Q1 2025 Alcoa Corp Earnings Call
Good afternoon, and welcome to the Alcoa Corporation first quarter 2025 earnings presentation and conference call. All participants will be in lesson only mode. Should you need assistance, please signal a conference specialist by pressing the star key, followed by zero.
After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then 1 on your phone. To withdraw your question, please press star, then 2.
Please note, this event is being recorded. Thank you, David.
Speaker Change: I would now like to send the conference over to Louis Langlois, Senior Vice President of Treasury and Capital Markets. Please go ahead.
Speaker Change: Thank you, and good day everyone. I'm joined today by William Oplinger, Alcoa Corporation President and Chief Executive Officer, and Molly Beerman, Executive Vice President and Chief Financial Officer.
Speaker Change: We will take your questions after comments by Bill and Molly.
Speaker Change: At the reminder, today's discussion will contain forward-looking statements relating to future events and expectations that are subject to various assumptions and caveats.
Speaker Change: Doctors that may cause a company's actual results to differ materially from these statements are included in today's presentation and in our SEC filings.
Speaker Change: In addition, we have included some non-GAAP financial measures and this presentation.
Speaker Change: For historical non-GAAP financial measures, reconciliations to the most directly comparable GAAP financial measures can be found in the appendix to today's presentation.
Speaker Change: We have not presented quantitative explanations of certain forward-looking non-GAAP financial measures for reasons noted on this slide.
Speaker Change: Any reference and our discussion to date, Ibida means adjusted Ibida.
Speaker Change: Finally, as previously announced, the earnings press release and slide presentation are available on our website.
Now, I'd like to turn over the call to Bill.
Bail: Thanks Louis, and welcome to our first quarter of 2025 earnings conference call.
Bail: Alcoa had strong first quarter of financial and production results. We maintained a fast pace of execution on our priorities despite economic uncertainty while progressing operational excellence through safety, stability and continuous improvement.
Underlying the strength of our performance were positive market conditions.
Bail: Let's start with safety. First and foremost, strong safety culture supports operational excellence.
Bail: We had no fatal or serious injuries in the first quarter, and we continue to improve our safety performance.
Bail: Operational Stability is shown by solid production or the majority of our operations improved sequentially on tons per day basis.
Bail: We also continue to improve stability at the Alimar Svelter in Brazil, currently operating at approximately 91% capacity.
Bail: We completed a $1 billion debt offering in Australia using most of the proceeds to repay existing debt. The new debt has extended the majority at a lower after-tax interest expense than our previously outstanding debt.
Bail: Lastly, we form the Joint Venture with Ignis EQT for our San Sippering Operations and are now resuming production at the Smelter in accordance with the viability agreement.
Bail: Now let's turn it over to Molly to take us through the strong financial results.
Molly Beerman: Thank you Bill. Revenue was down 3% sequentially to $3.4 billion. In the aluminum segment, third-party revenue decreased 8% on lower average real-life third-party price and lower shipments due to timing and decreased trading.
Molly Beerman: In the Illuminum segment, third-party revenue was flat due to an increase in the average realized third-party price offset by lower shipments in the first quarter after strong sales in the fourth quarter of 2024.
Molly Beerman: First quarter net income, attributable to Alcoa, was $548 million, versus the prior quarter of $202 million, with earnings per common share more than doubling to $2.07 per share.
Molly Beerman: The sequential improvement reflects increased aluminum prices and lower inter-segment profit elimination, partially offset by increased aluminum costs, and tariffs on our Canadian aluminum imported into the United States for US customers.
Molly Beerman: On an adjusted basis, net income attributable to Alcoa was $568 million, or $2.15 per share.
Adjusted EBITDA increased $178 million to $855 million.
Let's look at the key drivers of Edmonton
Thank you.
Molly Beerman: First-quarter adjusted EBADOT reflects higher aluminum prices and lower intersegment profit elimination, which more than offset lower aluminum prices.
Molly Beerman: Lower Volume, Increases in raw material and energy prices, and higher production costs, or more than offset by improvements in price mix and other costs.
Molly Beerman: Lower volume in the first quarter was expected after a strong fourth quarter shipping schedule, mainly aluminum enough from our Australian refineries.
Other costs primarily relate to intersegment elimination. [inaudible]
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Molly Beerman: The Illumina segment adjusted EBITDA decreased $52 million, primarily due to lower aluminum prices, lower volume and unfavorable currency impacts, only partially offset by favorable production costs and other costs.
