Q4 2021 Century Aluminum Co Earnings Call
We have been able to implement manual procedures or other work around to ensure that production continues.
And we're able to continue to ship and invoice our customers.
I'd like to thank everyone throughout century organization with stepped up and worked tirelessly tirelessly to get us through this event.
While it is still too early to give a detailed overview of the financial impact of the attacks. We are pleased that we've been able to safely maintain production throughout the event and do not believe that this event will have a material impact on the 2022 production numbers or financial outlook. We have provided you.
Okay, turning to page three 2021 was a very busy year century, and we made significant progress repositioning the company to take advantage of the favorable market conditions that we're experiencing today.
Across our operations our employees did an excellent job working through the continued challenges of the pandemic and supply chain disruption to expand our production increase the range of our value added products and improve our financial performance.
Most importantly in 2021, our employees continue to prioritize safety redefining our safety vision and committing to continuously improve our safety culture valuing the health and safety of our employees communities and environment as our first priority.
On the operation side, our team did outstanding work executing two significant restart and reinvestment programs at Mount Holly and hospital, despite significant pandemic headwinds and supply chain disruption.
As a result, we expect that our 2022 shipments will exceed our 2021 levels by over 100000 metric ton expanding our position as the largest producer of aluminum in the United States.
The Mt. Holly expansion in particular allowed us to increase our U S. Billet production by over 15000 metric tons, all of which has been contracted for 2022 at record pellet premiums in line with our previous guidance.
We're generally at Mount Holly our teams can close to finishing the restart program by year end.
We did however continue to suffer supply chain disruptions that impact from the Delta and Omicron Covid wave in Q4 that resulted in the tail end of the restart at Mount Holly continuing into Q1.
I am pleased though to be able to say that the restarted mining Mount Holly is now fully operational and work on the continuously operating mine is nearing completion and should be substantially complete by the end of coupons.
We now expect full year 2022 volume of 160000 metric tons at Mount Holly.
In Iceland, we announced a new power contract extension in July which enabled us to break ground on the billet sales project the current economy.
The cast US construction is proceeding on schedule.
And <unk> and in 2021 <unk> also secured its first significant sales of natural highlighted by the multiyear deal display of our 150000 metric tons of natural to hammer industry in Europe at a green premium.
Finally on the financial side, we made significant progress extending and lowering the cost of our outstanding debt.
We now have no long term debt maturities until 2028, setting up our balance sheet exceptionally well heading into 2022.
We began to see the results of this progress come together in the fourth quarter, where we generated adjusted EBITDA of $82 million, representing our best quarterly performance in nearly seven years.
All in all centrally interest 2022 in a great position to take advantage of the current market conditions and deliver a strong performance for all of our stakeholders.
Turning to page four you can see that the <unk> price of aluminum has gained significant momentum this year.
With only prices averaging $3100 quarter to date in spite LMA currently trading around $3 $400. Following the overnight events in Ukraine.
These price levels to fundamentally persisted as demand for aluminum has continued to well outpace supply with global supply and demand balance is expected to be short over $1 5 million metric tons a year.
These balances are especially acute in centuries markets in the U S and Europe for the two markets were collectively short over 7 million tons in 2021 and are expected to grow to nearly 8 million tons in 2022.
The shortages in Europe have been exacerbated by curtailments of over 750000 metric tons of production over the past six months driven by extreme power prices throughout the continent.
As you can see from the graph on the bottom right mainland Europe power prices are up between three and four times a pre pandemic level.
And in many mainland countries are expected to remain at these elevated levels well into 2023.
These markets also moved sharply higher overnight following the events in Ukraine.
The extent and nature of these elevated energy prices in Europe can be expected to make any near term restart of the curtailed capacity difficult.
And made and cause further curtailments is hedged energy positions roll off and cannot be sustainably replaced at current forward prices.
Europe was of course, not alone and curtailing production as China's shut in more than 3 million tonnes of production in 2021 due to compliance with new Chinese tool control system for energy consumption as well as flooding and other energy disruptions.
This has been exacerbated recently by shutdowns in Guangzhou <unk> driven by the Covid Lockdowns.
