(in millions of dollars, except per share amounts, average realized prices and average cost amounts; dry metric tons in millions (mdmt); metric tons in thousands (kmt))
Company update
The Company has maintained all operations throughout the coronavirus (COVID-19) pandemic with only minimal employee-and contractor-related disruptions by following comprehensive health measures and crisis response plans. The duration of the COVID-19 pandemic continues to be unknown. The pandemic could have adverse future impacts on the Company's business, financial condition, operating results, and cash flows which could negatively impact our financial condition and result in asset impairment charges, including long-lived assets or goodwill, or affect the realizability of deferred tax assets. The Company has experienced isolated interruptions from its supply sources but has identified alternate solutions to avoid significant production impacts. Additionally, in the first quarter of 2022, the Company intermittently faced challenges, primarily inNorth America , with securing railcars or vessels for outbound product sales due to global disruptions in the supply chain. While logistics challenges persist, the Company saw some improvement in the second quarter of 2022, which facilitated higher shipments as discussed in the Results of Operations below. Additionally, the Company experienced labor shortages at one of its smelters inNorth America (see Segment Information, Aluminum below). In addition to inflation and supply disruptions in the global economy during the COVID-19 pandemic, the global economy has been impacted by the conflict betweenRussia andUkraine . Such adverse and uncertain economic conditions have exacerbated supply chain disruptions and increased our costs for energy, particularly inSpain , and altered our sources for certain raw materials. InMarch 2022 , in response to the conflict betweenRussia andUkraine , the Company announced that it ceased the purchase of raw materials from and the sale of our products to Russian businesses. The Company identified alternate sources for securing the limited number of materials that would have been purchased from Russian suppliers without any supply interruption or material financial impact. Due to the cessation of bauxite sales to Russian-owned alumina refineries, beginning in the second quarter of 2022, the Company slowed production in its Juruti mine inBrazil with associated cost inefficiencies. Additionally,Atlantic bauxite market demand has decreased which impacted shipments in the second quarter of 2022 (see Segment Information, Bauxite below).
Key actions
The Company paid a quarterly cash dividend of$0.10 per share of the Company's common stock inJune 2022 , totaling$19 . Also in the second quarter of 2022, the Company repurchased 4.5 million shares for$275 under its common stock repurchase program; these shares were immediately retired. As the average repurchase price of$60.69 exceeded the share price implicit in additional paid in capital,$39 million of the equity impact was allocated to retained earnings. Refer to Liquidity and Capital, below, for more information. OnJune 27, 2022 , the Company successfully amended and restated its Revolving Credit Facility from$1,500 to$1,250 and extended the maturity date fromNovember 2023 toJune 2027 . The Revolving Credit Facility, which has not been drawn, includes terms that provide improved flexibility to execute onAlcoa's long-term strategies. Among other improvements, the Revolving Credit Facility removes prior restrictions on both share repurchases and the payment of dividends. It released the prior collateral package, based on the Company maintaining specific credit ratings. The Revolving Credit Facility now includes metrics on greenhouse gas intensity in the Alumina and Aluminum segments and the percentage of renewable energy consumption for smelters in the Aluminum segment which may result in a positive or negative adjustment to margin and commitment fees based on performance against the metrics. In the first quarter of 2022, the Company recorded a restructuring charge of$77 to reflect its estimate for the offer made to the workers of the divested Avilés and La Coruña facilities (Spain ) to settle various legal disputes related to the 2019 divestiture. The offer was made to avoid prolonged legal proceedings over the following years; it does not represent an acknowledgement of wrongdoing or a belief that the Company would not succeed in the legal process. InApril 2022 , the Company received unanimous acceptance of the offer from all active workers of the divested Avilés and La Coruña facilities and a GSA was fully executed. The Company recorded a charge of$2 in Restructuring and other charges, net in the quarter endedJune 30, 2022 to reflect an update to its estimated liability for the GSA. The Company expects to make cash payments in the third quarter of 2022 upon completion of certain administrative and judicial approvals. OnDecember 29, 2021 , the Company and workers' representatives of the San Ciprián (Spain ) aluminum and alumina facilities reached an agreement to temporarily curtail the smelter's 228,000 metric tons of annual capacity due to exorbitant energy prices inSpain , and to resume normal operations at the refinery. The smelter curtailment was safely completed inJanuary 2022 , while the casthouse continues to operate. 26 -------------------------------------------------------------------------------- During the second quarter of 2022, the Company repaid carbon dioxide credits related to the San Ciprián smelter.Spain has a compensatory mechanism for the indirect cost of carbon dioxide and provides associated credits. Upon receipt of the credits in each of the applicable years, the Company recorded the cash received as deferred income (liability) due to a three-year clawback provision based on continued operations and employment. InJune 2021 , theSpanish Ministry of Industry, Trade and Tourism (the Ministry) initiated the process to request repayment of 2018 and 2019 credits due toAlcoa's decision to implement the collective dismissal process and its potential impact on operations and employment at San Ciprián.Alcoa disagreed with the Ministry's position as the collective dismissal process was not concluded and qualifying operations and employment at San Ciprián were maintained during the relevant three-year period. The Company requested to suspend the payment of the claimed credits (and interest) in exchange for a bank guarantee. OnApril 26, 2022 , the Spanish National Court rejected the Company's request and the Company made a payment of approximately$41 (€37) for the 2018 and 2019 compensation credits and interest. OnApril 30, 2022 ,Alcoa completed the sale of its investment in MRN for proceeds of$10 . An additional$30 in cash could be paid to the Company in the future if certain post-closing conditions related to future MRN mine development are satisfied. Related to this transaction, the Company recorded an asset impairment of$58 in the first quarter of 2022 in Restructuring and other charges, net on the Statement of Consolidated Operations. In addition, the Company entered into several bauxite offtake agreements with South 32Minerals S.A. to provide bauxite supply for existing long-term supply contracts. OnMarch 31, 2022 , Ma'aden's put option and the Company's call option, relating to additional interests in the joint venture, expired with neither party exercising their options. In accordance with the joint venture agreement, the call and put options were exercisable for a period of six months afterOctober 1, 2021 .
