AA - Earnings call transcript Q1 2018

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Operator

Good afternoon, and welcome to the Alcoa Corporation First Quarter 2018 Earnings Presentation and Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to James Dwyer, Vice President of Investor Relations. ahead. go Please

James Dwyer

Officer. and Roy Austin, Officer; everyone. joined Chief I’m William Thank Alcoa good Corporation by Financial and President Harvey, Executive Executive President today Oplinger, you, Vice day, and and Chief

Bill. We will take questions after Roy comments by your and

reminder, Factors forward-looking relating in As to the actual that events may today’s to various to differ will in are our and these presentation results included that cause today’s expectations subject discussion statements materially assumptions future contain a filings. statements and and are from caveats. Company’s SEC

to in addition, presentation. comparable a Also, included In be to our have some our EBITDA we on measures note today Any financial to non-GAAP found statements. directly means financial most adjusted presentation. measures the appendix in today’s this EBITDA. the in financial can Reconciliations reference GAAP discussion

Our prior for Alcoa OPEB the change costs as of pension of and period periods accordance EBITDA moving out as Accounting non-service expense. has to Standards presentation well with the income resulted in in recent This change other Board’s presentation Financial updated today such current the costs. into been and

that, Finally, Roy. are available With slide as earnings presentation announced, our website. previously and on the release here’s

Roy Harvey

everyone to or affecting you, I’d to resilient income $XXX Net income million million million excluding call. an quarter. on $XXX share net of like Thank items. markets, EBITDA $XXX adjusted We Amid basis, special excluding was a special items. impact $X.XX unprecedented first Jim. events $X.XX Alcoa’s We the adjusted favorable a the our welcome or in generated share. of our in remained profits reported adjusted

reduced highest of that quarter, year-over-year days adjusted was of XXXX. the position capital EBITDA fourth prices X is from cash in perspective, down this by working sequentially While billion. launch our the quarter alumina we $X.X strong versus to cash reduced a our and since day And quarter November our for maintained first the recall due our

which is safety, everyone our earnings quarter, we’ll to priority safe or Now, serious is long-term through I’ll one our that to in on one report We’ll Because success. had injuries today, by serious and life-altering who Last took each key overall for United life-ending. turn walks that people mean focus one our presentations. doors. of Alcoa’s our safety number are we keeping place States. our injury injuries, in that, facilities on Beginning at we

Specifically, an his in in was hand employee’s gloved of resulting during pinched partial the thumb. task, amputation machinery maintenance the

ensure everyone Alcoa to is unharmed. goal that leaves Our safe facilities and

annuity balance U.S. production insurance post-employment other our plans January, supporting for to strengthen obligations refine group Canadian Those and make volume in to in To further eliminate return. U.S., announced Warrick employees In balance the benefits we of reduce drive complexity, the to to strengthen returns, sheet. Operations reduce to rolling and this the million Indiana earlier three and point transferred further approximately in every salaried freeze pension their Canada, obligations, and pension defined pension our the sheet, while from contracts a this serious and view, business on priorities our in one operations. risk this smelter related contracts to strategic assets our restart beneficiaries drive add goal That our systems we of and for execute is benefit We safety supply volatility programs enabling Canada. it onsite we to to continued From companies. in will retirees mill, metals To plan month, and from to of XXXX. reduce completed also on end aggressively quarter, improvements effective the injuries complexity and signed the will continue quarter. fatalities past from of the the $XXX by target in restart our be and

aluminum Alcoa release. As range entire volatile for market strong projecting are markets. mind in the could lot earnings excluding of more our But, $X.X pricing tariffs $X.X impacting billion billion, and value the U.S. in have for our up And or to mentioned keep to chain this we imposed environment government aluminum. bauxite And review aluminum, over prices, alumina from affecting last now that, market seeing $X.X lastly, on projection is now negatively. capitalize provided detailed chain, this at EBITDA, is to value for the a a full-year that assets a well-positioned either I’ll to the in earlier, stretching period. earnings positively alumina turn billion in There sanction across impact our is Bill alumina. from in this disruptions it the first we I however aluminum to with that special based with results. current range, from to in the to and billion events both deficits of volatility which updated global Please quarter quarter’s aluminum confluence we’re items, projection $X.X and supply look we adjusted high

