Q1 2020 Earnings Call
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Good afternoon, and welcome to the Alcoa Corporation first quarter 2020 earnings presentation and conference call. All participants will be in a listen-only mode. Would you need assistance, please signal a conference specialist by pressing the star key followed by zero after today's presentation. There will be an opportunity to ask questions to ask a question. You may press star than one on your touchtone phone to withdraw your question, please press * then two. Please note this event is being recorded. I would now like to turn the conference over to James Choy. Vice president of investor relations. Please go ahead and good day everyone home of officer and William oplinger Executive Vice President and Chief Financial Officer.
We will take your questions after comments by Roy and Bill.
as a reminder today's discussion will contain forward-looking statements relating to future events and expectations that are subject to various assumptions and caveats factors that may cause the company's actual results to differ materially from these statements are included in today's presentation and in our SEC filings,
In addition, we have included some non-gaap Financial measures in this presentation reconciliations to the most directly comparable gaap. Financial measures can be found in the appendix to Thursdays presentation any reference in our discussion today to even means adjusted ebitda.
Finally as previously announced the earnings release and slide presentation are available on our website.
With that, here's Roy.
Thank you, Jim. And thanks to everyone for joining our call. We will discuss our first quarter results in a moment. But first I want to pause and memory of Paul O'Neil the former CEO of al-qaida-linked he passed away on Saturday here in Pittsburgh. Mister O'Neill was a Visionary leader and Mentor including too many in our company today his legacy lives on at Alcoa same principle to always Focus first on safety and the protection of human life is timeless, especially as we Face the current challenges our sympathy goes out to all who loved and respected.
Now this earnings call is going to be different. Well, we had a solid quarter and we'll take the time to explain our results. We are living in unprecedented times. So before we discuss the quarter, I will talk about the impacts of covid-19 and what we're doing as a company in response. The pandemic has affected not only the way we work and interact but our global economy as well. Well a lot has changed in the world our Alcoa values serve as unwavering guideposts. Those three values are fundamental to everything especially in times of Crisis. We've kept them at the Forefront.
There is significant uncertainty due to the pandemic and its effect on the world's economy as such we've decided to withdraw our full year projections on global supply and demand bath. Well, we expect aluminum demand to be affected by government lockdowns and temporary closures from some and used manufacturers. The range of scenarios is too broad to forecast projections with a high level of confidence.
We are closely monitoring our markets and we'll talk today about what we're seeing in our three market segments and how these changes impact Alcoa in addition to our third party sales bauxite and alumina, we produce a final commodity product aluminum that can be sold into the terminal market. Thus shipments can continue unlike some other Downstream trees but given the build of commodity inventories current Dynamics can create longer-term supply-demand impacts once we see demand return
Just as our values have guided our response efforts staying on course with our strategic priorities has enabled to enter this. From a position of strength over these last several years. We've taken numerous actions to improve our business and we implemented a number of actions earlier this year to continue that momentum today will detail some additional action to effectively manage our cash in 2020 due to the uncertainty of this endemic taken together these new and existing initiatives including the sale earlier this year of former Gum Springs plant will totaled $900 in cash actions for the Year. This will enhance our ability to whether this crisis and continue to improve for the future.
Finally as you recall, it has been our practice to report any serious safety incidents as part of our quarterly earnings announcement on deeply saddened and disappointed to report took place fatality a tragedy unrelated to the current Health crisis on February 10th, a contracted worker died after sustaining injuries, if the pulses Chicago this facility. This is unacceptable and we are working to make sure this doesn't happen again.
Well much focus is currently uncoded. We are reinforcing to everyone at every location that safety is our most important priority and I would like to thank all of our employees for their efforts through this Health crisis the everyday actions to protect the safety of their fellow workers and to keep our plants operating makes me proud now, I will discuss Alcoa specific actions related to covid-19.
Our first and most important objective is the health and safety of our Global Workforce across our facilities. We have comprehensive measures to minimize the risk of exposure to this virus. We have implemented response and preparedness plans to protect our people our business and our communities We are following protocols that align with the US Centers for Disease Control and prevention the World Health Organization and other public health authorities where we operate measures to protect our people include adjusting shift patterns, instituting additional hygiene protocols and ensuring the exercise of social distancing matters. Most of our administrative offices are closed as we've authorized employees to work from home where practical and possible. We also acted quickly to restrict all non official business travel beginning in late February and currently continuing.
Our company's Global crisis response team is meeting frequently and is continuously tracking any reported cases and ensuring that those who may be ill or were exposed to the virus observed quarantine protocols.
In addition to the protection of our employees and our operations. We're supporting our communities. The Alcoa Foundation has allocated a total of four million dollars that can be used in our local communities with humanitarian Aid projects. Our locations are working with qualifying nonprofits to allocate this funding for the greatest impact.
Now turning to our operations. We are still running our current portfolio of bucks. I'd mind aluminum refineries energy assets and aluminum manufacturing facilities. We continued Burnside essential products and materials that are fundamental for society in the world's economies given the uncertainty of the current climate. We're taking prudent steps to manage cause without compromising the safety of our facilities first, we have instituted restrictions on new hiring focusing only on what is essential to support the continued safe and effective operation of our facilities second. We are reviewing all non-critical maintenance activities that can be safely deferred and third. We are also stopping or delaying the real items on some of our melting pots depending on the individual circumstances at specific facilities.
ABI smelter in the Concorde
For example, we've slowed the restart which is currently 85% complete to comply with restrictions in the Canadian province. The return to full operation was originally expected to be fully complete in the second quarter of 2020. And the timing for the full completion will be evaluated in the months ahead.
Now, let's discuss our three product segments in the impacts caused by the pandemic.
Starting with bauxite throughout the first quarter. We saw steady demand outside of China as refineries largely operated without disruption from a cost standpoint. Most of our bauxite mining expenses are fixed in nature apart from diesel fuel, which we purchase at market rate has noted here on slide. Seven our bauxite shipments and pricing in the first quarter were largely unaffected and we expect Alcoa third-party bauxite shipments and pricing for the second quarter to remain relatively stable.
Turning to aluminum our shipments were largely unchanged in the quarter. We have a strong cost position due to our integrated blog site position and given the quality of Alcoa blog site. I was Refinery designed that is specific to each type of bauxite. We use less caustic soda on a part-time basis than competitors. We also have an advantage in that when customers are impacted with curtailments. We have the ability and Commercial presence to shift to spot sales for aluminum shipments are continuing but with a substantial pricing decline in the second quarter. This is a dynamical discuss on the next slide as well.
In aluminum Alcoa prices its products using the London Metal Exchange aluminum price having relevant Regional and product premiums for delivering into the markets to which we sell from a cost perspective often represents. One of the largest input costs. Approximately 70% of our smelting production is linked to aluminum prices or short-term wholesale power markets also known as prices fall other input costs typically do as well such as carbon which we purchase quarterly.
We produce a mix of higher-margin value-add primary Aluminum Products as well as lower-margin commodity grade products that are smelters and integrated cast houses.
