ALBEMARLE CORP (ALB) FY 2021 MD&A

Overview

We are a leading global developer, manufacturer and marketer of highly-engineered specialty chemicals that are designed to meet our customers’ needs across a diverse range of end markets. Our corporate purpose is making the world safe and sustainable by powering the potential of people. The end markets we serve include energy storage, petroleum refining, consumer electronics, construction, automotive, lubricants, pharmaceuticals and crop protection. We believe that our commercial and geographic diversity, technical expertise, access to high-quality resources, innovative capability, flexible, low-cost global manufacturing base, experienced management team and strategic focus on our core base technologies will enable us to maintain leading positions in those areas of the specialty chemicals industry in which we operate.

Secular trends favorably impacting demand within the end markets that we serve combined with our diverse product portfolio, broad geographic presence and customer-focused solutions will continue to be key drivers of our future earnings growth. We continue to build upon our existing green solutions portfolio and our ongoing mission to provide innovative, yet commercially viable, clean energy products and services to the marketplace to contribute to our sustainable revenue. For example, our Lithium business contributes to the growth of clean miles driven with electric miles and more efficient use of renewable energy through grid storage; Bromine enables the prevention of fires starting in electronic equipment, greater fuel efficiency from rubber tires and the reduction of emissions from coal fired power plants; and the Catalysts business creates efficiency of natural resources through more usable products from a single barrel of oil, enables safer, greener production of alkylates used to produce more environmentally-friendly fuels, and reduced emissions through cleaner transportation fuels. We believe our disciplined cost reduction efforts and ongoing productivity improvements, among other factors, position us well to

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take advantage of strengthening economic conditions as they occur, while softening the negative impact of the current challenging global economic environment.

2021 Highlights

•In the first quarter of 2021, we increased our quarterly dividend for the 28th consecutive year, to $0.39 per share.

•We announced the planned capacity expansion at our lithium production facility in Silver Peak, Nevada beginning in 2021. We plan to invest $30 million to $50 million to double the current production at the Silver Peak site by 2025, making full use of the brine water rights.

•On February 8, 2021, we completed an underwritten public offering of 8,496,773 shares of our common stock, par value $0.01 per share, at a price to the public of $153.00 per share. We also granted to the underwriters an option to purchase up to an additional 1,274,509 shares, which was exercised. The total gross proceeds from this offering were approximately $1.5 billion, before deducting expenses, underwriting discounts and commissions.

•Using the proceeds of the underwritten public offering of shares of our common stock, we repaid the outstanding principal balances of the 1.875% senior notes due in 2021, the floating rate notes due in 2022, the unsecured credit facility originally entered into on August 14, 2019, as amended and restated on December 15, 2020 (the “2019 Credit Facility”) and the commercial paper notes. In addition, we repaid €123.8 million of the 1.125% notes due in 2025 and $128.4 million of the 3.45% senior notes due in 2029. As a result, we recorded a loss on early extinguishment of debt of $29.0 million, representing the tender premiums, fees, unamortized discounts and unamortized deferred financing costs from the redemption of this debt during 2021.

•We announced that we have joined the United Nations Global Compact, a voluntary leadership platform for the development, implementation and disclosure of responsible business practices, and the largest corporate sustainability initiative in the world.

•On June 1, 2021, we completed the sale of our FCS business to Grace for proceeds of approximately $570 million, consisting of $300 million in cash and the issuance to Albemarle of preferred equity of a Grace subsidiary having an aggregate stated value of $270 million. The sale included our operations in Tyrone, Pennsylvania and South Haven, Michigan.

•On June 30, 2021, we announced the opening of our Battery Materials Innovation Center (“BMIC”) located at the Kings Mountain, North Carolina site. The BMIC is now fully operational and will support our lithium hydroxide, lithium carbonate and advanced energy storage materials growth platforms.

•On September 30, 2021, we signed a definitive agreement to acquire all of the outstanding equity of Tianyuan, for approximately $200 million in cash. Tianyuan's operations include a recently constructed lithium processing plant with a designed annual conversion capacity of up to 25,000 metric tons of LCE per year.

•On October 22, 2021, we announced that we signed two investment agreements in China in support of the expansion of our lithium conversion capacity. Following the agreements, we will move forward with the design, engineering and permitting plans to build aoog

• conversion plant at each site, each of which has planned production capacity initially targeting 50,000 metric tons lithium hydroxide per annum. Subject to additional studies and approvals, it is expected these plants would start construction during 2022 and complete construction by the end of 2024.

