Q2 2021 Century Aluminum Co Earnings Call
We continue to believe that demand will remain strong into the back half of the year and we will see global year over year growth in the high single digits.
Demand growth has been especially strong in our U S market with year over year growth expected to be in the mid teens.
Our U S infrastructure package would provide further support.
We've seen demand, especially strong in extrusion with below demand in spot premiums nearing all time high for the summer.
While the U S. Billet market prices are set on an annual basis, which means the vast majority of our 2021 billet production with price before the current run up in prices. We do expect that build demand should continue to remain strong into 2022.
With our recent restart project at Mount Holly and the cast House optimization project February we're well situated to take advantage of the strong U S. Billet demand in 2022, and we should be able to give you an update on our contractual pricing for the next year on our third quarter call in November.
This significant demand growth paired with supply disruptions caused by inclement weather and energy shortages in China export tariffs in Russia, and the recent announcement of production disruptions in Canada have legs on especially tight physical market in the U S and Europe and provided significant near term support to <unk> prices as well as <unk>.
Serial increases and regional on spot product premiums.
Given the global nature of these supply disruptions, we started to see the physical premiums newborn tandem in the U S. Europe.
In fact since the Russian export taxes first announced on June 24th.
European duty paid premium price price increases have actually outpaced Midwest price premium price increases at 40% for ADP to 20% for Midwest premium.
Perhaps more significantly for the long term. It has also resulted in substantial drawdown in inventories in these market reversing decreases from early Independencia and returning inventories towards long term equilibrium levels last seen before the financial crisis.
Physical tightened is just another example of why domestic supply chain for key raw materials are imperative and light programs like section 232 are so important to bring back domestic industry and jobs.
On the input side, we are seeing some price inflation across our key commodities most significantly on the energy side were rising oil and gas and carbon offset prices in Europe paired with drier weather in the Nordic region have raised Nord pool and by energy prices.
<unk> will provide the detail on the financial impact, but it's important to note that these markets are trading at a significant degradation.
Which should point to return to more normalized energy prices in 2022 and beyond.
On the raw material side total alumina market continues to be constructive, but we have seen increases in coke and pitch prices in both the U S and Europe.
More structurally we continue to monitor it.
Kris regulatory focus on carbon intensity throughout the world and its impact on primary aluminum supply growth.
This is manifesting itself most significantly in China, where production is approaching its announced limits for primary aluminum capacity of 45 million ton.
The central government has begun implementation of an emissions trading scheme and many provincial governments have started to restrict carbon intensive supply growth through their replacement capacity programs at.
For China appears to be taking some action to rein in supply growth and the primary aluminum sector.
Given past experience. However, we will stay tuned for accounting on this.
In Europe, the EBITDA recently announced the details of its carbon border adjustment mechanism, which will apply the primary aluminum.
While we do not anticipate that <unk> will have significant near term effects due to the initial phase being only reporting in nature. It does put in place for framework could disincentivize carbon intensive units into Europe in the future.
While the ultimate effect of all of the supply side factors remains uncertain. It does create the potential for structurally slower supply growth over the coming year, which should be supportive for long term aluminum prices.
Turning to our own operations, we had solid results for the second quarter in line with our expectations and Craig will provide the financial details on a bit.
In Iceland, we are very pleased to announce a new 182 megawatt power contract extension on the plans for growth.
The contract was a result of long term constructive negotiations with our supplier and reflects the excellent visits environment in which we operate announcement.
Of course, the energy to be provided under that agreement will be 100% renewable energy securing greater time in place its 1 of the lowest carbon footprint smelters in the world.
With this extension policy on the atomic power requirements are now contracted through December 2026.
Importantly, the gruner finding section will also increase the power to be provided by Lance Berkman over.
Over the term of the contract by 'twenty 1 megawatts. The first tranche of 11 megawatts will be immediately available and will replace energy that were previously buying in the spot power markets in Iceland.
This is very important in order to allow the smelter to continue to operate at peak Ambridge in line with our capacity creep program.
The second tranche of 10 megawatts will become available to us in the back half of 2023 and will enable further expansion into value added products at the smelter.
To this end we continue to work hard on our potential expansion into billet production printer Tommy.
We believe that record high billet premiums in Europe, so that the market is calling for additional billet production and we believe the market is particularly strong for low carbon Greenville, it like the bill as it could be produced accrued autonomy.