Molly Beerman: The aluminum segment adjusted EBITDA, decreased $60 million, with higher metal prices and favorable currency more than offset by higher aluminum costs and higher production, energy, raw material, and other costs.
Molly Beerman: Included in other costs are approximately $20 million for U.S. Section 232 Terrace of 25% on Illuminum Enports from Canada, which became effective on March 12.
Molly Beerman: Outside the segments, other corporate costs decreased, and the inter-segment elimination expense decreased as expected, with significantly lower average aluminum price requiring less inventory
Moving on to cashflow activities from the first quarter. [inaudible]
Molly Beerman: We enter the first quarter with cash of $1.2 billion. Strong EBITDA led to positive cash from operations in the first quarter, despite high consumption of cash for working capital build, which is typical in our first quarter periods.
Molly Beerman: Working capital increased its inventories in both segments rose, an alumina on higher raw material price and volumes, and an alumina on timing of raw material and aluminum shipments.
Molly Beerman: Accounts payable decreased following elevated illuminatrating payables in the fourth quarter.
Molly Beerman: In the first quarter we progressed our objective to reposition debt and deliver with the issuance of $1 billion of debt in Australia and the tender of $890 million related to our outstanding 2027 and 2028 notes.
Molly Beerman: It is our intention to continue to deliver with an initial focus on the remainder of the 2027 notes.
Moving on to other key financial metrics.
Molly Beerman: The year-to-date return on equity was positive at 39.1%. Days working capital increased 13 days sequentially to 47 days.
Molly Beerman: The same level year over year but elevated from our year end 2024 level. Our first quarter dividend added $26 million to stockholder capital returns.
Molly Beerman: We had positive free cash flow, plus net non-controlling interest contributions for the quarter, which includes the 25 million euro contribution from Ignis EQT related to the San Ciprian Joint Venture Formation.
Molly Beerman: Proceed from the debt issuance in Australia, less debt-tendered at $95 million to the ending cash balance of $1.2 billion.
Molly Beerman: As we turn to the next slide, we would like to share an update on our Capital Allocation
Molly Beerman: Our overall capital allocation framework remains unchanged. It starts with maintaining a strong balance sheet throughout the cycle and sufficiently funding our operations to sustain and improve
Molly Beerman: The optimal capital structure for our company is reached when investment grade leverage metrics are achieved, reducing our whack and creating value for our stockholders through a higher company valuation, lower cost of financing and improve project viability.
Molly Beerman: We want to maintain investment-grade leverage metrics throughout all business cycles, not only at the mid or top part of the cycle.
Molly Beerman: Based on this, we first defined a target for adjusted deck, which includes pension and Opeble Iabilities.
This target is $2.1 to $2.5 billion. $2.5 billion.
Molly Beerman: Then, considering our historical use rate of cash, we target a cash balance between 1 and 1.5 million dollars.
Molly Beerman: Metting the cash with the adjusted debt results in our targeted range of adjusted net debt of 1 to $1.5 billion.
Molly Beerman: We believe this range fits our profile and anticipated use of leverage as a company.
Molly Beerman: I want to clarify that we are not committing to receiving and or maintaining investment grade credit ratings. The credit ratings are assessed by the rating agencies.
Molly Beerman: We want to maintain the flexibility to raise additional debt for strategic opportunities at any point in the cycle.
Molly Beerman: Our adjusted net debt was $2.1 billion at the end of the first quarter. As we get closer to the one to $1.5 billion target, we will look at all of our capital allocation priorities, including cash returns to stockholders and parallel to paying down debt.
Turning to the Outlook Fox.
Molly Beerman: We have one adjustment to our full-year outlook. We are updating depreciation expense from $640 to $620 million due primarily to favorable currency impacts.
Molly Beerman: The second quarter of 2025, in the Aluminum segment we expect to maintain the strong level of performance delivered in the first quarter.
Molly Beerman: In the Illuminum segment, we expect performance to be unfavorable by approximately $105 million due to US Section 232 tariff costs on imports of our Canadian Illuminum, increasing approximately $90 million sequentially.
Molly Beerman: as well as Operating Costs associated with the restart of the fan-separant smelter of approximately $15 million.
Molly Beerman: While the lower average price of Illumina will decrease overall Alcoa-adjusted events, Illumina cost in the Illumina segment is expected to be favorable by $165 million.
