Alcoa (AA) reported Q4 EPS of ($0.70), $0.03 worse than the analyst estimate of ($0.67). Revenue for the quarter came in at $2.7 billion versus the consensus estimate of $2.66 billion.
2023 Outlook:
In 2023, the Company projects total alumina shipments, including externally sourced alumina, to range between 12.7 and 12.9 million metric tons, a decrease of 0.5 million metric tons from 2022 due to the partial curtailment of the San Ciprián refinery and lower bauxite quality at the Australian refineries.
The Aluminum segment is expected to ship between 2.5 and 2.6 million metric tons, consistent with 2022 as additional shipments from the restart of the Alumar and Portland smelters are offset by lower anticipated trading volume.
For Alumina Segment Adjusted EBITDA, the Company expects approximately $25 million higher costs from a Western Australia gas supply disruption to be offset by the non-recurrence of the Alumar refinery ARO adjustment.
In early January 2023, in response to a domestic natural gas shortage in Western Australia due to production challenges experienced by key gas suppliers, Alcoa’s Kwinana and Pinjarra refineries converted to diesel as an immediate and temporary fuel source for some operational needs. Alcoa reduced production by approximately 30 percent at the Kwinana refinery by taking one production unit offline and reducing process flows. While gas supply has improved, and both refineries have reverted to full gas use, the Kwinana refinery continues to operate at a reduced production rate due to ongoing uncertainty in the gas market. Alcoa continues to monitor the situation and will consider the need for additional actions as the situation evolves.
For Aluminum Segment Adjusted EBITDA, Alcoa expects Norwegian smelter costs to be favorable by $70 million from the non-recurrence of carbon dioxide credit adjustments and lower energy costs. Additionally, the Company expects $15 million lower raw material costs and $15 million lower production costs.
Other expense is expected to be unfavorable by approximately $45 million sequentially on lower equity income results.
Based on current alumina and aluminum market conditions, Alcoa expects first quarter tax expense to approximate $5 million to $15 million, which may vary with market conditions and jurisdictional profitability.
In regard to outlook beyond the first quarter 2023, the annual mine plan approvals process in Western Australia is currently taking longer than it has traditionally. Alcoa is working cooperatively in Western Australia with State regulators to address increasing expectations for environmental management to support these approvals.
Considering the delays, the Company is reducing the bauxite grade at the Huntly mine beginning in April 2023. The reduction in grade will extend the ore supply available under existing approvals and provide more time to work through the next set of approvals.
Operating the refineries with lower quality bauxite decreases alumina output and increases input costs, primarily caustic, energy, and bauxite usages. This grade change is isolated to the Huntly mine that supplies the Pinjarra and Kwinana refineries. It does not impact the Willowdale mine that supplies our Wagerup refinery.
The Company expects lower Alumina Segment Adjusted EBITDA of approximately $55 million per quarter in comparison to the fourth quarter 2022, after excluding $35 million of non-recurrence for the Alumar refinery ARO adjustment and certain other non-recurring expenses from the fourth quarter 2022, starting in the second quarter 2023 and continuing through the fourth quarter 2023.