This tower contract extension secures the additional energy necessary to move forward with our planning and we would expect to have further uptake for you on our Q3 or Q4 call.
Just before we leave ice on I'd like to take I would like to note that we have continued to see growing demand for our low carbon products natural especially in the European marketplace. We now expect that for the first time, we will see received green premiums for all in that trial sales in 2022.
We believe these premiums while relatively modest compared to our other value added products.
Our demonstrative of where the marketplace is growing and is an exciting development, especially with additional carbon regulation like see them on the horizon.
Moving to the U S. We are very pleased to welcome South Carolina Governor Henry Mcmaster in U S housing, Charlie Webb Gin Claiborne to the Mount Hollywood and cutting event.
Both governor Mcmaster and with fiber and have been key allies with employees at Mount Holly and we're grateful for their support.
Just to remind everyone. Once completed for restart program will return the plant for 75% of its capacity are about 170000 metric tons of production on an annualized basis.
In order to reach this point, we will ultimately realized all of the parts on line, 1 which has been operating continuously and also rely on and Reenergize half line too which has been shattered since 2015.
As we've previously discussed the majority of the realized activity will take place this year with the remainder of the reliance is currently 2022 and 2023 at sales.
I'm pleased to say that we energized the first sales on line 2 earlier this week and we continue to forecast that we will reach 75% of total production capacity by the end of the year.
This is the result of tremendous effort by the net holiday team executing on expansion projects during a very challenging and complex environment.
Like many others in the pandemic. However, we have experienced some delays in the project due to supply chain and hiring issues maintenance from suppliers of materials necessary to complete the pot realigning and difficulty in hiring the required amount of new employees to restart and run the additional costs.
We have also seen moderate cost inflation in some of the project costs, including labor copper and steel.
These day these delays have affected the projects on a couple of ways.
First while we continue to expect that we'll reach our 75% reduction goal by year end due to these delays we now forecast that the majority of incremental volume gains. We originally expected in Q2 for Q3, while instead occur late in Q3 and Q4 this.
This will negatively impact volume most acutely in Q3, but also had some impact on Q2, and we will have some impact on Q4.
Second we also know that some of the realized activity that we had originally planned to occur in 'twenty..2 'twenty 3 will now instead be completed this year to.
To be clear this will not be additional realigning, but just to bring for the remaining capex in 'twenty 2 'twenty 3.
Then reduced realigning capex in those same years for the future.
At <unk>, we continue to bring sales back online following <unk> suffered in Q1. This process remains on schedule and in line with our previously issued estimates.
Like non holiday, we continue to expect a positive will exit the year operating at its full 80%.
It goes without saying that we are focused on putting back online.
Colleagues to bring additional production into this tight U S market and to enter 2022 is significant for momentum.
And with that I'll turn it over to Pete.
Thanks, Jesse if we move to slide for fleet I will give you a brief overview auto market.
In the second quarter global aluminum demand was up 12% from the prior year.
This increase was mainly driven by the world ex China, which saw demand up 32%.
While China was mainly flat year over year.
<unk> production was up 8% in second quarter from prior year.
On a 10% supply growth in China, and 5% growth in the world ex China sequentially Global supply growth was only up 2%.
Taking a closer closer look at our regions, we are well positioned to have assurance markets globally over.
Over the past 5 years the U S has seen at least at $4 million annual ton deficit.
And in the EU, specifically in Western Europe, the market has been around a $3 million annual ton deficit.
As we saw last quarter demand continues to outpace supply growth around the world and the global aluminum market is now projected to be in balance in total for 2021.
Along with falling stock inventory levels to pre pandemic levels, the aluminum lemme price looks to be structurally supported by strong fundamentals going forward.
Turning over to slide 5 please.
We continue to see strengthening on pricing for <unk> and premiums.
The cash <unk> price average approximately $2400 per ton in the second quarter, which was up 15% or $300 per ton sequentially.
Currently.
We are near 10 year high LNG price.
While approximately $2600 per ton, which reflects the structural macro support we've discussed.
In the second quarter regional premiums averaged 26 cents per pound or $570 per ton in the U S.
Which is up almost 60% sequentially.
And we average $240 per ton in Europe, which is an increase of just over 40% sequentially.
