Century Aluminum Company

Good evening. Thank you for attending today's Century Aluminum Company third quarter 2021 earnings conference call. My name is Hannah and I will be your moderator for today's call. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. If you would like to ask a question, please press star one on your telephone keypad. I would now like to pass the conference over to our host, Peter Tripkowski with Century Aluminum. Please go ahead.

Thank you, Hannah, and good afternoon, everyone, and welcome to the conference call. I'm joined here today by Jesse Gary, Century's President and Chief Executive Officer, Craig Conte, Executive Vice President and Chief Financial Officer, and Shelly Harrison, Senior Vice President of Finance and Treasurer. After our prepared comments, we'll take your questions. As a reminder, today's presentation is available on our website at www.centry.gov. We use our website as a means of disclosing material information about the company and for complying with regulation FD. Turning to slide one, please take a moment to review the cautionary statement shown here with respect to forward-looking statements and non-GAAP financial measures contained in today's discussion. And with that, I'll hand the call to Jesse.

Thanks, Pete, and thanks to everyone for joining the call today. I'd like to start by speaking about the current market environment and give some highlights from the third quarter before Pete and Craig take you through the details. I'll then finish the call by walking you through our exciting new billet casthouse project at Grundertage. Okay, so starting on page three, we continue to see a robust market for aluminum in the third quarter, with prices hitting 13-year highs earlier this month. Price momentum has been driven by continued consumer strength, especially in the West, combined with energy-driven supply curtailments in China and, to some extent, Europe, and high transportation costs across the world. On the demand side, we have seen consumption return to pre-COVID levels and expect that 2021 demand growth will be nearly 10% from 2020 levels. This growth comes despite headwind in automotive and aerospace, given the semiconductor shortage, and lower commercial airline travel, respectively. Recovery in these lagging sectors in 2022 would help drive continued demand growth in 2022 and beyond. We have continued to see especially strong demand in extrusions, with billet demand and spot premiums remaining at all-time highs in the U.S. and Europe. As a reminder, because U.S. billet market prices are set on an annual basis, our 2021 billet production was priced before the current run-up in prices. However, we are now mostly through the 2022 commercial season, and we are pleased to announce that we are able to achieve near-record billet premiums for our 2022 annualized sales. While we're still finalizing the entirety of our book, we expect that we will achieve incremental billet price gains near the midpoint of the $0.10 to $0.15 range I provided on our last call. If you extrapolate that against our expected 250 to 275,000 metric tons of billet production in 2022, you will see that we expect this to be a substantial incremental EBITDA generator versus our 2021 performance. On the supply side of the equation, continued production curtailments in China are now approaching 4 million tons of annualized capacity due to compliance with the new Chinese dual control system for energy consumption, as well as flooding and other energy disruptions. As a result, China has remained a net importer in 2021 and is expected to remain a net importer next year as well. We have also seen much smaller production curtailments in Europe due to high energy prices. All in all, these supply curtailments have left the physical market exceedingly tight and regional delivery premiums near record highs in both our key markets in the U.S. and Europe. Pete will give you the details in a minute. These curtailments have led to continued significant drawdowns in inventories across the world, bringing inventories to post-financial crisis lows. We now anticipate continued production deficits into 2022 that could result in inventories falling below equilibrium levels. On the input side, we are seeing continued price inflation across our key commodities, most significantly on the energy side, where rising oil, gas, and coal prices have raised NordPol and MISO energy prices. Forward MISO and NordPol prices for Q4-21 and Q1-22 are now trading at elevated levels, reflecting rising gas and coal prices driven by shortages in the EU and Asia and rising LNG and coal exports from the U.S., While we expect the impact of these prices will be significant to our Q4 and Q1 results, we do believe these markets will return to more normalized levels in the second quarter of 2022 and beyond, which is reflected in the steep backwardation in the forward curves in both MISO and Nordpool. Craig will provide the detail on the expected impact of these elevated prices to our Q4 results shortly. On the raw materials side, we have recently seen price increases in alumina, mainly driven by supply curtailments in China and a fire in the Jamalco alumina refinery in Jamaica. While alumina prices remain within their historical price relationship to aluminum prices of 15% to 17%, they are elevated from price levels earlier in the year. Finally, as has been widely reported, production cuts in China have led to concerns of shortages of certain alloying materials globally, namely magnesium and silicon. Close to 80% of the world's magnesium production now comes from China. And earlier this quarter, they curtailed significant amounts of this production due to energy shortages. Fortunately, we have now begun to see some easing in these pricing for the past week or two as production has started to increase in China. While we're monitoring the situation closely, we believe we are well-situated to pass along the majority of any price increase associated with the shortage and have sufficient supply on hand to meet our needs well into next year. This physical tightness is just another example of why domestic supply chains for key raw materials are imperative and why programs like Section 232 are so important to bring back domestic industry and jobs. The Biden administration has continued to show its support of the Section 232 program for aluminum, with its recent agreement with the EU to implement a tariff rate quota on all primary aluminum imports from the EU to the U.S. Under the new agreement, a tariff rate of 10% will continue to apply to all EU imports of primary aluminum above a quota level of 18,000 metric tons per year, a level which means that the vast majority of imports into the U.S.' 's 6-million-ton market remain subject to the tariffs. We believe this agreement continues to show this administration's support for the domestic aluminum industry and its workers as we continue to invest and expand. Turning to our own operations, we've made good progress in the quarter on our expansion programs and generally had stable and consistent operations across our system. In the U.S., we continue to make substantial progress in our Mount Holly restart program, and I'm glad to say that the project remains on track. Just to remind everyone, once complete, the restart program will return the plant to 75% of its capacity, or about 170,000 metric tons of production on an annualized basis. In order to reach this point, we will ultimately reline all of the pots on Line 1, which has been operating continuously, and also reline and re-energize half of Line 2, which have been shuttered since 2015. The majority of the reline activity will take place this year, with the remaining relines occurring in 2022 and 2023 if sales fail. As we discussed on our last call, we have experienced some delays over the course of 2021 due to COVID, supply chain, and hiring issues, mainly from suppliers of materials necessary to complete the pot relining and difficulty in hiring the required amount of new employees to restart and run the additional pots. These risks, of course, remain as labor markets and shipping schedules remain tight, and we are reliant on supplies and hiring occurring on time to complete the project. This has pushed the bulk of our incremental volume gains into Q4 and brought forward some of the realign activities that we had originally planned to occur in 2022 and 2023 into Q4. At Hotsville, we've made good progress towards reaching our end-of-year goal to return to four full potlines of operation, about 80% of our capacity. This process remains on schedule and in line with our previously issued estimates. I'd like to take the time to make specific acknowledgement of the extraordinary efforts of our teams at all of our locations during the pandemic. During Q3, we experienced our highest levels of COVID infection across each of our operating locations as the Delta wave of infection traveled across the U.S. and Europe. Fortunately, these levels of infection have now receded towards pre-Delta levels, and all locations are operating well. In Europe, Gruner-Tange and Visagen continued their excellent performance that we've become accustomed to. We'll discuss our very exciting new billet cash house project for Grunertanghi at the end of the call. All in all, we remain focused on completing our restart projects at both Hodgeville and Mount Holly and entering 2022 at our targeted production levels across our system. We're starting to see some signs of progress in our recently implemented operational execution programs and hope to have that continued positive developments on that front in the future. And with that, I'll turn it over to Pete.