliance on China is that the lithium price is obviously very closely linked to China. You talked about regionalization of pricing. Is that the impact that we’re seeing given the operating costs outside China are higher?

EN: If we’re an immature market, one of the things that I know you’re aware we’re doing is we’re starting to do a lot of closed bids, a lot of experimentation. It’s really discovery on the pricing front. Part of that effort is to understand the value of a product, whether that’s how it’s made from a sustainability standpoint, where it’s sourced, what specification it has to see if there’s any differentiation there and to better be able to sell to the market in that regard.

But there’s a lot of debate. I know in the Las Vegas conference, there’s a whole panel. And I think more than half the panel thought. It’s going to be a commodity and whatever the price is set in China. That’s the price everybody else has to deal with. At least that was a prevailing view that I heard while I was there.

We’ll have to see how that plays out. I think the U S has to, and I can tell you that Albemarle ourselves, our focus has been to build lower cost means of executing capital, to drive certain technologies, to take out operating costs. As I said, we have access to low-cost resources. None of them are in China. They’re all based in free trade countries, in fact, to the US or Europe. So we have an opportunity to leverage that low cost base. We just have to be much more efficient, but as a company, and I would argue the industry and how we get that into the market.

I also think there’s a real value on sustainability, ultimately, how the product is sourced matters in a market like this, it’s hard to see it and frankly, hard to get it right. There’s just not a lot of product that isn’t that is made outside of China. So I would argue we haven’t seen enough yet to know how product is valued in different regions. But if you look towards other industries, there are value differences between inside one country, in this case, China and outside prices exist, there are multiple benchmarks for that.

So, I think it comes down to leadership and an understanding and differentiation in the marketplace. That’s a challenge I think we all need to take on.

AH: You mentioned the closed bids, you’re referring to the auctions there for the spodumene and lithium products. Can you. Tell me a little bit more about those. What’s the strategy, how the auctions work, who can participate?

EN: Yes. So what we’re doing is really for a couple of reasons. One is for just discovery of understanding the market. Two is to tap a part of the market we haven’t tapped before, which is the trading side of the market to get to know that group of people.

And three is to prepare for a future, a future of futures, so to speak, where products can be hedged. There’s a liquid enough market where you can hedge price risks. So for all those reasons, we see as the market develops an opportunity to get in early to understand how these mechanisms work. Most of our business done under contracts.

And even when we say we do a spot deal, that’s a one-off transaction between two parties at market price. That is not a true trading exchange mechanism. So, what we’re doing is learning more about how that works in order to prepare ourselves for all those three things I talked about, being able to work with traders, being able to trade ourselves, being able to work with, uh, and consider hedging strategies, and then to understand how we can differentiate one product from another.

They’re not really auctions. I call them closed bid for a reason, because what we do is qualify who’s going to be involved first. For compliance reasons, and to ensure transparency and confidence and trust in what we’re doing, we go through a rigorous process to qualify people, where they go through a compliance process.

And we’ve rapidly expanded that, so we’ve got quite a large group of folks inside of China, outside of China, around the world, who participate in these bids. They learn what the winning bid is, the data ultimately gets in to one of the indices that’s out there. But it’s not like an auction where it’s open and it’s very public who won the bid or who didn’t.

It’s a little bit more of a, it’s a step towards that, let’s put it that way. But it’s a way we can do things in a control mechanism to better understand and learn.

AH: Do you have any indications on how you see lithium pricing developing, the direction you’d like to see it go in?

EN: Well, look, it’s probably too early to say, but there are differences. There’s a different value that’s associated with lithium carbonate that’s sold from a Chinese toller in China to a certain spec versus one that’s sold from La Negra plant in Chile. There are differences and I think it’s understanding what the market values and seeing if there’s a, Again, an opportunity to differentiate or better price products.

It also will help us understand how we want to grow and where we want to grow our footprint. How valued is sustainability such that a higher cost processing technology, would it be worthwhile? Or operating a certain region would be more beneficial. So I think there’s good data that comes from the process itself.

AH: Yeah. Absolutely. Fastmarkets itself, you touched on sustainability there. We’ve launched weekly price assessments for battery and technical grade lithium hydroxide and carbonate in the US and Canada. We talked about regulation and the regionalization of prices. Are these factors creating the need for premiums in order to demonstrate that price differentiation actually does exist? Do you think premiums are going to become a set in stone factor of doing business in the future?

