Q2 2022 Century Aluminum Co Earnings Call
You can see from the balances on slide 4, aluminum fundamentals remain strong.
We expect that global supply and demand will remain in slight deficit over the balance of the year, which will continue to drive already short inventories of aluminum lower and support regional premiums.
While demand and LME pricing will likely remain volatile in the short term, longer term macro trends towards electrification, sustainable packaging, and renewable energy will continue to drive strong demand growth.
We expect these trends to remain especially strong in value-added markets, where spot filler prices remain favorable in both the US and Europe in Q2.
We are well placed to meet increased demand for aluminum extrusions and sheets from our two US value added cast houses and once complete the new Grundertangi Cast House.
In fact, once the Grunertagne Cast House and US Cast House de-ballomaking projects are completed.
We expect that over 75% of our production will be sold at a premium to P-1020 in 2024 and beyond.
Okay, turning to page five, you can see that the Russian war in Ukraine paired with Russian curtailments of natural gas flows to mainland Europe continued to cause turmoil in European energy markets.
Clothes of Russian gas to Western Europe are now approximately only 20% of their historical average.
This has resulted in mainland European power prices spiking to over 300 euros per megawatt hour in Germany, France, and other regions.
High European energy prices have in turn put upward pressure on pricing in the North Pole energy market, albeit at significantly lower price levels.
In Q2, North Pole energy prices averaged about 120 euros per megawatt hour, of about 10 euros over Q1.
Fortunately, we have seen notable prices reduce so far in Q3, with notable averaging around €90 per MWh in July .
Norwegian officials yesterday announced that they will limit energy exports to the rest of Europe when necessary to maintain normal reservoir levels in the North Pole system.
This should help to reduce volatility in the work pool and keep prices at more moderate levels.
We are also exploring steps to reduce volatility in our own remaining North Pole exposure.
As a reminder, only about one-third of our Icelandic Energy contracts are paid to the normal price, with the remaining two-thirds provided under long-term LME-linked power contracts.
We have hedged a little over 60% of our remaining 2022 Norpool exposure at an average price of 24 euros.
For 2023, we have hedged 80% of our no-pull exposure at an average price of 30 euros.
From 2024 onward, we do not have any normal exposure.
Fortunately, the physical energy markets in Iceland are much better supplied than the rest of Europe , with reservoirs at or above average fill levels across Icelandic systems.
In addition, Iceland's 100% renewable system avoids significant fuel cost pressures seen in the coal and natural gas-based systems in the rest of Europe .
Turning to the U.S., domestic energy markets have been affected by increased energy exports to grow and low domestic coal production.
The combination of these factors has led to significant natural gas volatility and higher Indy Hub energy prices, which averaged nearly $80 for Q2 and around $90 a quarter today.
These tight energy markets have also impacted the power provider to our Mount Holly facility, where a force majeure event from their largest coal supplier has left the utility to cover shortages in their coal generation with market power purchases.
Under our Mount Holly energy contract, they are allowed to pass a portion of these increased generation costs to us, which will increase our Q3 energy costs in Mount Holly by approximately $10 per megawatt hour over Q2.
We expect this will have a negative EBITDA impact in Q3 of $5 to $10 million.
Elevated energy prices also resulted in the unfortunate decision to curtail our stoic
While this decision was difficult, it was necessary to give relatively high energy consumption of the hot-source melting technology and lack of value-added cast-house.
which made the financial economics of continuing to run this shelter untenable to these energy prices.
The curtailment was conducted in a manner that will allow for the restart of the smelter if and when market conditions return to more normal, accommodating levels.
Shelly will walk you through the impact on our Q2 results and going forward.
It goes without saying that we are working with federal, state, and local resources to help our affected employees find new employment, including offering jobs at our other U.S. locations where possible.
Okay, turning to our other facilities. Seabreeze operated commandably through the hot summer weather. Our North American operations have been executing well on their taskhouse to bother making initiatives.