In our products, we have seen demand impacts. So we have started to shift some of our sales from value-add castings to commodity grade products and we will see this trend continued off the second quarter. We anticipate converting around 20% of previously allocated production from value-added product sales to commodity grade Ingot sales as some customers request shipping a postponement or declare force majeure.
Most of the decrease in our value-added product sales is due to weakening demand from customers serving the transportation sector followed by customers in building and construction. This mirrors Trends in a broader Market at these are the two aluminum end-use sectors most likely impacted by the economic impacts of covid-19 the shift from value-add the commodity grade adversely impacts our Revenue. This loss of product premium will be coupled with the substantial decline in aluminum pricing over the first quarter, which I will discuss next.
Considering the current uncertainty in the markets. I believe that it is appropriate to lay out the facts and Trends from the first quarter to explain what we are seeing lower prices inventories that are higher than last year and a growing number of producers underwater financially.
Aluminum demand is likely to be impacted significantly by government lockdowns and plant closures starting in China and moving around the world to two of our major markets Europe and North America as long as I noted earlier out of the different aluminum end-use sectors. This impact is likely to be felt most strongly in the transportation sector where Automotive plants have been shut down for varying lengths of time followed by the building and construction sector Web projects have been slowed or delayed in the first quarter.
Well aluminum demand is likely to have decreased in the first quarter of 2020 in particular in China Primary aluminum smelters continue to produce without significant option for most of the quarter this resulted in an over two million ton increase in global inventories largely seen so far in China while we normally see something in stock building in China in the first quarter due to the Chinese New Year holiday. This year's increase in inventories, which likely three to four times the size of the Chinese stock. We saw during the first quarter of 2019.
Given these Dynamics aluminum and aluminum prices decreased over the quarter. These lower prices have driven significant levels of production Into Cash negative territory. We estimate that sixty percent of Chinese smelters and 20% of smelters in the world outside of China were in a cash negative position for the month of March. We also estimate that 40% of Chinese refining production was Cash negative for the same. In turn. We have started to see the beginning of a supply response in aluminum. It has been reported that smelters have cut 1 million tons of annual capacity in China and four hundred thousand tons of annualized capacity outside of China between March and April and alumina Chinese refineries cut six million tons. Annually eyes capacity in February was two point five million tons remaining in a curtailed status today.
I would call your attention. However to the fact that these Dynamics and prices can change dramatically since March we have seen a decline in aluminum prices which creates a larger group of water refineries, but with corresponding input cost relief on smelting most important. However is the relationship between Supply demand inventories and pricing them a near-term support to the industry given the ability to deliver aluminum into inventory. However, this relief can quickly become a long-term drag even the new demand wage mentals.
looking for
What is clear is that? The ultimate supply-demand balance is this year will be determined by a few factors first and foremost how fast the spread of covid-19 is brought under the actual.
Second once the pandemic is under control the speed at which economies recover will depend on how governments lift lockdown measures and Implement stimulus programs with the return of economic activity aluminum demand will pick up across its broad set of end use markets which includes Transportation construction packaging Machinery electrical and consumer durables off.
Third the entire aluminum value chain will respond to the pricing and demand environment as it shifts and changes. This is where we could see further capacity curtailments depending on the strength of demand. It is clear. However, that the current market is in an oversupply situation. Alcoa will continue to monitor the situation and may need to make further curtailment wage if this supply and demand situation persists
needless to say we will discuss these Trends in more detail as the year progresses and has more clarity develops about the ongoing situation.
Next I wanted to lay out a simple timeline that summarizes the actions we've been taking to further improve our company including the most recent initiatives associated with our response to current market wage. We have been consistently focused on acting smartly through the cycle including preparing for downside scenarios, and we have worked tirelessly to strengthen our balance sheet. We have initiated programs to strengthen our portfolio and Company for the long term. I am pleased that we started deploying these actions during better times. They provide a solid foundation in clear pathway during the current challenges. Let's turn to the information and slide 9.
First starting on the left in October of 2019. We announced key strategic actions that included a new operating model that reduced overhead and made us a leaner organisation that is important because it enabled faster decision-making. The model is now fully implemented and we'll provide sixty million dollars in annual savings beginning in the second quarter of the fear at that same time. We announced a plan to generate between 500 million and 1 billion dollars through the sale of non-core assets in January of this year. We completed the sale of our Gum Springs plant and it's not worth two hundred and fifty million dollars and we will continue to pursue the remainder of this target. Our other strategic action was the launch of a multi-year review of our operating portfolio focused on four million metric tons of global refining capacity and 1.5 million metric tons of smelting capacity, which is approximately 50% of power aluminum wage.
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Today, we're announcing an action connected to our portfolio review the curtailment of the remaining capacity at our intalco smelter in Washington state while our employees have worked tirelessly to improve the facility. The smelter faces significant cost challenges that have only been exacerbated by these poor market conditions in the first quarter of 2020 intalco lost twenty four million dollars and aluminum prices have fallen more than 20% down 45% from hives in 2018.
We recognize the impact of this decision has on our Workforce. So we will ensure appropriate support as we work to safely curtail the facility.
As I've said before we owe it to our employees and communities to work through this portfolio review as quickly as possible and we will strive to accelerate this process to provide Clarity took the future next in the middle of this chart in February. We announced to plan to programs to further our Improvement in 2020 first driving a leaner working capital that should result in savings between seventy-five and one hundred million dollars by reducing inventory and optimizing contract terms second. We continue to expect approximately $100 in sustainable and annual productivity Improvement. These previously announced actions provided a head start on what we're doing next month menteng comprehensive actions to conserve and manage our cash during the current down cycle that is magnified by the impacts of covid-19.
On the right hand side. We have our covid-19 related actions to date. We are reducing our annual Capital expenditures effectively stopped and work on most return signal capital projects for the remainder of the year. We are evaluating various governmental programs in the jurisdictions where we operate and we intend to use provisions in the US government cares act to defer six years pension contributions. We will also Implement other across-the-board spending cuts, which bill will discuss with more details shortly importantly all of these initiatives including the one completed asset-sale are expected to Total $900 billion dollars in cash actions this year again our work to hone our strategy gave us a head start to manage through this downturn and we will move aggressively to strengthen our company so we can thrive in the future.
So with that I'll turn it over to Bill to dig into the details on the first quarter results and our cash management strategies bill, please go ahead.