All in all <unk> Hamilton, China in 2021 flip China into a net importer and is expected to remain approximately one 5 million tons short this year.
All of these supply disruptions, including recent further disruptions announced in Brazil earlier. This week have resulted in increasing drawdowns in global aluminum inventories, where we now see inventory has fallen to near 40 days of consumption by the end of this year the level not seen since the last commodity super cycle.
On the demand side, we expect demand growth will continue to be strong with most analysts predicting between two five and three five year over year aluminum consumption growth.
Demand is expected to be especially strong in our U S market for most of the analysts see between a 5% to 6% increase.
Demand continues to be driven by the long term trends we've discussed previously.
Including energy transition and to renewable generation and distribution.
Expanding electrical vehicle production and increasing alumina markets here in packaging and building products.
Of course, automotive and aviation demand has been impacted by supply chain and pandemic related factors, both of which could provide a tailwind to the demand expansion. Once these issues were resolved.
If you turn to page five we've seen demand, especially strong in extrusion in both Europe and the U S spot billet premiums have continued to rise so far this year, resulting from strong end customer demand and supply chain disruptions from overseas suppliers.
The continued strength in billet market is being driven by structural extrusion capacity expansion across our markets.
Overall, the significant supply disruptions in Europe , and China paired with continued demand growth and falling inventories.
<unk> led to an especially physical market in the U S and Europe and provided material increases in regional premiums, especially in our two markets, where both the Midwest premium and European duty paid premium are near all time highs.
On the input side, we've continued to see price inflation across our key commodities most significantly on the energy side were low reservoir levels and high gas prices driven by spillover from the European Energy crisis have resulted in significant increases in Nord pool, and MISO energy prices in Q4 that is spilled into Q1.
Our north pole exposure is significantly hedged with around 60% of our 2022 and 80% of our 2023 exposure hedged at prices well below spot level.
As a reminder, our normal exposure into altogether at the end of 2023 as the contracting question moves to fixed pricing in 2024.
While our geographic locations of insulated us from the worst of the effects of the European Energy crisis, Iceland has experienced near record low reservoir levels. This winter.
In January Landsberg <unk>, the state owned power company announced curtailments across the industrial customers, including our <unk> smelter.
We're going to target the curtailments begin on January 20th and reduces smelters energy consumption by approximately 35 megawatts about 7% of our total load for the curtailment period.
We currently expect that curtailment will finish by the end of March but this remains subject to weather patterns and reservoir levels in Iceland as well as other factors.
Based on the current expected curtailment in date, we expect that the curtailments will reduce <unk> 2022 production by approximately 5000 metric tons.
This impact is included in our Q1 and full year volume guidance.
It is important to note however that the financial impact of the curtailment is mitigated because of the power contracts that are being curtailed are primarily linked to the north pole.
Which as Craig will discuss has averaged nearly 90 euros per megawatt for Q1 to date.
Put simply the energy being curtailed is the most expensive energy consumed by <unk> and so the ultimate financial impact of the lost volume is significantly mitigated.
On the raw materials side, we've continued to see increases in coke and pitch prices as well as other key raw materials in both the U S and Europe .
While the alumina market has remained constructive Q1 will be impacted by relatively high priced alumina purchased in Q4 flowing through our Q1 results due to our contractual lag.
Greg will now walk you through the quarter and our Q1 outlook.
Thanks Jesse.
Let's turn to slide six and I'll take you through the results for the fourth quarter.
On a consolidated basis Q4 global shipments were up about 3% quarter over quarter, primarily driven by Mt. Holly is the rebuild starts to materialize in our financial results.
Realized prices increased substantially versus prior quarter as a result of higher lagged LNG prices and delivery premiums driving a 13% increase in sequential net sales.
Looking at operating results adjusted EBITDA was $82 $2 million this quarter, which represents the highest quarterly result achieved in nearly seven years, we had an adjusted net profit of $17 2 million or <unk> 17 per share.
In Q4, the major adjusting items were $53 8 million for the unrealized impacts of forward contracts and $9 9 million for share based compensation.
Liquidity at the end of the quarter was $100 million comprised of a mix of cash and credit facilities.
