Matthew K. Juneau - Albemarle Corp.

Luke C. Kissam - Albemarle Corp.

Scott A. Tozier - Albemarle Corp.

John Mitchell - Albemarle Corp. Raphael Crawford - Albemarle Corp.

Silvio Ghyoot - Albemarle Corp.

Arun Viswanathan - RBC Capital Markets LLC Joel Jackson - BMO Capital Markets (Canada) David Huang - Deutsche Bank Securities, Inc. P.J.

Juvekar - Citigroup Global Markets, Inc. James Sheehan - SunTrust Robinson Humphrey, Inc.

Dylan Campbell - Goldman Sachs & Co. LLC Matthew Skowronski - Nomura Instinet Neel Kumar - Morgan Stanley & Co.

LLC Colin Rusch - Oppenheimer & Co., Inc. (Broker) Dmitry Silversteyn - Longbow Research LLC John Roberts - UBS Securities LLC Chris Kapsch - Loop Capital Markets LLC Jeffrey J.

Zekauskas - JPMorgan Securities LLC

Thank you, Dave. And welcome to Albemarle's Third Quarter 2017 Earnings Conference Call.

Our earnings were released after the close of the market yesterday, and you'll find our press release, earnings presentation and non-GAAP reconciliations posted on our website under the Investors section at albermarle.com. Joining me on the call today are Luke Kissam, Chairman and Chief Executive Officer; Scott Tozier, Chief Financial Officer; Raphael Crawford, President, Bromine Specialties; Silvio Ghyoot, President, Refining Solutions; and John Mitchell, President, Lithium and Advanced Materials.

As a reminder, some of the statements made during this call about the future performance of the company may constitute forward-looking statements within the meaning of Federal Securities Laws. Please note the cautionary language about forward-looking statements contained in our press release.

That same language applies to this call. Please also note that our comments today regarding our financial results exclude non-operating, non-recurring and other unusual items.

GAAP financial measures and reconciliations from those to the adjusted numbers discussed today may be found in our press release and the Appendix of our earnings presentation, both of which are posted on our website. With that, I'll turn the call over to Luke.

Thanks, Matt, and good morning, everybody. Before commenting on the third quarter results, I want to start the call by thanking our employees and their families for their outstanding dedication and resilience during Hurricane Harvey and its aftermath.

Our employees were able to minimize downtime at both our Bayport and Pasadena plants and quickly resume production to meet the needs of our customers and minimize the financial impact on Albemarle. Making this even more impressive is the fact that they accomplished all of this while many dealt with flooded homes and power outages.

I'd also like to thank the Albemarle employees around the world who stepped up to support their colleagues in need in Houston during this trying time. Turning to the third quarter.

Excluding divested businesses, revenue grew just over $100 million, or 15%, and adjusted EBITDA grew by $22 million, or 12%, compared to the third quarter of 2016. This marks our seventh consecutive quarter of revenue growth on this basis and our fourth consecutive quarter of double-digit adjusted EBITDA growth.

These results were driven primarily by continued strong growth in Lithium and solid performance in Bromine Specialties. Excluding the negative impacts from Hurricane Harvey, Refining Solutions and PCS performed about as anticipated.

Looking to the future, our Wave 1 Lithium capital projects remained on track as do our exploration efforts to define Wave 2 new Lithium resource projects targeted to provide growth beyond 2021. In the third quarter, we announced the development of a yield improvement technology that could allow us to increase our annual production capacity in Chile from 80,000 metric tons to about 125,000 metric tons on an LCE basis without the need for any increased brine extraction from the Salar.

In connection with this announcement, we requested that CORFO increase our lithium quota, and that request is still pending. Just this week, we filed a Permit Application in Western Australia for the development of a Greenfield site to build a world-scale plant to convert Talison spodumene to lithium hydroxide.

We continue our exploration of additional resource opportunities, including the Antofalla region in Argentina and our Kings Mountain spodumene resource. Additionally, in addition to organic growth, we remain very active in assessing a variety of M&A opportunities in lithium and are focused on those that could accelerate growth, bring us new technology of resources, or otherwise de-risk our strategy.

With that, I'll turn the call over to Scott.

