Alcoa Q1 2026 Earnings Report

Alcoa EPS Results

• Actual EPS: $1.40
• Consensus EPS: $1.60
• Beat/Miss: Missed by -$0.20
• One Year Ago EPS: $2.15

Alcoa Revenue Results

• Actual Revenue: $3.19 billion
• Expected Revenue: $3.35 billion
• Beat/Miss: Missed by -$152.47 million
• YoY Revenue Growth: -5.20%

Alcoa Announcement Details

• Quarter: Q1 2026
• Date: 4/16/2026
• Time: After Market Closes
• Conference Call Date: Thursday, April 16, 2026
• Conference Call Time: 5:00PM ET

Alcoa (NYSE:AA) Corporation (NYSE:AA) is a global producer of bauxite, alumina and aluminum. Its operations span the aluminum value chain, including bauxite mining, alumina refining, aluminum smelting, casting and the production of select value-added aluminum products. The company serves customers in industries such as transportation, aerospace, construction, packaging, consumer products and energy.

Founded in 1888 as the Pittsburgh Reduction Company, Alcoa played a major role in developing the commercial aluminum industry and adopted the Alcoa name in 1907. In 2016, the company separated its upstream aluminum operations from its downstream engineered-products business, which became Arconic. Alcoa today is focused primarily on the production and refining activities associated with bauxite, alumina and primary aluminum.

Alcoa operates and serves customers internationally, with mining, refining, smelting and related facilities across regions including Australia, Brazil, Canada, Europe and the United States. The company also emphasizes operational efficiency, responsible resource development and lower-carbon aluminum production. William F. Oplinger serves as Alcoa’s president and chief executive officer.

Alcoa Q1 2026 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: Strong Q1 financials — adjusted EBITDA was $595 million, adjusted net income $373 million ($1.40/sh), the company ended March with $1.4 billion of cash and has issued notice to redeem $219 million of 2028 notes as part of a deleveraging plan.
• Positive Sentiment: Aluminum fundamentals and execution are tailwinds: LME prices rose ~10% sequentially, Aluminum segment adj. EBITDA increased $174 million and Q2 is expected to benefit ~+$55 million from higher prices, premiums, inventory repositioning and stronger value‑add demand; Alcoa also notes less than 1% exposure to spot electricity.
• Negative Sentiment: Alumina faces near‑term headwinds — third‑party revenue fell 33% q/q, alumina adj. EBITDA decreased $52 million due to lower prices, weaker bauxite margins and shipping disruptions (Middle East conflict and Cyclone Narelle), and the San Ciprián refinery remains loss‑making despite a smelter restart.
• Neutral Sentiment: Strategic progress is steady but value/timing uncertain: Western Australia mine approvals remain on track for ministerial approval by year‑end 2026, Massena East is in advanced talks for a data‑center sale, and two other idle‑site monetizations are being pursued.

Presentation

[Operator]

Good afternoon, and welcome to the Alcoa Corporation first quarter 2026 earnings presentation and conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your phone. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Louis Langlois, Senior Vice President of Treasury and Capital Markets. Please go ahead.

[Louis Langlois, SVP of Treasury and Capital Markets at Alcoa]

Thank you, and good day, everyone. I'm joined today by William Oplinger, Alcoa Corporation President and Chief Executive Officer, and Molly Beerman, Executive Vice President and Chief Financial Officer. We will take your questions after comments by Bill and Molly. As a reminder, today's discussion will contain forward-looking statements relating to future events and expectations that are subject to various assumptions and caveats. Factors that may cause a company's actual results to differ materially from these statements are included in today's presentation and in our SEC filings.

[Louis Langlois, SVP of Treasury and Capital Markets at Alcoa]

In addition, we have included some non-GAAP financial measures in this presentation. For historical non-GAAP financial measures, reconciliations to the most directly comparable GAAP financial measures can be found in the appendix to today's presentation. We have not presented quantitative reconciliations of certain forward-looking, non-GAAP financial measures for reasons noted on this slide. Any reference in our discussion to date, EBITDA means adjusted EBITDA. Finally, as previously announced, the earnings press release and slide presentation are available on our website. Now, I'd like to turn over the call to Bill.

[William Oplinger, President and CEO at Alcoa]

Thank you, Louis, and welcome to our first quarter 2026 earnings conference call. Today, we'll review our strong first quarter performance, discuss our markets, and highlight the progress we're making on our strategic priorities. Let me start with the headline. We had a strong start to 2026, driven by execution, and we are well-positioned to deliver a strong second quarter and full-year 2026 performance. Starting with safety, we continued making progress with improved total injury rates in the first quarter. While we're never satisfied, both our leading and lagging indicators are moving in the right direction. Our focus remains clear, fatality and critical risk management combined with leadership time in the field. Our leaders are expected to be on the production floor or mine site interacting, coaching, and reinforcing standards. Safety is not an initiative. It's the foundation of everything we do.

[William Oplinger, President and CEO at Alcoa]

Operationally, we delivered. We maintained stable performance across the system and captured higher metal prices. Despite significant disruption in the Middle East, our teams ensured continuity of supply for our operations. Our flexible cast house network continues to unlock value add opportunities, and the depth of our commercial, procurement, and logistics capabilities was evident this quarter. Strategically, we kept moving forward. In Western Australia, we advanced our mine approvals, completing responses from the public comment period and continuing to work collaboratively with stakeholders. We continue to anticipate ministerial approvals by year-end 2026, consistent with the timeline we've previously shared. We are in advanced discussions on the monetization of our former Massena East Smelter site for a data center project. The potential developer has applied for public review. We are still finalizing terms and won't comment on value today, but we will provide additional details later in the process.

