Q4 2019 Earnings Call
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Ladies and gentlemen, thank you for standing by and welcome to the fourth quarter 2019 earnings call. At this time all participants are in a listen only mode. And later you will have an opportunity to ask questions instructions will be given at that time. If you should require assistance. During the call you May Press Star and then zero as a reminder, this.
Conference is being recorded and I would now like to turn the conference over to our host Peter Trpkovski. Please go ahead.
Thank you Caroline good afternoon, everyone and welcome to the conference call.
I'm joined today by Mike Bless Centurys, President and Chief Executive Officer, Craig County, Our Executive Vice President and Chief Financial Officer, and shall be Harrison, our senior Vice President Finance and Treasurer. After our prepared comments, we'll take your questions.
As a reminder, today's presentation is available on our website at www Dot sentry aluminum dot com.
We use our website as a means of disclosing material information about the company and for complying with regulation at the.
Turning to slide one please take a moment to review the cautionary statements shown here with respect to forward looking statements and non-GAAP financial measures contained in todays discussion.
With that I'll hand, the call the Mike Thanks, a lot Pete and thanks. Thanks to all of you for joining US. This afternoon, if we get a turn to page three please.
If you're running down over the last a couple of months.
First we have begun to see some hope assignments in the global macroeconomic conditions toward the end of the or this is consistent with.
But what you're hearing from a lot of other people, including the set the other day obviously.
It's included in improve manufacturing activity in the U.S. and in Europe.
<unk> strength in most other sectors and indicators in the U.S. economy, and even some optimistic signs coming out of China.
There was a developing consensus that perhaps we had reached the bottom out of this many cycle a few quarters ago.
Oh, that's of course was going to be supported by the U.S. Sino Phase one trade agreement reached towards the end the year.
[laughter] thesis was mirrored in our specific markets, where we saw demand beginning to from.
Inventories stabilizing savings and signs that they could begin to come off so I.
The healthy contango in the forwards.
Product premiums that looked to be farming.
And this was all manifest in a rising commodity price with a consensus that a good that has had a good deal you will further to go.
Obviously, the development of the krona virus through better the spanner in the works here.
At this point, it's unclear what the near term picture will look like.
But we think it's reasonable to assume that the economic impact will be short lived the bounce back will be rapid.
Of course would be consistent with past similar events.
Going back to the ended the year you know before the virus outbreak environment, otherwise <unk> was looking quite attractive for us.
First and foremost raw material prices were at favorable levels of course, the alumina price had settled and what seems to us to events a portable level somewhere in the mid two eightys per tonne represented a little less than a 16% of the metal price of course metal price before the meltdown in commodities due to the virus outbreak.
Given the supply demand dynamics in the aluminum market. We believe this was a rational level for sometime and will persist.
Craig will take you through the significant improvement in our results from the fall on the alumina price.
As expected we realized a good portion of it this quarter Q4 that isn't our cost of sales.
Other commodity prices continue to fall is well, notably the co price down nicely Q4 versus Q3 that trend has continued into this year.
Very importantly, all the power prices to which were exposed have continued to decline nicely.
In the U.S. as you know this is the MISO day ahead price the Indy hub to these specific that's for the two Kentucky plans and the natural gas spot price for Mt. Holly.
Also now relevant for us as the European wholesale power price, specifically, the north will system price.
As we've been talking about for some time one of the three power contracts for Grand are talking change beginning in November.
This was the replacement of the original power contract from the plant startup in 1999.
As a reminder, it's for just about 30% of the plants power requirement.
And it runs through 2023.
Again as a reminder, the new contract is reference to the north pool dad price.
This is very similar to the market based contracts, we have for the two Kentucky plant, which had been so favorable for us since we terminated the old power contracts in 2013.
We strongly believe the language will work for this contract over its term.
That said, we've seen some recent volatility in European power prices. This is largely due to actions taken by the government to drive up the price of admissions allowances, which directly impact the market power price.
That price was at a pretty high level in November and December.
We were able to offset that impact with excellent cost control across the plans and still deliver the results we expected.