Thanks for waiting. We streamlined the financial results section in this first slide provides key financial highlights detailed slides are in the appendix first quarter 2020 Revenue was down 5 million dollars sequentially on seasonally lower aluminum volumes and by resale activity and aluminum and lower realized aluminum prices that income attributable to alcohol Corporation $1,000 or $0.43 per share and includes the gain on sale of the Gum Springs treatment facility adjusted ebitda, excluding special items was $321 generation Yuba. Margin of 13.5% The adjusted net loss was $42 or $0.23 per share also on an adjusted basis. The operational tax rate was 17.5%
Let's look closer.
at doctors driving adjusted ebitda
adjusted ebitda, excluding special items declined twenty-five million dollars in the first quarter the strength of the US dollar combined with favorable energy impacts and lower raw material costs more than offset low, alumina and metal prices first quarter ebitda includes a $36 benefit from revaluation of receivables and payables due to substantial changes in quarter and birth rates in the operating segments bauxite and aluminum has declined sequentially, but we're more than offset by improved Illuminati earnings lower box light prices on intercompany same impact that box light segment earnings, but resulted in lower box like costs in the aluminum signal the stronger US dollar created benefits mostly in the aluminum segment, which also saw lower-cost thoughts and energy costs and the aluminum segment lower realized metal prices were partially offset by lower aluminum and carbon costs.
Price mix with unfavorable sequentially on the mix smelter grade aluminum contracts and lower chemical grade aluminum pricing as well as lower external box light price.
Volume was down in all segments on seasonal factors, but driven largely by scheduled maintenance activities and aluminum bauxite production costs were unfavorable and aluminum primarily at War calling in other transformation costs were higher sequentially due to no longer receiving certain energy revenues and the addition of comfort closure costs intersegment eliminations declined $48. Sequentially, that's more stable aluminum prices met no further profit was released from inventory moving to the key financial metrics in cash.
Typical for the first quarter our days working capital increased sequentially four days to 31 days, but improved for days year-over-year and wasn't an encouraging start to our working capital gains reduction efforts Capital spending was $91 of $22 year-over-year primarily due to a mine move occurring in Australia these factors combined with lower, but to generate negative free cash flow less NCI distributions of 212 million dollars AR Ki balance sheet metrics proportional adjusted net debt was flat this quarter and appropriate does not reflect remeasurement of pension and have assets and liabilities that occurs at your end.
We ended the first quarter with cash of $829 down $50 sequentially a quick review of our major cash sources and uses for the first quarter of 20 are total cash sources were five hundred twenty million dollars consisting of $321 and adjusted ebitda and $199 in net proceeds from a sales a largest Outpost cash for a hundred fifty million dollars working capital use $91 of capital expenditures $70 in tax payments, including a few million and payments of Prior year income tax net distributions to our joint venture minority interest partner of $31 as well as $75 million dollars of pension and post-employment benefits package made in addition to Fifteen million related expenses with an adjusted ebitda.
outflows also in
Include approx $37 in restructuring payments primarily for implementing the new operating model in Spanish smelter divestitures. Now, let's take a look at our pension and moped net liability issue has impacts on the balance sheet and cash flow.
Based on many questions from you. We have summarized the balance sheet and cash flow impacts from our pension plans pension and other post-retirement benefits have important balance sheet and cash funding impact on the balance sheet. There's three key points to consider. The net pension liability is completely measured at your end not every quarter factoring in all payments funding life turns demographic changes and discounted using your end breaks. The opening of liability is similarly re-measured at your end using a similar year-end discount rate. The Pension funds are invested across numerous asset classes including fixed income returns were negative approximately 7% in the first quarter attention opep discount rate of approximately ten to Fifteen year investment-grade corporate bond, even while treasury bond rates fell in the first quarter discount rate Rose, roughly twenty basis points from your end to the dog.
so the first quarter
in some while asset returns and discount rates are variable and subject to change if we assume that we receive are expected return on assets for the last three quarters of the year and we assumed no change in the discount rate occurs from March 31st and funding and other normal adjustments are in line with our Outlook. We would anticipate our year end 2020 pension and Have Nots net liabilities would be approximately the same as the balance at year-end 2019. There are several factors that dictate the amount of pension and opep funding required every year and especially in 2020 funding requirements for 2020 or set and based on smooth asset performance and twenty five year average segment rates mandated by the IRS this year the cares covid-19 package package allow deferment 220 million dollars of pension payments until January 1st, 2021, and we have elected that option to us funding for pension and open from cash flow.
In 2020 is estimated to be a hundred eight hundred and eighty million dollars down for four hundred million dollars next year. We could use our $380 million pension pre-funding balance instead of funding the pension entirely with operating cash flows. Let's now look at our debt and cash position.
First we have a very solid credit position with no significant debt maturities until 2024 at quarter-end. We had cash of $829 and no borrowing against our to credit this month. We amended our revolver to temporarily increase borrowing base availability for the next 4 quarters second fall in February. We disclosed working capital and production cost reduction programs targeting up to $200 in 2020. And we just mentioned the cares deferment until 2021 up $220 in pension funding. We are taking several more actions to improve or cash position. They include reducing Capital expenditures a hundred million dollars referring environmental and spending twenty-five million dollars and a number of other cash conservation measures that are expected to Total $35 million dollars.
Let's see how it all adds up.
Our cash actions announced so far this year add up to an approximately nine hundred million dollar benefits in 20 20 some cash impacts are ongoing and have an annual run rate summer one time and some are deferrals until a later year. But all of them are designed to improve our cash position and twenty twenty nine hundred million dollars cash benefits related to our three key strategic actions took approximately $300 and include overhead reductions are Gum Springs asset sale and the entire code curtailment.
The 20/20 programs for working capital and production cost reduction Target another $175 to $200 another approximately $400 comes from our newly announced covid-19 response while nine hundred million is impressive start. We're not done for example, while Gum Springs is our first completed non-core assets sale. We continue to pursue the remainder of our fiber to 1 billion dollar Target. We realize that these exceptional times require continued efforts to maximize all of our cash programs. Finally. Let's review our full-year outlook for 20,000 our full-year 2020 Outlook, although being subject to change based on the evolving covid-19 situation is our best current estimate and reflects the actions described earlier.
For example, the curtailment of been Taco is expected to reduce our full-year aluminum shipments. So we are adjusting that full-year Outlook approximately 100,000 tons to arrange as 2.9 to 3.5 million tons burnings related impacts reflects lower spending. We expect transformation ibadah impacts to improve ten million dollars to approximately 75 million dollars. We all should expect other corporate ebitda impacts to improve ten million dollars to approximately ninety million dollars. We expect interest expense to increase slightly to a range of $125 to $130 off as lower Capital spending will mean lower interest capitalized as part of major projects finally until further notice. We are not providing an outlook for the full year operational tax rate with the current situation. So uncertain we cannot predict with sufficient confidence the 2020 earnings across our businesses.
The largest changes in our Outlook can be seen in our cash flow impacts minimum required attention and funding is expected to decrease from 400 million to $100 a result of the page extension funding deferral until 2021. We're cutting our estimated Capital expenditures a hundred million dollars effectively stopping return seating Capital spending for the rest of the year and reducing sustaining Capital spending. We are also reducing environmental and spend twenty five million dollars to a targeted 125 million dollars in the appendix. We also lists additional considerations and expecting a second quarter. They include in the Box light segment adjusted ebitda is expected to be $10 lower primarily due to non recurrence of an annual sales contract truck off in the aluminum segment. We are expecting lower raw material costs yield ten million dollars sequential benefit in the aluminum segment lower aluminum costs are estimated through sequential benefits wage.