[William Oplinger, President and CEO at Alcoa]

Additionally, we are making progress on two other sites in parallel. Our momentum continues into the second quarter. On April 7th, we successfully and safely completed the restart of the San Ciprián Smelter. On April 14th, we issued notice to redeem the remaining $219 million outstanding of our 2028 notes. Another clear example of disciplined capital allocation, supported by our strong cash balance of $1.4 billion at the end of the first quarter. Looking ahead, we are focused on increasing profitability through higher shipments, continued operational performance, and realizing the benefit of strong market conditions in the Aluminum segment. At the same time, we will maintain momentum on the company's strategic initiatives aimed at creating value. Now, I'll turn it over to Molly to take us through the financial results.

[Molly Beerman, EVP and CFO at Alcoa]

Thank you, Bill. Revenue decreased 7% sequentially to $3.2 billion. In the Alumina segment, third-party revenue decreased 33% due to typically lower first quarter shipments, lower purchased and resold alumina to satisfy third-party commitments, as well as vessel constraints related to the Middle East conflict and vessel loading issues caused by Cyclone Narelle in Western Australia. Realized prices were also lower for both alumina and bauxite. In the Aluminum segment, third-party revenue increased 3%, primarily due to an increase in average realized third-party price and increased shipments from the San Ciprián Smelter. These impacts were partially offset by seasonally lower shipping volumes from other sites, as well as the timing impacts from proactively repositioning inventory within North America.

[Molly Beerman, EVP and CFO at Alcoa]

The repositioning creates a timing difference, deferring revenue recognition until the second quarter, while providing casthouse flexibility for additional value-add product production and shipments, which yield higher margins. Related to my comments on typically or seasonally lower first quarter shipments in both segments, it is important to note that our first quarter shipments are historically only 23%-24% of the annual outlook, and our fourth quarter shipments are typically 26%-27%, depending on portfolio changes. Coming off the strong fourth quarter 2025 shipment levels, the first quarter of 2026 was mostly in line with our expectations, even if consensus analysts projected higher. First quarter net income attributable to Alcoa was $425 million versus the prior quarter of $213 million, with earnings per common share increasing to $1.60 per share. The sequential improvement reflects realized aluminum prices and a favorable mark-to-market change on the Ma'aden shares.

[Molly Beerman, EVP and CFO at Alcoa]

These impacts are partially offset by the net unfavorable sequential impact from non-recurring items in the fourth quarter of 2025, including CO2 compensation recognition in Spain and Norway, the reversal of a valuation allowance on deferred tax assets in Brazil, and a goodwill impairment charge. On an adjusted basis, net income attributable to Alcoa was $373 million, or $1.40 per share, excluding net special items of $52 million. Notable special items include a mark-to-market gain of $88 million on the Ma'aden shares due to an increase in share price during the period. Adjusted EBITDA was $595 million. Let's look at the key drivers of EBITDA. The sequential increase in adjusted EBITDA of $68 million is primarily due to higher metal prices, mainly driven by increases in LME and the Midwest premium, partially offset by lower sequential shipping volumes in both segments.

[Molly Beerman, EVP and CFO at Alcoa]

The Alumina segment adjusted EBITDA decreased $52 million, primarily due to lower alumina prices and lower bauxite offtake margins, partially offset by the non-recurrence of a fourth quarter charge related to the announced agreements with the Australian federal government to further modernize the mining approval framework. The Aluminum segment adjusted EBITDA increased $174 million, primarily due to higher metal prices and lower alumina costs. These impacts were partially offset by the non-recurrence of CO2 compensation in Spain and Norway recognized in the fourth quarter and lower shipping volumes, including the impact of inventory repositioning, which deferred EBITDA recognition on 30,000 metric tons to the second quarter and higher costs associated with the San Ciprián restart. Other costs outside the segment were unfavorable $54 million sequentially, primarily due to unfavorable intersegment eliminations.

[Molly Beerman, EVP and CFO at Alcoa]

Moving on to cash flow activities for the first quarter of 2026. We ended March with a strong cash balance of $1.4 billion, despite consuming cash as we typically do in the first quarter. The $595 million of adjusted EBITDA generated in the first quarter was mostly offset by an increase in working capital. The seasonal working capital build resulted from lower accounts payable, inventory replenishment, and higher alumina inventory due to shipping delays at the end of the quarter, and an increase in accounts receivable primarily on higher metal prices.

[Molly Beerman, EVP and CFO at Alcoa]

On a day's basis, the working capital increase is consistent with prior years and is likewise expected to decrease as we move through the year. Capital expenditures were $119 million, which reflect our typical trend of lower spending in the first quarter. We maintain our 2026 outlook for capital expenditures. Environmental and ARO payments were $85 million, which include progress on the Kwinana site remediation. Net additions to debt reflect short-term borrowings related to inventory repositioning, which will be repaid when the sale of the inventory is recognized in the second quarter.

[Molly Beerman, EVP and CFO at Alcoa]

Now, let's take a look at the key financial metrics for the first quarter. Return on equity through the first quarter was 21.9%, reflecting a strong start to the year. During the quarter, we returned $27 million in cash to stockholders through our regular quarterly dividend. Free cash flow was -$298 million for the quarter, primarily reflecting seasonal working capital build, capital expenditures, and environmental and ARO payments, offsetting the quarter's strong EBITDA. We finished the quarter with a cash balance of $1.4 billion and adjusted net debt of $1.8 billion. As announced on April 14th, the company issued notice to redeem on May 15th the remaining $219 million outstanding on our 2028 notes. The notes will be redeemed at par value.

