The leaders of Alcoa Corp. expect that lower raw material and production costs will give the Pittsburgh-based company’s EBITDA a roughly $100 million boost in the first quarter versus the last three months of 2022.
CEO Roy Harvey and CFO Bill Oplinger told analysts on a conference call to discuss Alcoa’s Q4 results that several of the aluminum manufacturer’s input costs have “finally” started to turn down after spiking in the wake of COVID disruptions and Russia’s invasion of Ukraine 11 months ago. That’ll give Alcoa a lift from the fourth quarter, when it posted a net loss of $399 million on sales of nearly $2.7 billion, numbers that were lower by 8% and 20%, respectively, from late 2021. But the executives weren’t yet willing to say the cost tide is definitely turning, with Harvey saying the cost relief is “minor” and has only recently started to show up.
“As we look out into the second quarter, it really will depend on what energy prices do,” said Oplinger, who will soon transition into the role of COO. “And with the volatility in the market, it’s probably too early to give an indication of what energy prices will do in the second quarter of the year.”
Harvey and Oplinger also are being flexible about their capital spending plans. After a 2022 in which they spent about $45 million less than they had projected—in large part because of the curtailment of a Spanish smelter—they are forecast to spend $115 million this year on growth projects and $485 million on maintenance work. (Those numbers were $72 million and $408 million, respectively, last year.) About half of the growth capital will go to AWAC, the alumina producer and bauxite miner 60%-owned by Alcoa.
Also discussed on the company’s call was the timeline for Harvey and his team to make a decision on where to locate their first production facility of their Elysis carbon-free aluminum venture, which is running tests today in Quebec. Harvey said Canada—where officials have co-invested alongside Alcoa on the R&D work for Elysis—is naturally a frontrunner but also noted that locations in the United States and Norway also would be viable.
Alcoa’s goal is to begin producing Elysis aluminum in 2026 which means a location decision is close and engineering preparations need to launch very soon after.
“It doesn’t give us a lot of time,” Harvey said. “It means we need to be interfacing with all of our host governments and our potential host governments and need to continue to see good progress on the actual success of those industrial-scale cells that are being operated today.”
Shares of Alcoa (Ticker: AA) were down about 5% to roughly $50.70 in midday trading Jan. 19. They are still up nearly 20% over the past six months, which grew the company’s market capitalization to more than $9 billion.