18 million dollars
And benefits from lower smelter power costs will be more than offset by lower Brazil Hydro sale prices while lower value-added pricing and volumes will be partially offset by production cost improvements scheduling an expected to ten million dollar sequential decline due to an unusually large change in quarter-end exchange rates, first quarter 2020 adjusted ebitda included a balance or evaluation benefit of thirty-six million dollars and a $41 sequential benefit compared to the fourth quarter of 2019 currency changes related to balance sheet revaluations are not incorporated into the currency sensitivities provided for ebitda. So now let me turn it back to Roy.
In closing as we move forward through this period of instability and uncertainty we will continue to execute against our company's three strategic priorities first month. We remain focused on being a low-cost producer which means reducing complexity to better compete through all parts of the cycle in our commodity markets second. We intend to improve our margins and invest Drive returns when markets offer us this opportunity. And finally we are working to advance sustainably which includes actions toward strengthened balance sheet a cycle proof portfolio and an enhanced reputation for environmental and social excellence.
There are three major points. I want to leave you with today.
Most importantly we are focusing on meeting the fundamentals of this crisis that means continued vigilance and mitigating risks for our people and operations. We are prioritizing keeping our nation safe and healthy keeping our operations running and helping our communities navigate this crisis next hour early action helped us prepare for the economic challenges presented by the covid-19 demek with a stronger balance sheet. We are well-positioned to act smartly and to continue executing on our strategic priorities in the action that we announced prior to this crisis.
Finally, we are adapting to this unprecedented situation quickly having a clear Direction ensures that our short-term reactions will help accelerate off long-term direction to enhance the competitiveness and profitability of Alcoa and with nine hundred million dollars of 2020 cash improvements already under way. It gives us a solid foundation to continue to build our future.
And with that bill and I are ready to take your questions.
We will now begin the question-and-answer session to ask a question. You may press * then 1 on your touchtone phone. If you are using a speaker phone, please pick up your handset before pressing the key to withdraw your question, please press * then two when called upon please limit yourself to two questions at this time. We will pause momentarily to assemble the roster.
And our first question will come from David Gagliano of BMO Capital markets, please go ahead.
Okay, great. Thanks for taking my questions. My first question is really just a bit of a clarification question on the $36 that was included in the $321 adjusted age. Where is that in terms of the segment results is is most of that in the Illuminati segments or if not, can you or can you break that out by segment two? That's my first question. Hey Dave. Yeah, it's it's mostly in the Illuminati segment. So let me give you a break down to and bauxite 28 and aluminum and 7 in aluminum, and I know that doesn't round 36, but it's just surrounding.
Okay. All right, great. Thanks. And then just a bigger picture question. Obviously, if one you know plays with the sensitivities and plugged in spot off even after giving all the you know, the benefits for the operating model the Telco shut down productivity improvements.
Lower costs it's still a pro, you know, very low run rate. At least on on the numbers that were coming up with on an annual basis and I'm guessing a lot of that, you know, the aluminum segments. My question is what other actions is Alcoa considering at the moment, if you know given a given the the backdrop of the the big drop in all Thursday main drivers premiums included.
Yeah, let me let me hit that one first Dave and then probably is worthwhile for for build chime in as well. I mean the the fact is is that we're trying to look at this in the very often staged methodology. We're trying to read a bit what we're what we're interpreting from the markets and then take actions that correspond to to what we see both in the immediate term and information out at this point and and you've seen the list of things that we've already put into place. So I'm assuming I'm assuming that's your you're looking for what else could be done. You know, we've been trying to focus on doing what does not have long-term or create long-term issues or even medium-term issues. So good example are the Mind rules the we're we're continuing the Mind moves because those have immediate impact if you choose not to do them just on on grades and then also in all distances. So right now because we're in the cash position that we're in and a dead
Project that forward because of the liquidity we feel that we do not need to take actions that cut deeper into into some of those sort of emergency measures that we could take off the fact is and and depending on when we start to see demand return or start to see more of a supply response to that starts to bring balance back in and and then with the resulting change in price Thursday, we have a series of actions that we can continue to take in those actions run the gamut from additional curtailments looking at each plant on a on a on a specific operation by operation basis. It also steps into further Capital reductions choosing to defer more maintenance Etc. So there's you know, realistically Thursday there is a pretty large set of actions that we have chosen specifically chosen not to move forward with them and us as as conditions change and as that pricing environment changes
Will be ready to start.
Coming into those as the case as bad as needed. I don't know Bill if you want to add to that.
I don't know this whole lot to add other than the fact that you've seen us over the course of what three and a half years now and we take action and the week laid out, you know, we start it back in October where we announced the Strategic review we've taken action on the Strategic review between the concert closure and now the entire KO curtailment, you know with stripping out the overhead. And then today we may just a series of covid-19 actions to enhance liquidity and you know, we'll we'll continue to do what needs to be done to improve the business. And as Roy said we're doing it with them towards the long term, but we clearly understand the situation in in the near-term and it's just it's a management team that doesn't sit back and I think you've seen that over the last month and a half years.
No, no, I'm back in with one one more comment Dave. If you don't mind, you know, I I think as we sat here a year ago and we're really getting deep into some of the Strategic views and and thinking through where does Alcoa need to be for the long term and obviously and I'll be the first to tell you we had no expectation that there would be a global pandemic that would then create the knock on Market impacts wage. However, when we looked forward, we did really think about what is necessary in order to make our portfolio and stable of operations be as cycle proof as possible. And so I I would argue that the fact that we started moving in October and that we had been taking we have essentially a head start and have been taking phase action since then. I am really really pleased that I did that at that point because it helps us react more quickly and gives us more space and more liquidity so that we can make our actions thoughtful and also make them as as powerful and impactful.
Was it need to be I think since since separation, I remember one of the things I had been consistently saying is that we as a company we want to do smart at the up times and we also want a smart at the down times as well. And so that is exactly what we intend to do and and like Bill said, I don't think anybody could say it better. We are a team that chooses to take actions on our own terms so that we can make this company better.
I appreciate that thanx for those comments. Just if if I could just jump in with one more that the follow up there. If you know, we've got an inventory problem. We've got a demand problem and and if that continues to bleed into a, you know lower for longer pricing problem, like we saw, you know for for for years, you know, you know a while back, you know, can you can you give us a just a sort of a framework about how much capacity on the smelting side Alcoa is is willing to take out of the market either on a you know on a percentage of production basis. Well without going small to buy smelter, but you just can you give us a sense if things stay the way they are on pricing say for the next six months. What should we expect in terms of the next moves on smelting capacity Club?
Yeah, it's hard to quantify hard to quantify that Dave in.