Thanks, Luke. For the third quarter, we reported adjusted diluted earnings per share of $1.08, an increase of about $0.19 per share, or 20% compared to third quarter 2016, excluding divested businesses.

Our businesses delivered about $0.23 per share of that growth, with most of that coming from Lithium. A lower effective tax rate contributed about $0.02.

Those gains were partially offset by the impact of Hurricane Harvey of about $0.07 per share. Note that most of the negative impact from Harvey was in Refining Solutions and PCS, both of which have operations and multiple customers and suppliers in the Houston area.

There was no significant plant damage at our sites. However, there were increased costs caused primarily by factory downtime, equipment replacement and repair, and logistics and supplier outages that forced us to use more expensive alternatives.

With respect to tax, we now expect our full-year 2017 effective tax rate, excluding special items, non-operating pension, and OPEB items, to be about 19.5%, down from our prior guidance of 21%. The reduction is based on our current outlook of sales and production mix by country so far in 2017 and our expectations for the fourth quarter.

Strong operations at our bromine joint venture in Jordan have been an especially important factor in the reduced tax outlook. Corporate costs were $28.2 million during the third quarter.

Given our updated view of the rest of the year, 2017 corporate costs are now likely to be about $110 million to $115 million. Total operating working capital was 28% of revenue, up 1% from the second quarter.

We expect to return to our guidance level of about 27% of revenue by the end of the year. Capital spending year-to-date through September was $188 million.

Our Wave 1 lithium projects continue to ramp, with spending during the third quarter almost equal to the first six months of 2017. Spending will increase further in the fourth quarter of 2017 and into 2018.

Based on payment terms and timing of equipment delivery, we now expect total 2017 spending to be about $310 million to $350 million. Through the end of the third quarter, our adjusted free cash flow was $236 million.

This number represents cash flow from operations, adding back pension and post-retirement contributions and subtracting capital expenditures, but excluding one-time synergy, acquisition, and tax-related costs. For the full year, we now anticipate adjusted free cash flow of between $275 million and $325 million.

Before I report on our businesses, I would like to inform you that, effective the beginning of 2018, management of the PCS business will move from Lithium & Advanced Materials into Refining Solutions. The combined Refining Solutions and PCS businesses will form a new GBU called Catalyst.

This will enable the Lithium leadership team to be even more focused on its customers, markets, and excellence in operations. There'll be no change to the Bromine Specialties GBU.

The change will be a straightforward move of PCS revenue and adjusted EBITDA from Lithium to Catalyst, and there should be no impact on your ability to model our performance. Moving on to our business performance, Lithium & Advanced Materials had another very strong quarter, with net sales of $344 million and adjusted EBITDA of $130 million, resulting in adjusted EBITDA margins of 38%.

Compared to the third quarter of 2016, net sales were up 43% and adjusted EBITDA was up 42%. In Lithium, third quarter net sales were up 62% and adjusted EBITDA up 65% compared to the third quarter of 2016.

Adjusted EBITDA margin was 42%, the 11th consecutive quarter with adjusted EBIDA margins over 40%. Year-on-year, volume grew in the quarter by 29%, and pricing improved by approximately 32%.

Battery-grade products drove essentially all of the volume growth and most of the pricing improvement. PCS performed in line with expectations, excluding negative impacts from Hurricane Harvey of about $4 million.

Net sales were flat compared to the third quarter of 2016, and adjusted EBITDA was down 25% year-on-year. Mostly as a result of Harvey, the full-year PCS adjusted EBITDA is now expected to be down mid to high-single digits on a percentage basis versus 2016.

Third quarter net sales for Refining Solutions were $170 million, down 11% year-on-year. Adjusted EBITDA was $43 million, down 34% year-on-year, impacted by about $5 million due to Hurricane Harvey, and by product mix, volume, and higher input costs.

Net sales of Fluid Catalytic Cracking, or FCC catalysts, were approximately flat compared to third quarter 2016 with product mix driven by continued strength of VGO products in North America, partially offset by lower volumes of higher-margin max polypropylene products. Net sales of Clean Fuels Technologies, or HPC catalysts, were down as expected compared to the third quarter of 2016 as a result of product mix and volume.

Bromine Specialties reported net sales of $213 million and adjusted EBITDA of $64 million, up 9% and 23%, respectively, compared to third quarter 2016. Results were driven by solid demand for flame retardants and lower year-on-year production from Chinese bromine companies.