Current spot price for the U S. Midwest premium is at a record high of 34 cents per pound or.
For approximately $728 per ton.
Growing demand and tight supply and prices in Europe are $360 per ton.
Finally pricing for value added products have also continued to improve with charges for spot billet prices also at record highs in the range of 600 to $700 per ton.
And with that I'll hand, the call over to Craig.
Thanks, Pete, let's turn to slide 6 and I'll take you through the results for the second quarter.
On a consolidated basis global shipments were down about 2 percentage quarter over quarter as we advance our Mount Holly Pottsville rebuild project as Jackie mentioned earlier. The continued progress on these rebuilds will deliver valuable incremental tons in the second half of 2020, we realized price has increased substantially versus prior quarter as a result of higher lagged <unk>.
Prices and delivery premiums driving a 19% increase in sequential net sales.
Looking at operating results adjusted EBITDA was $34.4 million this quarter, because we had an adjusted net loss of $27.3 million for 2007 incentive share.
In Q2, the adjusting items were $32.9 million for the unrealized impacts are for contracts $24.7 million for early extinguishment of debt related to our Q2 refinancing and $49.8 million for a tax recovery related to our historical investment into held for big projects.
We expect to realize the cash benefit of the held for Vic adjusted over the coming years via reduced cash tax payments.
Liquidity at the end of the quarter was 110 million via a mix of cash and credit facilities. This represents an approximate $20 million improvement versus prior quarter liquidity levels.
Turning to slide 7 as we forecast on our last call for Q2 realized <unk> of $2165 per ton was up $215 per ton versus prior quarter, while realized U S. Midwest premiums of $490 per ton were up $160 per ton over.
The same period.
We like Illumina was $330 per ton or about flat with prior quarter.
Domestic power prices increased throughout the quarter, particularly in July however, the price was still about 20% lower than Q1 due to the polar vortex related price Spike in February we discussed last quarter.
Carbon prices continued their upward trend our realized coal price for Q2 was $390 per tonne, a 30% increase over prior quarter.
Looking ahead to Q3, specifically.
The lag Ellen you had $2375 per ton is expected to be up about $220 per ton versus Q2 realized prices.
For Q3 realized U S. Midwest premium is forecast to be $650 per ton were up $160 per tonne and the European delivery premiums as expected at $250 per ton for up $75 per ton person for the second quarter.
Realized alumina is expected to be $350 per ton were up about $20 per ton versus prior quarter.
Taken together, the LNG alumina and delivery premium price moves are expected to increase Q3, EBITDA by about $50 million to $55 million versus Q2 levels.
Power prices have continued to trend upward in the domestic any hub in European Nord pool markets at current for which we expect a roughly 20% increase in quarter over quarter power cost, which equates to a $15 million reduction in EBITDA versus Q2.
As I noted earlier co can pitch prices continue to rise and we expect that trend to continue into Q3 with an overall increase of about 10% on.
We expect realized crude prices to be $425 per ton in Q3 for about $35 per tonne greater than Q2, and realized <unk> prices to be $835 per ton for about $75 per tonne greater than Q2, driving a $5 million EBITDA decrease versus prior quarter income.
Finally, we continue to make significant progress on the non how restart on the fixes on the year end equipment issues in hospital.
We expect a $10 million to $15 million EBITDA increased versus prior quarter driven by sequentially increased production.
In zone, we expect all of these items taken together will equate to an approximate EBIT increase of $40 million to $50 million for Q2 levels.
As we discussed previously we have in the past and manage our exposure to various commodities by entering into for contracts largely in support of our long term investment in the Mount Holly restart.
Based on current spot prices, we expect a $40 million to $45 million realized loss for the quarter on our hedges. In Q3. This result will be below EBITDA geographically and will impact adjusted net income.
I'd like to provide a little more detail today on our forward sales positions and how it will change in quantum over time.
On adjusted discussed earlier, our strategy going forward is to remain exposed to <unk> and regional premium prices overall.
Our hedging activity from 2020 in 2021 were designed to Derisk large investments most notably the restart of Mount Holly in a volatile environment.
Starting with <unk>, we have we have only about 20% of our remaining 2021 volume sold forward, which is split evenly between fixed price customer contracts and financial hedges.
In 2022 that same percentage drops to about 15% as our financial forwards are reduced by half.