Molly Beerman: For inter-segment eliminations with the current market volatility, we recommend that you use the low end of the sensitivity range in your model.
Molly Beerman: Hello, Ibiza. Within other expenses, equity investment losses are expected to increase by $10 million in the second quarter. The first quarter included favourable impacts of $20 million due to foreign currency gains, which may not recur.
Molly Beerman: Based on last week's pricing, we expect second-quarter operational tax to be a benefit of $50 to $60 million, which includes timing and catch-up adjustments related to lower aluminum prices.
Molly Beerman: In the appendix to the earnings material, you will see that our Midwest paid and Midwest unpaid premium sensitivities have been updated to reflect the expected trade flows as a result of tariff
We also revised our regional premium distribution for your reference.
Thank you. Thank you. Have a great day.
Molly Beerman: Updates to the Midwest premium do not include the cost component of the tariff. There is a new column on the sensitivity slides for the tariff cost impact, which will appear in the other bar of our evensup bridge.
Molly Beerman: Since the second quarter will be the first full quarter of tariff, you should consider a quarterly tariff cost of approximately $105 million as a baseline, calculated based on an LMA of $2400 and a Midwest premium of $39.00 per pound.
Molly Beerman: We will update our sensitivities as needed if our trade blows adjust to the tariff structure.
Now I'll turn it back to Bill.
Bill: Thanks Molly, let me take the opportunity to speak to the current status of US tariffs applicable to the aluminum industry from Alcoa's perspective.
Bill: While the U.S. Section 232 tariff structure has been in place for some time, in March the tariff increased from 10% to 25% and the exemption for Canadian metal imported into the U.S. was removed.
Bill: This is the most material impact, Alcoa, as approximately 70% of our aluminum produced in Canada is destined for U.S. customers, and it's now subject to 25% tariff cost, which total and estimated $400 to $425 million annually.
Bill: Of course there is a higher Midwest premium, which offset some of this cost and certainly benefits our U.S. Smelters but currently the net annual result is approximately $100 million dollars negative for our business.
Bill: Next are the IEPA tariffs on imports from Canada, Mexico and China. Since our aluminum products and the majority of our input materials from Canada and Mexico qualify under the USMCA provisions, Alcoa does not have a significant impact from this tariff at this time.
Bill: The reciprocal tariffs, specifically excludes Canada and Mexico as well as aluminum products already subject to Section 232 tariffs, so no impact on Alcoa's aluminum sales.
Bill: While Lumina and other raw materials are excluded from the reciprocal tariffs, there is a portion of our input materials provided by Chinese suppliers that is now subject to the high reciprocal
Bill: We expect these tariffs will increase our input costs by 10 to 15 million dollars annually as there are no suitable replacement suppliers.
Bill: In 2024, the U.S. imported approximately 4.2 million metric tons of primary aluminum with imports of Canadian aluminum representing approximately 70% or 2.9 million metric tons.
Bill: The four operating shelters in the US produce 700,000 metric tons of aluminum each year. If all, I don't smell things fast, see in the US would restart, which is approximately 600,000 metric tons. The US would still be short by 3.6 million metric tons.
Bill: takes many years to build a new smelter and at least five to six smelters would be required to address the US demand for primary aluminum.
Bill: These new smelters will require additional energy production, equivalent to almost seven new nuclear reactors for more than ten Hoover dams.
Bill: Until additional smelting capacity is built in the US, the most efficient aluminum supply chain is Canadian aluminum flowing into the US.
Bill: That being said, our global smelting portfolio and commercial experience give us options to shift metal supply as needed if trade policies and economics weren't.
Bill: We've operated for more than 135 years in the aluminum industry. Building on our experience we will continue our engagement efforts with the US government and policy makers to advocate for the best outcome possible. [inaudible]
Speaker Change: Now let's discuss our market. In Illumina, after reaching an all-time high in the fourth quarter of 2024 Illumina prices declined in the first quarter of 2025.
Speaker Change: This was due to relatively higher liquidity, mainly driven by the Chinese refinery ramp-ups and normalized production outside China following several disruptions last year, as well as more recent aluminum price declines on top and sentiment given global market uncertainty.
Speaker Change: The market has resolved most of the issues leading to its tightness in 2024. There is still uncertainty about the timing of the planned refinery ramp-ups in Indonesia and India this year.