See the sections below for more details on the actions described above.
Operating results
The discussion that follows includes a comparison of our results of operations
and liquidity and capital resources for the quarterly and year-to-date periods
outlined in the table below.
Selected Financial Data:
Quarter ended Six months ended
Sequential Year-to-date
June 30, March 31, June 30, June 30,
Statement of Operations 2022 2022 2022 2021
Sales $ 3,644 $ 3,293 $ 6,937 $ 5,703
Cost of goods sold (exclusive of
expenses below) 2,767 2,181 4,948 4,448
Selling, general administrative, and
other expenses 52 44 96 106
Research and development expenses 7 9 16 13
Provision for depreciation,
depletion, and amortization 161 160 321 343
Restructuring and other charges, net (75 ) 125 50 40
Interest expense 30 25 55 109
Other income, net (206 ) (14 ) (220 ) (129 )
Total costs and expenses 2,736 2,530 5,266 4,930
Income before income taxes 908 763 1,671 773
Provision for income taxes 234 210 444 204
Net income 674 553 1,227 569
Less: Net income attributable to
noncontrolling interest 125 84 209 85
Net income attributable to Alcoa
Corporation $ 549 $ 469 $ 1,018 $ 484
Quarter ended Six months ended
June 30, March 31, June 30, June 30,
Selected Financial Metrics 2022 2022 2022 2021
Diluted income per share
attributable to Alcoa
Corporation common shareholders $ 2.95 $ 2.49 $ 5.44 $ 2.56
Third-party shipments of alumina
(kmt) 2,438 2,277 4,715 4,909
Third-party shipments of aluminum
products (kmt) 674 634 1,308 1,598
Average realized price per metric
ton of alumina $ 442 $ 375 $ 410 $ 295
Average realized price per metric
ton of primary aluminum $ 3,864 $ 3,861 $ 3,863 $ 2,533
Average Alumina Price Index
(API)(1) $ 418 $ 373 $ 395 $ 290
Average London Metal Exchange
(LME) 15-day lag(2) $ 3,062 $ 3,147 $ 3,104 $ 2,210
27
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(1) API (Alumina Price Index) is a pricing mechanism calculated by the
Company based on the weighted average of daily spot prices of the previous month
published by the following three indexes: CRU Metallurgical
Price; Platts Metals Daily Alumina PAX Price; and FastMarkets Metal
Bulletin Non-Ferrous Metals Alumina Index.
(2) EML (
trading, including aluminum. The LME pricing component represents the
underlying base metal component, based on quoted aluminum prices on the
exchange.
Sequential Period Comparison Year-to-date Comparison
Overview Net income attributable to Alcoa Net income attributable to Alcoa
Corporation increased $80 Corporation increased $534
primarily as a result of: primarily as a result of:
•Lower restructuring charges •Higher average realized prices
•Favorable mark-to-market results of aluminum and alumina
on derivative instruments •Favorable mark-to-market results
•Higher shipments primarily due on derivative instruments
to improved availability of •Increase in value add product
railcars or vessels for outbound sales
product from North American Partially offset by:
smelters, increased production at •Higher raw material costs due to
certain of the Australian inflation pressures
refineries and absence of weather •Higher taxes on improved
delays at the Alumar refinery in earnings
Brazil which occurred in the •Higher energy costs, primarily
first quarter of 2022 in Europe
•Reversal of a valuation •Higher costs primarily
allowance on Brazil state value associated with maintenance,
added taxes (VAT) transportation, labor, and higher
Partially offset by: mining production costs due to
•Higher costs primarily inefficiencies at lower
associated with maintenance, production rates
direct material usage, •Absence of gains on the sale of
transportation, and the former Eastalco site and the
inefficiencies at the mines at divestiture of the Warrick
lower production rates Rolling Mill
•Higher raw material costs due to
inflation pressures
•Charge related to impoundments
at the Poços de Caldas refinery
•Higher energy costs, primarily
in Europe
•Higher taxes on improved
earnings
Sales Sales increased $351 primarily as Sales increased $1,234 primarily
a result of: as a result of:
•Higher shipments mainly related •Higher average realized prices
to improved availability of of aluminum and alumina
railcars or vessels for outbound •Increase in value add product
product sales from North American sales
smelters and increased shipments •Higher trading activities
from refineries Partially offset by:
•Higher average realized price of •Absence of sales from the
alumina divested Warrick Rolling Mill,
•Higher trading activities partially offset by new
•Favorable currency impacts third-party revenue from the
Warrick smelter
•Decreased sales from the San
Ciprián smelter due to the
smelter curtailment and timing of
sales of accumulated inventory
from the strike, partially offset
by increased price
•Lower shipments across all three
segments
•Lower pricing at the Brazil
hydro-electric facilities as
first half 2021 drought
conditions elevated prices in the
prior year period
Cost of Cost of goods sold as a Cost of goods sold as a
goods sold percentage of sales increased by 10% percentage of sales decreased by 7%
primarily as a result of: primarily as a result of:
•Higher costs primarily •Higher average realized prices
associated with maintenance, for aluminum and alumina
direct material usage, •Higher value add product sales
transportation, and •Reversal of a valuation
inefficiencies at the mines at allowance on Brazil VAT
lower production rates Partially offset by:
•Higher raw material costs due to •Higher raw material
costs due to
inflation pressures inflation pressures
•Higher energy costs, primarily •Higher energy costs, primarily
in Europe in Europe
•Higher costs associated with •Higher costs primarily
impoundments associated with maintenance,
Partially offset by: transportation, labor, higher
•Higher average realized price mining production costs due to
for alumina inefficiencies at lower