Additionally, we have expanded our liquidity by increasing our borrowing capacity under each of our domestic in Icelandic credit facilities are significant.
<unk> portion of this increase liquidity became available in January of this year.
Turning to slide seven we'll go through the $12 million fourth quarter sequential increase in adjusted EBITDA.
As we forecasted on our last call. The Q4 realized <unk> of $2605 per ton was up $230 per ton versus prior quarter, while realized U S. Midwest premiums of $720 per ton were up $50 per ton and European delivery premiums of $345 per ton.
<unk> were up $100 per ton over the same period.
Both domestic Indy hub in European Nord pool energy prices increased steadily throughout the quarter.
Indy hub prices in Q4 averaged $55 per megawatt hour were up about 30% versus Q3, while Nord pool prices averaged $110 per megawatt hour per megawatt hour or up 35% versus prior quarter.
Lagged alumina was up $20 per ton versus prior quarter and coke prices continued their upward trend as well with realized levels, increasing 12% versus Q3 for a land in total of $490 per ton on average.
Let's turn to slide eight and we'll take a quick look at cash.
We started the quarter with $58 million in cash and ended December with $29 million.
Capex spending was $38 million in Q4 was $25 million of that total supporting the restart at Mount Holly.
Hedge settlements were $41 million for the quarter, and we made our normal semiannual bond interest payments.
The $5 million term loan pay down we completed in the fourth quarter represents the last payment of this 2019 borrowings the facility was completely repaid by the end of the quarter.
Finally, working capital was a cash cash usage in the quarter as raw material price escalation and rebuild activity drove increased inventory values versus Q3.
Turning to slide nine I'd like to give you some perspective on 2022 as.
As Jesse mentioned earlier, we expect 2022 shipments to increase by about 100000 tons or 13% versus 2021.
The largest year over year volume increases will be driven by hospital in Mt. Holly as the impact of those restarts are realized.
From a cash standpoint, we expect about $30 million to $35 million of sustaining capex in 2022 in.
In addition, the spend for the final phase of the Mt. Holly restart will be about $15 million.
The vast majority of the spend will occur in the first quarter and the totality of the cost should be incurred within the first half of 2022.
The impact of the hedge book will vary with market conditions throughout the year, but to assist with anticipating these impacts on a go forward basis. We have updated our previously reviewed financial hedge landscape, which can be found on page 18 in the appendix.
As we discussed on our last several calls the amount of Midwest premium financially hedged is significantly lower in 2022 than it was in 2021 with a total hedged volume reducing from 65% of total exposure down to 35% for 2022 and zero beyond that.
Also as Jesse detailed earlier for Nord pool, we are about 60% hedged in 2022 and 80% hedged in 2023.
In addition to the volume detail. We have also added the hedge price by commodity for the four quarters of 2022 and for total 2023 and 2024.
Also in the appendix of today's presentation are the updated 2022 commodity price sensitivities and pricing details.
Let's turn to slide 10, and I'll give you some insight on our expectations for the first quarter.
For Q1, the lagged <unk> of $2770 per ton is expected to be up about $165 per ton versus Q4 realized prices.
The Q1 lagged U S. Midwest premium is forecast to be $705 per ton were down $15 per tonne and the European delivery premium is expected at $335 per ton were down $10 per ton versus the fourth quarter respectively.
Taken together, the <unk> and delivery premium pricing moves are expected to increase Q1, EBITDA by $15 million to $20 million versus Q4 levels.
Lagged API based alumina is expected to be $415 per ton are up about $90 per ton versus Q4, generating an approximate $25 million decrease in Q1 EBIT versus prior quarter.
From a power perspective factoring in recent forwards with a realized quarter date costs. We expect an overall reduction in total energy costs versus Q4 with domestic prices down about 10% and Nord pool prices down about 15%.
This reduction in energy cost would equate to a $10 billion increase in EBITDA versus Q4.
Coke and pitch prices have been on the rise since mid 2021, and we expect that trend to continue into Q1 with an overall increase of about 20% versus the fourth quarter.
We expect our realized coal prices to be $590 per ton in Q1 or about $100 per tonne greater in Q4 and realized pitch prices to be $1020 per ton or about $170 per tonne greater than Q4, driving a $15 billion EBIT decreased versus prior quarter.