Speaker Change: With Bopsite prices remaining relatively high, in the current lower aluminum price, we estimate that over 80% of Chinese refinements are unprofitable
Speaker Change: Additionally, a recent announcement by the Chinese government stated that there would be higher scrutiny on new aluminum projects regarding air pollution control, box site sourcing, and red mug processing, which could bring additional constraints on growth in Chinese aluminum
Speaker Change: This is a dynamic market and Alcoa's global network of refineries provide security supply of aluminum up to Alcoa's smelters and our major customers, which are primarily in the Middle East.
Speaker Change: A final point to highlight here is the opportunity we have in the first quarter to capitalize on the tightness of the boxide market. With the high prices in the first quarter we've participated in the spot market to capture benefits for some volumes from our joint venture in Guinea.
Let's move on to a liminal.
Speaker Change: The LME Aluminum price was generally resilient in the first quarter, even with the decreasing aluminum price. With tariff announcements earlier this month, the LME responded by turning lower or reflecting the uncertainty of the impact of tariffs on the global economy in aluminum market.
Speaker Change: While the Midwest premium increased with the introduction of tariffs, it has not reached the $880 to $990 per ton level which analysts predict supports shipments from any region to the U.S.
Speaker Change: The logistics still favors shipments from Canada to the U.S. compared to other potential major
Speaker Change: In our view, the Midwest premium has not fully responded due to the uncertain market sentiment as well as inventory billed in the US ahead of the tariffs [inaudible]
The depletion of these inventory should trigger some upward response.
Speaker Change: Despite the uncertainty caused by the U.S. tariffs, there were some supportive signs on the demand side in the first quarter, namely the Chinese stimulus and European fiscal loosening.
Speaker Change: Aluminum Supply Growth in the first quarter was very limited, as smelter ramp-ups were offset by the effect of closures that took place at the end of last year.
Speaker Change: In North America, our aluminum value-add product shipment volumes increased both sequentially and year-over-year with healthy demand for slab, billet and rod.
Speaker Change: However, it is difficult to say whether our customers are anticipating tariffs and therefore buying in advance.
Speaker Change: In Europe , there were slightly lower vat volumes in the first quarter, compared to the fourth quarter but up the year-over-year was strong demand for rod and slab and billet demand, finally improvement.
Speaker Change: For both regions, we saw the negative impact of tariffs in our Foundry Order book, which is closely tied with the automotive market and faces the largest amount of uncertainty from the tariff impact.
Speaker Change: Starting to Spain, we recently announced the formation of the Joint Venture with Ignis EQT to support the continued operation of the San Cipran Complex.
Speaker Change: The idle smell think that the is now being restarted to meet our obligation under the viability agreement which was signed with our workforce when we curtailed the smelter in 2021 due to exorbitant energy prices. We are now focused on safely restarting the idle capacity.
Speaker Change: We'll focus on repeating the strong operational results delivered in the first quarter. However, we are now adding the challenge of navigating uncertainty in our markets.
Speaker Change: It's a good time to consider the actions we've taken both recently and in the past to be well-positioned to address adversity and capture opportunities.
Speaker Change: as a pure play aluminum company, vertically integrated from Mind-to-Metal, with the global footprint and cost-effective portfolio assets, pull out as the ability to maneuver and respond to challenging and changing markets and policies.
Speaker Change: Security of Supply through long-term contracts is valued by our customers.
Speaker Change: We also have the most comprehensive low-carbon product portfolio in the aluminum industry to meet customer needs.
Speaker Change: The company has a significant cash balance and a strong capital structure with no near-term debt of maturity or other obligations requiring significant cash outlays beyond normal operations.
Speaker Change: We've taken strategic actions that strengthen the company over time, including the recent acquisition of the aluminum-alimited and the announcement of the sale of the modern joint ventures, which is expected to close in the second quarter.
Speaker Change: They have a track record of monetizing non-core assets, including transformation sites which drive value for our stockholders.
Speaker Change: We also executed initiatives to be more cost effective as demonstrated by our over-delivering on our $645 million dollar profitability program last year.
These competitive advantages and actions support Alcoa's resilience.
Speaker Change: In summary, as we close up the presentation, I'll call out a strong first quarter with improved safety and stable production. As a company, we make good progress on strategic actions.
Speaker Change: Improve the competitiveness of our operations and navigate market challenges to deliver value to our stockholders.
Speaker Change: Operator, let's start the question and answer portion of the session.
We will now begin the question-and-answer session.
Speaker Change: To ask a question, you may press star then one on your phone. If you are using a speaker phone, please pick up your handset before pressing the keys.