•Reversal of a valuation production rates and direct
allowance on Brazil state VAT material usage
•Higher costs associated with
impoundments
28
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Sequential Period Comparison Year-to-date
Comparison
Selling, Selling, general administrative, Selling, general administrative, general and other selling expenses and other selling expenses administrative, increased$8 primarily as a decreased$10 primarily as a and other result of: result of:
expenses •Higher contractual services, •Lower variable compensation,
information technology services, external legal fees, insurance,
and travel and information technology
•Higher accruals for stock-based services
compensation •Favorable currency impacts
Provision for Depreciation increased $1 Depreciation decreased $22
depreciation, primarily as a result of: primarily as a result of:
depletion, and •Currency translation impacts •Lower depreciation at the
amortization Australian mines due to
completion of mine moves in the
prior year
•Currency translation impacts
Interest charges increased
mainly due to: mainly due to:
•Interest expense related to the •Absence of interest
on
repayment of the San Ciprián 2018 6.75% Senior Notes
redeemed early
and 2019 CO2 compensation credits inApril 2021 and early •Amortization of deferred redemption costs financing fees related to the •Absence of interest on$500 Revolving Credit Facility 7.00% Senior Notes
redeemed early
•One more day in the period inSeptember 2021 Partially offset by: •Interest on$500 4.125% Senior Notes issued inMarch 2021 •Interest expense related to the repayment of the San Ciprián 2018 and 2019 CO2 compensation credits •Amortization of deferred financing fees related to the Revolving Credit Facility
Other income, Other income, net increase
report
primarily as a result of: primarily as a result of:
•Favorable mark-to-market results •Favorable
mark-to-market results
on derivative instruments on derivative instruments
primarily due to higher power primarily due to higher power
prices in the current quarter prices in the current year
•Absence of loss recognition •Higher equity
income from
triggered by ELYSISTM capital Ma'aden joint ventures primarily
contributions on higher aluminum and alumina
•Favorable currency impacts due prices
to gains recognized in the second •Interest income received on
quarter due to the U.S. dollar Brazil VAT credits
strengthening against most Partially offset by:
currencies and the absence of •Absence of gains on the sale of
first quarter losses due to a the former Eastalco site and
weakening U.S. dollar against the divestiture of the Warrick
same currencies Rolling Mill
Partially offset by: •Higher ELYSISTM capital
•An increase in the Warrick site contributions, which triggered
separation reserve loss recognition
•Decrease in equity earnings from •Higher non-service costs related
the Ma'aden bauxite and alumina to pension and OPEB
joint venture primarily due to •An increase in the Warrick site
lower alumina prices separation reserve
29
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Sequential Period Comparison Year-to-date Comparison Restructuring In the second quarter of 2022, In the six-month period of 2022, and other Restructuring and other charges, Restructuring and other charges, charges, net net of$(75) primarily related net of$50 primarily related to: to: •$83 for the reversal of state •$83 for the reversal of state VAT valuation allowance VAT valuation allowance associated with the restart of associated with the restart of the Alumar smelter the Alumar smelter •$12 for changes in estimated •$1 for changes in estimated take-or-pay contract costs at the take-or-pay contract costs at the closed Wenatchee smelter closed Wenatchee (Washington) Partially offset by: smelter •$79 for the accrual related to Partially offset by: the GSA for the workers of the •$4 for additional take-or-pay divested Avilés and La Coruña contract costs at the closed facilities Intalco (Washington) smelter •$58 for an asset impairment •$3 to adjust an asset retirement related to the sale of the obligation reserve at a Company's interest in the MRN previously closed location mine •$2 to increase the accrual •$6 for additional take-or-pay related to the GSA for the contract costs at the closed workers of the divested Avilés Intalco smelter and La Coruña facilities •$2 to adjust asset retirement obligation reserves at previously In the first quarter of 2022, closed locations Restructuring and other charges, net of$125 primarily related to: In the six-month period of 2021, •$77 for the accrual related to Restructuring and other charges, the GSA for the workers of the net of$40 primarily related to: divested Avilés and La Coruña •$39 for the settlement of facilities certain pension benefits •$58 for an asset impairment •$9 in settlements and related to the sale of the curtailments of certain other Company's interest in the MRN postretirement benefits related mine to the sale of the Warrick •$2 for additional take-or-pay Rolling Mill contract costs at the closed •$9 related to
additional outlet or
Intalco (Washington ) smelter pay energy contract costs at the Partially offset by: curtailed Intalco and Wenatchee •$11 for changes in estimated smelters take-or-pay contract costs at the Partially offset by: closed Wenatchee (Washington ) •$22 of reversals for smelter environmental and asset retirement obligation reserves at closed locations
Provision for The provision for income taxes in The provision for income taxes in income taxes for the second quarter of 2022 was the six-month period of 2022 was
$234 on income before taxes of$444 on income before
taxes of
$908 or 25.8%. In comparison, the$1,671 or 26.6%. In
comparison,
first quarter of 2022 Provision the six-month period of 2021
for income taxes was $210 on Provision for income taxes was
income before taxes of $763 or $204 on income before taxes of
27.5%. $773 or 26.4%.