Basically because it's you know, it is very Dynamic. I mean as you can imagine pricing changes depending on what's going on with with some of our some of our competitors and in around the aluminum industry off the fact is is that we announced a million and a half tons of of review and so that is that is a list of places where we are where we need to be taking action in those actions can result in in in improvements to the to the bottom line. And as you can imagine there's a bunch of changes going on and some of the input costs it can mean new power contracts, but it can also mean curtailment or Chicago. So we we take that very very seriously and as you see and we've taken a couple of steps already intalco being the one that has the the impact on an actual operated time, they'll go ahead cuz I interrupted, you know exactly what I was going to say. I mean, you got to go back to the million and half metric tons out of that million and half I believe around 900,000 operating today. We announced in town.
So and you know, we continue to move forward on the Strategic review and the current market conditions make that strategic review even more important and you suck really really push us to make decisions quicker.
Okay, that's helpful. Thanks very much.
Our next question comes from kurtwood worth of Credit Suisse, please go ahead. Yeah. Thanks. Good evening.
Hey, hey guys. I'm hanging in there, you know from a bottling perspective. It's it's pretty challenging at least on the outside right now because you've got them know a lot of delays in our cost structure and from the you think about 70% of your your power costs or element letting you know, aluminum flows through on a flag off and then you know right now obviously you're going to see much lower premium if you go more and and get away from cast house products. So, you know, I guess, you know the question and then you have a Taco on top of that so I could you estimate or give us a rough sense for if you were to assume kind of spot assumptions for these things kind of what the profitability of the smelter business would look like today.
No, you know we we don't provide that I think the best thing that you can do is what you alluded to in that is, you know, take a look at both the sensitivity stage and the same structure page and the cost structure will help you model through, you know, how the cost flow through for for the smelting system so long, you know, and then on top of that we we've given you an indication of how much profitability intalco will contribute this year by the fact of having it. I should say on a Runway by having it curtailed so you can factor that into into the model and and like you said, unfortunately premiums in value ad that's calmed down so that that's a negative wage, but we don't provide Miss necessarily A break-even per se or a breakout specifically around the aluminum business.
Okay, and then with respect to to the pension in?
Ability, I mean the fact that that could be flat this year despite what we're seeing is pretty remarkable. And I realize that part of that is the benefit of the uh care Zack but you know since quarter in a you know, they have some pieces off I think roughly 12% So, you know, it seems like you're in a pretty you know, healthy position relatively speaking from what I think a lot of us had thought could not to do anything further with your pension in terms of annuitization and you know as you get more proceeds from asset sales or there are there other things you're looking at with regards to be risking your life exposure.
Yeah, so I'm glad glad you make the point when and just just so I clarify my comments because I think they as you as you pointed out there. It's a pretty interesting perspective. So when we looked at the March end discount rate and when we looked at the March and asset return rate, and we all know that first-quarter on asset returns weren't great and I believe our a some returns were about minus 7% and then we factor in that we think we can make our expected return on assets for the last nine months of the year. So we need to earn a 9.6% for on the rest of the year assets, which if you consider how low they were at the end of March it's probably viable and we bake all that in and assume that discount rates don't change the pension liability would be pretty close to Flat year-over-year now clearly in this very volatile market returns are changing daily wage.
Discount rates are changing by the minute. And so, you know, that's just a moment in time projection, but it gives you an indication of where a pension is. So could we do more wage? Yes. We we have the opportunity to more annuitization. We we consider it from time to time and and you know, it's as you know, we've got a two thousand a year plan to get our adjusted net debt down to 2 to 2 and 1/2 billion and the way we're most likely going to do that is through the pension. So I guess to summarize my comments attention is a is a month a focus area for our company. It has been since the first day we originated and we've continued to work it down and we'll can be continued to work going forward because it's part of part of the capital allocation model that we've laid out pretty clearly.
And then just one follow-up. You said the pre-funding balance, I think was 380 million post the 220 from pairs act. I was of the understanding that you did you had a 5,000 in pre-funding from the dealer you did in eighteen. So some of that pre funding effectively being diluted by the cares number or just kind of looking it up on that offer you very much. Yeah. So so a little bit of a little bit of the pre-funding was used during the course of the year to keep the pension, uh at the level that they're at. I just want to make it clear the cares act allows us to defer any contributions into the u.s. Pensions without using the pre-funding balance. So we will come into the years with with, you know, not having made the pension contributions to this year will have to catch them up next year, but we will have our full $382 million dollar pre funding balance off.
available to us
So as you look at next year, if we you know, if we do choose to push out all of our pension contributions to the pension contributions next year are high and that we can use that pre-funding back to offset that to offset much of the pension contributions next year.
Okay. Thank you very much. Appreciate it.
Our next question comes from Tim Tanner's of Bank of America, please go ahead. Yeah, he good evening and hope everyone's healthy. And all right wanted to ask two questions. The first one is log into this call. We were struck from our whole Metals & mining team was struck with how aluminum was the one commodity maybe or the the commodity with the lease Supply response. So you've taken a dent to that page with the until code difficult decision, but I just wanted first of all if you could explain remind us when you curtail is that permanent or is that temporary and how to think about that and then in the same vein expect other actions by other participants cuz it has been kind of striking how little Supply response. We've seen relative to other commodities.
Yeah, thanks for the questions timna. I'll I'll try and answer the best that I can so in Talco is a decision to temporarily curtailed. So it doesn't mean or we don't mean to project forward and say whether it will return to operations or won't return to operations. What I will say is is that when we make a curtailment decision we do it not just with the current pricing and mind but also looking forward to number of years and so it is it's not necessarily just just meant to represent the world as I see it right this very second and we need to look forward at least twelve to eighteen months. And so when we then transitioned it over to a broader, what do we what do we think is going to happen across the market? I'll be the first one to tell you that we certainly can't project or or indicate where where our competitors or what they're going to do when we look at the facts as they sit today and you see it with birth.
Two and half million tons of inventory that was put into place over the over the course of q1. The fact is is that we are that we are in an oversupply situation and you are seeing the the price response which I realize is very complex and not just supply-demand. But but that is obviously the most important long-term aspect of it. It means that we're continuing wage. We as an industry or or producing more than as required by our customers. And so that would argue with basic economic theory that pricing is going to incentivize that that we secret life and when we look around the world and as you can imagine this is this moves pretty quickly cuz as we saw aluminum prices come down over these last couple of weeks, it changes the Dynamics inside of smoking but as you look around at what's happening with pricing on both in China, and the rest of the world the fact is there's a pretty significant chunk of underwater capacity. And so you you see if you saw Thursday
The presentation I mentioned that it was the it had changed over the course of these two weeks.
But the fact is that the longer that we remained in oversupply conditioned the longer we built up inventories the longer that the the pricing pricing issues could continue now we do expect and hope that the man will come roaring back and some of the social distancing measures come off some and all of those social distancing measures come off or if we find a treatment or in the end if we find birth information, so I think there will be some demand response down the road on the certainly as we look at it today. There is a there is an incentive because pricing and because of this oversupply condition that will create a a pretty serious issue if we don't see that Supply response.
