Let's get going on this session. Our next fireside chat here is with Alcoa. Representing Alcoa, we have President and CEO Bill Oplinger. Bill's been here many times, thanks for coming back, Bill. Why do you have me instead of Lawson? Lawson's next door with Franco-Nevada, Bill and I have known each other a while.
Did he use it that way?
I think we drew straws.
Well, Lawson's on the bad list now.
Said, "Which is your favorite company?" Anyway. He's also given me a script here, and I warned Bill a little bit in advance. If I'm asking questions that don't make sense, he's gonna correct me.
Sure. If you don't mind, I'll just start with a couple of opening comments.
Absolutely.
Are you okay with that?
Go.
Okay. Thanks for having me.
Yep.
You know, I've lost track of how many of these conferences I've been to over the years. It's always good to come back. When you're considering Alcoa Corp as an investment, we've got a lot going on, a lot of favorable progress in the company over the last 5 years. Currently very focused on safe operations. You know, knock on wood, we've had safe operations so far this year. Strong stability and continuous improvement. We had a good first quarter. We're anticipating a strong second quarter. Those are really the day-to-day focus. In addition to that, we've been executing on a number of strategic priorities. We're continuing to progress the Western Australia bauxite mining approvals. That's going well.
In addition to that, we're in the process of monetizing some of our assets in the closed and curtailed area. We've been looking, as we've said, we've been looking at selling the data centers and monetizing about $500 million-$1 billion. We anticipate the first of those to happen soon. We're making progress. We announced in the first quarter that we're making progress with NYDIG at the Massena East site. We're anticipating that will happen quickly. On top of that, we're continuing to focus on growth.
We introduced the concept that we would consider growing really last year, and we just announced in the last couple of days an investment in Northern Norway, where we're going to build out our recycling capability to meet customers' needs for recycled content. That's a $65 million investment in our Mosjøen facility. Great facility, low cost energy, wonderful smelter attached to it. Adding recycling capability there to meet our customers' needs in Europe. Lots going on in the world, lots going on in the industry. We're focused on, you know, running the operations extremely well, safely, and executing on our strategic initiatives, even while there's a lot of noise in the system.
Okay, fantastic. All right, well, thanks for those opening comments, Bill. For our AV people, do you mind just setting that clock to the right time and starting it? Thank you. I've got some questions here, and I'm gonna just scramble them up a little bit just to keep you on your toes.
I was only ready to have them in order.
Exactly. Let's start at really big picture here. Obviously, the war. How do we think about the war? How do we think about the potential impacts on the aluminum market? How do we think about the potential impacts on your business?
You know, clearly the conflict has had a big impact on the aluminum industry. I'm sure many of you know the numbers. Roughly within the Strait of Hormuz, there's about 9% of the world's aluminum smelting capacity. When you look at it on a Western world basis, it's about 20% of the Western world capacity. All of that capacity has been impacted to some extent. There's been around 2.5 million metric tons of capacity that's been publicly announced that has come offline. We believe it's probably a little bit larger than that, just hasn't been publicly announced. I'll let each of the individual companies address how they've been impacted. For instance, at EGA, obviously EMAL is offline. AL has been negatively impacted.
Qatalum's been negatively impacted. That has clearly inflated aluminum prices in the short term, inflated premiums into both Europe and North America. In our case, we are a supplier of alumina into the region. At this point, our customers are continuing to take the product. They're just resourcing it, selling it on into other parts of the world. We think a lot of that's ultimately going into China.
Just to sort of touch on that. If we think, yeah, how is the alumina market balancing? We're hearing sort of chatter that some of the Chinese alumina refineries are actually curtailing.
Right now the alumina market isn't balancing. We would say that the alumina market's around 13 million metric tons long. We are seeing some of the Chinese capacity come offline. With that excess capacity, we would anticipate that we'll see further actions from other companies.
Okay. You talked a little bit about the premiums coming into the U.S., which is your home market. I think even before, the Middle East kicked off, the market was pretty tight, and we had quite elevated premiums. Can you talk a little bit about the dynamic that you're seeing on those Midwest premiums and how you're thinking about your product mix?