EN: Well, I don’t know. We’ll have to see. I think that’s part of the discovery process going through. If you looked at the market today and look at our strong results and what is it as I, as we earlier described a weaker market, certainly than a year ago, one of the factors that contributes to our price realization relative to market is the long term contracts we have.

And the price constructs within them. Now they’re variable. The price moves according to an index, very often a fast markets index that’s moving against on a lag basis, but there are collars around that in a way at this point in the cycle that provides a premium. It’s providing protection for us. What we’re saying is to that customer, we’ll build this plant and provide you this product.

We’re just asking for this level of price protection. And very often they’re asking for price protection the other way because they’re making investments that they don’t want to render uneconomic because of high lithium prices. So that’s the basis for a discussion, but that’s differentiation as well, right? That’s writing a differentiated price. Now, is that a premium at any one point in the cycle? Not necessarily. There are going to be times when the spot price is going to be a lot higher than a contract price. That will be at a premium, but it’s providing a level of stability to ourselves and to our customers that is a form of value creation for them and for us.

And that’s why those contracts are so important. And even at this point in the cycle, I’ll say very important to sustain themselves because at this point of the cycle, there’s a lot of customers who would love to not have to pay the floor price. But the bottom line is that this is part of a long term relationship to provide stability to them and to us.

AH: And now let’s take a quick break from the interview to hear from one of our in-house experts here at Fastmarkets.

Grace Asenov [GA]: Thanks, Andrea. Hi, everyone. My name is Grace Asenov, and I’m the base and energy metals editor for the Americas at Fastmarkets. Eric Norris mentioned the increasing regionalization of battery raw material supply chains, stemming from a shift towards nearshoring, and the government policies that support that including the US Inflation Reduction Act and also the European Union’s Critical Raw Materials Act. There’s two main reasons why lithium price dynamics in the US and Canada are expected to separate from the rest of the world.

Number one, the demand picture in North America. US lithium demand is predicted to grow nearly 500 percent by 2030. And number two is the regulatory environment. The sourcing requirements to be eligible for tax credits offered under the IRA could result in a price differential, aka a premium, compared to other regions, which should be beneficial to lithium project development in North America. That’s especially important right now in this low price environment to have pricing mechanisms that reflect each region’s realities. Why would you want to be tied to prices in Asia if you’re operating in the US and the US recovers faster? Because of legislation like the IRA. So far, our US Canada prices are showing a premium versus the rest of the world. That’s not really because demand here is better yet, but because of tariffs in place in the US versus lithium imports, and subsequently the smaller pool of nations that US buyers are willing to source from. A common question for many people in the market today is, will there really be an IRA premium in the future? The market is currently oversupplied, and prices are depressed.

But looking forward, even though there is a considerable amount of raw material supply that is IRA compliant, coming from the brine production in Chile and hard rock production in Australia, for example, the problem right now is that the majority of this material is presently shipped to China for processing, which is not IRA compliant. If we look at mined versus processed supply in 2023 versus 2034, China is expected to continue to dominate in the processing of lithium. More diversity in mine supply doesn’t help battery makers because they need the process supply.

And just thinking of this now purely in terms of supply and demand fundamentals, it’s likely that there will be a shortage of IRA compliant material. That means that continued investment in strategic partnerships will be key to building a robust North American supply chain. And buyers, sellers, and traders in this region will need pricing mechanisms that reflect the true nuances of their market.

AH: And now, back to the interview. Well, Eric, it’s that time in the show where I ask you a couple of questions that we ask all our guests. The first one is, what’s one thing that we might be ignoring, but that we should be looking at, related to lithium?

EN: We talk about EVs all the time, that is the centrepiece of demand. But if you look at the new technologies that I referenced, so such as advanced lithium, metal, and the like, those have great value in the defence industry. That comes back to this national security issue. Energy storage and access to this technology is something that is increasingly viewed as strategic by governments because there are more applications than just EVs.

There’s the grid, protection of the grid, the stability of a grid. There’s defines application and the benefits that that provides and security to a country. Like warfare or not, modern warfare relies heavily on lithium in many regards. And so, there’s some interesting opportunities there because those are areas where you can see new technologies take root faster than you would in EVs.

AH: Right, right. Okay. And then other question we ask everybody is if you had to fast forward a decade, what would the lithium landscape look like?

EN: I’ll go back to my optimist view. I think you’ll have three key regions of the world, China certainly, but also North America and Europe. Within each of those regions, you’ll have a supply chain that is self-sustaining for the industry that’s in those regions.