Gotcha. Thank you. The other question. I wanted to ask and hopefully just get a little more clarification on is the comments you made about the casserole products premium, you know, obviously they'll come down but I just wanted to get a little more color about how long that could last how that how that transition moves. Is it just a function of some of your higher-end applications for aluminum or not demanding as much like Auto and and Aerospace for example, therefore you're making more commodity grade because there is a demand there or in like that just lasts as long as that's that condition last or is there anything I'm missing?
So so on that one, you know I and let me hit it sort of qualitatively and then then bill can jump in from a quantitative perspective, you know, you have to divide it into two different pieces. There is that the the premium impacts that we were seeing and this is particularly on a cast product side. We were seeing already some some pressure on premiums coming into 2025 covid-19 is uh has exacerbated that to a certain extent because of you have you've seen a pretty significant demand production, but you are already seeing those pressures because you age because of the short position in North America because that Midwest premium had come up even even when you consider the the fact that a lot of imported metal have to pay the duty you saw a lot of metal come into North America specifically in that created a long be 10:20 position in in a long product position, which started to then have an impact on on premiums and in the end on on both Midwest and the South
I pregnant and something simple. This is similar in Europe where you're seeing that the the you saw more production come online than you had demand. So that that is off essentially is driving some of the some of the product premiums that you're seeing some of that will cure itself as if if you see real curtailment and you see those test houses come down with the smelters as well. But it also it also means that that could last a bit longer than than just when there are specific code that in fact, I'd also remind you that in Europe you typically are are negotiating on a quarterly basis and then you're typically negotiating on the annual basis. However, there's a lot of distortions to that this year because you have some some decisions being made around around pull outs or were forced to viewers Etc.
And just if if I can just real simply can I mean you you see it all over?
The place Automotive manufacturers are taking a curtailments. Um, you know, just about everywhere are Downstream customers took, you know, the better part of March and April off or shut down. So what we're seeing is things like extruders not need Billet Foundry Alloys, you know with the wheel manufacturers not needing Foundry Alloys. So instead of making Foundry Alloys instead of making a Billet we're making commodity grade aluminum and we sell it to either Traders or you know, ultimately if we if we needed to talk to the lme but what that means is you're not earning that value at premium and I think for the I think Roy had talked about a 20% decline second quarter of first quarter, so that's that's the impact of that.
Okay, great. Thanks a lot.
Our next question comes from Carlos of Morgan Stanley, please. Go ahead.
Hello, good afternoon, everyone. So the first question is maybe bill. Can you clarify on slide sixteen the comments about linear working capital the 1,000 seventy-five to one hundred million dollars. Um personally, this is for for this year. We saw in the first quarter working capital change. What was you know drain to Cashflow situation. So, can you maybe give a little more color as to how you see these? Uh plane out throughout the year that we my first question sure. It's really odd things going on those. They're Carlos, um, you know, just naturally with lower aluminum and aluminum prices and raw material prices. We should see our inventory values go down essentially what we're what we're suggesting to you here is that if you look at the Hard Dollar Days working capital at the end of 2019, which I believe is around seven hundred Club.
Dollars, we're telling you hey, we should be we should be able to see the seventy-five to a hundred million dollar reduction off of that working capital level that we ended 2019 which results in a cash generation for the year. Now we say that's one time because we don't know what we're going to do in 2021, but that ultimately ends up as a generation. As I said, there's two things going on one is just naturally working capital will come down with lower prices assuming that lower prices stay where they're at the rest of this year. But on top of that the new organization structure that we put in place is looking at office supply chain from end-to-end. So we are now, you know, now that we've eliminated the business units. We are looking at all the raw materials all the work in progress and took all the finished goods inventory all the receivables all the payables from an end and end perspective with one organization and they've been tasked with driving out working capital. So the combination of those two age
naturally lower prices
And the task that they're doing should generate that seventy-five to a hundred million dollars. And you said we were up in the first quarter. We're always off in the first quarter. It's a replenishment of the pipeline because we talked to see everything get drawn down in the fourth quarter, but we're signaling to you that will recover from that first quarter and get to a lower level in the fourth quarter again, assuming the price. Is that stay aware them today?
Right. Thank you. And the second question is the other than the the reduction in in the natural reduction in the cash generation and performance of the business. Is there any room for a car to reduce the contributions for non-controlling interest given what is going on in in the market and in the economy?
Yes, so and I'll I'll address that one. Right the non-controlling interest Carlos is very simple. It's 40% of the awac joint venture gets paid out to our our partners. And so the cash flow implications of that is essentially The netting of any Investments that we're doing on Capital expenditures and the earnings that we're making that in that section. So there's really no I should say flexibility on our ability to pay NCI out to our to our partners. There's a defined wage, you know a cash management system. We make 8 dividend payments a year and when I say we a whack mates to 8 dividend payments a year to to a koe an Choi Lumina limited, so if it's very limited flexibility there which you know from our perspective is fine. I mean, that's the way the joint venture was set up.
Right. Okay, and if I may ask one more any any any comments that you can make on ongoing conversations without giving the specific thoughts on the asset sales front given what is happening right now you are you even able to engage potential buyers or all this has been pushed out to when will service return to some sort of normality?
Where are you want me to check that one to my area? Yeah, go ahead bill. So Carlos, it's a it's a great question. We got Gum Springs done, right and thank God. We got Gum Springs done pretty covid-19.
you were to take an asset to
Market today, you can't even really have meetings. You can't have, you know can't have reviews of the absence. So things have gone a little bit slower. All right. Thank you very much guys said yeah. Thanks Carlos.
Our next question comes from Chris Terry of Deutsche Bank, please go ahead. Hey Roland a couple of courses from a hopefully short and Shop. Just wanted to stop it slide fifteen if I made the $100 that you highlight in reduced production cost year-on-year is that your forecast of what will be the benefit from lower Brule materials as being caustic carbon diesel excetera or is that is that something you've achieved regardless of that? And there's more there's more potential Cost Cuts beyond that if if raw materials declined from here. Thanks.
Yeah, I'll jump in 100 is not raw materials Chris the hundred is when I say not wrong. It's not the price of raw materials. If we if we use less caustic off if we're smarter about carbon consumption that counts towards the hundred million dollars, but this is real blocking and tackling on taking cost out its productivity Improvement allows it it's you know, looking at Emerald and services and and and you should see in in two places on the bridge, right? You'll see it in the production costs money on the bridge. So when you see at the end of the year how we did against us, you'll see it in production costs and you may see some of this benefit in volumes. So for instance, if we're able to make more time with the same cost structure with the same amount of people were getting productivity out of that. So you'll get a little bit of a benefit there, but it has nothing to do with lower raw material cost, you know.
This point we would be projecting lower raw material costs on a year-over-year basis to be a couple hundred million dollars. So we are really picking up some of the benefits from from the lower roaming cost vs. What we saw last year. So that's around two hundred million dollars in lower raw material costs on a year-over-year basis.