[Molly Beerman, EVP and CFO at Alcoa]

This announcement is aligned with our goal to de-lever and further strengthen our balance sheet. We will continue with disciplined execution of our capital allocation framework, where excess cash will be evaluated in competition between value-creating growth opportunities and additional returns to stockholders. Now let's turn to the outlook. We have two updates to our 2026 full-year outlook. Interest expense will decrease slightly to $135 million with the redemption of our 2028 notes in May. Additionally, our estimate for environmental and ARO payments has increased to approximately $360 million, up from $325 million, to reflect the cash requirements from the announced agreements to modernize mining approvals framework in Australia.

[Molly Beerman, EVP and CFO at Alcoa]

For the second quarter of 2026 at the segment level, Alumina segment performance is expected to be unfavorable by approximately $15 million due to low price and volumes from bauxite offtake agreements and higher energy prices, primarily diesel, associated with the Middle East conflict. Aluminum segment performance is expected to be favorable by $55 million due to inventory repositioning actions taken in the first quarter, higher shipments and product premiums, and lower production costs due to the completion of the San Ciprián smelter restart, partially offset by seasonally lower third-party energy sales. Based on recent pricing, we expect second quarter benefits from high LME and Midwest premium pricing as well as higher shipments. This results in higher Section 232 tariff costs on our Canadian metal imported to the U.S. We expect tariff costs to increase by approximately $35 million.

[Molly Beerman, EVP and CFO at Alcoa]

Alumina costs in the Aluminum segment are expected to be favorable by $20 million. Regarding inter-segment profit elimination, any further decrease in API prices is estimated to result in no inter-segment profit elimination. If API increases, our prior guidance applies. Below EBITDA, within other expenses, the first quarter of 2026 included favorable currency impacts of approximately $30 million, which may not recur. Based on last week's pricing, we expect the second quarter of 2026 operational tax expense to approximate $110 million-$120 million. Now, I'll turn it back to Bill.

[William Oplinger, President and CEO at Alcoa]

Thanks, Molly. Let's begin with the Alumina segment dynamics. The current environment remains challenging with the Middle East conflict exacerbating margin pressure across global refineries. FOB Western Australia alumina prices stayed relatively weak through the quarter. At the same time, disruptions tied to the Middle East conflict, including the closure of the Strait of Hormuz, have pushed energy and freight costs higher, while related demand losses are weighing on refinery margins outside of China. Our alumina cost position provides resilience in a low price environment, and we have insulated ourselves from spot energy volatility through long-term contracts and financial hedges. In China, pressure on margins has been more muted. Higher domestic alumina prices, lower bauxite costs, and stable coal pricing, largely unaffected by the conflict, have supported refinery margins.

[William Oplinger, President and CEO at Alcoa]

That said, we do expect costs to rise as the caustic market tightens and higher freight costs begin to flow through seaborne bauxite supply. To date, in 2026, roughly 4 million metric tons of annual refining capacity has been curtailed in China. With cargoes originally intended for Middle East smelters rerouting into China, we expect pressure on China prices in the near term. Forthcoming supply from new refinery projects in coastal China and Indonesia, along with the weaker demand from the Middle East smelters, will continue to weigh on the global alumina market through the first half of the year.

[William Oplinger, President and CEO at Alcoa]

Finally, on bauxite. Prices remained weak through the first quarter on ample Guinea supply. Elevated freight rates related to the Middle East conflict have lent some support to CIF China pricing despite soft FOB levels, and the market is now closely watching Guinea's export policy for the next directional signal.

[William Oplinger, President and CEO at Alcoa]

Now let's look at the conflict in the Middle East and why it matters to the Alumina segment. The Middle East is the largest alumina importing region in the world, with supply routes for raw materials heavily dependent on the Strait of Hormuz. Each year, roughly 8.8 million tons of alumina and 6 million tons of bauxite transit through the strait. That changed on February 27th. As a result of the conflict, more than 2.5 million tons of annual smelting capacity and nearly 2 million tons of refining capacity are offline year-to-date. That's a meaningful disruption to the global system. Alumina refineries in the region are integrated with aluminum smelters. However, approximately half the region's bauxite requirements are imported from outside the Middle East. This structure leaves the regional aluminum system particularly exposed to shipping disruptions and logistical constraints. It doesn't stop at bauxite and alumina.

[William Oplinger, President and CEO at Alcoa]

Several smelters in the region also rely on imported anodes, calcined coke, and coal tar pitch. With transit through the strait restricted, those materials are harder to move, raising costs and increasing uncertainty. Given the Middle East's important role in global green petroleum coke exports, these disruptions are already rippling through the global calcined coke market. The takeaway is clear. Structural dependencies in the Middle East mean that disruption there doesn't stay local. It moves quickly through the aluminum value chain, tightening supply, increasing cost volatility, and elevating risk well beyond the region itself.

[William Oplinger, President and CEO at Alcoa]

Let's now move on to aluminum. LME prices rose approximately 10% sequentially and have continued to increase, recently exceeding $3,600 per metric ton, driven by tight inventories and supply disruptions. Announced curtailments have already tightened the 2026 balance, and any further disruption in the Middle East has the potential to constrain supply even more. That matters because the Middle East is the largest primary aluminum exporting region in the world. Disruptions to metal flows from the region are not only lifting LME prices, they're also driving higher regional premiums across Europe, North America, and Asia. Higher oil prices and the resulting impact on raw materials are increasing production costs globally.

[William Oplinger, President and CEO at Alcoa]

Importantly, these cost pressures have been more than offset by higher aluminum prices. For Alcoa, our exposure to spot electricity prices is less than 1% of our electricity consumption, thanks to our long-term power contracts and financial hedges. That gives us real margin advantage in this environment. These disruptions are occurring when the market was already tight, following the announced smelter curtailment in Mozambique and disruptions in Iceland. Aluminum inventories were already at historically low levels and have been further exacerbated by the disruptions in the Middle East.