We expect these initiatives to increase 2023 billet production by approximately 10,000 metric tons. We expect these initiatives to increase 2023 billet production by approximately 10,000
Operations at Grundertangi were excellent, but the new smelter now operating in full production. The new smelter now operating in full production.
Progress on the new billet cash house remains on schedule and on budget. We expect the construction will be completed in Q4-23, which will allow the Gander Tongi Low Carbon Billet to be marketed and sold in 2024.
Finally, moving to our other cost inputs, API alumina prices averaged $370 per ton in 2022 and have fallen to a spot price of $330 per ton today.
These prices leave a significant portion of alumina producers underwater, and we have recently seen small supply curtailments in Europe and elsewhere.
Given the risk of further aluminum curtailment, combined with the price volatility we've seen in the aluminum price, we made the decision to de-risk the majority of our remaining second half 22 aluminum purchases by transitioning to LME percentage contracts where possible.
Given the low aluminum price relative to the aluminum price, we were able to achieve percentages that were well below historical levels.
This will reduce our exposure to API in the back half of the year and lower our risk of a dislocation between alumina and aluminum prices during this high volatility period.
Turning to our other raw materials, we have finally started to see coke prices decline this month after increasing for the first seven months of the year.
We now expect we have seen the peak pricing for both COPE and Fitch and should see further declines as we head into the end of the year.
And with that, I'll turn it over to Shelley to walk you through the financials.
Thanks, Jesse. Let's turn to slide six and I'll take you through the results for the quarter.
On a consolidated basis, Q2 shipments wrap about 1% quarter over quarter, primarily driven by additional volume at Mount Holly.
We realized prices were up 11% compared to prior quarter as a result of higher lagged LME prices and regional premiums.
The combination of higher shipments and realized selling prices drove a 14% increase in sequential net sales.
Looking at operating results, adjusted EBITDA was $87 million dollars in Q2 and adjusting items this quarter included a $53 million dollar add back for lower cost or net realizable value charges and removal of a $6 million dollar credit for share based compensation. Looking at operating results, adjusted EBITDA was $ lol
During Q2, we also adjusted for two one-off charges related to the hospital curtailment, which included a $159 million acid impairment charge and an $8 million accrual for estimated labor costs associated with the warn notice.
Okay, so let me provide a little more color here on the impairment charge.
Under US GAAP, the curtailment of the HODL facility was a triggering event that required us to evaluate that asset group for recoverability.
As a result of historically high forward power costs, it was determined that the carrying value of the hostile asset group was not recoverable and we recorded a charge to write down the asset group to its estimated fair value.
Moving on to liquidity.
As of 630, we had liquidity from available cash and credit facilities of $226 million.
This represents a $71 million increase from prior quarter, in part driven by EBITDA generated during Q2 that allowed us to reduce our borrowings under our revolving credit facilities.
We also have lower collateral requirements under our hedging agreement as those volumes continue to roll off and based on lower aluminum prices at quarter end.
Lastly, as Jessie mentioned, we upsized our U.S. revolving credit facility in Q2, which provided for additional borrowing availability.
Okay, turning to slide seven.
Here we'll go through the $19 million sequential decrease in adjusted EBIT deaths.
The Q2 Realize LME of $3,060 per ton was up $300 versus prior quarter, while Realize Midwest and European delivery premiums were both up about $130 a ton.
Indy has power prices in Q2, averaged $78 per megawatt hour, which is up almost 60 percent, that's 60 percent versus Q1.
While lower prices average $129 a megawatt hour, we're up another 6% versus prior quarter.
Taking a look at Illumina, the lagged Illumina index price was relatively flat versus prior quarter while LME linked Illumina was higher on a lagged basis.
Coke and pitch prices continued the upward trend in Q2, with realized prices increasing a little over 20% for each.
As I mentioned last quarter, we had deferred maintenance and potlining activities in Q1 that we caught up on in Q2, which drove a $30 million swing in operating expense from quarter to quarter. The total cost of the project was over $25 million.
Okay, let's turn this slide 8 and we'll take a quick look at cash flow.