•Our 60%-owned MARBL joint venture recently announced its intention to resume spodumene concentrate production at the Wodgina spodumene mine, with the production restart expected during the second quarter of 2022.

•We achieved earnings of $123.7 million during 2021 as compared to $375.8 million for 2020. Earnings for 2021 included an after tax gain of $330.8 million from the sale of the FCS business, but were negatively impact by an after tax loss of $508.5 million following an arbitration ruling related to a legal matter from a legacy Rockwood Holdings, Inc. (“Rockwood”) business sold to Huntsman International LLC (“Huntsman”) prior to our acquisition of Rockwood. In addition, 2021 included a $132.4 million expense related to MRL’s 40% interest in cost overruns of the lithium hydroxide conversion assets being built in Kemerton included as part of the Wodgina purchase price. Earnings for 2021 includes pension and other postretirement benefit (“OPEB”) actuarial gains of $43.6 million after income taxes, compared to pension and OPEB actuarial losses of $40.9 million after income taxes in 2020.

•Cash flows from operations in 2021 were $344.3 million.

Outlook

The current global business environment presents a diverse set of opportunities and challenges in the markets we serve. In particular, the market for lithium battery and energy storage, particularly that for electric vehicles (“EVs”), remains strong,

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providing the opportunity to continue to develop high quality and innovative products while managing the high cost of expanding capacity. The other markets we serve continue to present various opportunities for value and growth as we have positioned ourselves to manage the impact on our business of changing global conditions, such as slow and uneven global growth, currency exchange volatility, crude oil price fluctuation, a dynamic pricing environment, an ever-changing landscape in electronics, the continuous need for cutting edge catalysts and technology by our refinery customers and increasingly stringent environmental standards. Amidst these dynamics, we believe our business fundamentals are sound and that we are strategically well-positioned as we remain focused on increasing sales volumes, optimizing and improving the value of our portfolio primarily through pricing and product development, managing costs and delivering value to our customers and shareholders. We believe that our businesses remain well-positioned to capitalize on new business opportunities and long-term trends driving growth within our end markets and to respond quickly to changes in economic conditions in these markets.

While global economic conditions have been improving, the COVID-19 pandemic continues to have an impact globally. We have not seen a material impact to our operations to date, however, the ultimate impact on our business will depend on the length and severity of the outbreak throughout the world. All of our information technology systems are running as designed and all sites are operating at normal capacity while we continue to comply with all government and health agency recommendations and requirements, as well as protecting the safety of our employees and communities. We believe we have sufficient inventory to continue to produce at current levels, however, government mandated shutdowns could impact our ability to acquire additional materials and disrupt our customers’ purchases. At this time we cannot predict the expected overall financial impact of the COVID-19 pandemic on our business, but we are planning for various economic scenarios and continue to make efforts to protect the safety of our employees and the health of our business.

Lithium: We expect results to be higher year-over-year during 2022 in Lithium, due mainly to increased volume from new capacity coming on line from La Negra, Chile, Train 1 in Kemerton, Western Australia, and the expected acquisition of Tianyuan, which includes a lithium hydroxide conversion plant designed to produce up to 25,000 metric tons of LCE per year. We expect commercial production from this lithium hydroxide conversion plant will begin in the first half of 2022. In addition, pricing is expected to increase reflecting tight market conditions and last year’s expiration of pricing concessions on long-term contracts. EV sales are expected to continue to increase over the prior year as the lithium battery market remains strong.

We also announced agreements for strategic investments in China with plans to build two lithium hydroxide conversion plants, each initially targeting 50,000 metric tons per year. Subject to additional studies and approvals, it is expected these plants would start construction during 2022 and complete construction by the end of 2024. In addition, our 60%-owned MARBL joint venture recently announced its intention to resume spodumene concentrate production at the Wodgina spodumene mine, with the production restart expected during the second quarter of 2022. In February 2022, we announced that we signed a non-binding letter agreement with our MARBL joint venture partner, MRL, to explore a potential expansion of the MARBL joint venture, in an effort to expand lithium conversion capacity with increased optionality and reduced risk.

On a longer-term basis, we believe that demand for lithium will continue to grow as new lithium applications advance and the use of plug-in hybrid electric vehicles and full battery electric vehicles increases. This demand for lithium is supported by a favorable backdrop of steadily declining lithium ion battery costs, increasing battery performance, continuing significant investments in the battery and EV supply chain by cathode and battery producers, and automotive OEM’s, favorable global public policy toward e-mobility/renewable energy usage, and additional stimulus measures taken in Europe in light of the COVID-19 pandemic that we expect to strengthen EV demand. Our outlook is also bolstered by long-term supply agreements with key strategic customers, reflecting our standing as a preferred global lithium partner, highlighted by our scale, access to geographically diverse, low-cost resources and long-term track record of reliability of supply and operating execution.