You, you referenced our home market is in North America. We would say our home markets really are in 2 markets, Europe and North America. We've got very good positions in those 2 net consuming, those 2 net deficit markets, so strong asset positions. The Midwest premium, if we just step back, prior to the conflict, going into the year. We had a couple of curtailments that occurred on the supply side, specifically Mozal and some Century capacity in Iceland. At the same time, we have seen that the Chinese are limiting production to the 45 million metric ton cap. We had anticipated going into 2026 that the aluminum market would be in a slight deficit and would draw down inventory.
We were very constructive on the aluminum market going into the year. Clearly, with an additional 2.5 million metric tons coming offline in the Middle East, that has put a lot of pressure on pricing and supply. We have not yet seen physical scarcity of metal either in Europe or in North America. We think we could see real physical scarcity of metal over the next 6 months in Europe or in North America. What that means is that Midwest premium has elevated to last time I looked about $1.16 a pound. Put that in dollars per ton. That's what, about 2,400. I won't get my math right. $2,400-$2,500 a ton. Premiums have been very strong. We've seen Rotterdam premiums also go up.
Just one side note, on the Rotterdam premium, we're estimating that we thought there would be about $40 per ton built in related to CBAM. We think there is, but it's hard to say given all the dynamics in the market, how much of that's being driven by the conflict versus how much is being driven by CBAM.
If we just talk a little bit about demand, you know, I cover Norsk Hydro, which is like a European aluminum company, and they saw a big pickup in some of their downstream activities. We were trying to decide if that was people sort of pulling demand forward because they were worried about security of supply or if it was actually really demand recovery. How are you seeing, what signals are you looking at for demand?
We look at all the traditional signals for demand. When we're looking at the demand picture, we start with the big picture and look at, you know, industrial production and some indicators within each of the end markets. Probably for me, the most important is looking at the order book and how strong the order book is. It's hard for me to answer because I get the question, are you seeing demand destruction at this pricing level? Probably very similar to the folks at Norsk Hydro. We're seeing a switch from customers who had supply chains that reached all the way back to the Middle East. We're getting customers now coming saying, "Hey, we need supply security." That's both in Europe and in North America.
While, you know, people have talked about demand destruction, we're just not seeing it, right? Our order books are improving every week. We still have some excess capacity in North America that we can fill, but really strengthen demand. It's hard to parse out, is that related to underlying demand or is that related to the conflict?
Again, we started to talk about this a bit. Is there a mixed thing going on here as well? Is there a shift to more VAP?
There is.
Yeah.
We took the action in the first quarter to reposition some metal into the North American market. That frees up some VAP production capability in North America. We're seeing our VAP order book being very strong and both in Europe and in North America.
We talked about revenues a little bit. Let's talk about costs a little bit. If you think about the pressures on the business today, maybe you can just walk through some of the key ones.
We start with energy, right? You know, everything starts with energy in our industry. We are exposed to less than 1% of our total electricity buy is exposed to spot markets.
Yeah.
We're pretty well covered on the electricity side. Now, clearly, we have contracts specifically in places like Quebec and Iceland that vary with LME prices. We share some of the positive upside with our power providers, but that's all built into the sensitivities that we provide on a quarterly basis. If we go to some of the direct consumers around natural gas, in Western Australia, we have long-term contracts on natural gas. In Spain, where our refinery would be exposed to spot natural gas, we've hedged that gas price through 2027. That will provide some security of pricing in Spain. If you keep going, we have some oil exposure in Brazil, but not significant, come down to mining diesel.
We've secured our mining diesel through the end of June, we feel confident that we've got good security of supply on diesel. From an energy perspective, while the energy disruptions are driving a lot of the top line impacts, we're pretty well covered on the cost side. If we then go into some of the more aluminum intensive raw materials, caustic prices we've seen are ticking up a little bit. We've got a 6-month lag on caustic prices, we won't see those impacts until much later in the year. Coke and pitch prices have increased a little bit also, those are typically on a 1-quarter lag.