Our cash position remains relatively flat, going from $27 million at $331 to $30 million at $630 as we use excess cash to pay down the revolving credit facilities.
CapEx spending was $26 million in Q2, with about $5 million of that related to the final spending on the restart at Mt. Holly, and $11 million related to the Grundertangi cash out.
Cash paid for hedge settlements was $15 million for a quarter. We paid about $11 million interest in Q2 as we made our semi-annual bond payments.
Lastly, we had a modest working capital build which was primarily related to higher inventory based on increasing raw material prices and additional days on hand.
With the contaminant pause bill, we expect to see a reduction of working capital in the back half of the year, which would turn into cash.
Okay, let's turn to slide nine. I'll give you some insight on our expectations for the third quarter.
For Q3, the realized LME price is expected to be down to $2,660 per ton on a lag basis.
The Q3 Lag Midwest Premium is forecast to be $660 a ton, and the European Delivery Premium is forecast to be $600 a ton.
We realized Illumina is expected to be $470 a ton, and as we discussed in the past, our income statement reflects a three to four month lag in Illumina prices, so we expect to see the benefit of lower Illumina prices in our Q4 PML.
On a cash basis, we're already realizing the benefit of lower alumina prices.
Taken together, the LME, Illumina, and delivery premium pricing moves are expected to decrease Q3 EBITDA by about $97 million versus Q2 levels.
From a power perspective, we're assuming a base price of $90 per megawatt hour for both Indiana Hub and North Pole, which is in line with what we saw for July actuals.
The net impact of energy costs would equate to a $5 million decrease in EVA-DAH versus EVA-DAH.
So, can pitch prices continue to rise throughout Q2 and we expect those to impact Q3 results by about 5% for Coke and 17% for pitch versus the second quarter.
These price increases are expected to drive a $10 million EBITDA decrease versus prior quarter.
However, we are seeing signs of softening in the coke market now in Q3 and expect to see the P&L benefit from that in Q4.
Lastly, we expect to see a net EVA-DUB benefit of $20 to $30 million related to savings from our curtailment at the Hogsville plant, as well as anticipated savings from our global cost reduction initiatives and the catch-up maintenance and potlining that I mentioned from Q2 that's not expected to occur in Q3, as we should now be back to our normalized level. There are still further changes to be made because of their
In total, we expect all these items taken together will equate to an EBITD decrease of approximately $80 to $90 million from Q2 levels for Q3 results in a range of negative 5 million to positive 5 million.
From a hedge standpoint, we expect a realized loss of about $0 to $5 million in the third quarter and we expect tax expense to be around $10 million.
As a reminder, both of these impacts will be below EBITDA geographically and will impact adjusted net income.
Going forward, we expect to spend less than $5 million per quarter at Cosville for ongoing costs necessary to maintain that plant in a state that will allow it ready for a restart when markets permit. With that, I will hand it back over to Jessie.
Thanks, Shelley. Across our assets, we remain focused on consistent and cost-disciplined operations.
While the market environment has turned more challenging in the short term, we remain convinced that Century is well positioned to benefit from the long-term macro trends that make aluminum a vital component of a sustainable future.
To this end, we have begun implementing a number of second half cost savings actions to ensure that Century is in good position to weather this high priced energy environment.
These include actions to cut or defer approximately $15 million in capital projects over the balance of the year.
If necessary, we have identified further measures that may be taken in the future to reduce spending should market conditions weaken from here.
Combined with our strong liquidity position, these actions should leave us well placed to continue to execute on our long-term strategies.
Finally, I'd like to take a moment to demand our operations across our assets for an excellent safety performance over the quarter.
Safety is a core value for Century and we work hard to improve each and every day.
All of our employees feel proud of their efforts.
And with that, we'll turn it over to questions.
At this time, I'd like to remind everyone to ask a question, press star, then the number one on your telephone keypad. We'll pause for just a moment and do a panel Q&A roster.
Your first question comes from Alina. Gaglion with BMO Capital Markets.