Bromine: We expect both net sales and profitability to be modestly higher in 2022 due to strength in demand for flame retardants, as well as benefiting from diverse end markets. Volumes are expected to up slightly compared to full year 2021 due to the successful execution of growth projects in 2021 assuming continued availability of raw materials like chlorine. Bromine’s ongoing cost savings initiatives and higher pricing are expected to offset higher freight and raw material costs.

On a longer-term basis, we continue to believe that improving global standards of living, widespread digitization, increasing demand for data management capacity and the potential for increasingly stringent fire safety regulations in developing markets are likely to drive continued demand for fire safety products. Our long-term drilling outlook is uncertain at this time and will follow a long-term trajectory in line with oil prices. We are focused on profitably growing our globally competitive bromine and derivatives production network to serve all major bromine consuming products and markets. The combination of our solid, long-term business fundamentals, strong cost position, product innovations and effective management of raw material costs will enable us to manage our business through end-market challenges and to capitalize on opportunities that are expected with favorable market trends in select end markets.

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Catalysts: Total Catalysts results in 2022 are expected to increase year-over-year with overall refining markets and as travel lockdown conditions abate. 2021 results for both the refining catalyst and performance catalyst solutions (“PCS”) businesses were negatively impacted by the U.S. Gulf Coast winter storm in the first half of the year. Volumes are expected to grow across each of the Catalysts products. In addition, pricing is expected to increase to offset inflationary pressures in freight and input costs. In particular, we expect increased natural gas prices in Europe due to potential supply restrictions. The fluidized catalytic cracking (“FCC”) market is expected to gradually recover from the COVID-19 pandemic in line with increased travel and depletion of global gasoline inventories, however, demand may not return to normal levels until late 2022 or 2023 at the earliest. Hydroprocessing catalysts (“HPC”) demand tends to be lumpier than FCC demand and is also expected to continue to be negatively impacted as refiners defer spending into 2022. In 2021, we initiated a strategic review of the Catalysts business to position for value creation.

On a longer-term basis, we believe increased global demand for transportation fuels, new refinery start-ups and ongoing adoption of cleaner fuels will be the primary drivers of growth in our Catalysts business. We believe delivering superior end-use performance continues to be the most effective way to create sustainable value in the refinery catalysts industry. We also believe our technologies continue to provide significant performance and financial benefits to refiners challenged to meet tighter regulations around the world, including those managing new contaminants present in North America tight oil, and those in the Middle East and Asia seeking to use heavier feedstock while pushing for higher propylene yields. Longer-term, we believe that the global crude supply will get heavier and more sour, a trend that bodes well for our catalysts portfolio. With superior technology and production capacities, and expected growth in end market demand, we believe that Catalysts remains well-positioned for the future. In PCS, we expect growth on a longer-term basis in our organometallics business due to growing global demand for plastics driven by rising standards of living and infrastructure spending.

Corporate: We continue to focus on cash generation, working capital management and process efficiencies. We expect our global effective tax rate will vary based on the locales in which income is actually earned and remains subject to potential volatility from changing legislation in the U.S. and other tax jurisdictions.

Actuarial gains and losses related to our defined benefit pension and OPEB plan obligations are reflected in Corporate as a component of non-operating pension and OPEB plan costs under mark-to-market accounting. Results for the year ended December 31, 2021 include an actuarial gain of $56.9 million ($43.6 million after income taxes), as compared to a loss of $52.3 million ($40.9 million after income taxes) for the year ended December 31, 2020.

We remain committed to evaluating the merits of any opportunities that may arise for acquisitions or other business development activities that will complement our business footprint. Additional information regarding our products, markets and financial performance is provided at our website, www.albemarle.com. Our website is not a part of this document nor is it incorporated herein by reference.

Results of Operations

The following data and discussion provides an analysis of certain significant factors affecting our results of operations during the periods included in the accompanying consolidated statements of income.

Discussion of our results of operations for the year ended December 31, 2020 compared to the year ended December 31, 2019 can be found in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2020.

Comparison of 2021 to 2020

Selected Financial Data

Net Sales

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Gross Profit

Selling, General and Administrative (“SG&A”) Expenses

Research and Development Expenses

Gain on Sale of Business/Interest in Properties, Net

[table omitted - see filing]