The increase in tax expense of The increase in tax
the expense is
$24 is primarily attributable to attributable to the overall the overall higher income before higher income before taxes noted taxes noted above. Specifically, above. higher tax expense, primarily inAustralia andBrazil related to additional profits on higher alumina prices and favorable mark-to-market results on derivative instruments inAustralia . This was partially offset by less tax expense related to lower aluminum prices. Noncontrolling Net income attributable to Net income attributable to interest noncontrolling interest was$125 noncontrolling interest was$209 in the second quarter of 2022 in the six-month period of 2022 compared with$84 in the first compared with$85 in the quarter of 2022. These amounts six-month period of 2021. These are entirely related to Alumina amounts are entirely related to Limited's 40% ownership interest Alumina Limited's 40% ownership in several affiliated operating interest in several affiliated entities. operating entities. The increase is primarily a The increase is primarily a result of higher alumina prices, result of higher alumina prices, higher other income primarily higher other income primarily related to favorable related to favorable mark-to-market results on mark-to-market results on derivative instruments, and lower derivative instruments, lower restructuring charges primarily elimination of intercompany due to theBrazil state VAT profit in inventory, lower valuation allowance reversal and restructuring charges primarily the absence of the asset due to theBrazil state VAT impairment related to the sale of valuation allowance reversal the Company's interest in MRN, partially offset by the asset partially offset by a higher impairment related to the sale of elimination of intercompany the Company's interest in MRN, profit in inventory, and higher and lower depreciation, partially taxes due to higher profits offset by higher taxes on higher before taxes. profits before taxes. 30
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Segment information
Alcoa Corporation is a producer of bauxite, alumina, and aluminum products. The Company's operations consist of three worldwide reportable segments: Bauxite, Alumina, and Aluminum. Segment performance underAlcoa Corporation's management reporting system is evaluated based on a number of factors; however, the primary measure of performance is the adjusted earnings before interest, taxes, depreciation, and amortization (Adjusted EBITDA) of each segment. The Company calculates Segment Adjusted EBITDA as Total sales (third-party and intersegment) minus the following items: Cost of goods sold; Selling, general administrative, and other expenses; and Research and development expenses.Alcoa Corporation's Adjusted EBITDA may not be comparable to similarly titled measures of other companies. See Reconciliations of Certain Segment Information below.
Bauxite
Business Update. Third-party shipments decreased 0.2 million dry metric tons compared to the first quarter of 2022 due to decreased demand in theAtlantic bauxite market partially offset by higher volumes from offtake agreements. OnApril 30, 2022 ,Alcoa completed the sale of its investment in MRN for proceeds of$10 . An additional$30 in cash could be paid to the Company in the future if certain post-closing conditions related to future MRN mine development are satisfied. Related to this transaction, the Company recorded an asset impairment of$58 in the first quarter of 2022 in Restructuring and other charges, net on the Statement of Consolidated Operations. In addition, the Company entered into several bauxite offtake agreements with South 32Minerals S.A. to provide bauxite supply for existing long-term supply contracts. Mining operations are relocated periodically in support of optimizing the value extracted from bauxite reserves. In the second quarter of 2022, the Company continued the process of moving the Juruti mining operations, which is scheduled to complete by the end of 2022. During the second quarter and six-month period of 2022, the Company incurred$6 and$9 , respectively, in capital expenditures related to Juruti mining operation relocation. Production in the below table can vary from Total shipments due primarily to differences between the equity allocation of production, offtake agreements with the respective equity investment, and other supply agreements. Additionally, Total shipments include dry metric tons that were not produced by the Bauxite segment. Such bauxite was purchased to satisfy certain customer commitments. The Bauxite segment bears the risk of loss of the purchased bauxite until control of the product has been transferred to this segment's customers.
Operating costs in the table below include all production-related costs: conversion costs, such as labor, materials, and services; depreciation, depletion and amortization; and plant administrative expenses.