With respect to delivery premiums, which includes both European and Midwest premiums.
About 45% of our 2021 exposure is hedged falling to approximately 25% in 2022.
Let's turn to slide 8 and we'll take a quick look at cash flow.
We started the quarter with $26 million in cash and ended June with $90 million are for.
Few notable outflows for the quarter included $19 million for Capex, the vast majority of which was Mount Holly restart related.
$21 million for hedge settlements and 16 million for Paydowns with our domestic revolver and term loans.
The net impact of our early Q2 refinancing with an inflow of about $47 million as we discussed on our last call.
Working capital was an outflow of about $45 million driven by increased receivables and higher sales prices on rising lemme levels and various inventory build supporting our ongoing restart work.
Finally today I'd like to provide some perspective on how we expect to exit the year as we as the restart project at <unk> and Mt. Holly move toward completion.
Please keep in mind that these comments are not a forecast that are simply a guide using the price environment as it exists today.
We continue to make solid progress on the ongoing Mount Holly and hospital projects and expect that we will exit 2021, with our targeted 75, and 80% capacity production rates respectively.
As Jackie mentioned earlier, we have experienced some delays in the Mount Holland project to the supply chain and hiring issues related to the pandemic.
As a result for Mt. Holly volume increase will be more heavily weighted toward the end of 2021, resulting in lower total volume for this year than originally anticipated.
We're also now anticipating that some of the remaining activity on Mount Holly We had originally expected to occur in 2022, and 2023 will now be drawn corporate for 2021.
We expect that this will increase our capex in the back half of 2021 by approximately $25 million, which will then lowered our capex in 2022 and 2023 by the same amount as Jackie mentioned earlier.
From an EBITDA perspective, it is clear that our core markets has continued and strengthened since our last conversation and hence the out quarters could have even more potential than we discussed previously.
And detailed our current thinking on Q3, just a few moments ago, bringing.
Bringing the business for what the Q4 and beyond at today's spot prices with yielded result of about $150 million.
With EBITDA.
With that I'll turn the call back over to Jesse.
Thanks, Craig just before I turn it over for questions I'd like to take a few minutes to discuss our key focus items for the second half and a few observations on our strength and priorities for the business as we look for the medium and long term.
We're very fortunate to have the opportunity to be bringing significant additional production online in both hospital and non holiday into this favorable pricing environment.
We intend to be laser focused over the back half of the year on operational execution to ensure that we bring production online as quickly and efficiently as possible metric 2022 with each plant operating at our target production levels.
Looking back over the past few years, our operational execution in the U S has simply not been good enough and this will be a key focus item as we move forward and improve the performance of the growth plan.
For this and as you know we've recently changed leadership in the U S operations and Qunar, Doug and team are already implementing changes to improve our execution in the back half and going forward.
As we move forward for the medium and long term, we will prioritize on leveraging what we believe for several structural strength for century has on the markets on which we operate.
The map on page 9 while demonstrates 1 of the strength our production footprint is located squarely into 2 sort of markets for aluminum in the world both of which continue to experience strong demand growth, but I've seen a significant decline in supply over the past 2 decades.
In the U S. Specifically for century, it's already the largest producer. We are also the only producer currently for any additional production online to meet the growing demand.
This puts us in an advantageous position going forward to benefit from strong regional frame again, resulting from the sharp structural position and bring on the remainder of our curtailed capacity at <unk> Mount Holly should conditions continue to warrant.
To fully take advantage of this environment, we intend to continue to face the aluminum market and offer directed elevated and regional pricing pricing exposure for our shareholders.
To that end and as Craig detailed earlier, the majority of our existing hedge position will roll off at the end of 2021, and we do not intend to replace those hedges, which were largely put in place to support them on Hollywood restart project.
Continuing to the product side, we have seen significant increase in demand and interest in sustainability and green products for.
We're very well situated to benefit from these trends in our natural brand, which has amongst the lowest carbon footprint in the world and we expect that we will sell all natural production at a premium for the first time in 2022.
In Iceland, our recent power contract extension secured the energy necessary to potentially expand the natural line into value added products and we will come back to you with additional details on this in coming quarters.
In the U S renewable energy penetration from solar demand has already increased the share of renewables in our energy mix significantly a trend that we expect will continue.