Okay. So far not that much, we really would expect to see this come through with more of a lag.
More of a lag toward the end of the year. In relation to the size of the revenue changes, these cost impacts are pretty minor.
Yeah. Just in terms of the, of the alumina business, and I guess thinking about diesel as well, I mean, we're seeing this with iron ore as an example. You know, some of the really more marginal guys are actually shutting down because even though the price has gone up a little bit, their costs have gone up so much that they're just, it's not worth producing, and particularly once you take the shipping into account. When do you get to that pressure point in your alumina operations, your bauxite operations?
We have 3 large refineries currently in the world. We got 3 large ones and 2 smaller ones. If I just cover those quickly. We've got Pinjarra and Wagerup in Western Australia, totally vertically integrated on the mining, connected via conveyor. Historically very low cost, strong energy contracts. Those are really good assets. If we go over to Brazil, the Alumar Refinery has really performed exceedingly well. The Alumar Refinery is running at a very high level. They've been able to drive cost out, Alumar has been very successful. Poços meets the needs of an NMA set of customers down in Brazil, we have Spain.
Right now Spain is under pressure with the low alumina prices and that offsets some of the positive that we've seen out of the smelter in Spain. With alumina prices at $305, $310, puts a lot of pressure on the Spain refinery.
I guess especially with the You've also got the euro is a bit strong as well, which doesn't help.
Doesn't help. In the case of Spain, we're running at around 2,000 tons per day, what's that? Around 700,000. The capacity isn't huge. Piece of that goes to the NMA market. Taking that capacity offline wouldn't have a big impact on the overall market conditions.
It is struggling at these lower, alumina prices.
I guess, you know, since we're starting to talk about the assets, can you just walk us through the 2026 sort of production shipment story in the main operational regions?
Sure. As you can imagine at these price levels, we are ramping up production just about everywhere we can in the world. You know, let me start with Spain since we talked about Spain on the refining side. We've ramped up the production in Spain. It's been a safe, successful, on time, on budget ramp-up of Spain. The workforce there has done a fantastic job of running that facility. There's never been any question around the strength of that workforce. The issue in Spain is always energy prices. We have a Viability Agreement in Spain that said we would ramp up the production. We've done that. We're running it at 100% capacity. Very strong startup. We'll continue to do that through 2027.
We have a Viability Agreement there with the union that ensures that we'll run that smelter through 2027. If I then go to other parts of the world, we're ramping up capacity in small amounts in Australia, so we're adding additional pots in Australia. Not new pots, but turning the pots on. Similar case in Southern Norway. We've got a small plant in Southern Norway fully ramped up. Down in Brazil, the smelter in Brazil, which has the startup has been very difficult over the years, we have very good, strong stability today. We're running at about 90% capacity, and we'll continue to ramp up that smelter over time. The real important part there is that we have stability because from time to time we've had issues where we lose production there.
Good stability today. We come to Quebec. Quebec is running flat out. You know, Quebec is one of the crown jewels of the company. It's running flat out. In the U.S., we've just resigned a long-term power deal in Massena. It's a 10-year deal with 2 five-year potential extensions. That gives Massena a real line of sight to being successful over the next decade. In the case of Warwick, which is in Southern Indiana, we still have 50,000 metric tons of capacity there. Actively looking at what scenarios it would take to restart Warwick. Warwick has been historically a difficult facility to run at 4 lines.
Right now we have good stability running 3 lines and we'll consider what it would take to restart the fourth line.
That's what's the limiting factor there, Bill, just out of interest?
It would be about a 2-year startup time period. It would be about $100 million of capital. Historically, the stability has been difficult running 4 lines because of lack of labor and being able to get labor to run that facility.
Okay. All right, let's switch gears a little bit. We'll come back to this, the markets a little bit. In Q4, I guess, you had Midwest premium strength offsetting the tariff costs. If you look at it now, you've got tariff costs which are gonna be rising obviously with the higher LME price. How do we think about the net impact here of Section 232, you know, sort of in a simple way for cavemen?