Quarter ended Six months ended
June 30, March 31, June 30, June 30,
2022 2022 2022 2021
Production (mdmt) 10.2 11.0 21.2 24.1
Third-party shipments (mdmt) 0.6 0.8 1.4 2.6
Intersegment shipments (mdmt) 10.0 10.1 20.1 21.3
Total shipments (mdmt) 10.6 10.9 21.5 23.9
Third-party sales $ 34 $ 43 $ 77 $ 97
Intersegment sales 165 170 335 364
Total sales $ 199 $ 213 $ 412 $ 461
Segment Adjusted EBITDA $ 5 $ 38 $ 43 $ 100
Operating costs $ 225 $ 207 $ 432 $ 443
Average cost per dry metric ton of
bauxite $ 21 $ 19 $ 20 $ 19
31
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Sequential Period Comparison Year-to-date Comparison
Production Production decreased by 7% mainly Production decreased by 12%
as a result of: primarily as a result of:
•Sale of the Company's interest •Lower demand from certain
in the MRN mine Alumina segment refineries
•Cessation of bauxite sales to •Cessation of bauxite sales to
Russian aluminum businesses Russian aluminum businesses
•Lower demand due to the
expiration of the Company's
license to export bauxite from
Australia
•Sale of the Company's interest
in the MRN mine
Third-party Third-party sales decreased $9 Third-party sales decreased $20
sales primarily as a result of: primarily as a result of:
•Lower mining royalties •Lower shipments due to the
•Lower shipments due to decreased expiration of the Company's
demand in the Atlantic bauxite license to export bauxite from
market Australia, Juruti lower customer
Partially offset by: demand and the cessation of
•Higher volumes from offtake and bauxite sales to Russian aluminum
supply agreements businesses, and decreased demand
in the Atlantic bauxite market
Partially offset by:
•Higher volumes from offtake and
supply agreements
•Higher mining royalties
Intersegment Intersegment sales decreased $5 Intersegment sales decreased $29
sales primarily as a result of: primarily as a result of:
•Lower average internal prices on •Lower intersegment shipments
sales with the Alumina segment primarily due to lower demand
•Lower intersegment shipments from certain Alumina segment
primarily due to lower demand refineries
from certain of the Alumina •Lower average internal prices on
segment refineries sales with the Alumina segment
Segment Segment adjusted EBITDA Segment adjusted EBITDA
Adjusted decreased $33 primarily as a decreased $57 primarily as a
EBITDA result of: result of:
•Higher production costs in •Lower shipments as discussed
Western Australia and Brazil due above
to inefficiencies at lower •Lower average margins on sales
production rates and maintenance with the Alumina segment
•Lower mining royalties •Higher production costs
•Lower average margins on sales primarily due to
inefficiencies
with the Alumina segment at lower production rates
•Lower equity earnings due to the Partially offset by:
sale of the Company's interest in •Higher earnings from equity
the MRN mine investments
•Higher mining royalties
Forward Look. For the third quarter of 2022 in comparison to the second quarter,
the segment expects higher volume as refinery demand improves on a sequential
basis. Increased production costs are expected to be offset with higher
intersegment prices in the Atlantic region.
The Company has decreased its annual projection for bauxite shipments in 2022 by
2 million dry metric tons to range between 44.0 and 45.0 million dry metric tons
due to continuing disruptions in the Atlantic bauxite market and lower demand
from refineries recorded in the first half of 2022.
Alumina
Business Update. During the second quarter of 2022, the average API of$418 per metric ton trended favorably compared to the prior quarter reflecting a 12% sequential increase. Compared to the six-month period of 2021, the average API trended favorably, reflecting a 36% increase year-over-year. Alumina production increased 1% in the second quarter of 2022 compared to the first quarter of 2022 due to increased production at certain of the Australian refineries, partially offset by decreased production at theAlumar refinery due to unplanned maintenance in 32 -------------------------------------------------------------------------------- the second quarter of 2022 and decreased demand from the San Ciprián smelter. The alumina segment also experienced higher energy costs, predominantly related to the San Ciprián refinery, and higher raw materials costs. During the second quarter of 2022, the Company recorded the reversal of a valuation allowance onBrazil state VAT of$46 in Cost of goods sold. (See Restructuring and other charges, net above for additional reversal). In the fourth quarter of 2018, after an assessment of the future realizability of the state VAT credits,Alcoa established an allowance on the accumulated state VAT credit balances and stopped recording any future credit benefits. With the restart of the Alumar smelter inBrazil and the first metal sales inJune 2022 , the Company now has the ability to monetize these credits and reversed the valuation allowance. During the second quarter of 2022, the Company recorded a charge of$39 to Cost of goods sold and an increase to the capitalized asset retirement cost of$8 to increase the Asset retirement obligation at the Poços deCaldas refinery when an initial estimate became available for improvements required on both operating and closed bauxite residue areas to comply with updated impoundment regulations in the region.Alcoa is in the process of obtaining regulatory approval for its estimated work, and additional