Just as a reminder, both cosmos DB purchase energy from the MISO energy market and so benefit from the accelerating renewable energy transition across that marketplace.
This arrangement also gives us the flexibility to enter into direct transactions with renewable producers an objective that we are actively pursuing as wind and solar continue to enter the marketplace as the lowest marginal cost generation for us lowering our overall energy cost.
Finally, as we combine the advantageous structural footprint of our smelters with the growing demand from our customers for Green products. We believe there are opportunities in the U S to continue to expand our scrap and recycling capabilities and provide low carbon bill it for our customers.
We've recently expanded our capabilities in this regard with the hiring of Malibu, who joins us as SVP of strategy and has a long history of running secondary aluminum businesses and marketing billet and evergreen products, both in the U S and Europe.
We're working hard on these initiatives already and we will report back to you with additional details as they develop.
And with that Charlie we'd like to open up the line for questions.
If you would like to ask a question. Please press star followed by 1 on your telephone keypad now if you change your mind it just off.
Bye bye.
When preparing to ask a question. Please ensure your line is on mute.
Okay.
Our first question comes from David Gagliano of BMO capital markets. Your line is open. Please go ahead.
Great. Thank you for taking my questions I have actually got a lot of questions but.
I'll try to keep it.
Somewhat concise here.
I guess.
No particular order I'm going to try and focusing on the on the guide for the third quarter and so.
Sorry to go back to.
<unk> said last quarter, which for us.
On a $250 million of second half EBITDA at the time I think that was the number.
With prices on everything where they were.
Now we're looking at I think whats kind of an $80 million third quarter implied number.
And.
I also heard of <unk>, but I didn't hear a timeline on the 150 quarterly EBITDA. So I'm wondering if you can just kind of reconcile what's changed given.
I know, we talked about changes here you quantified some cost changes.
On a quarter over quarter basis, but I'm just curious.
What's changed since the $250 million commentary and embed it.
And if you can give me a sense for what youre thinking about the fourth quarter. So I can kind of get whereas 250 now basically it's on trying to say for the second half yes sure sure. So first of all thanks for the question and I know, where you're coming from in your prepared to do that so.
To make it clear on everything that we've talked about on the call that was sequential Q2 to Q3, so I'll put that aside for now for I want to come back to that obviously, we can so let's talk about what we said on the last call and it was actually just for clarity. It was 270 right was the back half so what I'd like to do for you is I would like to take Q3.
Breakup at 270, we'll say it was 50.50, I mean that was a representative number of spot at the time in all kinds of things have moved but I'll take that half of that 270, <unk> walk up to the 80 for the third quarter and then what I'm going to do is take debt 80, and build it to the $1.50 for the fourth quarter, Okay and on to do that in about 6 months Korea. So.
Let's start with Q3, if we take that 135 or half of the 270 walk that down for the 80 that we're I think in for Q3 now the number 1 mover was energy cost we.
Lost about $25 million.
The Indy hub is up about $9, a megawatt hours up to $38 per megawatt hour big move there and be even bigger move with on the Nord pool site of $25 per megawatt hour to <unk> 61 versus what we had sitting on that 135 lifetime. So can you bridge $25 million.
Then co price.
Co prices up about 10% about $40 to 425, when we're looking at the third quarter now that was about 5 million.
And then finally, the remainder of the 25 was volume so about 18000 tons less of shipments we're expecting in Q3. This is wholly driven by the Mt. Holly tiny debt Jessie and I talked about earlier again, we get that exit velocity, so you're going to hear that here in the fourth quarter, but for the third quarter those 3 items.
35, <unk> 25 for energy, let's fight for Coke <unk> 25 per volume will project 80 for the third quarter with.
Is that clear.
So far so good got it alright.
Alright, so now lets take that $80 unlimited take that and build it up to the $1.50 for the fourth quarter.
<unk> <unk>.
Lemme, if we take a look at what we're doing to thought Spot's, obviously out in the fourth quarter were at spot <unk> is going to be up $170 for a realized fourth quarter, a $25.45, using using today's price debt plus 'twenty.
Starting from a base of 80 delivery premiums are going to be up $25 billion Midwest premium is going back to Pete's comments going to be up about $100 to $7.50 per ton edp expecting up $110 to $360 per ton on which at today's spot price. Another 25, and then finally $25 million.