Now I'll turn the call back to Luke to update our view of the year.

Thanks, Scott. Albemarle continued to deliver on its commitments to our stakeholders with another quarter of year-over-year growth.

In addition, we made significant progress on our Lithium capital and exploration projects. As a result of strong year-to-date performance and our expectations for the fourth quarter, we're increasing our full-year 2017 guidance despite some continued expected negative impacts in the fourth quarter from Hurricane Harvey in PCS and Refining Solutions.

We now expect our 2017 net sales to range from $3 billion to $3.05 billion. Adjusted EBITDA is expected to range between $860 million and $875 million, with adjusted diluted EPS now estimated at $4.40 to $4.50 per share.

The increased guidance is driven largely by performance in Lithium and Bromine, with Lithium now forecasting full-year adjusted EBITDA growth of more than 50% versus 2016 and Bromine now forecasting adjusted EBITDA growth of around 10% versus 2016. While Refining Solutions is forecasting the highest EBITDA levels for the year in the fourth quarter and while the order book looks solid, there's always a risk that HPC orders could slip into 2018.

As we look toward 2018, we believe we have positioned the company for another outstanding year. Our budgeting process is well underway, and while it is too early to provide specific guidance, we're very confident in another strong year.

Early indications suggest the potential for greater than 20% growth in our Lithium Business supported by continued stability in Bromine Specialties and Catalyst.

Operator, we are ready to open the lines for Q&A. But before you do so, I would remind everyone to please limit your questions to two per person at one time so that everyone has a chance to ask questions.

Then feel free to get back in the queue for follow-ups, if time allows. Please proceed.

Great. Thanks.

Good morning.

Hey.

Just a question on Q4. So, if I were to assume a little bit of lingering hurricane impact in PCS and Refining Solutions and then take the midpoint of your guidance, it does imply slightly better results sequentially in Lithium.

What's driving that? Is that just the timing of the order book?

And maybe you can potentially give us your confidence in the size of that impact. Thanks.

You jumped in and out of us being able to hear you on that. I think you said that, given everything, it looks like we're sequentially flat in Lithium from third to the fourth quarter.

Is that right?

No. Actually, I said it looks like you're sequentially up in Lithium from third quarter to fourth quarter.

I still can't hear you. I'm sorry.

I'm sorry. Are you sequentially up from 3Q to 4Q in Lithium?

Yeah. This is Scott.

So, we're effectively flat to maybe slightly up in the fourth quarter. As we think sequentially, we see a bit better performance on the revenue line, but we do have increased spending in our resources, as we talked about last quarter, that will offset that a little bit.

So, I think we're in good shape for another great quarter.

And then just as a quick follow-up for 2018. You just noted potential for 20% or more growth in Lithium.

Maybe just bucket that out into your expectations for price and volume. Thanks.

Yeah, hi. This is John.

So, as we've guided in the past from a volume perspective, we continue to expect to add about 10,000 metric tons minimum per year. So that's within our growth plan for next year.

So, an incremental 10,000 metric tons of additional capacity. And from a pricing perspective, we're guiding to mid-single digits on pricing for 2018.

Thanks.

Hi. Good morning.

Maybe you can talk a little bit more about your ability to extract more lithium from your new technology or new innovation at Salar de Atacama. Can you maybe give a little more color on what the process is, is some CapEx investment in the plant, is it the pond?

Anything you can give will be appreciated. Thanks.

Yeah. Hi.

This is John. First off, it's important to understand that this technology does not require us to pump any more brine.

So, from a Chilean government perspective, we're not consuming any more natural resource, which is a big plus for the Chilean government. It does require a change in operation and it does require capital investment.

And really from a proprietary perspective, that's probably as much details I'm willing to talk about. But it's really exciting technology.

It allows us to grow substantially in the Atacama up to at least 125,000 metric tons. And we've piloted the technology, so we know it works.

And it's going to be very exciting for us and also for the Chilean government.

And just to add, John, the capital will be focused in the Salar, not in the operating plant. So, it will be focused in the ponds, correct?

That's correct, Luke. It'll be focused in the mining operation.

That's helpful. Thank you.

And a final question on Bromine. Bromine levels are better.