charges may be recognized when the final scope of work is approved. As ofJune 30, 2022 , the Alumina segment had a base capacity of 13,843 mtpy with 214 mtpy of curtailed refining capacity. There was no change in curtailed capacity. Total shipments include metric tons that were not produced by the Alumina segment. Such alumina was purchased to satisfy certain customer commitments. The Alumina segment bears the risk of loss of the purchased alumina until control of the product has been transferred to this segment's customers. Additionally, operating costs in the table below includes all production-related costs: raw materials consumed; conversion costs, such as labor, materials, and utilities; depreciation and amortization; and plant administrative expenses. Quarter ended Six months ended June 30, March 31, June 30, June 30, 2022 2022 2022 2021 Production (kmt) 3,226 3,209 6,435 6,715 Third-party shipments (kmt) 2,438 2,277 4,715 4,909 Intersegment shipments (kmt) 984 940 1,924 2,155 Total shipments (kmt) 3,422 3,217 6,639 7,064 Third-party sales$ 1,077 $ 855 $ 1,932 $ 1,448 Intersegment sales 489 418 907 707 Total sales$ 1,566 $ 1,273 $ 2,839 $ 2,155 Segment Adjusted EBITDA$ 343 $ 262 $ 605 $ 351 Average realized third-party price per metric ton of alumina$ 442 $ 375 $ 410 $ 295 Operating costs$ 1,190 $ 988 $ 2,178 $ 1,794 Average cost per metric ton of alumina$ 348 $ 307 $ 328 $ 254 Sequential Period Comparison Year-to-date
Comparison
Production Production increased by 1% mainly Production decreased by 4% mainly
as a result of: as a result of:
•Increased production at certain •Reduced alumina
manufacturing at
of the Australian refineries due the Australian
refineries due to
to less unplanned equipment unplanned equipment maintenance
maintenance Partially offset by:
Partially offset by: •Increased production at the San
•Decreased production at the Ciprián refinery following the
Alumar refinery due to unplanned resumption of normal operations
equipment maintenance
•Decreased production at the San
Ciprián refinery due to lower
demand from the San Ciprián
smelter
Sales to third parties Sales to third parties on the rise
primarily as a result of: primarily as a result
of:
•Higher average realized price of •Higher average
realized price of
$67 /ton principally driven by a$115 /ton principally driven by a higher average API higher average API •Favorable currency impacts •Favorable changes to customer •Higher shipments due to mix non-recurrence of unplanned Partially offset by: equipment maintenance at the •Lower shipments due to lower Australian refineries and weather production at the Australian delays inBrazil in the first refineries, partially offset by quarter of 2022 increased production and shipments at the San Ciprián refinery, including a shift to third-party sales with the San Ciprián smelter curtailment inJanuary 2022 33
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Sequential Period Comparison Year-to-date Comparison
Intersegment Intersegment sales increased $71 Intersegment sales increased $200
sales primarily as a result of: primarily as a result of:
•Higher average realized prices •Higher average realized prices
on sales with the Aluminum on sales with the Aluminum
segment segment
•Higher shipments primarily due Partially offset by:
to increased production at •Lower shipments primarily at the
certain of the Australian Australian refineries
refineries and absence of weather
delays in Brazil in the first
quarter of 2022
Segment Segment adjusted EBITDA increased Segment adjusted EBITDA increased
Adjusted $81 primarily as a result of: $254 primarily as a result of:
EBITDA •Higher average realized price of •Higher average realized price of
$67 /ton principally driven by a $115 /ton principally driven
by a
higher average API higher average API
•Reversal of a valuation •Favorable changes to
customer
allowance on Brazil VAT mix
associated with the restart of •Reversal of a valuation
the Alumar smelter allowance on Brazil VAT
•Favorable currency impacts •Favorable currency
impacts
•Higher shipments primarily due Partially offset by:
to unplanned equipment •Higher energy prices
generally
maintenance at the Australian regions
refineries and absence of weather •Higher raw material costs
delays in Brazil in the first primarily due to higher market
quarter of 2022 prices for caustic and lime
Partially offset by: •Higher costs primarily
•Higher energy prices, primarily associated with
maintenance and
inSpain higher transportation costs •Charge related to AROs at the •Charge related to AROs at the Poços deCaldas refinery Poços deCaldas refinery •Higher raw material costs •Lower shipments
mainly due to
primarily due to higher market unplanned maintenance at the
prices for caustic and lime Australian refineries
•Higher costs primarily
associated with maintenance and
transportation costs
•Unfavorable changes to customer
contract mix
Looking forward. Beginning in
For the third quarter of 2022 in comparison to the second quarter, the segment expects higher energy and raw materials costs to be partially offset with higher shipments.
Revisions to the initial asset retirement obligation established for the Poços de Caldas reservoir works are also planned for the second half of 2022.
The Company has reduced its annual projection of alumina shipments in 2022 by 0.6 million metric tons to between 13.6 and 13.8 million metric tons, mainly due to lower shipments recorded in the first half 2022.