Yeah, it's never simple.
Gross tariff expense, bringing metal in from Canada into the U.S. is around $1.1 billion. That's our gross tariff expense. Our U.S. facilities are getting the benefit of the higher tariff rate Midwest premium. They're getting a fairly significant benefit today that puts them in a much better position. The Midwest premium is completely covering the tariff cost. When we talk about $1.1 billion of gross tariff expense, obviously the Midwest premium at a $1.16 a pound is covering that and more at this point.
More.
More.
That's actually a net positive for the imported.
It is. That's not necessarily related to the tariffs, it's related to the overall strength of the demand, especially with the conflict in the Middle East where customers are looking to reposition long supply chains out of the Middle East into more regional supply chains like North America and Europe.
Okay. Let's talk a little bit about the European side of things. You've got CBAM as well. Again, that's another confusing thing for us analysts to sort of figure out.
It's, I think it's confusing for most people. The, I guess our view of CBAM is that we think it's a net positive in the near term for Alcoa. We'll get a benefit of about $40 a ton on CBAM, which will be baked into the Rotterdam premium. Like I said earlier, it's hard to tell whether that's been baked in given how the strength of the Rotterdam premium in face of the conflict. There's a couple of loopholes on CBAM that the European Commission's been trying to close. Those loopholes are associated with scrap. They made an attempt to close that toward the end of last year, and then the second one is around the downstream.
We're continuing to pursue the closure of those loopholes. At this point, CBAM's not having a negative impact. In fact, it's having a positive impact on Alcoa.
Okay. Okay. I did just want to offer, anybody want to ask a question here? We can keep on trucking.
Any questions from the group?
Bernie. I can also cold call on somebody like Francisco. I see him in the back. Do you want to ask?
There is a question.
Okay.
Thank you. You mentioned energy obviously as one of the key issues that you're thinking about every day. I want to maybe kind of bring the two topics together, one of them protectionism and energy into the same question, and kind of try to understand a little better. As you look, I mean, you run a global operation, you have smelters everywhere. How is this protectionism by like CBAM, 232 and energy interacting in your mind? I mean, because China's kind of topped out in terms of capacity. They're now, I believe 45 million tons a year, so there's not much more scope for them to keep producing aluminum, at least the way I understand it.
How does that field look like in 5 years from your perspective? Where are you putting the next chips on the table where you think the main, the biggest aluminum companies in the world are going to be investing in? Also considering the Middle East has just become hit by yet another problem, which is geopolitics and military. How do you see that production growth evolving? We do need aluminum, I assume that, right? I mean, because we're not going to get the production at this pace.
I think you answered a lot of the question there. You, I think you gave the components of a lot of the answer. If we step back and look at demand growth in aluminum, we think that demand growth in aluminum will be around 3%-4% underlying demand growth. If you then bifurcate that between primary and secondary will clearly grow at a faster rate than primary. Secondary is advantaged to some extent and therefore we see the growth in secondary. If we then, and just to be brutally honest, we are very bullish on aluminum.
We're an aluminum company, you know, of course we're very bullish on aluminum. We're bullish on the future of aluminum. We see the demand. The issue, you know, I've been in this company for 26 years. I've been following the aluminum industry for 26 years. The issue has never really been demand growth. It's always been supply growth that matches that demand growth. The Chinese seem to be firmly capping at the 45 million metric tons. They've not deviated from that over the last couple of years. We're not seeing them deviate from that today. They are going outside of China and growing in places like Indonesia and having some success in Indonesia, but it's turning out not to be quite as easy in Indonesia as it is to grow in China.
Historically, if you'd asked me 1 year ago, I could have told you that in the Middle East we will see potential for supply growth in the Middle East. I think the conflict throws that into uncertainty. You match a market that has underlying demand growth that grows year in and year out. Everything you touch, everything, whether you fly, you drive, you work in a building, you drink out of a can, everything has aluminum in this, in it, and that will continue to grow, and the supply is now limited. We're seeing what we view as a constructive market for aluminum over the next 5 years.