It looks like it was more in volume than pricing. You've talked about some Chinese restarts in Q4.

Would we expect a bit of a pullback in the Bromine earnings in Q4? And I think you suggested stability (18:40) for Bromine.

So is it possible to step back as well?

This is Raphael. I would expect that Q4 is relatively consistent with Q3 at this point.

I think the trends that had been favorable for the Bromine business this year, both on the demand side in the Flame Retardant business as well as the shutdowns in Chinese production which has led to better pricing, generally support what we're seeing in Q3. And we expect some of that to continue into Q4.

On an annual basis, usually Q4 is slightly weaker than the rest of the quarter. So, it just depends on order of timing where that would fall for Q4.

But I think the underlying trends we expect to continue.

Thank you.

Hi. This is David Huang here for David Begleiter.

I guess first question on Lithium. Can you discuss what drove the strong operating efficiency out of the Chinese assets and what the operating rates are for those two assets?

And also, what kind of volume growth should we assume for Lithium in Q4?

This is John. First off, the China assets, they've performed excellent in 2017.

We expect them to continue to perform extremely well going into 2018. They're operating at almost full capacity right now and they've been operating at very high capacities for most of 2017.

With regard to volume expectations, as Scott said earlier, from an EBITDA perspective you can expect Q4 to look a lot like Q3, maybe a little bit extra volume in Q4.

Thanks. And Refining, what drove down the performance in Refining besides hurricane?

Do you think the issues in Q3 and year-to-date are all transitory? And how do you get this business back to your growth trajectory?

David, good morning. This is Silvio.

As you mentioned, you're correct that the hurricane had an unforeseen effect on the results. But if I take the macro picture, Refining business is in good shape and demand is strong for both HPC and Fluid Cracking.

However, as we guided already before, we were expecting a lower quarter volume and then primarily for the HPC, followed by large order book for the last quarter. We're holding on strong to that, but you know there's still a risk that things may be slipping out.

So from a macro perspective, I feel comfortable that refining industry and that the Catalyst demands remains strong for the longer haul and this is based on the fact of the strong demand for fuels and petrochemicals. And our business in this particular market is a bit extraordinary this year in that quarter three shows lower and we show a big lump into quarter four.

Okay. Thank you.

Yes. Hi.

Good morning. Thank you.

As you explained Talison, do you know what the new (22:21) would be on the new terms? And as you are building the mines and the conversion plant, what would be the total CapEx?

Thank you.

So, if you look at Talison, Talison is a joint venture. So, the joint venture will fund the expansion of Talison without any additional capital call to the shareholders.

They will be able to fund that capital from their own operating cash flow and borrowing. There will be no additional capital call expected from either of the partners.

Then, we will fund our own conversion capacity, where we take the spodumene concentrate and convert it to lithium hydroxide. And that's already in the 165,000 met tons that we talked about bringing online by 2021.

Okay. Thank you.

And then secondly, as you increase your production in Chile and Australia, are you still looking for M&A? And would you want to have a controlling stake, or would you be happy with a minority stake?

Yeah, we are certainly looking at M&A. We've got a great balance sheet, and we believe we can flex that as necessary for anything that would de-risk our strategy or accelerate our strategy.

We are very active in looking at M&A opportunities today that have come through. They've got to satisfy one of those criteria, and we've also got to be able to get a return on that invested capital.

Whether or not we have a minority stake or a majority stake or any of that is just speculation. And until you see what the deal looks like, until you see what the financials look like, and until you see how it accelerates the strategy, it really doesn't (24:14) talk about what our criteria would be in that sense.

So, it doesn't make a lot of sense to talk about it. So, we are very active and feel like we have the balance sheet and have the track record of incorporating those acquisitions that make us a good candidate to be out there finding the right opportunity.

Thank you.

Thank you. Quick clarification on Refining Solutions.

Are all of your facilities up and running after the hurricane? And I'm just curious about why there's still a little uncertainty regarding your Catalyst orders, that some of them might possibly slip into 2018.

Do you not have enough visibility now, as of today, to be able to say whether those orders will occur in this quarter?

Yeah. Hey, this is Luke.

Let me take the second one, and then I'll let Silvio have the one about the plants. If you look at orders, we've got the orders, but the orders can always slip.