There’ll still be a lot of global trade because there’s resources in Australia and Chile, you mentioned Africa. There’ll be places of the world that supply into that. There’ll be a series of transactions between now and then that link those resources to various countries and producers in those countries.

And I think if you think about Albemarle, we’ll be a strong profitable entity, remaining a leader in this space, both in production and resources, but also in technology as a global operator. We’re proud of the fact that we’ll operate in each one of those three key regions. That’s a strategy for us going forward. That’s the future I see, despite all the challenges you see in front of us today.

AH: Well, good to be optimistic. Now, Eric, ahead of every episode, I saw some questions from social media and post them to our guests. So are you ready for a couple of those? The first one actually had two parts and it was around direct lithium extraction or DLA technology, which I think we’ve kind of answered previously about how you view it. But the second part of it was. Do you see DLE as a potential threat or a compliment to hard rock projects?

EN: It’s a compliment. The DLE is, when it’s bandied about the industry, it feels very disruptive. It’s been practiced for decades in one form or another. And the various unit operations, some of the unit operations are practiced even in our operations today for years and you didn’t know it.

Those forms of resin selection and solvent extraction that happen in La Negra plant today as an example. It’s use in unlocking a resource that was otherwise unable to be extracted, either because it was too dilute or because the conditions surrounding it from a solar operation standpoint, were not conducive to that.

It doesn’t magically make them lower cost. DLE is not necessarily a cost lowering. It’s a value unlocking. Relative to hard rock, I would say, still see hard rock being the workhorse of the industry. It’s far easier to access through traditional mining techniques. The processing technology, as we discussed earlier, has been perfected in places like China and is now starting to disseminate outside of China into places like Australia, hopefully the US as well. Our intent in the long term is to play a leadership role in that as economics permit. But I think hard rock is a workhorse. If you look at what we expect to happen for demand, you’re going to need a lot more resources and DLE plays a role in making brine resources economic.

AH: Room for both. Okay. All right. The next question we had, is there an opportunity for traders in lithium? I know you also touched on that slightly early. It’s an interesting one because obviously we do see some traders in the lithium sector already, but nothing like in other commodities like base metals or oil and gas. What’s your view on traders and opportunities?

EN: I think as the industry grows, you’ll see that evolve. I think you’ll see traders come into the industry for sure, or grow their presence in the industry. I think they’re a vital part of the mechanism of creating. More liquidity in the market so that you can actually hedge price risk in the future.

There’s already evidence now through New York, London and elsewhere, and certainly within China as well, of people trying to build that kind of liquidity and that kind of infrastructure to be able to create a healthy futures market going forward. So I think that’s healthy for us, but it’s a minority of our business that we would put to that by about 20, 30 percent of our business.

The rest would be under long term contracts, but that portion of our business playing there allows us some flexibility in our supply chain, how we run a supply chain, as well as access to and knowledge of some of the future direction of price, as well as being able to engage in hedging. So I think trading is an important place for it to play in the development of this industry.

AH: Okay. And then finally, a bit of a fun question to end on. What is the most surprising application of lithium that you’ve come across?

EN: There are a lot. I referenced defence earlier, so I won’t go there, but I will reference the health aspects of lithium. It’s traditionally been known as a mood elevator and it’s actually the oldest known and most widely prescribed drug for the treatment of bipolar disorder.

We actually provide feedstock through a drug master file for such purpose. Perhaps what’s even more interesting about this, and a lot of people don’t know this, is that if you go back to the turn of the century when you had soda fountains that were in pharmacies and before in the US and you had the FDA or the equivalent in Europe, you had people mixing elixirs to make people feel better.

Coca Cola came out of that period of time. So did 7 Up. And I don’t know if you know what 7 Up really was, what was in it. It was lithium. The equivalent weight of lithium is 7, and the up refers to the mood elevation that it provided. Now, as you may also know, Coca Cola had early ongoings with the coca leaf, so it had its history as well.

So it’s no longer used in 7 Up, but that’s where the name comes from.

AH: I have learned something new and very interesting now, and that is a surprising application. Eric, well, thank you so much for doing this. I know it’s a really busy time for you. And as always, I’ve really enjoyed our conversation, lots of insights into lithium, I think a key one being that lithium may be down, but it is not out.

EN: That’s right. That’s right. Thank you, Andrea, so much for the time. Enjoyed it.

AH: Great. Great. Well, and thanks also to you, our listeners for tuning in today. If you liked what you heard and don’t want to miss any more episodes, Go ahead and subscribe to Fast Forward on  Spotify, Apple Podcasts, Amazon Music and wherever you get your podcasts.

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