Hi, great. Thanks for taking my questions. Hi, hi. Thank you for taking my questions. I just wanted to ask about the current landscape, obviously, the Hauseville Idling.
was an aggressive action considering the environment. And the question comes of other assets, Seabree, et cetera. Can you speak a little bit to, if the environment stays the way it is, are there other actions to be taken? And alternatively, what type of environment, roughly, would we need to see before we see additional actions? That's similar to Pauseville, that's my first question.
Sure, David, thanks. Yeah, I think as I said at the end of my remarks, we think we've taken the actions necessary to permit us to continue to operate in this footprint to continue to execute on our long-term strategies. We don't provide guidance on individual assets, of course, but when you look at the remaining assets, they continue to operate at or near 100% production. They've got excellent workforce, more efficient operating technology. They continue to operate at or near 100% production.
They've got value-added cash houses, or building value-added cash houses. They've got track records of consistent performance and profitability.
And then as a company, we've got strong liquidity and we...
continue to firmly believe in the macro for the long-term macro backdrop for aluminum. So we think we're actually in quite good position. But that said, you know, we recognize this is a very dynamic environment. We started to implement some of these cost savings measures today. I mentioned the capital deferral or decreases. And then we've got some additional items that we can take as necessary, some additional levers to pull.
if necessary, but right now we feel pretty good with where we're at.
Okay, thanks. That's helpful. And then just one clarification. I know you mentioned, and I see it in the slides here on slide 16, I think it is, the shift in Illumina to more percentage LME versus API for the second half of the year. Just so we have our models tightened up. Is there any API based?
Illumina pricing last for 2022? Or is it all percent and only me?
No, there is. It's about 60% LME linked, 25% API linked, and 15% fixed in the back half.
So, you never said, you know.
For the back half, yeah. And just as I said, we made that decision looking at what's a relatively good relationship at the time, so it was a relatively good relationship. But given the volatility on both sides, you know, potential impacts, especially on the alumina production side, made sense to just take a little risk off the table, lock in what was a good relationship historically when compared to historical levels, and sort of de-risk the alumina supply chain a little bit for ourselves.
Okay, and is that a similar plan for 2023? We assume a similar type of dynamic 60...
You know 25 etc
Yeah, some of those contracts are long-term contracts that you're always going to have some API built into there. Some of the LME link contracts are also long-term contracts. We'll go out there as well as the fixed price. So there's just a little bit on the margin that can move either way that we'll enter into as we sort of get into the beginning of Q4, probably start to lock that down so we'll have better guidance for you on the next call.
Okay, thanks very much.
Okay, thanks very much.
Your next question comes from a line of Lucas Pipes with B Riley Securities.
Hey, good afternoon everyone.
I also want to ask about Cebri because it also, like Oswald, has Midwest power. So I wondered if you could maybe hone in on what makes this asset different. Thank you very much.
It will be a little bit of a repeat from what I just mentioned to David. Specifically, you've got...
One of the big aspects of this technology is the amount of energy that they consume per aluminum produced.
And, you know, Hassell, unfortunately, was the highest of the assets and the amount of energy necessary to produce a ton of aluminum. Seabury, on the other hand, is quite a bit better, which provides, you know, a big difference in high energy price environments like we find today.
When you combine that with a value-added cash toss, especially in a period where we have record value-added premiums on the billet side especially, you've got another income stream, additional source of margin for C of E that you don't have at a household type asset.
And then I think just the third piece to touch on is when you look at Seabreeze history, it's been a very well-run smelter, very consistently run, and very profitable over a lot of different conditions. And so as we look forward, we can be quite confident that it will return to profitability and we'll continue to get returns on the investments that we make there. So high level, that's the difference. Thank you.
Very helpful. In terms of the power intensity at CBRE, is there a way to quantify that vis-a-vis Oslo?
No, we don't really disclose the individual asset breakdowns in terms of that level of detail.
