And if demand is there, then they’ll want to make sure that they have the inventory to meet fill rates and the cost of stock out goes higher in the calculus. And so people generally will then carry a little more inventory to protect against that cost of stock out. But I wouldn’t say we’ve seen signs yet of a restock. I think what we see is that the destocking is largely over. And I think there are lots of data points that are out there, public data points from our customers in their earnings calls and certain industry publications that I think all point to this. So I think what we’re seeing now is something much closer to normal demand. And but I think probably any significant restock would require more robust economic growth. Again, because I think the calculus is if there’s strong growth and people are expecting that to continue, then the cost of stock out goes up and they therefore would build a little more inventory to protect against that.
I wouldn’t say we’re seeing signs of that yet.
Chris Kapsch: Okay, fair enough. And then I had a follow up on the battery materials business. And the question sort of is around the evolving dynamic addressing both the EV supply chain and energy storage. Just curious how you talked about sort of an intensifying competitive dynamic as 2023 ensued and the pricing pressure which you called out last quarter.
MCA [ph]:
Sean Keohane: Yes, well, there’s definitely, I think, a couple of important differences or points of bifurcation, I would say, Chris, one is that we definitely see that our view is that the market will bifurcate into a China market and the rest of world market. Now, even inside of those geographic splits in terms of market, you do see differences depending on battery chemistry. So LFP is generally viewed as lower performing in terms of range, for example, but also lower cost, whereas NMC chemistry is better at range, therefore viewed as a higher performing chemistry, but higher cost. And so our market view is that there’ll be room for both technologies. What you see today is China does skew more towards LFP today. And that makes sense because if you look at the China EV market, you’ve got, first of all, a significant number of hybrid vehicles on the road.
So the battery performance of hybrids is not as demanding. But then you’ve got a segment of lower priced EVs where again, the performance of the battery, the expectations is lower. And therefore there’s a large chunk of that market that is pretty price competitive in terms of the vehicles and pushing all the way back up through the chemistry inputs. But what you see on the NMC side is something different where the performance requirements are higher and therefore the competitive intensity is lower. So when we’re selling into customers or applications for NMC, for high value cars, or for export of batteries to Western automakers, we’re seeing that our pricing is remaining stable. And when we’re selling outside of China, again, where the market is quite different, orients more towards NMC and where the quality requirements of the Western auto OEs are very different than the low end of the auto OE market in China.
We’re seeing price stability there, too. So we do think the market will bifurcate both in terms of geography as well as chemistry. But ultimately there’ll be a role for both chemistries and we participate across both chemistries. But it’s going to be about segmentation where we participate, which customers, which applications, which geographies, and trying to optimize that over time to build a valuable long term-business. That’s the trick here.
Chris Kapsch:
NCA:
Sean Keohane: Yes, I can’t add any more color, obviously, Chris, to that because we have confidentiality requirements with customers. But certainly I think the ramp up in the Western markets is a bit tricky to try to project. And as I said earlier, it won’t be a straight line. I think there are just lots of moving parts here. I think the long-term trend and momentum around that remains, but the exact rate of vehicle penetration, the timing of new battery plants, and how they start up, all the pressures around regionalization and governments putting money behind this definitely can have impact, but also can create some distortions. And so there’s just a lot of moving parts here that’s difficult in the very short-term to project with any high degree of precision.
But we’re really focused on trying to build out a valuable long-term business because ultimately, the whole mobility sector, we view, will transition. And mobility is a critical end market for us, not just in this new space of batteries, but also our materials that support lightweighting will remain very important. In fact, more important, I would say, because EVs are heavier than internal combustion engines. So the trends around lightweighting will remain. And then ultimately, I think, the tire market reformulates tires to develop performance to better match EVs. So this whole mobility transition is something that’s very important for Cabot Corp. And that’s why we’re thinking about it over the long-term.
Chris Kapsch: Thank you.
Operator: Thank you. One moment, please, for our next question. Our next question comes from the line of David Begleiter with Deutsche Bank.
David Begleiter: Thank you. Just one question, Sean do you have for battery materials, do you have an EBITDA forecast for 2024?
Sean Keohane: Yes. For 2024 David we are not providing a specific guide because I think there’s a lot of moving parts, as said here. But we would expect that EBITDA in 2024 would grow with continued volume growth and better product mix in China, as we optimize our participation and drive higher penetration of these higher performing grades that I was just talking about here. So we do expect that we would have earnings growth over 2024, probably something in line with how the market grows overall. And then you kind of pull the lens back here. Again, we’re playing for the long-term here. We believe the business has the potential to be a material contributor to Cabot’s earnings in the future. And so to give you a sense of that potential, in roughly five years, we might expect this business could generate something around $100 million of EBITDA.
But again, it won’t be a straight line and lots of moving parts here. So hopefully that gives you some sense of how we’re thinking about the long-term and the business we’re trying to build out while in this near-term environment. It’s tricky and dynamic, but we are expecting EBITDA growth in 2024.