And just just a compliment Bill's comments, you know, I think we had constructed this program prior to covet and of course we had our our pricing issues that don't seem like pricing issues anymore that were happening before before covid-19.
and we will
You will go after every lever that we can and we are trying to unleash all of the intelligence we have in our plants and the great work forces that we have to capture those for the long-term. Okay, thanks. That's that's clear and then slide sixteen quickly. It just seems terms of the 225 focusing on the Run rate bucket. How how can you split that up in age to what's inside the Navy and what's not?
No, I don't think we're prepared to Chris at this point.
Okay, and the hundred mil is Catholics. Is it some of that or is that do you say that you've entirely saved that hundred million from your previous balance?
Yeah, you know maybe some of that will be deferred will assess that going into next year. But I mean, it's a it's a good point to make we're being pretty aggressive found lowering Capital spending and it's Roy said, you know, we're we're putting on hold the return seeking projects given the market situation that we're in and we really aggressively going after the sustaining projects to in order to drive cash this year.
Okay, and the last one if I may just ask where a few different things you've said, so you're obviously pulled the the total Market Outlook for the company but you retaining off your Ryan volume guidance and you haven't you know, you haven't pulled that yourself is the methodology. They're just the part that you see visibility on cuz I'm just I was just surprised that Jake Paul one, but I pull the other given your acknowledgement that the market service applied and further adjustments have to be made you just wait until you've made those if you make those and then make the changes after that.
Yeah, I think that's how you should look at it Chris. I mean the fact is that if if market conditions drive us to another curtailment, we will then modify whichever of the name Shepherd be shipment forecasts that we've given you. So this is meant to look at our our business as a sort of a going concern with the portfolio that we have incorporates and Tom shutting down in the third quarter into those numbers and if we move to another if we move to another curtailment will incorporate it at that point.
Okay, that's it for Migos. Thank you.
Our next question comes from Alex hacking of City, please. Go ahead. Yeah. Thanks. Thanks for waiting Bell and and good evening. I guess you you mentioned in the slides that you're going to convert about 20% of your value-added sales to to Ingot. Is that a is that a rough proxy for where you see us and European Ally Demand right now or you know that that value-added sales isn't a certain segments that are being hit, you know, either worse or better wage and then why you think the overall block is so I guess anything that you have where you could kind of quantify where you see the different segments would be helpful. And then think also you mentioned earlier in your comments that construction Demand with with quite week. Maybe you could follow up on that because you know some other players in the construction supply chain or saying that construction markets wage.
remained relatively stronger
Thanks.
Yeah, so Alec. Let me let me take a swing of those too. So so from the 20% of value-added product sales, I think that is very much meant to be a look into a second quarter and it's specifically looking at second quarter because we typically are are bringing in our or we have our actual sales orders come in on somewhere between one two or three months before before they actually materialized. And so at this point, you know, finding our sale so two-thirds of the way through through through the first first month of the quarter, we have a pretty good insight into what's going to happen over the course of Q2. And so I I'd say that it gives us visibility there. Now when we start projecting forward, you know, depending on on where that particular business is located in in how it is deemed or how it chooses to start coming back with as we start to get past some of the worst times around covid-19. We would
Expect that to start to to start to return. However, we just don't feel that we have the confidence to we don't have a confidence to predict when that will be an exactly how quickly that recovery will be at this particular time. So so look at that very much at the queue to indicator and then we will give you more information as we get into as we get down the down the top on on your mission on construction, you know, I'd argue. It is a very it's a very similar type of analysis. We really were looking at what what are we seeing right now in our life in construction segment in while I think that there is there is a push to get a lot of that we started or to get back to a 2-2 more normal times. It does connect with what we're seeing actually in our customer order book. And so from A New Perspective we are seeing that there is some weakness inside inside construction and how much of that is using is using aluminum.
And so it's that's that's sort of what we find right now. Although we do we do hope that there was a recovery
Okay, thanks. And I guess one quick housekeeping question. I think last quarts. Are you guided that folks I even thought I was going to be about $35 lower. You did quite a bit better than that was was that just fax or were there other factors there as well? Thanks combination of ethics and there was a contract that we alluded to where we sell bauxite during the course of the prior years and then at the end of the year you true up for the actual tons that were mind because we're getting a royalty payment from one of our competitors and that royalty payment ended up being that true and true up ended up about seven million dollars. And so we didn't know that when we gave the guidance. So it's the combination of the strong USD and and the truck payment.
Thank you.
Our next question comes from Lucas types of bee Riley, please. Go ahead. Hey, good good evening. Everyone. Hope everybody's doing all right. I have another question on the on the customer's side in terms of Aerospace roughly what percent of revenues that could have including value-added and everything and then just jump follow up on the earlier questions. What what what sectors are stickier on the demand side made the packaging. For example, what what percent of Revenue wage is not thank you. Yeah. Let me let me answer the first question on Aerospace maybe a little bit different than you were asking Aerospace am very small percentage and looking at North America as an example of the larger world. It's a it's sort of a one one to 2% of the total aluminum demand. So I think there is value age.
that sits inside of there for
The downstream producers because these are pretty specialized Alloys but from an overall demand perspective of aluminum. It really isn't going to have it isn't going to have a large impact. So it's not one of the key drivers on the on the what sectors are stickier. You know, I think we're seeing seeing the other sectors outside of building the construction Automotive being a lot stickier than what we're seeing inside of inside of those two particularly. Um, so the can business the tends to be able to cope with this and in fact, you're seeing seeing an increase in demand year on year and then when you look at when you look at how things like consumer durables the electrical electrical overhead wires, etc. Etc. I think the the fact is is that you're you're finding things to be relatively sticky. The the next question obviously is is how quickly do do we see recovery and do you actually wage?
Some of that cash back up as some of the supplied and production hiccups occur. And that one I don't think we've we've put an opinion out yet. So we'll we'll have to see how that recovery continues and in terms of the percentage of Revenue of this the gear parts of of your customers, roughly. What what what's the ballpark?
You know, I I have to admit was just off the top of my head. I don't recall what percent of Revenue packaging and it's we can we can revert back to you dead. Yeah, that that would be great. And then just a second question in terms of the international trade flows. Are you seeing any changes their own appreciate your thoughts? It's it's something that's come up occasionally, but with the would be helpful to hear your thoughts on that. Thank you and Lucas is that in reference to anything specifically or just sort of General trade moving around the world General trade moving around the world. Yeah, you know, I think would would I would comment there is that there was a lot of concern that that with China being shut down you'd see just a lot of issues around trade flows and particularly when you're bringing in components from China into the rest of the month.
North America and Europe, so I think all of a sudden all of that became a lot of speculation as China starts to ramp back up again, and it's rest of the world and in us and Europe in particular, we're starting to see some of these these covid-19 has impacts. So I I don't think we have data that outside of our markets. That would be particularly helpful. I think when you look at box, right when you look at iluminage close around the world when we look at how are aluminum products are moving outside of the conversion to our value-added products into commodity grade which typically will go up to either either licensed or unlicensed warehouses. I don't think we've seen a lot of distortions outside of freight prices. We've not seen a lot of distortions to trade now. Once you get into my components and things like that, I think you'll need to be asking some of the downstream producers, but from our perspective we still have materials that are flowing and we do not have any serious risks on our Horizon about getting raw materials dead.
who are plants I'm
Very much appreciate all the other color and best of luck during these these challenging times. Thank you. Yeah. Thanks Lucas.