Those of you follow those markets it seemed like price come down significantly over the last couple of months to get says in the first quarter that they had price is down by more than 55 zero percent from the November and December average.
This will result in a nice reduction in greater Tonys power costs in Q1, and credit will give you the detail and all that just couple of minutes.
Weve use this opportunity recently has a good part of this exposure for 2020.
These forward purchases are in addition to the limited amount of forward purchases of MISO power you put in place last year to protect the investment for the restart.
The pipeline at Hawesville as you remember we talked to you about that in the middle of last year.
And this is a modest forward sales of L., let me in Midwest again, largely for that same purpose to protect that $40 million restart investments.
Current mark to market position on all these positions is slightly net positive for us and Craig will give you some detail and all of this.
One more time, it's important to remember that the new contract is only for 30% of greater Tommys power requirement.
The other two contracts remain fully linked to the eliminate.
I'll give you some detailed operating performance by plant in a couple of minutes, but bottom line. All the plans perform really nicely in the fourth quarter and this has continued into the new year.
Safety performance remains really admirable across the country company, rather so result up an enormous amount of work and commitment by all of our people.
Key operating performance indicators at all the plants are at expected levels and importantly have remained stable.
And cost control really importantly has remained tight let me just give you two quick examples are the cost control and how its manifest.
First if you when you do have a chance to take a look at the full year 2019 results of obviously there are attached to the press release.
See that gross profit was essentially flat 2019 versus 2018, but let me give you some detail on the moving parts. So you can get an appreciation.
The commodity price fall, principally the Alameda of course cost as $250 million of gross profit or EBITDA.
19 versus 18.
This was offset by lower alumina prices and other raw material prices of $171 million.
Improve power prices of $47 million and importantly, a decline in controllable costs and a slight improvement in product mix together that represented a $30 million improvement in EBITDA year over year.
Second really importantly, you need to take a look at the company's cash flow breakeven.
As those of you followed the company for a while no. We provide this to you every year. So reminder, it's the bottom line.
Let me equivalent level at which the company breaks even.
It's net of everything as DNA interest expense taxes, capex et cetera, et cetera et cetera.
When Craig gives you the data in a couple of minutes.
See that from 2018 to 2020 just in these couple of years, we've lowered that cash breakeven by $200. It's on.
And this is even after the significant fall in 2020 of the Midwest and value added premiums obviously, a fall in those two all else being equal drive up.
Let me equivalent breakeven so that $200 is even more notable in our view in that context.
This really excellent cost control combined with the favorable raw material environment, which I described gives us good confidence that the company's set up well to produce strong cash flow and even a slightly improved metal price environment.
Okay, let's move on to talk a little bit about Hawesville as we told you in October the rebuild or the fourth pot line is on schedule.
We're in the process of starting the 112 cells right now we continue to expect the full pot line to be fully operational by the end of the quarter at which point the plant will be running at 80% of its capacity.
Importantly, the production process at the plan is stable the new cell lining is performing at or better than the modeled standards was the result at the plant is producing increased levels of high purity metal for our expectations.
The decision now pending is when to begin the rebuild or the fifth pot line, obviously bring the plant back to full production.
Given the dislocation in the market over the last couple of weeks, we've hit the pause button for what we believe will be just a brief period of time.
That said, even if we started at this point starting with the rebuild you wouldn't get much production from this line even during the latter parts of the or as you know our full rebuild of a line takes every bit of six to nine months.
So it's Craig will brief you when it gives you our expectations for the year, we expect hospital to produce at 80% of capacity for the year.
Moving on those of you have been following the developments have seen good progress on our situation in South Carolina.
In September as we told you that use Creek City Council voted to refer to the citizens the decision of whether to form a municipally use utility and that referendum was held in December and the proposal was approved.
And the cities now moving through all the various detailed processes required to establish that utility.
We didn't tend to sign a contract through which the new utility would provide us with power procured from the third party wholesale market. That's very much like we've been doing ourselves for the last couple of years for the 75% of the plans power needs at the 50% of capacity at which we've been running it.
The concept here of course is that the city utility would provide us with 100% of the power we required to run the plan and a 100% of capacity.