To withdraw your question, please press star then two.
When called upon, please limit yourself to two questions.
Speaker Change: Our first question today is from Timna Tanners with Wolf Research. Please go ahead.
Speaker Change: Good evening, hope you're all well. Let me ask a little bit more about the tariff math if we could. I know that
Speaker Change: Quarterly hit, and then I heard another hundred million from Bill. I just wanted to make sure I understood the distinction there. And I know that in the past Molly had talked about tens of millions of impact. I think that was assuming a higher Midwest premium, but just was hoping for a bit more clarification, please. [inaudible]
Sight Timna, so the first 100. Friends.
Speaker Change: that we talked about, the negative 102 are overall business.
Speaker Change: That is when you consider, we are getting a higher Midwest premium on our U.S. sons. That brings a value of about 95 million. We'll also get a higher value within our Canadian asset, Canadian Middle Fails, and...
Speaker Change: into the U.S. at 222 million, but going against that is the 400 million that bill spoke of the cost of the Canadian tariff.
Speaker Change: So that met to the 100 million, and that's for the year. So that is a net number of the revenue considered against the tear of cost.
Speaker Change: When I spoke of the 105, that is a quarterly figure.
Speaker Change: That 105 was calculated based on an LME of 2400 and a Midwest Premium 39 cents and those are the same assumptions that are in the first 100 million for the company as a whole.
Speaker Change: When we spoke Timna about the impact earlier, we were using different Midwest Premium assumptions. We had expected that the Midwest Premium would respond more quickly. It is not, it is still down from what we would hope.
Speaker Change: We see that because of the negative sentiment in the market as well as the fact that some tons did get stockpiled in inventory in the U.S. ahead of the tariff until that stockpiled to police.
We don't have the impetus for price pressure up.
Speaker Change: Understood, that's helpful. And then my follow-up on TERFs again, would be any updated thoughts on the stickiness of these TERFs? And if sticky, do you think about restarting work and what timeframe? Thanks a lot.
Speaker Change: Timna, thanks for the question. It's hard to make a restart decision based on a tariff that can change and I really can't comment on the stickiness because we've seen the volatility of discussions around the tariff over the last 60 days.
Speaker Change: So, just don't know whether they will stick and we wouldn't necessarily make a decision to restart capacity simply based on tariffs just because they can change.
Bill Peterson: The next question is from Bill Peterson with JP Morgan. Please go ahead.
Bill Peterson: Yeah, hi. Good afternoon. The thanks for taking the questions. Maybe following up on the tariffs of that. So you talk about engaging with governments, policymakers, you know, US and abroad, but.
Bill Peterson: Can you provide, I guess, additional color on the level of engagement who and the Trump and maybe the OKD and the administrations you're doing with and? [inaudible]
Speaker Change: I guess are you going at it alone as Alcoa or in partnership with other aluminum companies or maybe potentially customers of your products? I'm asking the second part of the context of
Speaker Change: Some competitors either with large reports of domestic production or even like Middle Eastern competitors that are evidently announcing intentions to build US capacity and basically wondering are there there's some in the administration that are sympathetic to your argument set that the US really isn't going to be able to close the gap anytime soon.
Speaker Change: Bill, so it's a wide-ranging question, I'll give you a wide-ranging answer. We are engaging with both the U.S. government and the Canadian government, where we're doing that as Alcoa, we're also doing that through the U.S. Aluminum Association.
Speaker Change: We have met either through ourselves or through the association with a number of President and Trump's direct reports.
Speaker Change: and the message is fairly simple. The message is that the US imports a lot of its primary aluminum.
Speaker Change: and that in order to support the downstream processing jobs, we need to have economic upstream aluminum production that can come in preferably through Canada, but not through other countries.
Speaker Change: We've met with the Canadian government, both the outgoing Prime Minister, Mrs.
and Richard Trudeau.
also the current Prime Minister of Mr. Karney,
Speaker Change: and have had very good discussions there. So a lot of engagement, both through us and the Illuminum Association, and the way I would characterize it is that...
Speaker Change: and I should say it's been with the administration, it's been with House members, it's also been with the Senators.
Speaker Change: I would characterize it that people are listening to us, they are understanding the situation and we will see where we get to, but it has been at least a reception to the message that we have provided.
Speaker Change: Thanks for those insights. And then you had the cost curve on the...
Speaker Change: and Illumina. But I'm wondering where Illumina pricing is tracking today.