William Oplinger

per than earlier, restart after-tax, impact prices on to the ABI items Corporation higher $XXX XXXX income numbers prices. the attributable And Sequentially, $X XXXX benefits, to to quarter, accounting Warrick changes revenues for off was as the are and medical comparability, and And the change. revenues related Compared Roy. Alcoa to for pension other in reflect smelter X% revised by a favorable and with mark more postretirement have to energy bargaining tax credits income January special Thanks, pension certain totaled are the both $X.XX or offset items Special higher shipments OPEB million prices the costs, In offset gains costs presentation were million lower Jim on we on statement. associated quarter partially start the and on agreement contracts. share. lower up and with market last aluminum while aluminum. seasonally alumina let’s alumina XX% net year, mentioned

income our at the items. and look statement let’s after special EBITDA adjusted Now,

and Our higher year. of below primarily XX% special of due than adjusted sequentially higher share, costs. In or the million, million was EBITDA $XXX quarter versus prior the excluding first prior income aluminum ‘XX first $XXX quarter, but A but than million expenses to due $XX lower few costs, up $XXX SG&A year. material raw increased sequentially, X.X% fourth per to items down prices note million ‘XX R&D DD&A the revenue. the lower of $X.XX to line. net million XX% items amortization improved was pre-mining quarter of $X Adjusted the primarily EBITDA and

conditions, generate rate we the In tax first and profits Our where operational the which on quarter, rate depends losses. XX.X%. market was drive heavily

products by the $XX alumina detailed was related the fourth prices Let’s impacted $XXX all due volume expected, quarter. smelters fewer metal expense take based overhauls smelting to prices. work adjusted Company. mix impacts. to sequentially higher for million Higher our in API million EBITDA alumina days and and is are roughly quarter of where prices costs low, this items contracts XX% the Brazilian smelters, indices, across provided quarter decline. Taking rebounded close lack higher saw EBITDA. view impacts. increased carbon the refinery of driver the quarter at not lower declined Maintenance Positives down to costs. look deeper more our In a also outlook effect, while offset on of were to last the the costs million alumina impact pricing and we was [ph] in the to fourth due the priced I first driving index $XXX in seeing raw and very operational energy we sales of quarter some scheduled other factors hydro the contributed in prices Adjusted is quarter, caustic also API power and of the maintenance earnings their price percentage in to where from material seasonally

the improved aluminum, costs EBITDA offset EBITDA segment’s currency. material seasonally In contract all unfavorable offsetting $XXX more cost at and offset last higher in $XXX impact. more contribution. Brazilian sales cost previously higher flowed adjusted raw million, prices, volume. to from mix with index due improvements higher prices Looking volume lower million, slower and than each alumina through our The was costs declined Higher lower prices $X earnings than down adjusted million alumina quarter’s other P&L. and prices million $XX Bauxite other mentioned EBITDA all higher Alumina as primarily hydro increases. metal adjusted

fourth LIFO profit purposes. both eliminations were for quarter Previously, intercompany provide profit corporate. at more the For and lag EBITDA have the lag were impacts. combined quarter LIFO as were other we impacts EBITDA but in similar EBITDA line group ‘XX, eliminations of large impacts Australia. item close and Transformation corporate In price first In negative the comparability revised visibility were LIFO, lag the ‘XX, and and accounting metal profit adjustments, impacts into as ‘XX little very eliminations together, in into maintenance following eliminations LIFO as quarter. major impact one turned metal lower corporate was but all favorable Suriname profit especially together of quarter project the inventory smaller and outside alumina inventory expenses impact at first resulted the activities there prices corporate impact segments. in To locations up unfavorable ramped positive is and quarter occurred accounting and remediation outage in in the well. intercompany Metal fourth

due cash bond DOJ of quarter. Now, to increases seasonal to semi-annual the flows as cash our in our capital, for dividends look our $XX as at primarily the our payments, balance final to higher let’s end balance paid interest SEC. partner, billion, decreased interest and minority At to and well $X.X million the working March,

and progress on let’s Now, capital other the allocation on to financial move metrics.

with ‘XX Our performance quarter first allocation XXXX our framework. is capital aligned

continue XXXX a maintaining spending above $X creating balance our cash We’re sustaining levels. to target and capital value and billion our

net changes pensions. OPEB million medical $X.X to facilitate of week, but our annuitization liability retiree Canadian Our and regarding billion, recent first January, $XX we action pension now said, freeze in Roy the made to we benefit. not funded and our most pension benefits as pension is Last reflecting