And this would enable us to take an immediate decision to rebuild the second potline to return the plant to full capacity where it belongs.
We're really excited about the prospects here, there's a lot of work still to be Doug.
Lastly, I'd just like to describe to you quickly some new initiatives on which we've been working which we think are pretty exciting.
The first is as you may have seen recently Grundartangi was certified by the aluminum stewardship Institute.
Aside performance standard defines environmental social and governance principles in criteria.
And the team is to address sustainability issues in the aluminum value chain.
The certainly certification requires successfully satisfying 59 criteria the cross DSG space and of course, the audience carried out by a certified third party.
Well really really proud of the enormous hard work in the commitment and the new order all team.
Puts our business in the Vanguard are the primary aluminum community.
Consistent with this process, we've been working to establish our low steel to aluminum brand natural we call it and hoped lease our recent announcement in this regard.
In order all room has already has a really good reputation for quality across its European customer base and this designation will allow us to serve customers growing interest in certified green aluminum.
This is our objective at this point to help our customers.
Respond to their customers requirements.
At some point in the future there could be in addition, and economic benefit to supply and this type of differentiated product.
If you flip to the next page page four you'll see a quick representation of what some of the Mark marketing materials look like.
And when you have a chance to take a look at the first two pages of the appendix and you'll see some facts about natural including its industry, leading direct and indirect CEO to footprint.
One other new initiatives I'll just a couple awards at this point in time, and we'll talk with you about this in more detail as we move through the year.
We've had a modest scrap business over the last couple of years in essence, we've been taking a couple of are very good customers scrap from their manufacturing processes melting it mixing it with prime from our smelters of course, and giving it back to them in the form of new product.
Seebri at Mt, Holly each not spare melting capability as well as incremental capacity in the cast houses to produce more finished product and the plants can make in primary aluminum.
Those of you watch these markets that seem the significant development of the U.S. scrap spreads and that makes this market very attractive for producer like ourselves.
So we'll be getting into this business at both of these plants incrementally during the year. We wanted to take you did a bit of a measured pace to prove we can efficiently handle the logistics and production processes involved.
What competent to success in this would at a nice recurring cash flow stream, that's not exposed to the primary metal price.
And with that I'll give you the Pete to safety or is it but the industry environment. Thanks, Mike If we can move on to slide five. Please I'll take you through a quick state of the global aluminum market.
The cash LNG price averaged 1700 $54 per ton in the fourth quarter, which is flat from Q3.
Prior to the development of the Corona virus aluminum prices were trending north of $1800 per time to start this year and average 1700 $72 per tonne for the month of January.
In the fourth quarter regional premiums averaged approximately 16 cents per pound in the U.S.
Which was down 10% quarter over quarter.
And $136 per ton in Europe also down 10% from prior quarter.
Spot premiums are around 14 cents per phone in the U.S. and $150 per ton in Europe.
In the fourth quarter global aluminum demand was flat as compared to the year ago quarter.
We saw demand contraction in the world, excluding China at about 4%.
About 2% demand growth in China.
Global production growth was down 1%.
In the fourth quarter year over year.
We saw about 2% production increases in the world, Excluding China, while China production fell 3% year over year.
As a result for the fourth quarter of 2019, a global aluminum market recorded a balanced.
Supply demand market.
Looking forward.
For the full year 2020 industry experts expect to see a global supply surplus of up to 1 million tones or about only 1%, although total primary aluminum market.
The southern development of this virus has weighed heavily on the demand outlook in China, but hasn't yet translated to the supply side growth year over year.
For the entire supply surplus is driven by the current near term view on the impact of the players outbreak.
Despite the outlook industry stock levels have declined the levels, we haven't seen in more than a decade.
Inventory days of primary aluminum consumption have fallen to nearly 60 days.
Which has historically been representative.
The tight market.
And with that I'll turn the call back to Mike. Okay. Thanks, If we can just turning to slide six the next slide well give you a quick rundown of the operations by plant a talked about much of this already so I'll keep it relatively brief.
Again, most important safety really was fantastic across the plans just give you a little bit of detail here Hawesville had its best performance in 10 years, which we think is extraordinarily notable given the highly complex restart activity going on in the plan during the entire year.