[William Oplinger, President and CEO at Alcoa]

We expect global demand to grow sequentially this year, driven by ex-China markets, albeit at a slower pace than previously anticipated, as the conflict poses downside risks. However, given the scale of supply disruptions, softer demand will be outweighed by supply impacts in the market. Underlying market conditions remain largely consistent, with packaging and electrical markets leading demand growth, while automotive and construction remain soft. Most importantly, our core regions, North America and Europe, remain in substantial deficit and are particularly exposed to potential supply disruptions due to their strong reliance on imports from the Middle East.

[William Oplinger, President and CEO at Alcoa]

Turning to our quarterly highlights, value add product volumes increased sequentially, alongside a rise in customers reaching out to us across both North America and Europe as they look to domestic supply in the face of ongoing disruptions and heightened supply uncertainty. North America and Europe regions are meaningfully exposed to Middle East supply, particularly for billet, slab, and foundry products. In North America, roughly half of imports come from the Middle East.

[William Oplinger, President and CEO at Alcoa]

In Europe, reliance is even more pronounced in certain value-add products. Since the escalation of the conflict, regional premiums have moved materially higher. In North America, foundry and billet markets are experiencing an uptick in spot demand as customers look to backfill Middle East supply. Similarly, in Europe, demand for billet, slab, and foundry is increasing, supported by the same driver. The full impact of the supply reduction has not yet been felt by North America customers since most of the aluminum manufactured before the Middle East conflict is just reaching North America now.

[William Oplinger, President and CEO at Alcoa]

Overall, the current environment reinforces the value of secure, diversified supply and highlights the strategic advantage of Alcoa's regional footprint and ability to serve customers in our key regions with both primary metal and value-add products. Let me step back and connect the dots. In volatile markets, it's easy to focus on the headlines. At Alcoa, value creation starts with disciplined execution, anchored in safety and operational strength, and that discipline is paying off. First, safety. We're driving a step change in our safety culture across the company. By reinforcing critical risk management and increasing leaders' presence in the field, we are focusing on learnings and ultimately getting ahead of incidents. This is more than doing the right thing. It's also about operational excellence and reliability, resulting in long-term value. Second, license to operate. In Australia, we've advanced our mine approvals with confidence.

[William Oplinger, President and CEO at Alcoa]

We've completed responses from the public comment period, and we're working constructively with the WA EPA, and the timeline remains unchanged. Longer term, the strategic assessment will provide a clear pathway for operations through 2045. In Brazil, our partnership with government continues to support communities through social services and healthcare programs. This is how we build trust and keep it. Finally, execution. ABS is delivering value every day. Disciplined execution, clear leadership, and accountability are embedded in how we operate. That integrated performance framework is driving productivity, supporting full-year financial targets, and helping us adapt quickly, even in times of disruption. Here's the bottom line. A safer workplace, a stronger license to operate, and disciplined execution, that's how we create long-term value. Let me close with a simple summary. Execution matters, and we're delivering.

[William Oplinger, President and CEO at Alcoa]

In the first quarter, we got important things done. We strengthened safety, delivered strong operational performance, and stayed agile in the face of disruption in the Middle East, all while continuing to support our customers. We safely completed the San Ciprián smelter restart, and we proactively managed the balance sheet by issuing notice to redeem our 2028 notes. This is disciplined execution in action.

[William Oplinger, President and CEO at Alcoa]

As we look ahead, our direction is clear. We remain relentlessly focused on safety, stability and operational excellence. We will continue to be a trusted supplier of choice, supporting our customers even in times of disruption. The message is straightforward, consistent execution and steady progress on our strategic priorities. This is how we create long-term value at Alcoa. With that, let's open the floor for questions. Operator, please begin the Q&A session.

[Operator]

Thank you. We will now begin the question-and-answer session. To ask a question, you may press star then one on your phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. When called upon, please limit yourself to two questions. Our first question will come from Carlos de Alba with Morgan Stanley. Please go ahead.

[Carlos de Alba, Equity Research Analyst at Morgan Stanley]

Hello, Molly and Bill. Thank you for taking the question. The first one is, can you comment on what is the impact of the Middle East smelters reducing operating rate for Alcoa's alumina shipments? I think around 30% of your annual shipments go to that region. That'd be great to get some color on how you kept your volumes unchanged for the year. Presumably you are redirecting shipments to Asia or other regions. Any impact on profitability or margins as you do that?

[William Oplinger, President and CEO at Alcoa]

Carlos, thanks for the question. We are working with our customers to redirect those shipments. As you said, we held our full-year guidance, consistent with where we were in January, and we're working with those Middle East customers who continue to take the product to redirect it. That's being redirected, as you mentioned, mostly into Asia, largely into China.

[Carlos de Alba, Equity Research Analyst at Morgan Stanley]

Any comments on the potential impact on profitability given that?

[William Oplinger, President and CEO at Alcoa]

Yeah, I should have mentioned that. No direct impacts from profitability. Obviously our profitability in the alumina market is impacted by API pricing, and API pricing has declined. Our profitability in that segment follows the impact of API pricing, which you have sensitivity to in the back of the deck. No impact other than that.

[Carlos de Alba, Equity Research Analyst at Morgan Stanley]

All right, sorry. Just to confirm, as you redirect these shipments to China, the API pricing remains or would you be changing to a different pricing mechanism?

[William Oplinger, President and CEO at Alcoa]

No, we still price based on API.

[Carlos de Alba, Equity Research Analyst at Morgan Stanley]

All right, good. My second question, it would be on any progress. What's the progress that you have done on the gallium project in Western Australia?