As quarter million Xrd transaction in earnings to our the pre-tax of earnings April release, additional noted charge is the contributions our in This cash or after-tax. net $XXX million results. step non-cash liabilities. second The annuitization to $XXX impact see be of Canadian will we optimize million special liability press and in $XXX will full our first our

benefit We on a working plan. also our pension defined annuitizing plan U.S. portion a of

rest year. of for at our the Now, the look outlook let’s

As price market on currencies $X.X every regional our $X.XX, price based Midwest million other our quarter, of regional is alumina recent $X,XXX as of and updated billion and material premiums, $X.X we’ve prices. impacts. adjusted outlook, of Australian view based $XXX LME between latest $X.XX; EBITDA a It’s dollar and as our an now well index; practice billion to on premium raw

be will quarters not three final identical. Our

be roughly lags, expect However, higher second our we other and timing quarter than of to the factors, XX% and ‘XX. because price differences, EBITDA of third fourth quarter seasonality

he’ll lower. our changes a As outlook here in talked in detail price volatile about could Roy talk a future ‘XX and higher environment or move more very in price minute, and we’re

lower at now intercompany has prices. by metal As billion $XX lag range inventory has depend of locations, will adjusted and ‘XX of $X.X EBITDA had point outlook, pricing and used a earnings $XX EBITDA. elimination outlook future corporate transformation in including on to we at accounting net outlook from expenses our be would the In improved and impacts, $XX reference, quarter million costs our still corporate this call other in fourth we million. improved varies for The closed non-segment assumptions LIFO, the billion million the price $X.X to due

estimate on and EBITDA approximately $XXX line, our to full-year We’ve two We’ve EBITDA $XX forecast cost Below previous increased the to rate. is changes the outlook. million. Our the tax refined are depreciation of current outlook depreciation outlook. also updated there the based a million refined our quarter’s approximately

of the rate tax Our our mix dependent is earnings upon world. very across

estimate tax full-year rate approximately Our of the XX%. current EBITDA drives operational

XX% could from range to to XX.X% catch the up Although the the lower of in quarter rate ‘XX. tax second XX% rate first quarter from

impact outlooks and Our from unchanged shipments remain cash flow last quarter.

with XXX,XXX for other direct buyers of only the in were now. of placing process and shipments those entities rest tons this tons bauxite, we’re year Rusal of the contracted Our to

it turn over Let back to me Roy.

Roy Harvey

right average we’re And price shows FOB from we’ve aluminum exposure. regional experiencing Bill. LME aluminum Alcoa’s Australia, considerable neither volatility price market the plus price alumina regional increases and both week. for here Thanks, The noted, spikes primary And shows alumina in chart weighted Western markets. illustrated with left the this spot incorporate premiums in as both chart as the

Russia. are the there and our uncertainties Section aware, you’re series with on affecting As include Section factors recently U.S. and major Starting of actions government the XXX sanctions external that XXX markets. announced tariffs, tariffs

In elsewhere. varying having environmental regulatory seeing Brazil and supply China, also are in disruptions in We’re reforms potentially and alumina supply management impacts.

Chinese aggressive driving were to appears side the be winter more less While supply reform. curtailments expected, government than

unlicensed the they now could capacity plants considering without regulations well power that many smelter to as implement effect, draft capacity curtailing plan slow that would cost If the a those government licenses, smelters. smelter draft as In grid potentially aluminum operating addition were Chinese take raise net coal-fired on and additions. controls is to supply

be portfolio alumina aluminum and us will globally bauxite, make such and diversified watching developments. Alcoa’s capture We in positions to uniquely closely these period of volatility. positioned benefit during long

Our bauxite in position prices which a with refineries. has bauxite portfolio quality are is and higher Australia, curve valuable for particularly with Brazil when quartile locations Africa high cost first caustic

in With the markets, have curve also [ph] and quartile to alumina of is and of cost the significant Our locations key global four first portfolios. the world’s portfolio alumina a is exposure of one increasing unique prices. we the position positioned refinery each largest in

primarily million and for have serve advantages and XXX,XXX markets. tons these markets, European X.X smelting Taking in total four we curtailed markets. into of our factors Alcoa tons of see the clear our each smelters of in metric products and all aluminum each these about account, capacity of U.S. of Our we capacity