You can have refineries decide they want to take it in January as opposed to taking it in December, or you can have a – if you've got a late schedule, you could have a logistics issue that it slides over to the next quarter. So, it's not a matter of if we get the order, it's a matter of when you recognize the revenue.

Silvio, you want to talk about our operations for a second? (25:43)

Sure, Luke. Thanks.

Well, as Luke mentioned before, we are extremely satisfied on how we have gone through the storm. Our people at the plants have done an extraordinary job to keep the plants safe during the event.

And then, at the end, they made an extraordinary job in bringing the plants on after being down for about one week. We started with our HPC plants at the beginning of the week and then, the next 48 hours, we got our FCC running.

We got some damage on the plants. Nobody got hurt.

And obviously, we have had to deal with the aftermath, which was not getting material out because the roads were flooded, did not get material into the ports at time, et cetera, et cetera. So, the financial impact from Harvey primarily comes from the issues around not getting orders out in time, customers being at a standstill and not operating their refineries.

But all is solved right now. We're having the first effect on the third quarter.

As Scott mentioned, we are expecting also an effect on the fourth quarter, and maybe little remnants still in quarter one.

But everybody's operational today, Jim.

Okay. Thank you.

And then, regarding your filing for a higher lithium quota with CORFO. Do you expect your royalty rates to change as a result of that filing?

Do you think CORFO will increase the royalty that they take on the lithium?

So, Jim, I'm not going to negotiate with CORFO over the telephone. We're having discussions with CORFO.

We told you what we expect our margin is going to be going forward. There's nothing that's going to happen with regard to that Application that's going to change our margin profile in any way.

Thank you.

Hi. This is Dylan Campbell on for Bob.

Thanks for taking my question. I'm curious of what your expectations are for carbonate versus hydroxide demand growth and how that will play out based on different cathode chemistries, like 622 or 811.

Yeah, hi. This is John.

Albemarle is a little bit different than others in this industry, where we're only investing based on long-term agreements that we negotiate with our customers. The customers that we've selected are really the best battery producers and cathode producers in the world.

And each one of those battery producers and cathodes producers has a different view on where they want to take battery chemistry and whether they would like to utilize carbonate and hydroxide. Right now, when you look at our Wave 1 investments, it's fairly balanced between carbonate and hydroxide.

However, if our customers are willing to sign long-term agreements and it's more heavily weighted to hydroxide, we have the full capability and the resources to be able to increase hydroxide. If they want carbonate, we have the ability to do that.

So, our approach to the market is to really team with our customers and get into a long-term planning process and a long-term commitment to each other to make sure they have the right molecule.

Got it. And across your pricing mix, do you make more money on hydroxide or carbonate, or is it fairly equal across your contract base?

So since this is not a commodities market, each customer is a little bit different. Their requirements are a little bit different.

And you really need to get into what the individual contract requirements are and how we define prices based on what the customer is asking for and the value that we're adding. And so, there are certain cases where we make more in hydroxide and other cases where we make more in carbonate.

It's just not a commodities market. And you can rest assured that we understand the value that we're bringing to the customer and we're pricing appropriately.

Thank you.

Morning. This is Matt Skowronski on for Aleksey.

Regarding the new Greenfield spodumene conversion site, can you remind us how many converters you're currently using? And what drove this decision?

Was it logistics cost, lack of available conversion capacity or something else? And then how much capacity will this site have?

Yeah. Hey.

I'll let John get into the details. But this was always part of the plan.

If you go back and look at our Investor Day Presentation earlier this year, we said that there was additional 40,000 met tons, I think, of conversion to be determined. And this is all consistent with the strategy.

In a matter of we're going to bring the Talison spodumene to Western Australia so it is easier from a trucking standpoint; you don't have to move around as much, but we'll be moving finished product. So, we need to be the low-cost producer in the marketplace.

We feel like we've got the engineering capability to be able to do that. And it also gives us some flexibility from a China standpoint with the acquisition and the capital project we have going on over there to expand that site and have something else outside of China in Western Australia as well.

So, this is not a change at all. It's totally consistent with what we had said at our Investor Day Presentation.

And you'll continue to see expanding the ability to convert Talison spodumene into lithium hydroxide for Lithium customers in servicing that area of the world.