As Jeff just highlighted the market for our value added products remains robust we expect the Q1 EBIT increase of about $15 billion driven by increased value added product premiums versus Q4 levels.
Finally, we have continued to make solid progress on the Mt. Holly restart and while we do expect incremental production in Q1 versus prior quarter levels timing of some of the planned Q4 restarts were negatively impacted by cold and supply chain challenges and consequently are anticipated to come on in the middle versus the beginning of the quarter.
We have already completed the bulk of the hiring necessary to support the new level of production in advance of the parts being online.
Net impact of the sequentially higher production volume will be an increase of $5 million to $10 million in EBITDA versus prior quarter levels.
In sum, we expect all of these items taken together will equate to an approximate EBIT increase of 10% to $20 million from Q4 levels for our Q1 pro forma total of about $90 million to $100 million.
From a hedge impact standpoint, we expect our realized loss of about 20% to $25 million in the first quarter and we expect a tax expense of approximately $5 million.
As a reminder, both of these impacts will be below EBIT geographically and will impact adjusted net income.
Before I turn the call back over to Jesse I'd like to provide a little bit of perspective on the earnings power of our business in the current environment.
If you were to simply Mark the Q1, adjusted EBITDA I, just walk you through to market using the spot prices shown on the page and the sensitivities provided in the appendix. The net result would be an increase of $110 million for a total EBITDA of $200 million to $210 million.
As you know our business prices on a lag basis with respect to most of these inputs full impact won't be seen immediately but this gives you a good sense of the earnings potential of the company at the current pricing environment.
With that I'll turn the call back over to Jesse.
Thanks, Craig, let's turn to page 11.
The hard work by our employees and the investments <unk> made over the past several years has placed the company in excellent position to perform and the strong market environment that we see today.
Aluminum is key role in energy transition and other strong demand fundamentals paired with increasingly difficult global operating conditions that have significantly impacted supply have caused aluminum prices to reach record highs.
In addition, the supply shortages in the U S and EU.
Caused by years of overcapacity in China and elsewhere.
Have now led to record regional delivery premiums necessary to balance the short market.
Since 2015, our focus on internal growth and investment has resulted in century rebuilding restarting our adding nearly 400000 metric tons of production in these regions, which now allows us to provide nearly 900000 metric tonnes of this.
This strategic metal into the two shortest markets in the world.
Because our operating locations are inside of these deficit market, we are able to provide nearly unrivaled supply chains to our customers and directly benefit from the strong Midwest premium and European duty paid premium.
We continue to believe that we have a number of attractive organic growth opportunities to capitalize on this position.
Our geographic location is also an advantage in the value added marketplace, where our customers are increasingly focused on de risking the lengthened reliability of their supply chain.
As you can see in the appendix each of our smelter yourself, an increasing proportion of their mettle with product premium whether that be billed at sebree and Mt. Holly security and moment in hospital for foundry alloy and natural equity Youre talking.
We are working to expand these product lines. Most recently with the groundbreaking of the billet cast house that Qunar, Tony that will provide 150000 metric tons of much needed into Europe .
Okay, turning to page 12.
Given the strong footing and exceptional outlook on which the business enters 2022, we believe we will be generating strong free cash flows this year and thought it would be helpful to begin providing a framework under which we will be considering capital allocation going forward.
As you might expect given the pure commodity nature and pricing volatility of our business. We expect to continue to allocate capital in a manner that allows us to operate and invest in the business in a sustainable manner drive growth and preserve our strong balance sheet through the cycle.
As we consider the appropriate target capital structure, we examine the businesses performance through past cycles in a range of potential future cycles and determined the target that we believe will serve as a business well through all cycles.
Going forward, we will target net debt of 300 million, which is a level that we have been able to comfortably service through the past several cycles.
We have been able to refinance as it has come due without issue.
In calculating net debt. We will include our long term debt as well as any amounts drawn under our revolving credit facilities.
No we will exclude the gruner hung in cash out financing from the calculation as we expect the incremental cash flows from that project will more than cover the debt repayment and therefore, we will continue to view this projects outside of the capital allocation framework as it is not expected to be a call on cash from the rest of the business.