But you can just judge based on our actions that it's fairly material. No, that – no, it's – I appreciate the three points you highlighted. Very helpful. Thank you. And then, staying on the power side, with Mount Holly, could you remind us where power prices stand there today and to what extent power prices at Mount Holly might move within a higher-priced power environment? Thank you.
Sure, sure, sure, sure. Thanks, Lucas. Yeah, so just as a reminder, the Mount Holly power contract is different than the Kentucky power contract in that it's a cost of service based energy contract.
So it's a three-year contract through 2023. So a portion of the energy is fixed and a portion is subject to our energy provider's your car.
Due to the force majeure they experienced, their fuel cost has been higher. They've had to source the market energy to make up for the coal lost in the force majeure of their supplier.
Overall the blender rate is still lower than the prices we're seeing in Kentucky and really elsewhere today.
So, and then just to give you a little sense more, Lucas, you know, it's about a $10 megawatt increase from Q2. We don't disclose the actual power price due to some confidentiality provisions, but you can look to about a size of $10 million EBITDA impact in Q3 over Q2.
Super.
I really appreciate the detail. And then I'll try to squeeze in the last one.
Inflation Reduction Act.
I believe includes some measures to support domestic manufacturing, including aluminum. So have you had a chance to look at that and what might be the benefits to Sentry? Thank you very much for your attention.
perspective? Sure Lucas, great question. It's a 750 page bill I think so I haven't been through every detail of course and the bill is still not passed as far as I'm aware so it's still subject to changes but based off our early understanding we do think the bill will have a positive impact both directly and indirectly.
So, as we understand it, the bill will continue renewable energy subsidies, which should drive primary aluminum demand as wind and solar generation assets, as well as the transmission lines to connect them are aluminum intensive.
Renewable energy also tends to drive down energy prices as a whole. They tend to be the lowest cost source of generation in today's markets.
So that's another positive.
Second, the bill provides for further electric vehicle subsidies, which as we discussed, use 400 pounds more primary aluminum value-added products than an internal combustion vehicle. So that's another measure that should help demand, which is already, you know, it has been and continues to be strong on the growth potential, but we see this as a real positive to continue to drive that growth.
And then finally, the bill provides dollars for further supply chain resilience and critical minerals of which primary aluminum is defined as one. So there may be further opportunities there that we'll continue to look at and discuss once the bill is passed.
super helpful. I appreciate the color and best of luck. Thank you. Great, Lucas. Appreciate it.
Your next question comes from a line of John Tumizos with Very Independent Research.
Thank you for filing the full 10Q and the more detailed disclosure. It might be more than we can read in 45 minutes, but it's better.
And thank you very much, Shelley, for the explanation of the accounting for Hausville.
which I think was very clear.
Now that the aluminum price has fallen and the Midwest Premium has fallen and you've had this big... about.
hedge cost reversal.
credit to income.
Is this a good time to close out hedges so that you don't have as many assets committed to collateral?
Maybe six months ago the hedges felt like a big headache. Maybe it's a good time to get rid of them.
Yes, great question, John . So, if you just look at the Head's book, it's up on page 16.
You can see that the majority of the hedges, vast majority of the hedges, are going to roll off at your end in any event.
So you'll see the Midwest position in its entirety will be gone at the end of the year, and you'll be down to sort of very low levels of LME hedging. So I think naturally that hedge position is almost finished now, and we'll be back to a position where the only hedging, you know, sort of material size really is on the energy side, and especially on that north pole side. So, yeah, if you look at it... Great. They've been profitable.
Yes, yes, sir.
Back in December when
Alkala hailed in Spain.
They locked up some renewable energy for two years out to restart in 2024.
And clearly the
The Indiana Hub electricity price is very volatile, as is natural gas.
clients that share their energy view with me.
would probably expect
$25 or higher Henry Hub Gas.
or much higher spot electricity prices.
I don't think I know any investor.
Who thinks we're going to go back to historical prices for gas or spot electricity?
given that we're exporting 10-12% of gas output now.
Some people believe it too.