Non Holly had only one recordable incident through the year, we're really proud of the teams at all of the plants.
They produced excellent results and more importantly, they maintain programs in place to ensure we continue to improve in this most important area.
Moving on production as you would expect is stable at all the plants you see the growth at Hawesville. There is expected from the restart of the curtailed cells.
Production metrics flattened stable as you want them.
And lastly, as I said, we're really proud of the the job with the teams have done on on cost control here, just give you a little bit more detail at hawesville. They're a good portion of that is the volume impact obviously, you've got improved fixed cost absorption as you bring on the tons.
He also we're seeing a decline in the restart related costs themselves.
It's seebri you seeing continued excellent control at labor and maintenance costs at Mt. Holly as we told you on the last call. There were some deferred maintenance activity that had to get done. So you see that there.
And at Grundartangi controllable costs remain well under control as you see.
With that I'll give you the Craig.
Thanks Bye.
Let's turn to slide seven and I will take you through the high level results for the fourth quarter.
On a consolidated basis global shipments were up 2% quarter over quarter. This increase was largely driven by our ongoing restart activities at hawesville.
Realized prices were down 3%, primarily as a result, lower lagged LNG prices.
Looking at operating results adjusted EBITDA was 13 billion this quarter and we had an adjusted net loss of 9 million or nine cents per share.
In Q4, the primary adjusting item was 3.3 million for the net realizable value of inventory.
Additionally, we had a 1.7 billion adjustment related to insurance proceeds for the historical seebri equipment failure.
As of Q4, our total recovery has been 18.4 billion and as we've mentioned previously we will continue to call out the associated PML impacts and cash receipts as they occur.
Our liquidity remains strong with over 200 million to funds available via a mix of cash on hand in credit facilities.
Availability under our revolving credit facilities remains robust at 162 million all revolving facilities are currently undrawn.
Okay, Let's go to slide eight and I can walk you through a quarter to quarter bridge of adjusted EBITDA.
The 26 million increase versus Q3, adjusted EBITDA was largely driven by lower aluminum prices, partially offset by lower LM me at us Midwest premiums as we forecast on our last call.
The Q4 realize alumina price of $325 per tonne was down $65 per tonne from Q3 levels, while realized LMP prices and Midwest premiums were down $30 per ton and $25 per tonne respectively.
Looking ahead to Q1, specifically the lagged LSV of 1751 750 per tonne is expected to be about flat with Q4 realized prices lags Midwest premiums are down about $65 per tonne for Q4 levels, but we anticipate this will be roughly.
Offset by the significant improvement in our realized aluminum price, which is expected to be about $295 per ton in first quarter.
As Mike mentioned the market power pricing, Iceland has decreased about $20 per megawatt hour from Q4 levels in us power prices are also trending favorably.
We still have a little over a month of unpriced market power exposure for Q1, but based on year to date prices, we anticipate that lower power prices will have a positive impact on the quarter.
In sum despite the significant volatility in market disruption in Q1, resulting from the global reaction to the Corona virus, we expect to see a few million dollars of increased Q1, adjusted EBITDA for the aforementioned commodity items versus Q4.
Let's turn to slide nine and we'll have a quick what the cash flow.
We started the quarter with $23 million cash and ended December with 39 million.
During the quarter, we had $18 billion of Capex spending $13 billion of which was related to the ongoing hawesville restart.
We received the second and final 10 million dollar installation payment on sale over 40% share of the BH carbon facility in China, which effectively offset our normal semiannual bond interest payment.
Working capital was a sizable inflow for Q4, driven by the timing of aluminum payments.
Now I'd like to transition to our discussion in 2020.
Consistent with our practice in previous years, so we'd like to take you through I'd like to provide you with the tools to forecast our business in 2020 from an EBITDA and cash standpoint, using the commodity prices of Youre choosing.
To that end, let's turn to page 10, and discuss some of the key assumptions, we made in providing this tool get.
Please keep in mind that the prices on this page are not century forecast for the individual prices in commodities.
Mid western European delivery premiums are assumed at $310 per ton in $150 per tonne, respectively, which closely resembles their current spot levels.