Thank you. And then on Bromine, can you just talk about if you are able to capture any market share with the Chinese producers being out and if you expect pricing to continue maybe beyond 2018?

Thank you.

This is Raphael. So, our Chinese business is relatively small compared to the other major suppliers.

That being said, I think the share that we have captured has been relative to the global market. So as Chinese production was down, we were able to take advantage of that opportunity, sell more into the Chinese market at higher prices, which contributes favorably to our results.

That being said, we're cautiously optimistic about Chinese prices going forward. So far, it looks like a positive trend of higher prices.

And as long as that holds true, we'll continue to look for opportunity for price or volume. Our fundamental strategy is to maintain the cash flow of this business for the long term throughout cycles.

So, while we're taking advantage of opportunities on price and volume related to China, we continue to work on productivity and efficiency projects at our plants. And that should have a meaningful long-term impact on our cash flow.

Thank you.

Hi. Good morning.

This is Neel Kumar calling in for Vincent. On Lithium, can you discuss what type of impact the increased exploration costs have had on 3Q margin levels?

Yeah. This is Scott.

So, we had a couple of basis points – about 200 basis points to 250 basis points of impact due to combination of the resource costs as well as the royalties and community costs that we paid down in Chile.

And do you expect that to continue over the next several quarters? Would this be kind of the new margin level, in the low 40%s?

Yeah, our expectation is that the Lithium business delivers margins that are north of 40%. It's going to vary depending on both product mix and the amount of spending that we're doing in terms of explorations.

Our expectation is that the second half of this year is kind of the normal. And we'll see how that develops over time.

Great. Thanks.

Thanks so much. Can you guys give us a bit of insight on the new brine processing technology and the downstream efficiencies for the carbonate production and any configuration changes you might be seeing in that processing facility?

Yeah. Hi.

This is John. I just answered a question a couple moments ago regarding the technology in the mine in the Atacama.

It is a process change and it does require capital investment in the mine. Because of the proprietary nature of the technology and the fact that it gives us a good advantage, we're not really going to disclose publicly exactly what we're going to be doing in the Atacama, but it is certainly world-class in terms of efficiencies as we push north of 80%.

And it's also great for the people of Chile because it is more sustainable and it allows them to create more value by utilizing the same brine that we're pumping today. So, it's great for the country.

It adds a tremendous amount of value to the region and it's good for us and it's good for the customers. With regard to the refineries, we're always improving our processing at the refineries and getting more efficient there as well.

As Luke mentioned, we are laser-focused on maintaining the lowest-cost position in the industry. And part of that is to make sure that we are taking care of the molecule in a way that we're being as efficient with it as possible.

And so, part of what has gone on and on in La Negra is technology improvements to allow us to improve efficiencies in the refinery operation as well. And that's going extremely well for us.

Yeah, if I could add, this is the way I look at this is this is very similar to bringing on a new resource. So, if we could get another 40,000 metric tons over there, if you look around the world that the announcements that are coming online about potential new entrants, when you're talking about bringing 40,000 metric tons, we understand what a Brownfield brand-new resource would cost and we understand what the technology and the cost of this would be to bring it on with this yield enhancement.

Suffice it to say that it is a much less capital-intensive to bring on this with yield enhancement in the Salar than it is to bring on a new Brownfield resource. And the returns on invested capital will be much better than if we were bringing on another resource somewhere else in the world.

Okay. Thanks, guys.

And then just looking at a lot of the activity around cathode material adjustments. And we're seeing a fair amount of activity around your customers changing what they're working with from a cathode perspective.

Can you talk a little bit about the dynamics and rate of change in terms of the specs that you're seeing from those customers and how diverse that's getting at this point?

This is John. First off, most of this battery material is going into electric cars, right?

And so, the warranty issues around batteries that need to last 10 years or more than 10 years are significant. And so, the quality standards continue to increase really each year, and not just the quality of the material, but the whole quality management system and the way we actually have to produce the product.

So that's one big area. We continue to partner with our customers that sign long-term agreements to understand how that molecule is going to evolve.

And it could be a molecule change. It could be a molecule modification.

It can have physical property – physical characteristics. It could have chemical characteristics.

So, again, we're working with individual market leaders in cathode and batteries to make sure that we can tailor our molecule so that their battery can have a better performance than others in the market. And that's what we're focused on.

