Century Aluminum Company

Good afternoon. Thank you for attending today's Century Aluminum Company first quarter 2023 earnings conference 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 queue for a question on today's call, you can do so by dialing star 1. I would now like to pass the conference over to your host, Peter Trpkovski, Vice President Finance and Investor Relations with Century Aluminum. You may proceed.

Thank you, Operator. Good afternoon, everyone, and welcome to the conference call. I'm joined here today by Jesse Gary, Sentry's President and Chief Executive Officer, Jerry Bialik, 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 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. I'll start today by quickly reviewing our strong first quarter financial performance before turning to a brief summary of market conditions. Jerry will then take you through the financial results and I'll finish with a discussion of our exciting new acquisition of a controlling interest in the Jamalco, aluminum refinery and bauxite mines. Turning to slide three, market conditions for aluminum improved in the first quarter with both LME prices and regional premiums increasing from Q4 levels driven by further supply-side reductions in Europe and China. At the same time, input costs largely decreased quarter over quarter, with U.S. power prices falling most significantly. These improving market conditions, paired with strong operating results, drove Q1 adjusted EBITDA of $24 million, which is an improvement of approximately $36 million over Q4. These good results were enabled by a tremendous effort by our operators across our locations. Safe and stable operations are a core requirement for success at Sentry, and I'd like to commend all of my colleagues for the excellent operating performance they delivered in Q1. This begins first and foremost with health and safety, which is our most important priority here at Sentry. While we continue to strive towards our ultimate goal of an injury-free environment, I'm pleased to report a continued reduction in total recordable incidents from 2021 levels when we first implemented our new safety initiatives. We still have room for improvement and will remain dedicated towards reaching our ultimate goal. Finally, I'd like to welcome all of our new colleagues at Jamalco to the Sentry team. On May 2nd, we closed our acquisition of a 55% stake in the Jamalco Alumina Refinery and Bauxite Mines located in Clarendon, Jamaica. where we now become the operating partner. Sentry has long been one of the largest customers of Gemalco due to the high quality of the alumina that it produces and its strategic location in close proximity to our smelter locations in the Atlantic. We are very pleased to add this excellent facility to the Sentry portfolio and to reduce our short position in bauxite and alumina to more closely match our smelter capacity. I'll return to Jamalco at the end of my remarks to further discuss the strategic rationale for this transaction and what to expect from Jamalco going forward. Turning to the market environment on page four, you can see the global supply and demand were roughly balanced as we entered the second quarter, with additional smelter curtailments in Europe and Yunnan offsetting restarts elsewhere in China. In Europe, two additional smelters announced curtailments in Q1 due to continued high energy prices. In total, 1.2 million tons of capacity has now been curtailed in Europe since the energy crisis began, representing over 50% of the total EU capacity. As you can see from the graph on the bottom right of page five, EU energy prices are expected to increase further from here, and we therefore see risk of an additional 250,000 to 500,000 tons of European curtailments over the next 12 months. We do not anticipate any significant restarts during this time period, at Ford Energy prices above $150 per megawatt hour remain well above levels needed for economic restarts. In China, continued low reservoir levels in Yunnan drove an additional 600,000 metric tons of retailments in the province in the first quarter, partially offsetting restarts in Sichuan and other provinces. In addition, increasing water shortages in Yunnan and Qinghai present continuing risk of further Chinese output cuts in 2023. These supply-side headwinds continue to reduce global inventories, which are now below 50 days of global consumption. With inventories at these historically low levels, LME prices and regional premiums should respond swiftly once demand conditions improve. In Q1, the three-month aluminum price averaged $2,438 per ton, up nearly $100 from Q4 levels. Regional delivery premiums witnessed quarter-over-quarter improvements as well, propelled by better-than-anticipated demand and low inventories. U.S. premiums have recently receded slightly but remain elevated, while EDPP strengthened throughout the quarter given EU supply curtailments. As discussed in our previous call, bill of demand was muted during Q1 in the U.S. and Europe. with the market seeing a gradual recovery in demand after January as customers have largely concluded destocking and tight secondary margins support the market. Building and construction demand was the most challenge of our markets in the first quarter, likely dampened by rising interest rates. Automotive and renewable energy markets, on the other hand, experienced the strongest demand improvements as automotive supply chain issues were alleviated and increasing government support for renewable energy projects started to boost the sector. Despite this recent weakness, we continue to anticipate very constructive long-term billet and slab demand growth in both the US and Europe, driven by the global macro trends towards sustainability, lightweighting, and electrification. Automotive demand will benefit from all three trends, as aluminum content per vehicle has steadily increased in order to meet the industry and regulators' requirements for fuel efficiency, lower emissions, and increased production of electric vehicles. For example, The U.S. EPA's announcement last month proposing new emissions reduction requirements that would be measured on a total fleet basis will require significant EV conversion, with the EPA estimating that more than two-thirds of all light vehicles produced in 2032 needing to be electric vehicles in order to meet the standard. The automotive industry continues to turn towards high-performance aluminum alloys, and advanced extruded and rolled solutions in place of heavier, traditionally steel components driving long-term billet and slab demand. Turning to the cost side, U.S. energy prices returned to normalized levels in Q1, with IndieHub averaging around $33 per megawatt hour, a nearly 50% reduction over Q4. U.S. energy supply and demand fundamentals remain constructive, with natural gas reserves sitting 35% above year-ago levels and Utility Coal Stockpiles 28% above year-ago levels. Alumina prices did rise during the quarter, the API averaging $360 for the first quarter from an average of $317 in the fourth quarter. Prices have been supported by alumina production curtailments in Australia due to a natural gas supply shortage and bauxite mine permitting challenges. I'll return to Illumina at the end of the call when I discuss our Gemalco acquisition after Jerry walks you through the quarter and our Q2 outlook. Jerry?