From incremental volume, that's an incremental 18000 tons that will be bringing on and mostly in non Hollywood also in Milan and hospital in the fourth quarter. So from 80.20 for SME plus plus 25 for delivery premiums plus 25 for volume for volume gets you to $1.50.
And just to be clear David.
And that guidance for.
<unk> debt.
Illustration for Q4.
We will be building volume in Q4, so once we move beyond Q4, there'll be additional volume gains as we will be running at that full run rate going forward on a holiday in hospital.
Okay. That's helpful and then.
Our GAAP 1 question on debt.
For the fourth quarter, what did you assume for Paul and then just obviously you feel better for St.
So for <unk> quarter.
We gave it so to.
Speak to energy a little bit so we're just using the forward there David price.
When you do look at it we've seen the gas price come up quite a bit.
Falling oil over the past quarter here, including forwards, but when you do look at those for do you see that what it does show a pretty significant backwardation, especially on the gas price, but also in India and in the multiple pricing and so long term, we think that those markets should move back towards sort of equilibrium level.
<unk> seen over the past few years here, but we are seeing that price spike in the forward months.
Okay. That's helpful. And then just as we continue into 2022 with the tailwind.
Exiting 2021, the other 1 I think.
For that Springs to mind is the commentary regarding.
Billets, and obviously complex going off hire.
Higher pricing.
Volume EBITDA uplift potential in 2022.
For example, E billet prices stay where they are.
Yes, so we're just entering pricing pricing season now obviously, we're looking at just the U S. Billet production, we don't have any production pellet production at current or Tom yet, although although as we've said we're looking at that for the future.
But if you just look at.
The U S market.
Prices are up significantly from when we entered into the annual contracts last fall and we're just starting to enter that season now, but just to give you a sense.
We've got about 300000 tons of billet production in the U S. And you can look at where spot prices were trading in the fall where spot prices are trading now and you can allocate that across those tons to get a sense of how that might impact our EBITDA.
Hedges affecting those pellet premium just to be clear those are.
Those are totally in the debt.
So can you just help me out with that last part about the spot now versus back then and I'm, sorry, I apologize, but anyway.
But it does.
Can you help me with that comment about flat now versus spot where it was because for 2 reasons 1.
I don't really have a good sense to tell you the truth, where spot is now versus where it was on that to how does the contract market differ from a spot market that you gave.
<unk>.
Sort of a realistic price uplift.
And yes.
We'll come back to you is it a detailed we're just touching on touching base with our customers now and going into the selling season, but even look at spot price premiums around 25 today.
Multiply that out across the tonnage and you can see there is.
Pricing is quite high right now how that allocates down into the annual pricing, which can be a little bit different obviously.
On the spot cargoes on the spot market.
We will see and we'll come back in in Q3, but there is some significant potential for EBITDA growth there for sure.
And you said the spot increase was 25 cents per pound of value.
Spot is that 25 per pound.
Yes, somewhere between 15, and 20% from where it was trading level.
Right, Okay, all right I'll turn it over to someone else. Thanks.
Okay.
Our next question comes from Lucas pipes of B Riley Securities. Your line is open. Please go ahead.
Thank you for an option okay. Good afternoon, everyone.
That's for a lot of my questions I, just wanted to make sure I understood.
Rich for key.
Q4.
Alright.
It's hard to understand.
Anything on the subject.
Could you just repeat that the page from 82015 Q3 to Q4.
Yes.
Sure no profit more profit so starting starting with 80, we would add 20 to that for <unk>.
And just to give you. The total is on that net <unk> being up $170 per ton to $25.45 realized Q3 to Q4, we would add $25 million per delivery premiums Midwest premium is up $100 per ton edp is up $110 per ton.
And then finally, we would add $25 million for incremental production.
About 18000 tons shipped.
Shipment increase from Q3 to Q4 for $25 million to $80.20 was $25.25.
On 15.
Terrific very clear.
So 1 of the other items.
That is okay.
Steady here.
It's a little bit on it.
For what I would call yet.
Longer term contracts.
Debt.
You're on price movements there for aluminum.
As we look out for 2020 to achieve with minus for fall.
How that variable may it may change, but I appreciate your help thank you.
Sure.
You're right over time.
A different ways that we fixed our alumina on overtime.
On an API basis switches.
Market based rate and also on an <unk> percentage basis, which is the percentage of <unk>.