Aluminum
Business Update. During the second quarter of 2022, third-party sales increased 6% sequentially on higher shipments and higher regional premiums, despite lower LME. Metal prices decreased with LME prices on a 15-day lag averaging$3,062 per metric ton. The Aluminum segment also experienced higher raw material and production costs during the quarter. OnDecember 29, 2021 , the Company and workers' representatives at the San Ciprián,Spain aluminum facility reached an agreement that calls for the two-year curtailment of the smelter's 228,000 metric tons of annual capacity due to exorbitant energy prices inSpain . The curtailment was completed inJanuary 2022 while the casthouse continues to operate. During the second quarter and six-month period of 2022,$6 and$8 , respectively, of payments were made to reduce the employee leave compensation and take or pay contractual obligations of$62 recorded in the fourth quarter of 2021. The Company has not made any expenditures against the commitments for capital investments of$68 and restart costs of$35 . During the quarter, the Company signed an agreement with a renewable energy provider for approximately 45% of the smelter's power needs upon restart, and continues to negotiate with other generators to secure the remaining power supply needs for the smelter. 34 -------------------------------------------------------------------------------- In conjunction with the previously announced restart of the Alumar smelter in São Luís,Brazil ,Alcoa incurred restart expenses of$22 and$34 during the second quarter and six-month period of 2022, respectively. The first metal sales occurred in the second quarter of 2022 and full capacity is expected to be operational in the first quarter of 2023. In conjunction with the previously announced restart of 19,000 metric tons (Alcoa share) of previously curtailed capacity at thePortland smelter,Alcoa incurred restart expenses of$3 during the second quarter and six-month period of 2022. Metal production is expected to start in the third quarter of 2022. Total aluminum third-party shipments and total primary aluminum shipments include metric tons that were not produced by the Aluminum segment. Such aluminum was purchased by this segment to satisfy certain customer commitments. The Aluminum segment bears the risk of loss of the purchased aluminum until control of the product has been transferred to this segment's customer. Until the sale of theWarrick Rolling Mill onMarch 31, 2021 , total aluminum information includes flat-rolled aluminum while primary aluminum information does not. Primary aluminum third-party sales exclude realized gains and losses related to embedded derivative instruments designated as cash flow hedges of forward sales of aluminum. The average realized third-party price per metric ton of primary aluminum includes three elements: a) the underlying base metal component, based on quoted prices from the LME; b) the regional premium, which represents the incremental price over the base LME component that is associated with the physical delivery of metal to a particular region (e.g., the Midwest premium for metal sold inthe United States ); and c) the product premium, which represents the incremental price for receiving physical metal in a particular shape (e.g., billet, slab, rod, etc.) or alloy.
Operating expenses include all production-related costs: raw materials consumed; conversion costs, such as labor, materials and utilities; depreciation and amortization; and plant administrative expenses.
Quarter ended Six months ended
June 30, March 31, June 30, June 30,
Total Aluminum information 2022 2022 2022 2021
Third-party aluminum shipments (kmt) 674 634 1,308 1,598
Third-party sales $ 2,539 $ 2,388 $ 4,927 $ 4,149
Intersegment sales 8 7 15 5
Total sales $ 2,547 $ 2,395 $ 4,942 $ 4,154
Segment Adjusted EBITDA $ 596 $ 713 $ 1,309 $ 743
Quarter ended Six months ended
June 30, March 31, June 30, June 30,
Primary Aluminum information 2022 2022 2022 2021
Production (kmt) 499 498 997 1,094
Third-party shipments (kmt) 674 634 1,308 1,515
Third-party sales $ 2,624 $ 2,447 $ 5,071 $ 3,839
Average realized third-party price
per metric ton $ 3,864 $ 3,861 $ 3,863 $ 2,533
Total shipments (kmt) 674 634 1,308 1,540
Operating costs $ 1,936 $ 1,677 $ 3,613 $ 3,166
Average cost per metric ton $ 2,872 $ 2,647 $ 2,763 $ 2,056
Sequential Period Comparison Year-to-date
Comparison
Production Production was flat between periods. Production decreased 9% primarily
as a result of:
•Curtailment of the San Ciprián
smelter, completed in January
2022
35
--------------------------------------------------------------------------------
Sequential Period Comparison Year-to-date Comparison Third-party Third-party sales increased$151 Third-party sales increased$778 sales primarily as a result of: primarily as a result of: •Higher trading revenue •Higher average realized price of •Higher shipments mainly due to$1,330 /ton driven by a higher improved availability of railcars average LME (on a 15-day lag) and or vessels for outbound product regional premiums from North American smelters •Increase in value add product •Favorable currency impacts sales on higher price Partially offset by: •Higher trading activities •Lower average LME (on a 15-day Partially offset by: lag) partially offset by higher •Absence of sales from the regional premiums divested Warrick Rolling Mill, •Lower pricing at the Brazil partially offset by new hydro-electric facilities third-party revenue from the Warrick smelter •Decreased sales from the San Ciprián smelter due to the smelter curtailment and timing of sales of accumulated inventory from the strike, partially offset by increased price •Lower shipments mainly due to the timing of maintenance at the European smelters •Lower pricing at the Brazil hydro-electric facilities as first half 2021 drought conditions elevated prices in the