All right. Great.

I'll take the rest of it offline. Thanks.

Good morning. Thank you for taking my question.

I wanted to poke around a little bit around the refining catalyst part of the business. First of all, on the HPC downdraft this quarter and then, pretty significant shipments looks like expected either for the fourth quarter or the first quarter.

How should we think about the timing of these shipments and how they're going to impact your quarters in 2018? In other words, was this an abnormally low cycle in terms of change-outs for your business and you will get back to a more typical growth in HPC in 2018?

Or are we dealing with something else here?

Silvio?

Hi. Good morning.

This is Silvio. As I tried to explain earlier, and I tried to go back to the fundamentals of the market, 2017 shows a strong demand.

And our expectations for 2018 are not any different. If you look at Albemarle's business and which deals we are picking up and which change-outs we are having with certain refiners, there is already something extraordinary in this year's picture that, as I explained before, that some larger change-out and some industrial trials were sitting in the middle of the year, which were causing that – the demand was expected to be somewhat lower.

And coincidentally, some of our secured orders, as Luke was saying, are lumping up at the end of the year. The risk of those orders not occurring has more to do with hiccups in shipping lines or last-minute changes for deliveries with the customer.

It's not so much to do with, do I get the order or not. Going forward for 2018, I'm expecting a more regular pattern.

There is no indication on why it would show a similar extraordinary pattern as this year. But this being said, it's all the discretion of the refiners to figure out when they will accept orders and when they will make change-outs, and when they need deliveries.

So, to wrap it up and to answer your question, the fundamentals for the market do not change, and expect ongoing solid demand for both HPC and FCC for next year. And I also do not foresee any event that would cause a skewed order of delivery patterns.

Okay. Silvio, that's helpful.

And then just as my follow-up question, as my second question, just looking at raw material costs. Lithium obviously is going up in price pretty significantly, but so is cobalt and so is nickel and so is molly (42:00) and so are rare earths.

So how is your Refining Catalyst business, both on the FCC side and the HPC side, dealing with the escalating input costs? Are you getting pass-throughs in time?

Are you starting to put in surcharges? So, what's going on in your pricing response to these raw material pressures?

Okay. Thanks.

Let me take a step back and recall that, somewhere in the middle of 2016, we have started with price increases. And at the basis of those price increases were already the uptick we were seeing in all or most of the metals at that time, and in general, an increase also in all the other raw materials that I said.

(42:32) Going forward, looking at that situation today, nothing has changed, other than it's becoming a bit worse. All raw materials are going up.

Metals are going up. And that reinforces the fact that we are continuing or ramping up our efforts for adjusting the prices.

In terms of passing those metal prices on, most of the cases are typically, we have escalated in our HPC pricing. Which means that, with some delay, you're passing on the metal prices to the customer.

I'm saying typically, because in some deals, you have some fixed prices. The same with the FCC, the rare earth pricing is gradually going up, and also the formula to pass on that part of the cost to the customers.

But overall, beyond the pricing, we see this inflationary pressure which is at the basis of the price corrections we are trying to make on an individual basis with each customer.

Okay. Thank you very much.

Hi there. Could you talk a little bit about the non-battery markets for Lithium?

Are those customers getting all the volume they want? And how is price trending in some of those products?

Hi. This is John.

Yes, for any long-term customer, contracted customer, we're going to make sure that our customers get supplies and materials, in whatever lithium form they need it. Certainly, pricing in the battery space, as Scott mentioned I guess in the overall comments, that's where we're seeing largest pricing appreciation, in the battery space.

So, other areas in the synthesis, in the ag chem, where we have different types of molecules, as we've discussed before, they're already priced to value. So, you're not seeing much appreciation in terms of price in other types of molecules, because you could run up against, in some cases, substitution risk, et cetera.

So, we price those molecules based on the value that they're creating. In a lot of cases, those are GDP or GDP-plus markets, but not the exciting growth and high-growth segments, like energy storage.

But for any kind of customer that is willing to sign up to a long-term contract, we're going to make sure that they have the right product.

Thank you.

Yeah. Good morning.

I had a follow-up on this discussion around Catalyst and margins. If you look, it looks like the year-over-year margin comparisons have gotten progressively more negative for each of the first three quarters of 2017.