[William Oplinger, President and CEO at Alcoa]

We're making progress on the gallium project in Western Australia. We're continuing to work with the major stakeholders, which are the Japanese government, the Australian government, and the U.S. government to finalize the documents. I'm confident that we'll progress the gallium project successfully.

[Carlos de Alba, Equity Research Analyst at Morgan Stanley]

Great. Thank you very much, Bill.

[William Oplinger, President and CEO at Alcoa]

Thanks, Carlos.

[Operator]

The next question will come from Bill Peterson with JPMorgan. Please go ahead.

[Bill Peterson, Equity Research Analyst at JPMorgan]

Yeah. Hi, good afternoon. Thanks for taking the questions and the strong execution navigating everything that's going on right now. Within the second quarter guidance of Alumina segment, you mentioned that there's some unfavorable impacts of $15 million due to price as well as higher energy prices. I was hoping, can you unpack this further? How much is pricing? How much is energy? And maybe stepping back on the cost side, carbon products, freight and diesel were flagged as driving cost pressure. Can you speak to where Alcoa is most exposed on these fronts and how you're looking to mitigate?

[Molly Beerman, EVP and CFO at Alcoa]

Hi, Bill. I'll take your question. First, on the Alumina segment guidance, we are going down $15 million. Lower price and volumes from bauxite offtake agreements represent $10 million of that $15 million. On the energy prices, that's primarily diesel within our mining operations. On the raw materials in general, we do not have concerns at this point on supply. Our procurement and logistics teams have done a great job navigating the challenges of the conflict. We only had a small portion of caustic soda that we were sourcing from the Middle East, and that's already been redirected to alternate supply. On the price side, in addition to that diesel price that we talked about, we do expect to have price increases in the second quarter. Because of the inventory lags, those purchase prices won't flow through to the P&L until beyond the second quarter.

[Molly Beerman, EVP and CFO at Alcoa]

If you look at caustic, we do expect rising prices with the lower petrochemicals processing. That impacts chlorine production, which you know caustic is a byproduct there. Caustic is on a 5-6 months lag. Carbon prices are also rising due to higher green petroleum coke availability and therefore price. We'll have some exposure there, but not within the second quarter. We also have elevated oil prices that are impacting our freight. There's a portion of that will flow through, but it'll be fairly small. A lot of the freight cost goes into inventory. Again, the lag, so that'll be experienced a bit later. We also have energy exposure within our São Luís Refinery. We have some indexed fuel oil there. That we have about under $5 million incorporated in the outlook, even though we didn't call it out because it was too small.

[William Oplinger, President and CEO at Alcoa]

Thanks, Molly. I would also, and I'll reiterate a comment that Molly made. We have had tremendous teamwork with our procurement, logistics, and commercial team. When you consider the fact that we've had a conflict in the Middle East that has massive impacts on shipping schedules. In addition to that, we had a cyclone that was nearly a direct hit in Western Australia.

[William Oplinger, President and CEO at Alcoa]

The teams have done a fantastic job of making sure that we don't stock out of anything across our entirety of our portfolio, have ships available for the shipping, which is a non-trivial task these days, and getting product to our customers. In addition to that, as I alluded to on the CNBC call earlier, we are seeing a lot of spot order requests coming to us based on the fact that there is disruption in the Middle Eastern supply chain. Both in Europe and North America, our commercial teams have been extremely busy trying to see whether we can match up our excess capacity with what our customers are needing currently.

[Bill Peterson, Equity Research Analyst at JPMorgan]

Yeah. Thanks for that, Bill. In fact, that last point leads into my second question. You're keeping your production and shipment guidance for aluminum fixed. Do you see any opportunities within your footprint to increase production in light of the shortfalls from the Middle East? Alumar, San Ciprián, any other sites that you can maybe get out some more production to meet the demand?

[William Oplinger, President and CEO at Alcoa]

I'll address it from two directions. We're increasing smelting production at Portland. We're adding pots in Australia. We're steadily increasing production in São Luís in Brazil. We've completed the restart at San Ciprián, which will have a full second quarter benefit versus the first quarter. It feels like I'm missing one more.

[Molly Beerman, EVP and CFO at Alcoa]

Small bit at Lista.

[William Oplinger, President and CEO at Alcoa]

Lista. Thank you. A similar situation as in Portland, we've been quietly restarting pots at Lista and getting that back to full production capacity. That's on the smelting side. Probably more importantly, what we're seeing today is on the value add side. We are matching up some excess capacity that we have in places like Quebec and to some extent in Europe, with the needs of customers that have struggled given the supply chain disruptions.

[Bill Peterson, Equity Research Analyst at JPMorgan]

Thanks for the color and again, best of luck. You're navigating everything that's going on.

[William Oplinger, President and CEO at Alcoa]

Thanks, Bill.

[Operator]

The next question will come from Katja Jancic with BMO Capital Markets. Please go ahead.

[Katja Jancic, Equity Research Analyst at BMO Capital Markets]

Hi, thank you for taking my question. Maybe just as a follow-up to the commentary about increasing production, I assume that is already embedded in the guide or how should we think about it?

[William Oplinger, President and CEO at Alcoa]

It is embedded in the guide that we've provided.

[Katja Jancic, Equity Research Analyst at BMO Capital Markets]

Okay, yes?

[Molly Beerman, EVP and CFO at Alcoa]

Sorry. I'll just add that the upside there will be probably less primary P1020 production and higher value add production, so higher premiums will be expected.

[William Oplinger, President and CEO at Alcoa]

Which, just to tack on to that, it makes the fact that we repositioned metal in the first quarter as looking smarter today than it did even when we did it because of the demand for value-add products. What that does is it allows us to free up our cast houses a little bit to create incremental capacity for VAP for our customers.