Similarly, the aluminum price index or.
Is assumed at $280 per tonne again similar to recent stock levels.
On energy cost the MISO, Indiana hub, Henry hub natural gas in nor pool price assumptions are assumed at roughly the recent forward values for the year of 2020.
As we mentioned earlier in 2020, approximately 30% of our Iceland power pricing will be based on the North pool index.
The north pool area largely consists of the Nordic in northern European markets and the Nord pool pricing index in these areas functions much the way the MISO functions in the U.S.
In January of this year, we hedge the vast majority of our 2020 exposure for both indoor pool and the corresponding euro conversion as European power prices have fallen precipitously from funding from 2019 levels.
The impact of this hedge as with all of our financial hedges will be reported below EBITDA.
The 2020 intact for all of our hedges in aggregate is currently immaterial to overall said free cash flow and we will continue to update you on a quarterly basis. If this becomes more material.
Let's turn to page 11, and I'll take you through the first to two pages, we're prepared to give some further insight into 2020.
We expect our 2020 shipments to be about 850000 tons or about 40000 tons more than 2019, largely attributable to the incremental impacted the restarted lines at hawesville.
Revenue pricing lags in the us will be roughly 50% on a one month lag in 50% on a three month lag, while Iceland traded lack transactions will be priced primarily on a three month flat.
Our weighted average value added premium is expected to be about $110 per ton worldwide.
Please note that this is expressed as a value over the premium tons themselves not overall tons produced.
Domestic power is similar to previous years with our Kentucky smelters using market based Indiana hub price contracts and Mt. Holly using Henry hub based natural gas price contracts for 75% the current production level.
Approximately 70% of islands' 2020 power will be LSB based as as it has been historically, while 30% will be market based referencing the day ahead indoor pull mark as Mike mentioned earlier.
Alumina pricing for 2020 will transition to a mix of let me link in EMEA index pricing is moving towards how the business procured alumina historically and marketing unchanged from 2019, where we were almost exclusively Apiay index spacing.
In 2020 on a book basis alumina cost will be roughly 50% based on the equity index and 50% on LNG linkage.
With an approximate three month lag on both.
On a cash basis, the lab will be approximately one month.
Carbon components will continue to flow through our PNM and a three month lag in with virtually no lag on a cash basis.
The bottom two sections of page 11 show, our gross and net plant cash costs, both of which exclude interest capex in corporate SGN.
The net costs are net of all premiums and hence are presented on a basis that is directly comparable to the LNG.
Please note that we have provided a bridge from our gross to net cash costs in the appendix of today's presentation.
Turning to page 12.
I will cover some of our other cost expectations for 2020.
As today will be 45 million on a book basis, while only 37 million on a cash basis.
Interest costs will be 23 million on a book basis and $22 million on cash basis.
The pay down of our Hawesville term loan will be about 20 million over the course of the year.
Our cap and our Capex is expected to be in the range of 25 to 35 million in total.
10 to 15 billion for maintenance related spend in $15 million to $20 million for investment spend.
The hawesville restart spending will consume about 10 million of the investment bucket and we will bring us to a four line operation as Mike mentioned earlier.
Depreciation is forecast to be in the $80 million to $90 million range.
From an income tax perspective, we expect both our book in cash impact book and cash impacts for us income taxes to be less than 1 million, while Iceland will be about 20% of 2020 income on a book basis, but less than 1 million on a cash basis.
As a reminder, Iceland taxes are settled one year integrators.
Finally, we expect our cash flow breakeven cost to be $1675 per tonne. Please note that this is on our direct LNG comparative basis.
As we think about the 2020 outlook a total it's important to note that the quarterly pacing of adjusted EBITDA as slightly back end weighted slightly back end weighted primarily driven by incremental hawesville production coming online throughout the first quarter.
A good way to look at the pacing is to take the total year outlook calculated under owned commodity assumptions using the sensitivities provided in the appendix into assumed that back three quarters are relatively similar after deducting the first quarter outlook, which we provided some insight on earlier.
This concludes our prepared remarks. Thank you for your time attention I'd like to turn the call back over to Carolyn to begin the question and answer session Garland.