Shell gas fields are maturing and could decline.
And our presidents promised so much gas to Europe because of their bind.
So why not
Lock in a renewable power contract.
For one or both.
Kentucky smelters, I don't want to say regardless of price, but I can't imagine a bad price for renewable power.
Yeah, we do think that renewable pricing is going to be very attractive over the long term here. And I think we've talked about in the past that is something we're looking at and considering and continue to look at and consider and could very well see us do in the future.
I would just say to some of the other commentary,
I agree with you. I mean we've obviously seen very volatile energy prices over the past year coming out of a very long period of very stable both Indyhub and natural gas prices.
I think, you know, we do see some signs of relief. If you look at... I know you might have trouble, but you're spending a lot of time looking at the map to figure out what the impact is.
gas generation in the U.S.
over the past several weeks they've been hitting record production levels.
which is great to see.
And
forward prices continue to evaporate pretty significantly into 2023. But back to your core point, I think we agree we're very big fans of wind and solar. As Lucas mentioned, I think the Inflation Reduction Act will help to continue to foster additional renewable resources in the U.S., which should provide us good opportunities to take advantage of that in the future, whether in Kentucky, South Carolina, or Iceland for that matter.
Thank you.
Your next question comes from the line of Timna Tanners with Wolf Research.
Yeah, hey, good afternoon everyone.
I wanted to ask a little bit more on power prices, but I had to join like that. Maybe I missed it, but from when you announced the closure of Hauseville, if anything, the MISO has been a lot less scary than we had seen in the forward curve at that time. And actually, the Nord Pool forward price, if we get into first quarters – actually, December through February is above 300. So, I think that's a good thing.
I just wondered if we've talked enough about Nord Pool and about how you're thinking about managing through that and how you make decisions to shut. Is it just looking at an extended period of time or how much confidence do you have in these forward curves given the volatility?
Yeah, it's really interesting, Tim, now, because I think you're right. Actually on both Indy Hub and Nord Pool, when you look at the forward and then you look with the spot prices that have actually occurred, in other words, if you look at our realized energy prices, again, on both Indy Hub and Nord Pool, you've actually seen levels significantly below the forward curve.
So what that tells me is there's certainly a huge risk premium being bid into the forwards.
And, you know, provide some hope that we'll continue to see that occur. With North Pole specifically, we've seen pretty strange pricing outcomes over the course of Q2 and into Q3, where you have some very high price days and you have some days that are less than $10 per megawatt hour.
And what we think is going on there is you have a lot of wind generation in Nord Pool.
which is on high wind generation days, it's sort of creating a situation where you're not seeing sort of the contagion from the mainland entering into the North Pole market and that significantly lowered our realized North Pole prices.
wind generation days it's sort of creating a situation where you're not seeing sort of the contagion from the mainland entering into the North Pole market and that's significantly lowered our realized North Pole prices.
Just speaking about going forward and decisions and focusing on Norpool, this is a reminder, so we're 60 percent hedged for the balance of the year, and that's 60 percent hedged on only one-third of our energy that's exposed to Norpool. So it's really a very small portion of our overall energy mix for green autonomy that's exposed to Norpool. And once you hit 2023, which is when you start to see those really high forward Norpool prices, the hedge actually goes up to 80 percent of the exposure. So now you're down to very few megawatts that are actually exposed to Norpool going forward.
So, yeah, it's difficult to imagine a situation for groomed hongi where that type of exposure would be putting the smell to everyone.
Okay, so if I'm reading between the lines, as I'm trying to do, sorry, I don't want to put words in your mouth, but if the situation prevails where the price does more than double from recent levels, then it would really just be the period of time until 2023 kicks off, at which point you're more hedged and you feel comfortable that you could manage through that given what we know today. Is that a fair summary of what you were saying?
Yeah, even for the balance of 22, we're 60 percent ahead for exposure, which is only, again, one-third of the total energy for the contract. So even for the balance of 2022, that's not a huge exposure. But I'll just say and finish with we are looking at ways to sort of decrease that volatility if we can for the balance of the year and then the balance of 2023 if we get a chance to do that. Thank you.