From a liquidity standpoint, we will target total liquidity of 250 to 300 million, which will be made up of a mix of cash and availability under our credit facilities.
Liquidity at these levels should provide us the flexibility to weather market downturns without curtailing production sacrificing operating stability, we're taking other actions to generate cash.
To give you a sense of where we stand today on these metrics, we closed Q4 with net debt of $429 million and liquidity of $100 million.
As Craig mentioned, we are currently expecting sustaining capex in the range of 30% to $35 million. This year and this should be a good range for the business going forward.
We are now starting to see the benefits of a restart and reinvestment programs and as we begin to generate free cash flow above our sustaining capex requirements. This year, we will begin to pay down the borrowings under our revolving credit facilities.
Which were both decrease our net debt and increase our liquidity towards the targeted level.
Given spot prices and our forward outlook. We currently expect that we will begin to approach a targeted net debt and liquidity level sometime in the second half of the year.
Once we reach these levels, we will then add returning capital to our shareholders through our capital allocation framework as.
As additional cash is generated we would look to allocated amongst these various return seeking activities, mainly organic growth opportunistic M&A and returning capital to our shareholders.
And allocating between these categories, we would generally look at the expected return of each action among other factors.
Hopefully this gives you a sense of how we approach things going forward and of course, we would expect to continue to update you with additional details as we begin to approach targeted levels.
Finally, just before we turn it over to questions I'd like to acknowledge Craig and the great work. He has done and his time here at century if.
He will be leaving us at the end of the month and we wish him the best of luck out west.
Thanks, Jesse and if you could please kick off the Q&A session Firstly.
Hey, Lee I think I'd like to ask a question. Please press star followed by one on your telephone keypad.
Any reason you would like to turn that question. Please press star followed by two again to ask a question Press Star one as a reminder, if you are using a speakerphone. Please remember to pick up your handset before asking your question, but I'll pause here to briefly ask questions are registered.
The first question is from the line of David Gagliano with BMO capital markets. You May proceed.
Hi, good afternoon, thanks for taking my questions.
Just on slide 10.
First quarter outlook.
So the when I look at it versus.
Kind of what we're coming up with theirs too.
Differences first of all the lagged alumina price.
It's a pretty big.
Impact and it looks like the hedges of change, which makes sense, but.
Obviously, but when we look at the details of it looks like hedging program and analysis.
Significantly more weighted to spot based API pricing I think.
Last year split it was 82% 10, 8%.
<unk> percent.
Yes, 10% spot and 10% this year it looks like it's.
Something like 45 tenths of 50% as spot alumina basis I'm wondering.
What was the thought process behind going so so far towards spot exposure on the alumina price.
Yes, thanks, David and just to be clear.
That's the mix the aluminum mix going forward for 2022 for the necessarily the mix in Q4.
As I think I've talked about before.
We go to re up our alumina contracts or renegotiate pricing for the coming year we.
We will always look at the mix of pricing available and so we will be quoted prices both on a fixed price and API price in an oil percentage price.
And those pricings will each within each factor will have a range.
And when we look at those pricing will sort of look and see what's on offer and make what we think is the most advantageous decision to us.
Based on those metrics. So just for instance, you may see API is pretty pretty easy to understand if it's the market base floating price.
But in some quarters. Some years, you may see <unk> price percentage pricing that looks attractive compared to your expectations of ACI, but another as you may see Amit presented pricing that does not seem attractive based on where that relationship of API <unk> stands at the time. So that's just to give you a sense theres no sort of.
Broad based call on where pricing is going but we just look at what's on offer and compare it to sort of the current relationship.
<unk>.
Okay, and just to clarify it was 10% in 2021 that they've got exposed and now it's 50% correct I think I have.
Yes, that's right, Okay and then.
And then on the other part of that.
Slide it's not a big deal, but the value added premiums.
It's a $15 million quarter over quarter uplift.
I thought the full year value added premium uplift with somewhere around $70 million to $75 million does that mean, it's going to sort of tick up a little bit as we go through the course of the year.
In terms of that sensitivity.