We ton North half American have with our market metal exposure premium. at Midwest the significant nearly sold

know, or United alumina, and in to is price than market monitor Thus alumina our other our to the all And factors prices more power applies globally. deciding cost favorable, positive market-based, XX% curtailed highs. in are premium the and and the alumina of all-time doubled as sales market continue which at restart States with and year. has whether As you this LME factors. are exposure on aluminum quoted Publicly increase our restart third-party price could our we is produced index it of Brazil. prices. even aluminum the exposure capacity, mostly If global some the to regional market, to greater roughly requirements are price we to In indices spot our Midwest

refinery uncertainty As around to trade expected could picture and of we flows potential due globe market specific are curtailed across to factors, market smelter Nevertheless, on development. is There less depending nascent mentioned at a global our each with business, clear. the with expansions previously dynamics well-positioned In serve the domestic bauxite, we third-party the mines. restarting some the long-term capacity. consider is

and the customers caustic is avoid higher low increased much expense reactive Additionally, our of our prices. from bauxite silica, so can

aluminum I’d like conditions are turn XXXX for grow. quarter, Chinese will outlook said bauxite, to products. likely market Now, we push last to our In the alumina this to likely three The into deficit previously bauxite and moving see stockpiles year. factors the markets as mentioned

bauxite increased supply Chinese has to Our Guinea. increased outlook expect by and exports it for but Indonesian demand we from supported growth be slightly,

lasted consumers will anticipate And our while we have Chinese season we a to those which China, deficit for alumina alumina, expect seeding capacity forecast March through environmental competition for during with we the For most same reasons. again global curtail of tons. winter restart, next In is for refineries likely seen among some refining market curtailments winter available XX.

full aluminum, the smaller the million we alumina that see X.XX%. to continue rates until horizon to in expect of supply reductions production in alumina, expect we of smelter to the XXXX, region likely the market in procuring in part slower growth and deficit large seen Outside projected range are previous in challenges we China, supply In not in restarts be potential China Chinese than on by tons We alumina and will alumina. years, XXXX number Atlantic substantially. driven U.S. disruptions run cut demand demand X.XX% X.X supply global Announced in strong in of import growth. have by to the have achieve is a driven

and forecasting to also versus In supply should we demand considerable market capacity as in demand exceed be surplus as remain a many uncertainty last are projected its in market, ex-China expected primary XXXX supply robust than aluminum balanced emerging sanctions that year disruptions driven year, China, this the world growth end developed We growth trade the use directly enforce markets. disciplined permitting [ph] growth to smelter on lower impact power Supply this as which to driven is expect continues growth aluminums smelters. and implement actions, multiple remains by supply higher China both by controls plants, and year. as Again, of coal-fired growth could in XXXX, earlier, and framework, possibly third-party mentioned estimate progresses.

up, strategic focused three execute sum we we to So, first, on And can to our we priorities. remain what on continue control.

creating and we a an environment positive events volatility, is for confluence Second, of which seeing are unprecedented market us.

a global special products. all across we to three on items based portfolio well-positioned EBITDA Alcoa $X.X $X.X to excluding adjusted our Third, raised have billion. outlook of prices, unique full-year Fourth, market has for billion and our current

participants our happy future Lastly, your volatility and With for to believe three I we’ll be the allocation and of an us will business Alcoa opportunity of increasingly continue And in offer to would available, fundamentally Still, return if accelerate cash can please get the We let’s move the strategic take if second ahead execution market that We questions. half you framework adhere priorities year. this shareholders recognize in conditions that, strengthen capital to and Bill that to could bright. to direction. the either Operator, the Alcoa’s started. our and to our us is help market to of remind protocol. XXXX to long-term. the go current improve

Operator

Please Chris comes Your Deutsche with go Terry first ahead. from Bank. [Operator Instructions] question

Chris Terry

Hi, for taking to questions. on focus I for my wanted Mainly, guys. restart. Thanks potential the

of to the are customers what focusing last want on? can the comments that coming events around what the we’re it is couple the of what please? or Point you’d in Is you And data as me Comfort your points the sustainability look for? pricing, market specifically you topical So, weeks, remind seeing the

Roy Harvey

think, is When analysis affect at above. the restart could importantly that how the current Yes. Chris, how we long-term of to of together look put pricing. at think all And think we but about about financial absolutely. I a us, answer and we more look restarts pricing,

We modifications that as tax the restart, workforce. in of jurisdiction, might cetera, of et the at available be availability the calculations, cost contract incentives potential as also the local the of well power supply-demand the look

of long-term input a is and for So, range decision business. we really the try to look across and output make best that broad a

Chris Terry

last then, me, the around bauxite. one just for And the

You can your little on it in go Ireland where to touched where on more remarks, from color a could but give those bit [ph] tons exactly?

William Oplinger

Yes. We didn’t say actually Ireland. from

So, was there sanctions we that the the production going of said that tons to had -- what be sell this about by. committed abiding to we’re Rusal is given we XXX,XXX year, to

We’re currently. And this can those of in those the in the market we’re that process confident placing placed we get year.