[Katja Jancic, Equity Research Analyst at BMO Capital Markets]

Maybe my follow-up question or second question. On San Ciprián, given that it's now restarted and in the current environment, do the operations, so both refinery and smelter, are they profitable in this environment?

[Molly Beerman, EVP and CFO at Alcoa]

The smelter is doing very well now that it has completed the full restart. Unfortunately, though, we're continuing to have significant losses at the refinery, and within 2026, the smelter will not generate enough cash flow to cover the refinery's free cash flow losses. Now we remain on our plan. We are meeting our commitments under the viability agreement, and we're working toward our objective of achieving neutralization of our cash flows there by the end of 2027. At current pricing, the refinery remains very challenged.

[Katja Jancic, Equity Research Analyst at BMO Capital Markets]

Okay, thank you.

[Operator]

Again, if you have a question, please press star and then one. The next question will come from Nick Giles with B. Riley Securities. Please go ahead.

[Nick Giles, Senior Equity Research Analyst at B. Riley Securities]

Thanks, operator. Good evening. Obviously, a lot of volatility, but Alcoa has the opportunity to generate a lot of cash in price environments like this, and your net debt reversed a bit in 1Q, but you're ultimately nearing your target. How has the impact of the conflict changed the way you're weighing M&A versus shareholder returns? Could buybacks appear less attractive and M&A across refining appear more compelling, just as one example? Thanks.

[William Oplinger, President and CEO at Alcoa]

The conflict hasn't changed our capital allocation framework. Just to reiterate, and I know many of you have heard us say this over time, first and foremost of our capital allocation framework is to sustain the operations that we have. It's even more important today than it's ever been given the margins in the smelting business. Secondly, it's to maintain a strong balance sheet, and we have a strong balance sheet, but we've put out a range of $1 billion-$1.5 billion of target net debt. We still have room to get into that, and then beyond that, we will balance between shareholder returns and growth opportunities. Short answer, no, the conflict hasn't changed that, and we'll balance those items.

[Nick Giles, Senior Equity Research Analyst at B. Riley Securities]

Understood, Bill. My second question was just an update on the monetization of idle sites. If I heard you correctly, I think Massena East is furthest along, two other sites in the works. Are terms still being worked through on Massena East? Should we assume that the highest value opportunities would be monetized first, just when we use your $500 million-$1 billion range, spreading that across multiple sites? Thanks.

[William Oplinger, President and CEO at Alcoa]

I'll address the second one first, and that is no. You should not assume that the highest value will be monetized first. This is as we've discussed in the investor conference that we had back in October. Each one of these sites has a set of parameters that you have to work with buyers on. In the case of Massena East, it is a buyer who we've worked with in the past at the site. That has accelerated the opportunity to sell Massena East.

[Nick Giles, Senior Equity Research Analyst at B. Riley Securities]

Got it. Appreciate all the color, Bill. Best of luck.

[Operator]

The next question will come from Daniel Major with UBS. Please go ahead.

[Daniel Major, Metals and Mining Equity Research Analyst at UBS]

Hi, thanks. Can you hear me okay?

[William Oplinger, President and CEO at Alcoa]

Yes.

[Molly Beerman, EVP and CFO at Alcoa]

Yes.

[Daniel Major, Metals and Mining Equity Research Analyst at UBS]

Great, thanks. Yeah, first question just to follow up on how well you're covered with respect to fuel and other energy input costs. You mentioned financial hedges and supply contracts. What's the duration of those financial hedges? Is the first question. Secondly, how much inventory do you hold in Western Australia in particular, in the scenario that supply out of Asian refineries is constrained?

[William Oplinger, President and CEO at Alcoa]

Before Molly gives you a more quantitative answer, I wanted to step back and make sure that everyone listening understands our major exposures to energy around the world. You all know that smelting is electricity intensive. If you start with electricity, we have less than 1% of our total electricity needs that are subject to spot purchases. That is the first and foremost, largest energy use, and we have a very small exposure to spot. If you then go to natural gas, as you know, we have rolling natural gas contracts in Australia. In Spain, we have hedged our natural gas exposure for the production that's running in San Ciprián, and we've hedged that out through 2027, which in hindsight, again, looks really, really bright given some of the volatility that we're seeing in energy in Europe.

[William Oplinger, President and CEO at Alcoa]

Thirdly, you get to fuel oil, and we have some exposure to fuel oil in Brazil, but it's not significant. Molly can give you the numbers. Lastly, I would say we have diesel exposure. We've baked in our best knowledge around diesel into the second quarter. Right now, we've got commitments from our suppliers that we will have diesel through the end of May. I don't know whether they have the foresight to be able to commit past that. At this point, we're feeling pretty good about our supply of diesel.

[Molly Beerman, EVP and CFO at Alcoa]

On our energy contracts, 99% of them are on long-term commitments or financial hedges, and they do differ by date as disclosed in the 10-K. Just give you a couple of the nearer-term ones. We will have an upcoming price negotiation in Iceland. That's for 2027. We have our Canadian contracts coming up for renewal in 2029. The others are beyond those dates. Of course, we just renewed Massena recently. We're set there for 10 years, plus another two five-year increments.

[Daniel Major, Metals and Mining Equity Research Analyst at UBS]

Okay, thanks. Yeah, just to follow up, specifically on the diesel in Western Australia, you've got certainty on supply through to the end of May. Is that just what you said?

[William Oplinger, President and CEO at Alcoa]

Yeah. Just to put that in perspective, we're very focused on diesel in Australia. We would typically have that type of line of sight. I guess what I'm suggesting to you is that we feel pretty confident about our diesel position in Australia.

[Molly Beerman, EVP and CFO at Alcoa]

We're a preferred customer there, so we have a long relationship with the supplier. They know we will be first in the queue.