Yes, simply put yes, there are some timing issues around turnover for the year.
As well as some volume issues with Mount Holly billet coming online that will sort of impact that but you are right. We still expect that level on a full year basis.
Okay. That's it for me thanks.
Thank you Mr Gagliano.
The next question is from the line of Robert Peck with Wolfe Research you May proceed.
Oh, Hi, this is Kim <unk> with Wolfe Research help you Dan.
Wanted to ask.
Wanted to dig in a little bit more on thinking about the free cash flow discussion.
One of the things that that catch my eyes is certainly that rising alumina prices even in the last couple of weeks.
And the sustained high aluminum price it seems like that could be.
Zorba and a decent amount of working capital going forward. So just wanted to.
Ask for a little guidance on how you think about that.
In your equation.
Yes, and you did see a little bit of a working capital build at quarter end Timna.
Some of those higher higher price of alumina roll through.
And so I think thats right.
Right on.
We will now sort of expect that to come down a little bit as we start to consume some of that and then as this because of our lag pass it cycles back through you'll start to see that rising price again roll through working capital as we move forward, but youre right to sort of match it to the <unk> price because that relationship between API and <unk> continues to be.
At very attractive levels compared to historical the historical relationship.
Okay helpful.
Given that bullish commentary in terms of the shortages.
I wanted to revisit the opportunity to ramp up possible then I know you've talked about in the past can you just remind us about the cost and timing and any latest thinking there I know you talked about a balanced approach.
Free cash flow, but just wanted to get a little more color on how youre thinking about that.
Yes sure. Thanks.
Yes.
Just to be clear there is opportunities at both Mount Holly and hospital to bring volume online.
Now Holly we need to negotiate additional energy from our local supplier at a hospital, we have the ability to take the energy from the market given our market based power contracts there.
And so the question will just come with just recently got back up to full production.
We want to make sure that we can sustainably to stay there and then we'll look and see.
At Wynn when it makes sense to restart that last line as I said before one thing to keep in mind that the last line is usually actually a little bit more expensive than the previous line and usually it will take a little bit longer to restart. The reason for that is as you're restarting. The other line you tend to sort of borrow from the curtailed line.
So there are some items and sort of long lead time items that will need to order, which.
Which will slowdown that restart once we were to make that decision to restart it.
So I guess kind of just to wrap it up I think you should expect that would take a little bit longer than the other lines and also be a little bit more expensive from a capital perspective.
And the other lines, what's your thoughts over the past few years.
Yes.
And again I know you mentioned balanced.
And our approach, but if you think about priorities, given where the market isn't that opportunity versus returning cash to shareholders.
M&A.
Is it a top priority as it is it something that youre looking closely at a given the very strong market dynamics.
Yes, we do think we have really attractive organic growth opportunities and it can both be that volume and it could also be.
Value added product expansion and so there are some good abilities to expand in our cast house.
With relatively low capital numbers that you get some really pretty good paybacks on so we do think we've got a lot of opportunities, but again, just looking at sort of the strength of the free cash flow that you would see as spot pricing I think we will have a lot of.
The opportunity to use it in different ways.
Okay, and then last one from me in terms of the operational.
Situation is highlighted in the past with some disruption from.
Covid related absenteeism et cetera, just wanted to see if that was fully behind or if there are any lingering impacts into the first quarter.
Yes so.
We saw that a little bit at year end.
We saw that continue a little bit into January but we're now mostly through the COVID-19 side of things.
I guess pre supposing theres not another wave.
And like I said, so for instance that reached our land at Mount Holly is now fully up and running so I think most of that is behind us.
Supply chain, probably a little bit higher risks and then COVID-19 , but we're mostly there in terms at this point in terms of bringing that volume up and so youll just see it sort of buildup during the quarter, but as we enter into Q2, we should sort of be.
Reaching those sort of annual run rate levels.
Unless there's some sort of thinking to significant new COVID-19 disruption.
Got you, Okay, I'll hand that thank you.
Thanks.
Thank you Ms Turner.
The next question is from the line of Lucas pipes with B Riley you May proceed.
Hey, good afternoon, everyone.
Wanted to ask about your capital allocation slide slide 12.