Operator

Cowen with Company. ahead. question next Please go and from Rassouli is Your Novid

Novid Rassouli

Hi, deficit Thanks into length outage for that to assumption XXXX, with made Roy built assumption? of for Starting alumina Alunorte projection what for the at million and my Bill. the is XXX,XXX the the that’s taking of tons questions. X.X

Roy Harvey

Yes, Novid.

is assumed X-month a we’ve outage. what So,

really happening apparent We’re the today take months. what that in balances, trying use to -- so look what X at is take what’s those the ground on and is

Novid Rassouli

ramp get is number it like talked the back think that’s I that, about production. And to X-month to full a been of

essentially basis? monthly So, those with that that X months, tons at they’re back XXX,XXX on that end of assumes turn running a the of

Roy Harvey

performed curtailment it curtailments. quickly. Yes. it longer on been still depends their have I and it to the can on term restart they It to whether essentially we program, trying think depends put put don’t -- how or how they’ve have ready on a operating on exactly they comment

question us. a them, that’s for not So

Novid Rassouli

any balanced Rusal then bauxite sanctions Got the does that market, for And that from include it. outlook? your impacts in outlook

Roy Harvey

impact haven’t this At in into it’s fresh the in. Rusal early we to too outlook, just point, build and information it too any baked of

Novid Rassouli

between Okay. domestic to of And given one and exports China the last then, one out FOB in beginning the you alumina prices me. for China, any Australia? spread Are see

Roy Harvey

When we financials, a the possibility. certainly look at it’s

right confirmations certainly future. the alumina is now but no in have it We China, possibility of exiting a

Operator

Gagliano BMO go David The Markets. with is next Please Capital from question ahead.

David Gagliano

just I restarts on Thanks for idle a down -- taking bit questions. in wanted just commentary to little on drill the capacity, potential alumina. I the my

then, As a hear restarts? wondering if we you I the in in my million the smelting called tons the detail. reasonable sales, you production, capacity could alumina, about assumption share you timing expect restart only once say the that more all What’s would are average X.X page do aggregate. of or conjunction that last little should an restarting alumina third-party idled your What out cash capacity, on And What’s question as and restart for for or of XX commentary for restarts? that cost done cons with it to you on the When pros think costs aluminum that? would was it on be analysis, restarted?

Roy Harvey

Yes.

dependent I of different upon smelting facilities. than And very think the very idled it’s refining. each is

I what window of you with it. bring there So, find to X and each service. typically or put one quickly that in rally, line. you’re depends back the months on then, is everything associated has going It even prepare set more also a is take capacity to months actually its would to order actually back took on XX And cost between how that own curtailment the It can place. get depends how think into it,

a the current point. we into financial to have while pricing perspective, we that starting be about about account XX, like analysis XX think So, months what from when we out we a look thinking as will do the X, pricing, take

great so, decisions. And we take making those in care

far for it As look weather this or frequently. we smelting, at those perform refining as we when be analyses pretty would

to need were a from market as soon of a know would understand and ongoing that make programs of we to would the and market rest to order believe to have what you let necessary standpoint, what be would are capacity decision. series in restart we and as a We we the

William Oplinger

all Roy. That’s good,

we smelting us have million ultimately to on the put talked probably on bit restarted between is Warrick. to to cost XXX,XXX $XX it Warrick perspective in And million roughly smelting about side. we Just from the a Warrick Warrick, going side little of restart the finish, when on nine us year total months metric tons start And take cost. a capacity. to that’s will in $XX and

I first fairly think, before probably a a of alumina would year be restart. to we’re at Comfort nine out on expensive at if get we there, again, it instance Point looking for refining, months the and

that are all the those things go our into So, analysis.

Roy Harvey

And thing mind, keep aluminum interplay in between pricing. and one alumina well as more David, the

when and So, think look well. and we availability a so of alumina obviously at pricing we for costs of well also as alumina as smelter, as about bauxite for alumina

So, it’s complex equations. of pretty set

William Oplinger

And one are largely, they last same but that comment. one, the on, adding I higher last Point when smelters That’s cost one are we were was can keep Largely, smelters, Comfort. the say curtailed, smelters. curtailed, why

cash about ask you a refinery. low Comfort Point when is cost not So, cost,

-- take we analysis, that in consideration. if we all to go those have thoughts of the into So, we a through restart all -- as

David Gagliano

very you much Thank for the additional details.

cash sort so -- moving that, got about reasonable of a a nine capital what’s the cost year. to around months forward, Comfort, cash capital What just to I cost Point costs, restart? Just specifically on focusing and costs

William Oplinger

don’t I details reveal think about Yes, specific assets. very we

Sorry, Dave.