Yeah, and then Chelsea is going to just remind us that after 2020, beginning in 2024, we have no North Pole disclosure. It goes to a fixed price energy contract. That portion of the energy goes to a fixed price energy contract for the next three years. So starting in 24, you'll have two-thirds of your energy at LME percentage, which is a long-term contract that has always been for Kundra Tongi, and the remainder will be at the fixed price.
Thanks for that clarification. It seems like Europe is going to be heading into a challenging period for electricity prices broadly speaking. Have you any insights from your customers there on rationing of power and any impact or thoughts or impact into the back half of the year from that?
It's a great question. I think everyone obviously is paying attention, but we haven't seen the demand deteriorate in our actual orders yet.
Yeah, I maybe just leave it at that. I think people recognize there's a risk. People are quite uncertain as to what that rationing may look like. It's actually interesting when you look at storage levels of natural gas in Europe today, they're actually above five-year averages, but obviously the concern is that remaining gas flow from Russia.
to shut off and the LNG imports that are coming in is not enough to replace it. So right now, if nothing else is going on, you look at the storage levels and you'd say they're in a decent spot. But we all recognize there's further risk in the future.
Definitely challenging things for you to navigate, not trying to take it lightly. And appreciate all your candor on the comments, so best of luck. Thanks.
Thanks, Jenna.
You have a follow-up question from David Gagliano with BML Capital Markets.
All right, great. Thanks for taking my questions. I'm going to preface it with admitting that this is a bit of a nitpicky question. So take it for what it's worth. But I am curious about the answer. So when I look at the slide 16, the financial hedge landscape and I compare it to the prior quarter…
There's a couple things that I wanted to ask about. Number one is the percentage hedged.
You know, they take the volume divided by percentage hedge and it implies volumes in 23 and 24 Kind of like 700 750 thousand tons that sound from prior quarter of 900 thousand tons Implied volumes. Is there anything going on other than assuming Hawesville is out for that entire period? Or is that the reason for that decline? That's my first question?
Yep, that's the reason, David.
that's the reason David. Okay and then the second question
Not a lot, obviously, but you know the volume hedge...
did go up a little bit in 24 for the LME, it went from 29,000 to 35,000 tons, and I just heard your commentary about not hedging. So I'm just curious, what is the reason for that?
admittedly small increase in hedges and how should we expect that to change on a go-forward basis for the LME volumes hedged in 2024.
Yeah, great question, David. Great catch. Yeah, all that is is that small, I think it's 6,000 metric tons that you're mentioning is the difference. That's just some LME that we hedged against the fixed price power contract that's replacing the Norpool power contract. So when we saw some of those really high LME levels, we saw the opportunity to sell just a small portion of the metal against that fixed price power contract from 24, 25, and
which creates a synthetic LME percentage that looks like the remaining power contracts. So we'll give some more guidance as we get closer there, but you can start to think about that fixed price exposure even as low as it is being de-risked further and creating a nice LME linkage similar to the other Grunertaghi power contracts for the period.
Okay, so then on a go-forward basis.
Will we see more of that flowing into the hedge book in 2024?
Or is that kind of it? I mean it's pretty small amount that you need to hedge because it's not that much power So we've done I would say the majority of what we've done there If anything it's going to be a few thousand tons here or there just to offset the remaining fixed price exposure
Got it. Okay. Thank you.
Yep.
Once again, if you would like to ask a question, please press star, then the number one on your telephone keypad. If you would like to ask a question, please press star, then the number one on your telephone
We have a follow-up question from the line of John Tomazos with Very Independent Research. John Tomazos with Very Independent Research.
Hey, John . Hey, Jesse. So I know that you don't really want to talk about...
about business by asset.
But if someone is worried at the $9 or $11 or $13 spot gas, if it bounces that high,
that you could slow down and see Bree.