Back of the envelope.
What would seem to me like you would achieve your targets on liquidity and net debt sometime in Q Q2.
Would it be reasonable to expect.
Capital return span or.
Hi, Kevin.
Prior comments on growth opportunities would you say maybe later this year, giving given both.
Selecting a potentially conflicting priorities. Thank you.
Yes, Hey, Lucas thanks.
Yes, I mean listen obviously the prices have been moving around a little bit.
So when exactly we will meet those levels.
Violate it out we're sort of looking into the back half rather than in Q2.
So.
Overall, I think that that's a more realistic timeline for when we might get there.
But we'll continue to keep everyone updated as we get closer.
Thank you for that and in terms of the.
Total size you mentioned I have a couple of different project opportunities.
Is there a way to frame up the size of dose either on.
On a total capital basis.
In PV.
Any metrics you could share on that would be very much appreciate it. Thank you.
Yes, I mean for the restarted lines you can look back at what we've told you in the past about the previously we started in line and again this time around probably be a little bit higher capital number than that for.
The other projects that they would be smaller than the other organic products those will be smaller than the restart line numbers. So we're talking about adding incremental capacity or adding incremental rebuilt secondary recycling capacity those types of projects, which will be more incremental than say when you're starting a full line.
Just to give you a shot.
Understood.
Sure.
I want to make clear I understand.
When you start opportunity properly, but does that include Mount Holly too.
Given the current power contract, that's not really on the table yet.
Yes.
Could mount Holly, but just to be clear, we would need to be able to negotiate for additional volume energy volume from our energy supplier in South Carolina.
So that's something that we're working on and interested in but we're not there yet.
Is there a sense on.
Timing on those negotiations.
It's a multiyear process or could we see something awful.
Three months six months.
Yes, it's difficult to say because.
It's obviously a bilateral discussion.
So it's difficult to really give you a clear timeline.
Obviously this winter hasnt been clear its winter from an energy perspective, and sourcing perspective so.
It's not something that I would see in the.
Really near term, but something.
It's difficult to say, whether something could be later this year or years falling.
Okay.
Helpful. Thank you very much and best of luck.
Thanks Lucas.
Thank you Mr pipe.
The next question is from the line of John Tumazos with John Tumazos very independent research you May proceed.
Congratulations on the profits.
Thanks, Sean.
And as the interpretation on the hedge gain.
The electricity games or larger than a little bit lost on the aluminum hedges.
Yes, John this is Greg pretty much yet so maybe the easiest way to think about it is the forward stack for Midwest premium and for <unk> to integrate any further quarter over quarter. So the gain that you are seeing is really from from the north will hedge and if you look at the appendix slide on page 18, you get a sense.
Those values and I think that would probably make sense.
With regard to the 4 million tonne deficit.
For 2022 U S EMEA and North America, and also a 4 million tonnes in Europe .
Mondays.
Output was down four 5% globally.
In February comparison is tougher.
And that was the record output in China might be down five 5%.
So it would appear as though.
Okay.
So it is going to be down this year.
At the moment it feels like the world economy.
Completely stopped still growing.
So what's your 8 million ton deficit.
If we were to take the whole world.
Figure than 8 million tons.
Something like.
4% demand gain and 4% supply declines sort of scenario.
I don't think it would be bigger right. The U S and Europe are the two sort of markets.
So as you added other markets you would see a smaller deficit. So again we spoke.
Spoke about one five.
To 2 million tonnes deficit in total global.
But I think youre right on and focusing on the U S and Europe and I agree with you that there are certainly supply talent supply side challenges.
The globe.
In terms of production coming on in 2022, and I think what you've seen on the energy side, especially overnight.
Really starts to show that it's going to be very difficult for some of that curtailed European production to come back on this year and certainly there is a risk of more European production going off this year. When you look at forward German and French.
UK power prices north of $200 per megawatt so it's a very difficult time on the supply side.
And I think.
Presents a lot of.
Advantages for century, given our position within these markets.
And our secure supply lines to our customers.
You are 40 days.
<unk> inventory is a great number.
Yes suggest nine or 10 million tons of inventory.