Thank you and ladies and gentlemen, if you wish to ask a question on today's call. You May press, one and then zero on your phone we are using a speakerphone. Please pick up the handset before passing those numbers and once again, if you do have a question on the phone pressed one and then zero at this time.
Our first question comes from the line of David Gagliano from BMO capital markets. Please go ahead.
Hi, great. Thanks for taking my question.
So I've been doing a little toggling between this years you're ahead.
Cost guidance and last year's your head smelter cost guidance.
I haven't quite finished yet, but I'm going to walk through it and quick ones and then ask your quick question it looks like roughly.
He's got a sort of a weighted average smelter cost improvement of about I don't know close to $400 a ton year over year based on what was guided to lash I don't know what the actual number was yeah, let's say it's accurate.
You know one it looks like based on the alumina price assumptions or maybe 200 of that is alumina again. That's a question sure can you can you just kind of walk me through the numbers and also if those numbers are right what else is improving year over year up and if you could quantify that that'd be great. Thanks, Yeah sure David I'll actually build it up for you way to what we're going to do this for everyone on the phone wanted.
We'll do it on a net basis David that work.
Yep, Okay. So if we take the mid points year over year in the US 2019 would've been 1700. This year 16, 65, so a small decreased 35 it'd be $35 year over year.
About 55 down and power.
How about 95 down between a looming on carbon.
25 down and let me.
Those are for the LSB linked portions of our cost right that will be predominantly alumina.
And then on the flip side is very clear comes the bad news MWP or Midwest premium in our value added is 140 go into the upfront.
So if you add those up you get to 35 down from the midpoint of net cash cost in the US 20, what we told you last year and will be told you this year.
File that.
Yeah I do.
Okay, how about if you will for Iceland.
Sure Alright, great. So last year in 2019, we guided to the midpoint of 17 40.
This year, we're guiding to midpoint of 15.5.
For the Delta there between alumina and carbon is about 170 per tonne down about 50 per turn down and let me.
And then the net of European delivery premium and value added in Europe is almost zero. So that'll get you to about about 250 year over year rate increase favorable David It's Mike as you heard Craig say the real difference between maybe this is just office, but I'll say it nonetheless between Iceland in the U.S. is that.
The U.S., obviously, you have the degradation in the Midwest premium and obviously, you're well aware of the degradation in value added product premium globally, principally billet or we're talking about here. It's just the fact that we don't have a lot of vap in Iceland right. It's just about the fifth of the production is the foundry alloy. So margins on that the premiums are that have indeed come down.
But the impact in the U.S. is is obviously far greater.
Okay. That's helpful. That's.
I think that's what I would look for thank you very much appreciate it.
Thanks, David to date.
Our next question comes from the line of Lucas pipes.
From B. Riley FBR. Please go ahead.
Hey, good afternoon, and thanks very much for taking my question. So.
Good job RMB not sure all initiative I think that's how it's been overdoing the industry I think to solve and looking for that.
I wanted to ask to what extent that initiative could also be a blueprint for your U.S. business and then on the European side, there's been talk will pay.
Border harbored adjustment what does that mean for your Icelandic operations would appreciate your thoughts on that thank you yeah, great questions, both and so the answer on the U.S. and for the company as a whole is.
Unqualified absolutely in please watch this space, we're not ready to talk about anything now, but but we you can assume there's a lot of effort focused on it we're quite serious about about this we think it's the right thing for the company to do on a whole number of funds. In addition to ultimately being something.
That for which the shareowners will be rewarded as I said, there is no and as you can see there's no premium.
Her say in the market today for for low CEO to metallurgical coal Green metals term of art of course the ladder.
But there could be in the future, but this puts us in a better position with our customers terms of helping them with their objectives with their customers and it's just it's the right thing to do in terms of all the stakeholders that we answer too so.
Please watch this space, but the answer is yes on the border just very yeah. We've done a lot to thinking about that along with European aluminum, which is the industry groups at its hard to its hard to tell at this point in time I would say the impact that we're expecting if anything were to occur is neutral, but you know.
So it's possible there could be something that could be something out there, but at this point in time.