David Gagliano

the Russian sanctions. a give your but of sense stages us give now moves on read, some different thoughts? regards and obviously in and the you for tied with aluminum alumina early general, thoughts Can to your you are just early what can your in early recently Just Obviously outcome in stuff. here the here reasons, ultimate rush unprecedented to us

show So, up from you elsewhere? are What your these sources? materials hearing

Roy Harvey

and to predict. it’s think difficult complex I incredibly So,

of key with step issues Alcoa’s be it will think careful and you the whether perspective, U.S. be facilities material we look back will from you destined tons When specifically that’s operate the is when where but So, the to broader in government continue bauxite industry, Bill of XXX,XXX at the one that mentioned the those now sanctions, and was very for go. to and will redirected. Rusal question comply actually

that I shift how we’re Alcoa trying then both on a market but at metal for and So, outcome here determine the for what in production also is and happens just think basis. to what of beginning, the does the broader actually very

we that’s what’s going happen So, I think as predict far as now. actually right to can

William Oplinger

just alumina little And it, market the is more near-term, the on then, color tight. the put a near-term, to in

it currently deficit And see we prices, is alumina But a You for tight. you projecting is saw the it’s in basis tight. the that -- alumina in reflected on market are now the in but near-term, daily year. a

Operator

is Matthew Korn go question from with Sachs. Goldman Please ahead. The next

Matthew Korn

shift noted materials. new we’re quarter, into that in of pressures current there and a case. the the the and in costs, we ask guidance? serve they Should carbon you input cost costs your bit, me little higher than costs an about Let raw today. base Last input running as to margins expected are in dislocation expect any that market from that lift phase seeing your new urgency folding the Is any your offset you’re

William Oplinger

input cost similar bit the and and to smelting little approximately costs The Higher and Yes. In caustic has $XXX higher bit. shifted and a costs little a side, guidance in have prior also. mix that’s year-over-year prior guidance. We costs. of Those around lower said still carbon refining. the shifted the coke slightly input specifically of around the products, in input pitch, the million have on guidance, we current costs million $XXX that

So, if half I coming to is over of of products -- than of were side. from that’s split it, and caustic less the on that coming out half carbon

saying, we in market costs point. seeing I’m essentially what being we to dislocation and slightly reflected are ones to this input we’re -- higher is different similar numbers as not this before, So guided historically. at we’ve this the point, seen At in the

Roy Harvey

right really I disruptions to in If the supply. could add one now marker piece well. as is What’s happening to

while materials of So, to raw some demand it’s products, strong. or downstream if alumina the continues anything, the actually for lowering demand the for be aluminum

impact. therefore in think And freeing up positive a So, for could on when the that’s about a actually disruption cost market. it you Brazil, to example have

certainly time. interestingly So, it’s

Matthew Korn

buying to today, Well, indication a prices, policy week-to-week, I that my if your are about buyers? any And have uncertainty there that the growth when not you good that’s that’s question. things at is that high your seeing to that sure around end of But, supply. looking that’s you price, driving segues some second looking in And and or your the demand change total that element panic panic, through imagine downstream volatility into threat so original no you’re on whatsoever projections. the point, effect of I any saw on made having

Roy Harvey

latest questions, they U.S. U.S., and some little it’s shifts think destruction. to And seeing dynamic not really about So, impact bit. some upswing. the the particularly point, you we’ve consumers the any in can regional this kind seen in tariffs in this a I of about how still questions early But demand whether think you’re as

we’ve not not demand imagine, seen you seen can look a any. pretty yet. We impacts However, any as we’ve close take at and

Operator

question And Morgan Piyush from with our Sood is ahead. Please go Stanley. next

Piyush Sood

Couple questions. of

First impact seeing, wanted buying Rusal we alumina. and I one, disruptions [ph] the sales Hydro need just they you? from on ask any want that has with to Rusal location all bauxite be to alumina addressed are there to to understand, were So, you -- if Norsk been any for I you’ve redirected. you negative about or either

Roy Harvey

No.

have We have no mention. further to we impact that

swaps. don’t essentially our a because mean you when not of that at look aren’t buyer portfolio. are long are there We I we alumina,

tons However, we Rusal that that we’ve really the here is only impact up. freed the that mentioned we have

William Oplinger

Yes, on the bauxite.

or So, no smelting alumina on either impact price.

side. it’s on So, the bauxite just

Piyush Sood

good tax asset. is know. probably larger That’s since September, second idea a you different get a the to one, prefunding good until And pensions

So, changed this guidance contribution you voluntary your haven’t year. for for

William Oplinger

No.