We're long in all 3 of our markets. We're long in bauxite, we're long in alumina, we're long in aluminum. If you follow this industry long enough, you will realize that you never quite know where the value will accrue in that supply chain. Sometimes the value accrues to bauxite. We've seen it in times like 2018 where significant value accrues to the refining. Today, a lot of the value in the industry is accruing to smelting. We like to be long in all 3 of those to be able to capture that those market changes over time. Just from real short to sum it up. We think that the dynamics are different.
I hate to say they're different this time, we actually see some limitation of supply, specifically out of China, that will allow that demand growth to really have a constructive picture for the aluminum industry. Okay, well now we've prompted some questions.
Uh-oh.
Maybe somebody's gonna argue with me.
There's been some talk.
You have to.
There's been some talk about, as part of the USMCA, developing a fortress North America with, you know, equal tariffs in Canada and Mexico, which would make moving material between Canada and the U.S. much more, you know, the tariffs would go away. Do you think that's likely? Is there much hope for that?
I'm not going to predict what's gonna happen in USMCA. My crystal ball is not that good. What I can tell you is there are dedicated supply lines that go from our Quebec plants to our customers via rail, that it makes a lot of sense for, in my view, for both Canada and the U.S. to ensure that the first metal that comes into the U.S. is always Canadian metal. As they work through USMCA, we'll let them work on that. Our customers need Canadian metal. Now, with today's pricing, the prices are high enough that it still incents our Canadian metal to come in to the U.S. As they look at USMCA, it does not make sense for Quebec metal to be going to Europe.
Quebec metal should be coming into the U.S.
How about the push by the administration for building new aluminum smelters in the U.S.? Century's planning one. What are your thoughts on that?
I'll tell you the exact same thing I tell the administration. If we can get globally competitive power in the U.S., we will consider building a smelter in the U.S. Globally competitive power looks like $30-$35 a megawatt hour, right? If we can get $30-$35 a megawatt hour anywhere around the world, we will consider building a smelter there. That has not been the case in the U.S. You look at the hollowing out of the aluminum industry in the U.S. over the last 20 years, it's been solely due to the lack of inexpensive, available long-term power in the U.S. If that reverses, which does not show any signs of reversing at this point with the data center demand in the U.S.
Put it in perspective, I think most of this is public information, the data centers are able to pay $110-$120 a megawatt hour for a 20-year take or pay, right? Nobody builds a smelter in the world at half of that, right? That's the issue that the United States has. It's all around cheap electricity.
Let's, we've got one more here.
Since the door was opened on politics, let me ask a general question.
I've dodged those questions pretty well.
Do you see or feel any improvement in the relationship between government agencies and the company as it relates to just general business, repeal of regulations, or the environmental look forward?
Dan, thanks for the question. We have 3 types of businesses. We have mining, refining, and smelting. In regions where you have mining, it is so clear that license to operate is critically important. I've been pretty public around some of the approvals issues that we've had in Western Australia. Those approvals issues were really, in my view, self-inflicted, right? We need to have very strong regional leadership that can be attuned to stakeholder requirements and be able to act on those stakeholder requirements. In Western Australia, we saw stakeholder needs really escalating quickly. We weren't in a position to be able to react to those stakeholder needs. In the mining area, license to operate is critically important. I think you can say the same thing around refining and smelting.
For our business, one of our key, and probably if you talk to any large aluminum business in the world, it's having successful relationships with all of our stakeholders in the regions in which we operate, and that includes governments. We have spent over the last couple of years, really a lot of effort trying to improve our stakeholder relationships to ensure that we have the license to operate in all the regions we work in.
Well, look, I think we're out of time.
Good
could you join me please?
You did a great job stepping in.
Thanks a lot.
Thanks.
Could you join with me please in thanking, Bill for his presentation?
Thanks.
Excellent.
Good.
Appreciate it.
Yep.