Speaker Change: as well as potentially challenging fundamental backdrop ahead. Where do you think the marginal cost support of aluminum stands today globally?
Speaker Change: So, as of today, as I said in my prepared remarks, over 80% of the Chinese refining system is
Speaker Change: and so we believe that there's good support level at today's pricing.
Speaker Change: We just saw today, you know, this is very recent news that aluminum prices came back up overnight by $17.
Speaker Change: So it feels like there's some support at the levels that it's at. Now that is all based on Boxside pricing and Boxside pricing has been strong through the first
Speaker Change: three and a half months of the year, and it still sits at $80 to $85 a ton, boxside pricing, I think, and that is support for Alubina costs.
Thanks, Paul.
Thanks a lot.
Speaker Change: Hi, thanks operator. Hi Bill, thanks for taking my question. Just wanted to ask on San Ciprian. So the slide that you have here you talk about the impact on 2025 and then also the hedging strategy you've deployed it to mitigate financial risks from 2025 to 2027. So if we're looking at I don't know 100 to 120 million dollars of negative cash flow from the restart of the smelter in 2025, what happens beyond 2025? How do the hedges help? And then secondly, you're going to be able to do that. You're going to be able to do that. You're going to be able to do that.
Speaker Change: I think there was, you know, the guidance had been that, if you burn through roughly $200 million at San Stryprien, comes the point where you just can't continue to subsidize us. And does this hedging strategy that you're further here protect you from that over the 2025 to 2027 period?
All of us. Thank you. Thank you.
Speaker Change: Guidance for the Smeltzer. We expect to lose about 70 to 90 million and EBITDA. The cashews by those operations will be about 90 to 110. The CapEx that we referred to is already included in our CapEx guidance.
Okay, so, [inaudible]
Speaker Change: Sorry, it's important to remember also that a portion of that cat-x, we would need to spend anyway.
Speaker Change: A portion of that CapEx is going toward the raise of the refinery Red Mud Lake that no matter whether we were running it or not, we would need to be able to make that because it also assists us in the final closure of that Red Mud Lake.
Alright, and could you quantify with the...
Speaker Change: EBITDA Impact would be in 2026 if you assume that prices don't change. How much of that?
Speaker Change: 70 to $90 million negative impact in 2025 is a function of restart and kind of other one-off costs that I'm not going to repeat. And also how much of that is protected by your hedging in 2026. In other words, this is going to be 70 to 90 million a year, or is it going to be a lot less than that in terms of the loss in 2026? If we assume prices don't change. Thank you. The smelter losses are heavier in 2025 because we have the inefficiencies of the restart. Thank you very much. Thank you very much.
Speaker Change: We've not yet released the 26 numbers, Chris. We'll look to do that as we get closer to the end of the year. Okay, thank you.
Speaker Change: The next question is from Nick Giles with B. Riley Securities. Please go ahead.
Nick Giles: Thanks operator, good evening everyone. My first question was, you know, you mentioned the higher scrutiny on future aluminum production in China, but if 80% are unprofitable today, what do you think it will ultimately take for Chinese aluminum refineries to curtail
Nick Giles: In my history, in this industry, the Chinese are very quick to react to negative economics and we are seeing it today with maintenance outages, extended maintenance outages.
Nick Giles: So, you know, I really believe that they will react quickly to last making sites.
Speaker Change: Thanks for that, Bill, and then maybe just to follow up there, you mentioned the...
Speaker Change: Spot Boxite, Opportunities in 1Q, and so with the lower aluminum prices, but boxite prices remaining more resilient, could it make sense to reduce aluminum production and sell more boxite directly to Chinese refineries, for instance?
Louis Langlois, James Dwyer, William Oplinger, James Dwyer, William Oplinger.
Speaker Change: I think the economics would be really, really difficult to do that. And the reason why I say that is the marginal tons that you run through the refineries are generally pretty low cost. And so I don't believe, and I don't haven't looked at the numbers recently, but I don't believe it would support curtailing refining capacity to sell a block site into China. And I don't believe it would support curtailing refining capacity to sell a block site into China. And I don't believe it would support curtailing refining capacity to sell a block site into China.
Speaker Change: So I just don't think that was solved at this point. [inaudible]
Bill Peterson: All right, thanks for that, though. My second question would be, what's the? [inaudible]
and what's the impact of...