We haven’t it. changed

cash excess the the it. contribute items million. voluntary bank, said will the $X keeping have pension talked $XX the that done Canadian growth cash and have allocation we we said voluntarily billion about already $XXX pension. We’ve contribution capital, We changed pension capital haven’t program, sustaining In in capital the million mandatory the we in above that We contribution.

XX-XX to that further more split funding get will delevering, We it if that and shareholders between likely that pension. towards the further into returns we would delevering go

Piyush Sood

left some decision And needed next And essentially not room it raise really it’s year? if for to the to so, there is year?

William Oplinger

XX-XX and point most delevering into requirements, understanding maybe we if excess prefunding question. be it will -- pension. I I’m yes, There above on the all Yes. those is cash a get the we likely go split mean will side to it the not flow where But have

Piyush Sood

one last Okay, may. I sorry, understood. I’m if

you kind of that understand alumina just easily that? available? about wanted sourcing And electricity in you be I aluminum smelting If happen would how Brazil, to and restart sourcing, feel how to

William Oplinger

all asset, in calculus Brazil on things the That or many consideration. as whether talked into U.S. any earlier, many it’s And Roy the things, restarting into that goes go about

availability One of and materials and raw prices key long-term assumptions. is of considerations the long-term

Roy Harvey

that alumina well, Just you sufficient businesses about to run as to separate a add entities. when look we think smelter, always Piyush, to as at our on having

about think subsidization. don’t of we kind so, any And

going have sale to So, the market. if a to rather pricing, we’re better we opportunity to start at to we’d that it take alumina not an consume alumina, smelter

analyze very sure each we sufficient have Bill at decision to we then profitable as we but that make separate raw look materials So, just a how business. said, as have

Operator

next our And Merrill America Bank Please with question Lynch. ahead. go from comes of Timna Tanners

Timna Tanners

the outlook. the rank would difficult know your I But, get comment you a mentioned three bit just to question ones? really ones the in terms even crackdowns. facility sanctions of be the to or you Can be market, lot I it’s ordering duration, other order Russian or about and stickier in talk that’s XXX put little volatility really it factors that of being or or on Alunorte put if could four China perspective that’s them have driving than ones, of down, great a think, is more whether a there section the which that

William Oplinger

give I see Timna, if a little take bit detail. and a me that extra Let try you of at could

So, comes dynamics can change where the tariffs are how what enforced, placed? actually what for really And product, you that really, those real at countries quotas specific and are in. look material quotas are accepted the down tariffs, coming product then are the when question XXX is is

So, well. there quotas the in important still then response impact thing whether could relatively look tariffs place. the put those to the as develops, whether XXX tariffs, -- how are will vague. at also, have that And Chinese those to more are be

they are of relatively undefined they think what could I no could actually and impact. those still last, certainly long real and how understanding product So,

in to to on on side is I we’ve that Russia sanction seen tend what Rusal more be From that one. come stickier. think the sanctions the So, specifically, past on and

where think an there’s in a I guarantees live don’t about lot anything. of we However, environment

But of and sanctions activity lot in that and it’s into lot an how you right compensate develops. those will put alumina, now aluminum a certainly see being for of we a place. So, see uproar throwing the in in market bauxite to in

Timna Tanners

I you I Alunorte on missed And think recognize. but tough that’s a and too,

William Oplinger

NDRC environmental our China but I in months have latest heard the right build tough maybe goes I right get Where focus actually the Alunorte, what feedback that And they built to our six got with like past, and and power after potentially positive got Timna, spending and offline months as some direction. estimates. the say, seems capacity speak be as the as for in of you’ve going we’ve didn’t to seems in anticipated, on industry and to much that’s fourth quarter certainly in Yes. as MEP as had power this. in the in moving programs looking but we plants the goes, this China On focus the direction we overcapacity And the are said, we at also. into -- far between Roy associated concerns, six plants is it

converging order on to the four, the but have are really said So, impacts four we unprecedented already market. it’s as the have to hard

Timna Tanners

broadly what comments just us a don’t bit capacity, rise other know players this could concerned lot the any restarts, Obviously risk do you to might that’s you be option Alcoa’s some And rapid restarts? some are but of and my think I considering only question, have a give prices, other or in given the that speaking. there of plans have can and a we they restart asked about why? that about But, lot luxury the you contemplating do, people of