Aluminum price.
Going forward Thats, something we will continue to look at it. So we're just again entering into the season intent to put those contracts in place for 2022, we do have some existing 2022 LNG percentage contracts already in place.
Disciplined net Holly.
But we will start entering into and looking to secure the rest of that aluminum going forward into 2022 over the coming quarter.
As we look to do that I do view the cost side, a little bit differently. So very clearly on the revenue side, we want moving to.
To remain exposed to the market and to provide debt pricing look through to our shareholders on the cost side from time to time, we'll look at that we will see what we view as most advantageous given the different market pricing for our markets for both of those metrics and we'll make those decisions.
Got it.
That's helpful.
Shape.
Bob.
Okay Jesse.
Maybe taking a step back on for.
Congratulations on.
On the roll.
When you think about kind of debt.
For the rest here.
Could you could you share that with us kind of what we think is Kenneth.
Number 1 <unk>.
On your mind.
Thank you look out.
The company.
Yes sure.
All right very clear number 1 here and you've heard us speak about it a little bit in my prepared remarks, but just to reiterate.
We do need to focus on operational execution in the U S. We have these 2 rather significant projects ongoing and Mount Holly and also bringing back production at <unk> and so we are going to be that will be our number 1 priority for the back half executing those making sure we exit 2021, GAAP those target production levels and <unk>.
Really on solid footing going into 2022, which we continue to expect.
For full market for us.
So that's the clear number 1 then as we look forward.
Okay.
And it's hard to look at our other priorities what we want to do is look where our strengths are so in the U S and in the EU and find ourselves both on these various short markets.
And we want to look and see where we can bring to our customers additional value. So that may be an additional production. So you may see us look at bringing on that additional production on hearthstone on Halloween should market conditions continue to be favorable that may be in bringing on additional value added capacity.
David I think was already starting to look forward to the EU billet prices. They are very high right now and so that may be an area for growth for us in the future.
And then in the U S, Canada and Europe frankly.
We think we're very well situated to benefit from the sustainability and green trends that we're seeing out there.
Europe. It is very clear I think for intercompany, especially when you look at both scope 1.2 and 3 emissions.
We are really amongst the lowest in the world. So we feel like we have real value to bring to our European customers there.
But then in the U S.
We also have started to see increasing amounts of our energy mix come in from renewables, which is lowering our carbon footprint on our existing units and we also think we've got some debt opportunities on the recycling side too to continue to bring additional lower carbon units.
<unk>.
So maybe that gives you a sense of kind of how we're opening on a very clear, though over the back half very focused on on operational execution, we need to get these projects done.
Okay appreciate that and best of luck.
Thank you okay. Thanks Luke.
Our next question comes from John Tumazos, very independent Research. Your line is open. Please go ahead.
Thank you for taking my question and congratulations.
Mike said, he hired a really great guy.
Fixed on them.
Okay.
3 thoughts or questions.
Just on the surface I guess Friday, the Midwest premium.
Sam Hay group future was $33.05.
EMEA was $117.3.
Seem like $1.51.
Screen revenues.
And on our future.
Future was $2.93 per metric tonne.
So just not go up however, much route on Midwest premiums go up 11% of L. On me without counting premiums.
And it would seem on the surface.
So after you get the startup hiccups gone in your run off some of your hedging.
Later next year in 2023.
<unk> per pound.
On 2 billion pounds at a day.
In the neighborhood for $1 billion for your ability to market share.
My first question is.
Is that in the neighborhood.
My second question is.
Would your cargo net to allocate capital.
Initially.
Good years to repay all the debt and all of the liabilities and build a cash nest egg so youre never attempt to hedge again.
And then thirdly.
After you.
Cleaned up the balance sheet and you're good.
A good spot.
Do you think it's reasonable to send the majority of the.
Cash flow capital allocation to dividends share buybacks.
So there is some good questions John Frank.
I do agree that I do think the company is very well situated going forward. We do feel like there have been some structural changes and needle aluminum markets.
Where we are starting to see some some discipline on the supply side driven by whatever metrics you want to look at but certainly I think carbon intensity.
As some of the producers on some of the nation states around the world start to try to.
Bringing down their carbon footprints.
And therefore put some cash on their supply side growth.
It does create the potential for the first time in quite a while.