Bill Peterson: Lower Oil and other input prices on the cause side could you speak to when some of that could flow through and if not in the second quarter could we ultimately see some benefit in the third quarter that might not be reflected in your current guide?
Bill Peterson: As we look at our raw material cost in the second quarter, we are seeing a cost-stick price increasing. We have about a $5 million negative. We didn't call that out in the guidance because we have up.
Bill Peterson: Productivity Initiatives to Off-Send it, and likewise on the smelting side we have price-pressure, primarily in coke. That's about another five million, but the same we didn't call that out because we expect to overcome that with productivity.
Got it. Thanks very much. Continue best of luck.
Thank you. Thank you.
Speaker Change: The next question is from Carlos D'Alba with Morgan Stanley . Please go ahead.
Speaker Change: Yeah, thank you very much. I'm just on working in capital only, we're expecting all the consensus ourselves, increasing in working capital in the quarter, but it was a little bit more than unexpected. How do you see that playing out in the remaining quarters?
Speaker Change: Carlos, we will see working capital come down significantly throughout the air as we typically do. We do expect a pretty size that will drop off in the second quarter, just coming off some of the high pricing. As we looked at the timing of shipments, as well as some of the build up in raw material prices and volumes, we did hit a higher working capital level in the first quarter than we expected.
Speaker Change: It's not negative about profit, Carlos, it's the, you know, remember we calculate our taxes always on the year-to-date basis.
Speaker Change: And so we earned quite a bit in the first quarter, and as you look at declining aluminum prices, then we have to do a catch up entry for taxes to the first quarter. So it's really the catch up entry that creates us into a net benefit position.
Alright, great. Thank you very much. Is that clear to you, Carlos, because that's a tough concept.
Speaker Change: You forecast out for the year when you close your books.
At the end of March, what your taxes will be.
and you book the taxes accordingly. [inaudible]
Speaker Change: Essentially what we're saying is that profitability will be at least with our current view will be lower in the second quarter because of pricing coming down and we will be booking a tax benefit associated with our full tax year tax guidance.
Speaker Change: So it's not that we're projecting, you know, don't think that, hey, they're projecting tax income because they're going to have an EBITDA loss.
That's not the case [inaudible]
Speaker Change: You have project out the four-year taxes and adjusted in each quarter
and just I don't want you to walk away thinking. [inaudible]
Speaker Change: Wow, these guys are going to be projecting negative PVT in the second pre-tax profit.
Speaker Change: in the second quarter because of the tax guidance.
who are providing.
Yeah.
and Jill Frida. That's exactly correct. Thank you, Barbara. You've been late, lame in terms. I'm sorry, but I should...
Speaker Change: Yes, complex stuff and the tone of the question with men, you can have big losses. No, that's not. It's just a ketchup. If you look at the two details, we will actually have regular tax expense related to earnings in the second quarter, but we will have a ketchup entry that will trigger a benefit related to the first quarter.
Yeah.
Great. Thank you.
Claire's Mod, but I'm sure Louis can clear everything up for everyone.
Daniel Major: The next question is from Daniel Major with UBS, please go ahead .
Daniel Major: Hi. Yeah, thanks. Can you hear me? Okay. Yeah. Yeah. I do.
Great. Yeah, thanks. It's follow-up on...
who's clarified the sensitivities around the tariff. So, um...
Daniel Major: I think you clarified before that the carifist based on the LME press, the duty unpaid premium that's about $300 I believe at the moment, so the
Daniel Major: The 25% tire, if that was applied to that, would it be right that that would be about 975 million against the current Midwest of about 850? So is it the right assumption that if...
Daniel Major: Things normalized, the premium lifts by around $100, all else equaled that would be broadly neutral to the business relative to the 100 million guidance you've given, based on the 39 cents. Is that the right way of thinking about those sensitivities?
Speaker Change: We're not completely following the logic and what I would suggest is you take that logic off line with Louis later and you can answer it. What what what we can say is
Speaker Change: that the Midwest hasn't reacted as it's back to Timna's question.
The Midwest has not reacted. [inaudible]
Speaker Change: as high as what we would have anticipated based on a 25%
232 tariff.
Molly Beerman: and the reasons for that are the two that Molly listed.
Speaker Change: One, there's still uncertainty around the tariffs and I think the market fakes in uncertainty around the tariffs given some of the swings that we've seen. And then secondly, there was some importation of aluminum. And then, there was some importation of aluminum.
Speaker Change: in advance of the tariffs that will need to burn through in the United States until you see that marginal ton be really necessary to drive the marginal ton to come to the United States.