prior year period Segment Segment adjusted EBITDA decreased Segment adjusted EBITDA increased Adjusted$117 primarily as a result of:$566 primarily as a result of: EBITDA •Lower average LME (on a 15-day •Higher average realized price lag) partially offset by higher driven by higher average LME (on regional premiums a 15-day lag) and regional •Unfavorable raw material costs, premiums primarily on higher average Increase in value add product alumina input costs and higher sales Partially offset by: prices for carbon •Unfavorable raw material costs, •Higher costs primarily primarily on higher average associated with increased alumina input costs and higher maintenance costs, higher market prices for carbon transportation costs, and direct •Higher costs primarily material usage associated with increased •Decrease in trading margins maintenance costs, higher •Lower pricing at the Brazil transportation costs, and higher hydro-electric facilities labor expenses Partially offset by: •Curtailment of the San Ciprián •Higher shipments mainly related smelter to improved availability of •Lower pricing at the Brazil railcars or vessels for outbound hydro-electric facilities product from North American •Divestiture of the Warrick smelters Rolling Mill •Favorable currency impacts
The following table presents the consolidated capacity and the reduced capacity (each in kmt) for each smelter owned by
June 30, 2022 March 31, 2022 June 30, 2021
Facility Country Capacity (1) Curtailed Capacity (1) Curtailed Capacity (1) Curtailed
Portland(2) Australia 197 30 197 30 197 30
São Luís (Alumar)(3) Brazil 268 239 268 268 268 268
Baie Comeau Canada 312 - 312 - 280 -
Bécancour Canada 347 - 347 - 310 -
Deschambault Canada 287 - 287 - 260 -
Fjarðaál Iceland 351 - 351 - 344 -
Lista Norway 94 - 94 - 94 -
Mosjøen Norway 200 - 200 - 188 -
San Ciprián(4) Spain 228 228 228 228 228 -
Intalco U.S. 279 279 279 279 279 279
Massena West U.S. 130 - 130 - 130 -
Warrick(5) U.S. 269 108 269 108 269 108
Wenatchee(6) U.S. - - - - 146 146
2,962 884 2,962 913 2,993 831
36
--------------------------------------------------------------------------------
(1) These figures represent
Ability based on its stake in the respective smelter.
(2) In 2021, the Company announced that the Portland Aluminum joint venture
will restart 35,000 mtpa of idle smelter capacity at
in
start in the third quarter of 2022. (3) In 2021, the Company announced the restart of its 268,000 mtpy of idle
melting capacity of the Alumar smelter at
be operational in the first quarter of 2023.
(4) Walk
San Ciprian,
two-year reduction in the smelter’s 228,000 mtpa annual smelting capacity;
the reduction was completed in January 2022.
(5) Walk
mtpy at theWarrick smelter in the state ofIndiana . (6) InDecember 2021 , the Company permanently closed 146,000 mtpy of idled smelting capacity at the Wenatchee smelter in the state ofWashington . Forward Look. OnJuly 1, 2022 , the Company announced curtailment of one of three operating potlines, approximately 54,000 mtpy, at its Warrick Operations facility inIndiana due to operational challenges stemming from labor shortages in the region. The Company anticipates approximately$20 million in negative impact on net income in the third quarter as a result of the curtailment. Additionally, for the third quarter of 2022 in comparison to the second quarter, the segment expects higher energy and raw material costs which cannot be fully offset with production cost savings.
Reconciliations of certain segment information
Reconciliation of total segment third-party sales with consolidated sales
Quarter ended Six months ended
June 30, March 31, June 30, June 30,
2022 2022 2022 2021
Bauxite $ 34 $ 43 $ 77 $ 97
Alumina 1,077 855 1,932 1,448
Aluminum:
Primary aluminum 2,624 2,447 5,071 3,839
Other(1) (85 ) (59 ) (144 ) 310
Total segment third-party sales 3,650 3,286 6,936 5,694
Other (6 ) 7 1 9
Consolidated sales $ 3,644 $ 3,293 $ 6,937 $ 5,703
(1) Other includes sales to third parties of flat-rolled aluminum and energy, as well as
as realized gains and losses related to embedded derivative instruments
designated as cash flow hedges of aluminum forward sales. Following the
sale of the
flat-rolled aluminum sales.
Reconciliation of Total Segment Operating Costs to Consolidated Cost of Goods
Sold
Quarter ended Six months ended
June 30, March 31, June 30, June 30,
2022 2022 2022 2021
Bauxite $ 225 $ 207 $ 432 $ 443
Alumina 1,190 988 2,178 1,794
Primary aluminum 1,936 1,677 3,613 3,166
Other(1) 149 127 276 442
Total segment operating costs 3,500 2,999 6,499 5,845
Eliminations(2) (682 ) (697 ) (1,379 ) (1,104 )
Provision for depreciation,
depletion, amortization(3) (156 ) (153 ) (309 ) (330 )
Other(4) 105 32 137 37
Consolidated cost of goods sold
4,948
37 --------------------------------------------------------------------------------
(1) Prior to the sale of theWarrick Rolling Mill onMarch 31, 2021 , Other largely relates to the Aluminum segment's flat-rolled aluminum product division.
(2) Represents the elimination of inter-segment cost of goods sold
sales between Bauxite and Alumina and between Alumina and Aluminum. (3) Provision for depreciation, depletion, and amortization is included in the
the operating costs used to calculate the average cost of each of the bauxites,
alumina and primary aluminum products divisions (see Bauxite, Alumina and
Aluminum above). However, for financial reporting purposes, the provision for
depreciation, depletion and amortization are shown on a separate line
article on
(4) Other includes the costs related to the Transformation and certain other elements
are not included in segment operating costs (see footnotes 1 and 3
in the reconciliation of total segment adjusted EBITDA to consolidated net income
Income attributable to
Reconciliation of segment total adjusted EBITDA to consolidated net income
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