Crude scrap as part of the market.
<unk> got some inventory numbers too, but just between friends.
Not sure all of the inventory access.
Clearly there is the exchange inventories are a little over 1 million tonnes.
When you do your days supply inventory number.
How do you convince yourself.
There is eight or 9 million tons of inventory.
Greater than whats visible on the exchanges you guys are smarter than me I do the same thing right.
Alright believe my software every minute.
It certainly gets covered account when we start to get charter doesn't it John .
And so we do our best and we were looking at a variety of market sources.
But I would agree with you as we get shorter it becomes your margin of error becomes.
Bigger sort of law of small numbers here.
When you are up a little bit with small number.
The bigger effect so.
We do our best that's where we see it right now, but I take your point that it does get harder to count as we get shorter.
I make some estimates as Chinese stocks.
And IMAX some estimates of what the.
Sharpie might hold separately.
And then I used two 5 million tons. So it was the last producer inventory number.
Published 10 years ago before they discontinued the series.
So thats, how I make up my inventory I'm not sure Thats fair I'm, just sharing with you for your entertainment.
Thank you Sir.
I was going to.
Congratulate you on raising the dividend since $11.
56 <unk>.
Hi, Thanks spot alumina.
112% or just bumping along.
<unk> year lows as a ratio.
It would seem like it's sort of the best business climate, we all could dream for.
And.
I know you are.
Little over $100 million too high on your debt target.
Do you think you'd feel good enough about life to institute a dividend even sooner.
Given how spectacular.
Business climate is.
Yes.
Yes, John I think as we said when.
When we look at the cycles and having been through a pretty tough decade cycles.
We wanted to be sure that we're going to be able to make it through.
Without having to take actions that are may be detrimental to our long term interests, whether curtailing curtailing capacity.
We're doing other taking other actions.
To preserve cash flow or margin.
We see it as prudent to sort of get to those target levels.
And when we look forward, we are pretty bullish on the long term future of aluminum here and as we do and I just discussed the supply side certainly looks challenge.
And when you look to all of the various demand side.
Drivers.
These are pretty core drivers to energy transition.
And greening.
Overall.
<unk> output, so we're pretty confident in the long term.
But we want to be sure that we're in a good spot.
Sure.
To make it through a cycle if one were to pop up on us.
If I could just one last one.
It's great.
Just down to 118000 tons.
In the Midwest premium hedges to a 150000 tons.
I guess.
So let me just sort of average about 50 cents under today's spot, although their future prices with a different term.
In the Midwest premium.
It looks like it's around 20 <unk> Center.
Yes.
I am fortunate to have thousands of your shares and I wonder.
If your share price would go up 10%, 30% or 50%.
Came out with a press release, saying, we're not going to do any more hedging.
And maybe we're even going to close out.
A fraction of the existing hedges may be it may be my bet would be 30.
30%, if you did the press release.
Why not just tell the market youre not going to hedge any more because you're doing while on the finances are getting better.
Yes.
Yes, John I think we've been pretty clear that going forward, we plan to give pricing exposure to our shareholders.
And I think when you compare those hedge numbers.
Quarter over quarter.
For the last several quarters.
I think you'll see us sticking to that plan.
The one piece on the hedge side that <unk> seen US Act has been on the Nord pool side, when we saw an opportunity given the risks in Europe , and we did put some more normal Amazon, but I think we've been pretty true to that.
And I think we've been pretty clear that our sort of goal going forward is to provide that exposure to our shareholders.
And we love the electricity just because we think of it in the Green World electricity is a very scarce thing just like aluminum, it's what makes aluminum scarce.
Thank you I agree.
We've talked about the supply side challenges and certainly those are energy driven throughout the world. So thanks John .
Thanks for putting up with me.
Thank you Mr Tumazos.
There are no additional questions waiting at this time, so I'll pass the conference over to <unk>.
Jesse Gary.
For closing remarks.
Yes, I'd just like to thank everyone for sticking with us through the call and look forward to talking to you again after Q1.
Yes.
Okay.
That concludes the century aluminum company fourth quarter 2021 earnings conference call. Thank you for your participation you may now disconnect your line.
Okay.
Yeah.