Roy Harvey

Yes.

surprises company I restart, four to restart the now. trying alumina dear for Remember of of find is typically actually And would think to Outside of to which us going rather to which as time. own they to business that they right is think, necessary the analysis alumina that, for assume needs feel takes same these develop right every to the in it’s years, I be still order and restarting that pay to is case smelter have its each need determined. our I think period three what’s it restart. next are doing that the how payback to a a other

Operator

with Company. Your ahead. comes & from next question Please Bergner Gabelli go Justin

Justin Bergner

down forecasted aluminum versus change is the supply much Rusal supply just challenges? as the our Alunorte of relates due deficit little I the that to just And the Rusal. smelting drill bit comment to maybe you more on could it of market. How you to refinery in versus wanted a the on sort challenges

Roy Harvey

market, right, on Justin? alumina So, the

Justin Bergner

Yes.

On the market. aluminum

Roy Harvey

Yes.

demands global the remember or look six-month a that So, will and supply and the do able regional to operate any actual does impact characteristics. actually these not Para perspective, meant And Hydro into assumptions not long to how to made predict not of not demand. government basis supply predict mean, placeholder to that to we’ve we’ve uncertainty, in outcomes. being much order look only of outage is be Those there of out. the Brazil balances changes is State refineries on incorporated Rusal the and Norsk if I determine in From because that’s try so the Alunorte. in added you about

William Oplinger

is case six ton million they’re and it assuming Alunorte Alunorte, down we’re months. to X the occurs in for And metric of XX% plant, curtailed around about

is of demand there are X.X supply million about So, that picture that on our out metric means tons alumina.

Justin Bergner

and the other follow-up speculate supplying as longer the no just are as go what But, like in then will terms of its to metal can parties People supply and understand? where you countries a options that topic. how far for yourself Rusal’s just, Rusal Rio on will take refiners, as bauxite that And shipments. Tinto bauxite to,

Roy Harvey

I and have we it’s I for an good question, Justin, a answer don’t you. think think,

all on feels tied by impacts that. will indirect impelled cetera to do who it’s U.S. sanctions So, the who direct et and be up institutions and the with financial willing

William Oplinger

What is from be it we know us. do won’t

Roy Harvey

Exactly. Bill. Thank you,

Justin Bergner

Would Indonesia be fair TBD? game or it’s

Roy Harvey

it’s be need think in think Indonesia. to ask determine, I to to you players I

Operator

go Our comes next from Woodworth ahead. Credit question Suisse. Curt Please with

Curt Woodworth

that do that curious, a traded if seeing was market guess the value supplying, your where from or demand in free I economics I in downstream Atlantic contemplate report that change the the to houses, by would Would metal? more alumina all? there you I Rusal was offset sense in to any saying that $XXX So, that think a Thanks. smelting price shape a taking need at merchant yesterday. basin And make down you capacity downstream ton guess And to premium [ph] metal fabricators alumina? respect then, such today? you up from to CRU level, users the is of are of get with consumers cast or alumina cargo Europe,

Roy Harvey

Yes, Curt.

me let get one So, the first first.

things a final those outcome. way interesting one together impact alumina is on index the put of each I that the think And basis. the the of the transactions it [ph] about that transaction-by-transaction the happens is are that indices

that again, a and and the them is at to delivery making smelting are into alumina. need it down you get you sending order And would any our and to I prices, market. approximation bringing and smelter sure of each advantage of I transaction operating the talked they a three business by financing value. we we in say standpoint And and we terms that subsidizing terms have seen to So, rigid we’re are at additional is I generating we about also are. best the about are also less think what our a we’re try aluminum look facilities the pretty that think sure have take break we’ve into what the the et that lot transaction of we take thought what products about restarts. think, where cetera. indicates what about conclusions, make I that pretty not don’t close From

good take hard that. we So, look at

James Dwyer	VP, IR
Roy Harvey	President and CEO
William Oplinger	EVP and CFO
Chris Terry	Deutsche Bank
Novid Rassouli	Cowen and Company
David Gagliano	BMO Capital Markets
Matthew Korn	Goldman Sachs
Piyush Sood	Morgan Stanley
Timna Tanners	Bank of America Merrill Lynch
Justin Bergner	Gabelli & Company
Curt Woodworth	Credit Suisse
David Lipschitz	Macquarie
David Gagliano	BMO Capital Markets
Matthew Fields	Bank of America Merrill Lynch
John Tumazos	John Tumazos Very Independent Research

Alcoa (AA) 18 Apr 182018 Q1 Earnings call transcript