[Daniel Major, Metals and Mining Equity Research Analyst at UBS]

Okay. That's clear, thank you. Second follow-up. I know there's already been a couple of questions on the value-added products, etc. Can you give us a breakdown of the $55 million positive benefit in the Aluminum segment? Firstly, yeah, and then just on the comments on shipments versus premiums, what proportion of sales are exposed to the billet premium, and what assumptions have you embedded in the $55 million for premiums during 2Q?

[Molly Beerman, EVP and CFO at Alcoa]

I have some of those details, but not all of them. In the $55 million that we guided favorable for the Aluminum segment, we have about $30 million of benefit coming from the inventory repositioning. Those actions that we took in the first quarter but will result in sales in the second. Generally, higher shipments and product premiums together are $35 million. We'll have a better production cost after completing the San Ciprián restart. That'll be about $10 million of the improvement, and then that's partially offset by seasonally lower third-party energy sales of about $20 million, and that's split between our Warrick Power Plant resale and our Brazil hydro resales.

[Daniel Major, Metals and Mining Equity Research Analyst at UBS]

Very clear, thanks. Maybe just one follow-up. That $30 million reposition of inventory, that's simply moving, that was the lower sales reflected in 1Q slipping into Q2.

[Molly Beerman, EVP and CFO at Alcoa]

Correct.

[Daniel Major, Metals and Mining Equity Research Analyst at UBS]

That's how I'm thinking about it.

[Molly Beerman, EVP and CFO at Alcoa]

Yep, correct.

[Daniel Major, Metals and Mining Equity Research Analyst at UBS]

Yeah. Great, thanks a lot.

[Operator]

The next question will come from Alex Hacking with Citi. Please go ahead.

[Alex Hacking, Metals and Mining Equity Research Analyst at Citi]

Hi, thanks for the call. I apologize if I missed this, but did you quantify the cadence of aluminum shipments as we head into 2Q, given the deferrals from 1Q? What should the delta be there? Thank you.

[Molly Beerman, EVP and CFO at Alcoa]

Alex, if we look, of course we had lower seasonal sales in the first quarter. But if we look at what was actually missed related to the Middle East shuffling as well as Cyclone Narelle, it was only about 60,000 metric tons. A revenue basis of about $20 million.

[Alex Hacking, Metals and Mining Equity Research Analyst at Citi]

Okay, thank you. Second question, any update on the Canada Section 232? Seemed like we were making some progress last year, but kind of radio silence. Any comments around that? Thank you.

[William Oplinger, President and CEO at Alcoa]

Alex, no comments on specific 232 progress. As we go into USMCA negotiations during the course of this summer, we'll have to keep an eye on that. Clearly, when the administrations, both the Canadian and the U.S. administrations, talk to us, our position is we would like to see an integrated market across all of North America. That's our position, and that's because of the dedicated supply lines that go from Canada straight to our customers in the U.S. No real updates on any 232 changes at this point.

[Alex Hacking, Metals and Mining Equity Research Analyst at Citi]

Thank you.

[Operator]

The next question will come from Glyn Lawcock with Barrenjoey. Please go ahead.

[Glyn Lawcock, Head of Mining Research at Barrenjoey]

Good morning, Bill and Molly. Bill, I just wanted to go back to the mine approvals. Obviously, in your comments, you said there's no change to timeline, and you've been in discussions with the EPA. Just any red flags coming up at all? Maybe just remind us of the timeline. Is it still end of this year for approval? Thanks.

[William Oplinger, President and CEO at Alcoa]

The timeline is still targeting ministerial approval at the end of this year. We have done significant work to ensure that the comments from the public comment period have been replied to. We continue to provide information to the EPA and to DWER in support of their decision-making process, and at this point, we are continuing to hold to an expectation of ministerial approval by end of year.

[Glyn Lawcock, Head of Mining Research at Barrenjoey]

Okay. Thanks, Bill. Just as a follow-up, I believe there is another mine move beyond Holyoake and Myara North for the other refinery. Is that true? Sort of what timeline does that come through, if I'm correct? Thanks.

[William Oplinger, President and CEO at Alcoa]

My recollection is that there's a Larego mine move in the early 2030s that will occur, but I just don't have it off the top of my head.

[Molly Beerman, EVP and CFO at Alcoa]

Yeah, that'll commence in late 2031, the Larego move.

[William Oplinger, President and CEO at Alcoa]

Yeah.

[Glyn Lawcock, Head of Mining Research at Barrenjoey]

That's the move. When would you start to apply for that? Is that two or three years in advance as well?

[William Oplinger, President and CEO at Alcoa]

We'd have to get back to you on that one, Glyn.

[Glyn Lawcock, Head of Mining Research at Barrenjoey]

No worries, thanks very much.

[Operator]

The next question will come from Timna Tanners with Wells Fargo. Please go ahead.

[Timna Tanners, Managing Director of Equity Research at Wells Fargo]

Hey, good afternoon, Bill and Molly. I wanted to circle back on some comments that Bill made last quarter about substitution of aluminum for copper, and just curious if you have any observations on that dynamic, given the change in prices, and anything you're seeing on substitution away from aluminum, given the rise in prices as well.

[William Oplinger, President and CEO at Alcoa]

Timna, thanks for the question. I'll give you a very high-level answer, and that is with copper pricing where it's at, there are still real good reasons to substitute into aluminum. Obviously, in this conflict, aluminum prices have gone up sharply. We believe there's still good reasons to substitute into aluminum. On the other side, on the margin, we have seen some small substitution out of aluminum into steel for applications that can do that. The larger automotive applications, because they're multi-year platforms, we've not seen that substitution yet. When you consider things like packaging, the alternative is PET, and with oil prices at the level that they're at, PET would not look attractive to substitute out from aluminum.