I think we.
As we look it sort of the aftermath of this product introduction in the efforts that were going to be undertaking we just assuming it's it's a wash.
Gotcha. Okay. That's that's very helpful. Thank you for that and best of luck on the I'm not sure all understand pushing that forward I think thats really important for the industry.
Bye.
Yeah, not it's it's great to see I I wanted to quickly follow up on the more short term market dynamics.
Seems like missed this a virus outbreak. Unfortunately had lots of puts and takes plus and minuses side, specifically around China and I wondered if you could maybe walk us through the.
Market, how you're seeing it evolving today.
We're very much appreciate your thoughts on that matter. Thank you yeah sure. We don't have anything proprietary here, but I'll state the obvious it. It's the short term is is not a good picture for primary aluminum there's no. There's no way to sugar coded there's no direct impact for us, but that's part of the reason, we believe you're seeing the commodity price where it is at the at the depressed level it isn't the.
He is a melodramatic term freefall since the beginning of the year is the sort of unique dynamics of primary aluminum smelter thing is as you know so smelters have to run they don't stop they run Enron and run Enron and even if the all the downstream activity or much of it in or in a locality were smelter.
There is a is based is a shot were partially shut the smelter continues to run and so on the metal has pile is piling up here a little bit and we believe that that it will get worked through as these facilities the customer their customers downstream because coming back on you're starting to read now every day about more region.
Yes.
Provinces, releasing their downstream or partially releasing their manufacturing.
Industries to to restart.
So you know look there's a couple of weeks here of prime that it wasn't totally totally pile up there was still some uses for it but it's going to take you know whether it's a month or two to to work through the again, that's that's nothing for prior to the proprietary Lucas that you haven't already heard but that's what we're seeing.
On the ground and when we talk to people that we know who were actually on the ground.
Very much appreciate the color there maybe I can.
Sneak one last one in there sure so brought up on the again this is more a higher levels. This in this case strategy question.
It appears said with some of the commodity.
Index is under pressure.
Some assets are potentially shaking loose among your peers.
Peers you.
He said something you're looking at us their interest to maybe look outside your current portfolio would appreciate your thoughts on that thank you sure sure. Thanks for the question. Obviously, we never comment on specific situations you Didnt ask about one but what were we always we look at it it's our job, we look at everything and especially assets that.
If you looked at the kind of things that Weve bought historically I.
I think they've been assets that others didn't wished to alone.
And we were willing to take them on and make them better restructured them Hall wholeheartedly that was true Seebri, where we always look at home because we thought we didn't pay a lot for it we paid a little less than the working capital value, but we thought that.
It was a good bet that we could with a lot of work restructure those powered guns. Its power contract and we ended up doing that by the cost structure down significantly I mean, the power cost is down not by 50% but.
40% from where we bought it to where it is now maybe even 50% on they are on the Dan prices now. So so we look at you know happily at assets that you know sometimes other people just don't wish to own for whatever reason.
So you can assume that if theres something.
That that is for sale out there potentially for sale were so we're certainly going to roll up or sleeves and have a look at it.
I appreciate all the tele very much and continued best of luck. Thank you.
Thank you for your questions.
And our next question comes from Paretosh Misra from Berenberg. Please go ahead.
Hi, Thank you hi, guys.
Great Thats what.
Hi, Good question on your hospital project that is building the lots remaining bike.
Line is then you deadline as to when you have to decided.
On that on that project, none whatsoever other than our own internal it's sort of enthusiasm to get the plant back to full production, where it belongs and you can see you know just just <unk> number one the plan from a technical standpoint runs best went all five lines and from a process standpoint, but just we'll have a further.
Leg down in the cost structure in the cash costs when we bring those tons back on these of course most of the fixed cost is already there and so so but the answer to your question strictly as there is definitely no deadline of any of any sort other than our desire to get it done.
Got it and then just looking at your alumina.
Pricing formulas for next year, how for this year.
Did you consider buying any aluminite doing some sort of fixed price contract and if if they were available I could you maybe talk about that.
It's very and.
We looked hard at this last year, it's a great question, and we don't especially when the market was constrained over the.