First on supply side discipline and for the continued strong growth story and demand story on aluminum to start to carry the day.
Which would give us and get century, given our existing footprint with where our plants are located.
Real good opportunities to print some really good numbers and bringing some really good cash for us.
Green fully there.
As we look for capital allocation.
And again I just want to reiterate our focus today is going to be on operational execution, and bringing new units online, but as we look for capital allocation.
Across a variety of factors as you might expect.
On both bridge between paying down debt or reducing our debt load.
Also we will consider organic growth, which I'll come back to you on a minute because I think we've got some really good organic growth stories within the company will of course always look at M&A out there and see what for you what's out there and then of course a co.
<unk>, we'll look at returning capital to our shareholders.
But it's a little ways out and so we'll come back to you with detail. Once we started to print those numbers and bringing on those cash flows but for now we're just going to focus on bringing the units online making share with you so on a cost effective manner.
Thank you.
Encourage you on him walk into <unk>, how good 2023 is going to be in.
I don't care, if you missed this last quarter, that's it for the past.
Hey.
I think if you put a press release in 1 inch letters on your homepage Tomorrow morning.
I forgot to hedge for Ken.
And we're going to not usual average.
And return capital to the people that are on your stock would go on chat box tomorrow.
Good luck, thanks, Julien Thanks, John Thanks.
As a reminder, if you'd like to ask a question. Please press star followed by 1 on your total thank you Pat now.
We have H for last question from David.
<unk> of BMO capital markets. Your line is open. Please go ahead.
Okay, Great. Thanks, John took my capital allocation question, although he did it in a much more eloquent.
The question I have is.
Just on.
A couple of clarification questions.
Is that production target as you exit on a quarterly basis with the changes as you exit 2021, as we think about 2022.
What is the production target.
Yes, so let's the announcement, we've made so thats, taking <unk> to 80% capacity and taking that holiday to 75% capacity across all the times across the for smelters just to give you a round number of about 900000 tons of annual production capacity and then you can obviously just divide that by far in guidance.
Okay. Okay. Good.
And then on.
And yes. It is kind of a new show I don't I don't disagree with John's comment earlier, but in terms of on the near term in the third quarter I got all the negatives for 135.
Down to 80.
But I thought premiums went up since may and other things 1 off is it because everything is hedged is that why we didnt get any positive on the price offset to kind of help offset some of that movers on pumps.
Going on well.
Remember when we when we gave that forward looking guidance, we assume spot premiums at the time.
At the time on the call. So just for it for instance element with $24.50 spot at the time and realized that actually it will come in on a bit below that given our lag contracts.
So on factor.
So the $80 million for the third quarter I mean, obviously that's.
Based on.
2 month lag I think right.
Yeah.
If I'm not mistaken yes, yes.
Please go ahead, Sir Yes, let me, let me give you the quantum on LNG.
Ellen.
Well, let me let me back up I think we're just starting with good that was definitely the right direction. So when we talked about this a number on the on the last earnings call. We get took spot instead of spot existed for the first day on the third quarter out to 12.31. This is what EBITDA would look like in that number at the time needed for <unk> to 'twenty for therapy.
So when I look at Q3 right now obviously was spot on what I have price then as you noted that's on us for quite some time sitting in Q3 right now the majority of Q3's price for me.
Think that number is going to be about $23.75, So I lost actually $75 per ton on lemme from that 135 down to the EBITDA now, but can you share on the flipside picked it up on Midwest premium right. So I was down about <unk> 75, better. They are those 2 offset to zero, hence by outlet for that language.
Okay understood understood that's it for me thanks.
And David just 1 on 1 follow up for your question on billet prices. So I forget exactly what I said sentiment in that 10 to 15 range, where spot was last fall versus where spot is today, but again just to reiterate the annual pricing will.
We will not candidate match exactly the spot price and so we'll see where it comes in we will give you additional sense of that on.
On the Q3 call.
Okay, and did you say 300000 tons or 380000 tons.
300000 times the capacity its maybe 5000 tonnes on to about 295.
Okay perfect. Thanks.
Yes.
There are no further questions on the lines at this time.
Okay, well, we really appreciate everyone's time, and we look forward to coming back and speaking with you again after Q3.
And.
Thanks very much.
This concludes today's call. Thank you for joining you may now disconnect your lines.
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