And I understand there's some mix and timing issues and I understand there's increasing raw materials. But, at least in FCC, you and some of your competitors have talked about the entitlement to get more pricing based on the value for performance that your products deliver.

But it looks like it's been more talking about pricing than actual pricing. And I'm just wondering if you could comment on that.

One of your key competitors just announced a very explicit additional price increase. Do you have intentions to follow that?

And can you just handicap the prospects of actually getting some more positive traction on the industry's narrative of getting some pricing, at least in FCCs? Thanks.

Yeah. So, I assume you are talking about our FCC plants running at high utilization rates and at the same time we're facing some inflationary pressure.

As we've communicated in the past, we continue to push for higher prices for the added value that we deliver to the customer. This is on a customer-by-customer unit-by-unit effort.

And we're always going to extract the value we can. So, we're certainly going look to extract that value anywhere we can.

I think you've got to be careful to look at what's going on overall at our business in 2017 as compared to 2016. Because of some of the octane standards, from an FCC standpoint, we're seeing more sales into the VGO market, which will be down, and we have some trials going on in our max propylene market.

Our highest margin products in max propylene, because that brings the highest value to the refineries. So, when you see that volume decline a little bit because of these tests, you see us replace it with VGO, that's going to be lower-margin product for us.

Still excellent margins, but it's going to give us lower-margin product. If you look on the HPC side, our highest-margin product is distillates because that is the cut where we have the most experience and we have traditionally held the strongest product offering.

If you've seen some of the builds that we've had this year, they've been in that resid market because you're seeing more and more resid markets coming online. So, I think what you're seeing for that overall comparison is a combination of that mix more so than anybody losing anything on price.

Okay. That's fair.

Appreciate the mix comments. But just as a follow-up, could you talk about the handicap, the ability, for you and maybe the industry to get more affirmative pricing in FCCs just on an apples-to-apples basis on your base FCC customer sales?

Thank you.

Yeah. So, I think this is consistent with what we've always said.

Where we provide value to the refinery, we can get increased value. So, it is a value proposition.

So, in areas where we're able to provide value to that customer and show that increased value that we're bringing them by using our catalysts so that they can increase their yields, we're able to get more of a price because it's a win-win for both of us. In the areas where they don't need that yield enhancement or areas where they can use a less expensive catalyst to get by because they don't need the yield, then you can't get the price passed through.

It's all about the value that we're contributing to the customer.

Thanks very much. I think for the nine months, your equity income was about $55 million.

Is, I don't know, 75% of that Talison?

Yeah, Jeff. That's about right.

Okay. And your cash flow for the nine months was $75 million.

And I guess maybe there's a $200 million drawdown because of tax payments.

That's correct.

Your working capital overall was negative $400 million. So, like normally I would expect Albemarle to throw off, I don't know, $600 million, $700 million, in cash per year.

What's the normal level? And is this a really unusual year?

Or because of your expansionary plans, there's a drain on working capital over a multi-year period? Can you talk about operating cash flow?

Yeah, I think there's two components to look at as you look at our operating cash flow trends. One – and you touched on both of them.

The tax payment that we made on the sale of Chemetall hit in the first half of this year. That was $255 million.

So that's a drag on our operating cash flow. The second one is, with the growth in our revenue, particularly with Lithium, we're seeing an increase in working capital in the third quarter.

Specifically, we also saw an increase in working capital in Refining Solutions as they're getting ready for this big fourth quarter that we've talked about. We are expecting to see working capital come down in the fourth quarter as those shipments go out.

But as we continue to grow and our working capital is going to range in that 27% range, we're going to see a continued cash drag from working capital. We do have efforts in place to start to work on reducing that rate.

I do not think we'll ever be able to offset the growth that we're seeing until that starts to slow down. But, certainly, in the next several years we're going to see a drag coming from working capital.

And the dividends received from unconsolidated investments were $12 million versus $35 million in the year-ago period for the nine months. Is that reflective of the increased investment within the Talison joint venture and so there are fewer dividends that come back to you?

You got it. That's exactly right.

So, as they're investing in the expansions, you're going to see that their dividend will not go up proportionately with their equity income.

Okay. Great.

Thank you so much.