2018 first half of 2019, it's hard to do people are willing to some people are willing to entertain.
Discussions those fixed price, but it's usually at a fixed price that you know guarantees in the sort of a lot of headroom above the market any fixed price you can assume that any fixed price that we did rather than take the risk with likely synthetically converted into a percentage LNG contract, which is easy to do just.
By selling a metal position again, a pro rata met metal position against it very easy to do.
And so so if we did data or if we had done that you would see it where you'd see it is in that 50% bucket that Craig described of of percentage LPMI reference that bucket. When he describes it as either direct percentage LNG contracts, you're signing with a supplier or to your very good question.
Very good question, you know a little bit of fixed price material that we.
And see where synthetically converted into percentage element.
Hi Tech actually thanks, and maybe last quick one bite you think you describe some of them hedges on the power side.
Are you incorporating that when you calculating that breakeven at any price or just want to make sure I understand the account together that I'm glad we're glad you asked that because it's Craig go ahead, yes. So the this is all and anything had twice due to just before we talk about hedges completely immaterial as the way that we look for.
Targeted and our stack today, so just just to be clear on that but they are all outside of EBITDA. So the answer to that would be out there. The cash costs are independent of the engines. So we wanted to do just to make it simple and trackable by you guys is we wanted to give you. The all the estimates all the cash costs all the break.
Evens all of that consistent with the way, we will report and gap right. So that's that's exactly the way it will come again, we didn't want people to have to converted from one to the other it's a big exactly the way our results will be reported every quarter is that you know that the actual market prices runs through the cost of sales and EBITDA and then you see.
You know where the line is on our on RPM now on our income statement, where the in essence, some marking to market occur as of that.
Position every quarter it as Craig said I said first the you actually netted all that down it's a slight asset for us at this point idea a positive mark to market position as Craig said, it's just.
You can never see market volatility, but even as we as you would expect in our risk mitigation and risk management procedures.
As you look at sort on a couple of standard deviation to changes in any of these positions. It's unlikely that this would ever be something that would would be material, but as Craig said, if it if it get close to that point, we'll give you had we'll certainly give you a heads up on it.
Correct.
Hey, guys. Thank you.
Thank you.
And ladies and gentlemen, if there any additional questions press, one and then zero at this time.
We do have a question comes the line of John Tumazos from John Tumazos very independent research. Please go ahead.
Thank you.
Mike you expressed some optimism.
Concerning the conclusion of the virus, which I'm sure.
In the U.S. the virus effects are small.
Last year beverage cans.
Demand rose, 3.5% housing starts rose 3.2%.
Auto sales I think saw 1.6, but yes might have been heavier on aluminum.
Yes big cars.
How should we understand the 7% drop in aluminum Association North American orders last year was just an inventory reversal.
For stocking what's the tariffs 2018, yeah, I think were should've been up.
John I think that was number one thanks for question and then when I think we think it with some of that as people cleaning out inventory than just taking unless.
Yeah.
Robust confident in whatever word you want to use them sort of position about their balance sheet inventory management sort of in the.
Uncertainty that existed for a lot of last year. So that was that was a good portion of it.
You know look in terms of the fundamentals, which you're referring to like some real flow. Good stuff you. Some good examples obviously, a beverage containers and such.
You know that business, we see is continuing to blip, along and you I'm sure you've read the feds not not the fed always gets it right, but the fed's comments. The other day, you know sort of.
Rang true with the way we were seeing the data flows through towards the end the year, which we would look like things were getting.
Sort of.
Stable with a positive bias and and then this thing hit so it's it's hard to tell but and it's easy to say look we'll get through this bubble and then we'll be back on an upward to the right slow, but we really do believe you know.
Putting aside any potential that this thing to get much much much much worse.
We really do things is this thing should generally revert and you should be now to your point I'm sorry for the wind up the pitches to your point is to see the orders you know more closely resemble the growth in those important end markets that you referred to John.
Thank you.
Thanks.
There are no further questions in the question Ken.
Okay as usual, we really we truly appreciate your interest and we look forward to talking with you a and I guess, it's only two months now everybody take care.
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