Our next question comes from parts of berenberg, please. Go ahead.
Thank you. When you look at the aluminum Futures curve these days and looking at the low interest rates you think this is an attractive market for commodity traders to put on some financing deals either in China or outside China similar to what happened in over to 9.
Yeah, it's make that a very simple answer to what can be a complex question. The fact is is we've seen that aluminum teachers curve adapt to make sure that that warehouse in place that essentially that that storing of metal the the contango essentially reasserts itself so that that is possible. And so whether that whether you look at that as the forward price going up or or which would be much less much less agreeable. The the spot price coming down. The fact is is we have never seen we have never seen an environment that a lasting very long where you don't have a track of trade on on putting that over the warehouses. So right now we we simply don't see a a bottleneck in that the banks or other Traders or or not willing to take that take that inventory on.
I see and then it just going back to box side. Is there any other, if you could provide the pricing that you see it in box light business for the rest of the year off like is there any other contract that it's coming up for True up in the next six to nine months?
Yeah, you know a lot of our contracts tend to be longer dated and we do have some spot Cargoes in those spot Cargoes will get priced based on prevailing the prevailing Market but a lot of times those will be in places where they'll they'll be closer to partner price at MRN or CBG etcetera. And so it's it's a bit of a rarefied market. I think you're talking specifically about box that going into China which is which is where you have most of the material going. You know, I think what you've seen in China is that you've seen domestic prices start to come down and I think part of that is going to be the fact that aluminum refineries are are you had a good number of aluminum refineries in the first quarter and now you're starting to see some of the logistical bottlenecks disappear inside of China and so you've started to see that some pretty significant downturns in in domestic pricing that said from from an import box of bauxite price. You know, I think I think it has made relatively steady in in in fact one.
Could argue that there might be some some downside if there are linkages back over into the aluminum price for that is the Chinese or Global aluminum price, but from our perspective really the the pricing environment and the volume environment. We haven't seen a lot of distortions, um, even even into one because of covid-19. So it's it's for the most part Steady As She Goes from a I'm an Alcoa real-life perspective.
Thanks for I appreciate the color.
Yeah, thanks, bro, Josh.
Our next question comes from John tommaso's a private investor, please go ahead.
Can you give us a flavor of what are some of the assets sales that might be possible six or twelve or eighteen months out when things warm up a bit? Maybe the whole point Comfort property in Texas is big and valuable for example, and would you be a candidate for the federal bailout fund its intended for Airlines or other hard-hit Industries and are there any other?
Federal initiatives
it might be practical for Alcoa.
I think I'll try to take all this John as far as the asset sales go. We haven't announced specific assets and recall that we have a program that's $500 billion and we've already done the 250 off. The one asset that is publicly for sale is the Rockdale land and you know, it's it has a list price of 250 million dollars and we've been working to sell that now for a while. So that's is one of the assets that we have publicly said is is for sale as far as your comment around Point Comfort. Yeah, there there is value in some of these websites and we actively try to maximize the value of those curtailed or close sites and in the case of Point Comfort we've moved to closure and and so we'd be looking at opportunities to maximize value out of out of that facility your question around uh, specifically Federal Federal bailout funds the presentation that wage
See today is our best view of of the opportunities that we have with the uh programs that have been placed what put in place with the US government today. So some of the things that you're seeing in the presentation today, the deferral of the pension contribution is because of the cares act some of the deferral around some of the costs money specifically in you know, hiring travelling other kinds of other restrictions, we would be taking advantage of deferring FICA contributions month. And that's I think all companies are doing that currently and that just came out with with one of the new with with the cares act also. So what you see today is our best view of what we think we can we can do with the existing programs. And as far as other programs or other opportunities, you know, I'm not aware of them.
I don't know if that's address is your third question. So we shouldn't think that there's 100 or 500 million loan potential the way that Boeing or General Motors or Ford or an airline might consider supposedly. It's like a half a trillion dead. Yeah, not not to the best of our understanding at this point John, you know these things evolve fairly quickly, but the best our understanding we are taking advantage of what we can at this point.
Thank you.
Our last question will come from Andrew Cosgrove of Bloomberg intelligence, please go ahead.
Hi John. Thanks for taking my question. Hope everybody's all right, just real quick on the Lumina. It came in quite a bit above where we kind of thought it would land that pricing. That is I was just curious if you get off a little bit. If there were any kind of fixed costs or index lag associated with pricing in the first quarter know nothing unusual, you know would say again Illuminati Illuminati segment gets a benefit from the stronger US dollar so you see a little bit of that in the results, but nothing unusual on the on the side.
Okay, great. Yeah, and then the next one was just around the pension again kind of the labor at this point, but just to clarify so next year. I believe the number was between 350 or 400 just on the space. So you have the 220 carryover. Are you saying that is there a limit to the pre-funding balance you can use to apply against I guess that grand total and then secondarily the are you saying that the the you know, if the rate of return assumption and discount rate that you walk through before kind of holds are you saying that that would eliminate the 320 carry over or I'm just kind of curious how that what kind of shakes so yeah, sorry. No, it doesn't eliminate the 220 carry over. So let me just parse my comments from the Thomas was making around the pension and Opeth liability is purely from a balance sheet perspective. So you you do all that math with the returns at the end of the year. If nothing were to change for March we would be at the same balance sheet position, which is good, right? That's
Great news for us as far as cash contributions, which are run under a very different calculation on on pension contributions the cash contribution. We would be deferring this year and we don't have to use our pre-funding balance to defer this year. So the minimum required contribution of $220 we can push out into twenty Twenty-One. But as you alluded to we've got I don't have the numbers in front of me something like three hundred fifty to four hundred million dollars of pension contribution that we have to do in 2021. So at that point if we choose we can use our pre-funding balance to not make those contributions and there is no limit to the amount of pre-funding balance that we can use in a particular year. The only limit that you have is that it's only there for the u s pension it's not there for the the the overseas suspensions, but we could use the $380 off.
To your to offset the the large-scale pension contributions that we're going to have because we're deferring this year.
Okay, great. Thank you so much for that's yes very clear. Thanks so much for clarifying like they say.
This concludes our question-and-answer session. I would like to turn the conference back over to Roy Harvey for any closing remarks.
Thank you Andrea, and I'd like to thank everyone for your time today and for your questions. We're acting aggressively to improve Alcoa and make it through this uncertain time better and stronger. And as I said, I'm pleased that we were able to get started early to drive improved competitiveness for this company and that we can build on that strong foundation with that. We look forward to discussing our second quarter 2020 results in July, please stay safe and healthy everyone back to you, Andrea.
The conference is now concluded. Thank you for attending today's presentation and you may now disconnect.