Is there any comfort that you could give us or guidance regarding?
how high a gas price
Where spot power price is too much for sievery to swallow.
Yeah, I'm not going to go to the individual asset guidance, John , but what I will say is I think you can tell by our approach to date and also sort of our track record over time, we've been very cost disciplined. And when it's been necessary to take action, we've taken that action. And we've also managed to keep our production running through some very difficult commodity price environments.
And so what we've tried to do is to act early rather than late so that we put in ourselves in position where we don't have to curtail production. Obviously this recent action at HAUSville, unfortunately we weren't able to do that, but when you look at our track record over time, I think we've done that and then we've then cost us a plan we're necessary. So maybe I'll be able to sleep at that, but hopefully that gives you a sense of how we...
and tend to continue to operate the business to ensure that we get to what we continue to believe, a very positive future given the macro setup for a moment. Excuse me, readers may tpu us out on theinho.
Just in terms of marketing.
There's certain customers like Capslow where their cars have to be a woman because the batteries are so heavy. I have a question.
And you've got customers like Ball, they're building.
Two different
extrion can perceptors 11
And I'm sure Bush doesn't want to switch back the steel cans.
Why not go to important customers with long-term cost-plus contracts, like you've given the power, utility, and South Carolina? What he called daily work today was his rising demand for the sales to rely on as Re Barnes and ??- ??? narina homes Wireless no consume gasoline to those Unions that carried on frame to us The Void to the V satu V s R m s you
It's clearly those customers need to be aluminum.
and don't have anywhere else to go domestically. I hope scrap recovery increases, but that's awful slow.
Yeah, I think you're right about the long-term trends, right? We see some key industries that are focuses for the US, both the government and industry itself, that are going to increase the women of penetration over the next.
Year two years, five years, ten years. We know these trends are out there, whether it's EVs, light-witting.
Sustainable packaging, renewable energy, all of these things.
So we think that continues to support the need for domestic industry here. And you can just see it when you look at the balances that are on our earlier slides in the deck that the U.S. remains the shortest market for a limb in the world. And so, you know, as we see things like we see in the inflation reduction act that recognize these critical minerals and speak to rebuilding domestic supply chains, it's clear that aluminum will be a part of this.
And as we sort of start to build that out, I think that raises the commercial opportunities like the one you talk about. So without sort of commenting on any specific negotiations, I think we're always trying to be creative in the way that we sell our aluminum. And certainly we're committed to servicing the domestic industry and are well situated to with our value-added cast house that we have to produce.
the extrusion sheet that are necessary for the very applications you're talking about. So, you know, we think that commercially should be a very valuable proposition and tend to approach you up.
Jessie, if I could ask one more thank you for your patience with me.
I don't know anything about this inflation reduction act, except it's got a goofy name.
I try not to read a lot of the crap from Washington.
Wouldn't a fine printed or any printed know today what you will dug through, and there are many worn out potentially everywhere. You can go from those 99% or even the apartment amount in district you
Well, I think if you just look and again, I haven't been through the full thing. It still hasn't passed. The full Congress and still hasn't been signed into law and we're all still looking at it. But if you look at the broad strokes of the bill and the focus, there are some very positive things for alumni. And the focus, there are some very positive things for alumni.
including renewable energy subsidies, which I think can help produce some of the renewable energy contracts and developments that we talked about earlier, including the EV subsidies, which again, should produce additional demand for EV, which is, I said in the past, are much more aluminum intensive than internal combustion engine vehicles, specifically increases demand for sheet and extrusion, which demand the bill and slab that we produce in our US sell you out of cash houses.
And finally, may provide some direct support for critical mineral industries like aluminum and aluminum that's specifically defined as a critical mineral in the act. So we'll have to see, but we think as a whole and obviously focusing on the aluminum aspects of it, the bill should be a positive for us. The bill should be a positive for us.
Thank you. Okay, with that, thanks everybody for joining the call and we look forward to talking to you after 23.
Ladies and gentlemen, this concludes today's conference call. Thank you. Thank you.
So.