Okay.
Speaker Change: Okay, thanks for that. And then the second question on San Siprian, that's following up from Chris' question, but I think previously you indicated that one of the requirements to put more cash into the...
Speaker Change: into the complex was the release of the restricted cash. I think that still sits about 88 million.
Can you give us an update on-
Speaker Change: when you expect that to be yet to be released and...
how that will be kind of distributed like going to funding. [inaudible]
Speaker Change: Cashburn, beyond 2025, or will it move back on to Alcoa's balance sheet and into the sort of net that bridge?
Speaker Change: We have had success having a portion of it released so the money that was related to the restart there's about 12 million that's been released and we continue to have discussions with the workers representatives on getting the balance released. There's about 75 million more there.
Speaker Change: And do you have an expected timing on to release that 75 million?
Those discussions continue, we expect that we will get...
Speaker Change: We are not planning on rebuilding the big furnace through 2027.
Speaker Change: So, the thinking is that that would be held up, that cash. [inaudible]
Speaker Change: Okay, and then just to follow up if I could on the guidance you gave on the cash burn for some Cyprian, the 90 to 110 million, is that for the Smelter, Justice Meltzer and not the
Speaker Change: Christopher Smelter. I would assume the refinery is burning cash at 350, Aliminer as well. The refinery had been near break even through the first quarter as well, but it will move into a lost position with the lower API.
Okay.
Thanks for the questions.
Speaker Change: The next question is from Katja Jancic with BMO Capital Markets, please.
Hi, thank you for taking more questions.
Speaker Change: Katja, we were comparing the January 31st Midwest premium. We kind of considered that the base before tariffs of 24 cents and then comparing it to the Midwest premium earlier this week at 39 cents. So that's the comparison.
So the 180 is based on a 39 set Midwest Premium. [inaudible]
Speaker Change: and Bill, you said you mentioned the Midwest River didn't react as...
Speaker Change: expected based on the 25% Tarrers, what would be the right Midwest premium?
Molly Beerman: I added in my slides presentation so you're going to ask me to go back to that. It was $8.80 to $9.99. Thank you. Thank you. Well, you know my number is better than I do. $8.80 on page 17 of the slide presentation, $8.80 to $9.90.
Molly Beerman: That's what we would think the equilibrium would be at a 25% Midwest premium. I'm sorry, 25% tariff.
Molly Beerman: Thanks, and then maybe lastly just on the permitting in Western Australia. Is that still progressing as expected?
Molly Beerman: It is, we have a public comment period coming up here towards the beginning of the second quarter, so it is progressing as expected [inaudible]
Okay, thank you.
Speaker Change: The next question is a follow-up from Nick Giles with B. Riley Securities. Please go ahead.
Nick Giles: Thank you very much for taking my follow up. Iceland's Prime Minister made some comments around concerns that shipments from Iceland to the EU could be subject to trade restrictions.
Nick Giles: whether or not that's true, I was just wondering if you could comment on how Alcoa could be impacted by any trade action in the EU and maybe separately how Alcoa, your desire to participate in the use, you know, effort to ultimately reassure capacity. Thank you very much.
Nick Giles: Nick, it's a great question that doesn't have a great answer and the reason why I say that is there is just too much uncertainty still about what the EU will do in relation to the US tariffs for us to speculate at this point.
The U.S. tariffs are pretty well settled around the 232.
Nick Giles: However, the IEPA tariffs and the reciprocal tariffs are still a lot of questions there, so for me to speculate what the Europeans will do.
Nick Giles: is probably premature at this point. As far as reshoring capacity, we have capacity in two plants in Norway, one in Iceland, and we're restarting the Spanish facility.
Nick Giles: We've talked a lot about the restart of the Spanish facility and the financial burden that that creates on the company.
Nick Giles: The reason why we're doing that is because we had a contractual commitment to restart it. And that's why we are restarting that capacity.
Nick Giles: That, in and of itself, reshores a couple hundred thousand tons of smelting capacity into Europe .
John Tumazos, Timna Tanners,
Well, that's very helpful. I appreciate all the color. Thanks.
Nick Giles: This concludes our question and answer session. I would like to turn the conference back over to Mr. Oplinger for any closing remarks.
Molly Beerman: Thanks for joining our call today. Molly and I look forward to sharing further progress when we speak again in July . Thank you, concludes our call.
Speaker Change: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.