[Timna Tanners, Managing Director of Equity Research at Wells Fargo]

Okay. Helpful color, thanks. I thought I'd try again on the capital allocation question. Obviously, in the last couple months, dynamics have changed and potentially a bigger amount of free cash flow. Just any updated thoughts or any timeframe when you might have any updated thoughts on allocation of that additional cash or key uses going forward? Thanks again.

[William Oplinger, President and CEO at Alcoa]

I'm excited. I'll let Molly comment. I get very excited about getting into our target debt leverage, our leverage ratios, our target debt level. I get excited about that, and many of you have heard me say this before, because I believe it ends up translating to the lowest WACC, and once you have the lowest WACC, you've got the highest firm value. I'm excited about the fact that we're paying down debt as of yesterday. In cash in the first quarter, we did see a large working capital build. We typically see that large working capital build. Over time, that working capital should come back out of working capital and into cash. We will continue to de-lever, and we'll get into that range. To me, that maximizes firm value.

[Molly Beerman, EVP and CFO at Alcoa]

You took everything I was going to say.

[William Oplinger, President and CEO at Alcoa]

Okay.

[Molly Beerman, EVP and CFO at Alcoa]

I will add that as we look at our outlook for the second quarter and the second half of the year, we do see great benefits in cash generation, and we do expect to have growth options that will compete with shareholder returns in the rest of the year.

[Timna Tanners, Managing Director of Equity Research at Wells Fargo]

Okay. Thanks again, guys.

[Operator]

The next question will come from John Tumazos with John Tumazos Very Independent Research. Please go ahead.

[John Tumazos, Principal and Director of Research at John Tumazos Very Independent Research]

Thank you for taking my question. It's great that the Middle Eastern customers honor the contracts in this period of war and done away with force majeure. Are you able to help them resell the alumina or redirect the cargoes, or do they do that on their own? How do they do it where the war disrupts about 400,000 tons a month, and the shutdown of Mosul disrupts about 100,000 tons a month of alumina? It feels like it requires great skill.

[William Oplinger, President and CEO at Alcoa]

John, up until now, our customers are all honoring their commitments, and we assist them with timing of loading and shipping. If they need flexibility around when ships can be loaded, we provide that flexibility. We will also provide flexibility around size of shipments. If they need larger or smaller shipments, to the best of our ability, we will do that. It's a pretty dynamic, pretty fluid situation. Molly and I just reviewed today all of the forward bauxite and all of the forward alumina shipments out of Western Australia, and looking at the lay days and making sure that the ships are coming in correctly. Up until now, we've been able to do that smoothly, and we're doing that by supporting our customers.

[John Tumazos, Principal and Director of Research at John Tumazos Very Independent Research]

Super. Kwinana was idled brilliantly a year or so ago, and everything you've got now runs full in alumina.

[William Oplinger, President and CEO at Alcoa]

Everything we've got now is ramping back up to full. The reason I say back up to full is, remember, we had cyclone. I know the people in Australia haven't forgotten it, but the rest of the world seems to forget that we had Cyclone Narelle that was nearly a direct hit in Western Australia that shut down the gas system to a large extent in Western Australia.

[William Oplinger, President and CEO at Alcoa]

We curtailed our sites in Western Australia to conserve natural gas to be used in other parts of the community there. We are now in the process of ramping both Wagerup and Pinjarra back up to full volume. Spain, as we all know, runs at half volume. Spain is there to just largely support the smelter restart. Alumar has had a fantastic first quarter, had a fantastic fourth quarter on the refinery, and knock on wood, the smelter's got very good stability.

[John Tumazos, Principal and Director of Research at John Tumazos Very Independent Research]

Thank you.

[Operator]

The next question is a follow-up from Nick Giles with B. Riley Securities. Please go ahead.

[Nick Giles, Senior Equity Research Analyst at B. Riley Securities]

Thanks for taking my follow-up. Sorry if I missed this, but can you clarify just how you're thinking about Warrick in terms of a restart? What would it take from here for you to move forward, and do you have any rough estimate for the CapEx requirements? Thanks.

[William Oplinger, President and CEO at Alcoa]

Yes. Warrick, and I'm glad you asked the question because we talked about restarting capacity in Australia. We talked about the ramp-up in Brazil. We're ramping up capacity in Alumar, and we just completed the ramp-up at San Ciprián. You should be asking the question, what about those 50,000 tons at Warrick? First of all, the condition of the line in Warrick is pretty poor. The line that's been curtailed. It will require about $100 million of capital, and we think it will be 1-2 years for that restart. The reason is there's some long lead time items, specifically around the electrical equipment that would be required to restart Warrick. Now on paper, the restart of Warrick looks pretty positive at this point.

[William Oplinger, President and CEO at Alcoa]

However, what we're trying to really weigh is availability of short-term electricity, availability of long-term electricity, and our ability to successfully run that plant at a four-unit operation. When I say successfully, do it safely. If you followed us long enough, you know that we were running five lines, we went down to three lines. Ultimately, we went down to two lines. We've restarted back to three lines. We have good stability, good safety there today. We'll factor all that into an analysis of a potential restart of that fourth line.

[Nick Giles, Senior Equity Research Analyst at B. Riley Securities]

Very helpful, Bill. I really appreciate that. If I could sneak one more in, just on Section 232, I know there's really no updates on the metal tariff side, but there were some significant revisions the other week on the downstream. I was curious kind of what you're hearing from your customers. Has there been any sensitivity to those changes? Appreciate it.

[William Oplinger, President and CEO at Alcoa]

My understanding of the changes on 232 associated with the downstream allow the downstream customers in the U.S. to have a level playing field with imports. My understanding is that that's been favorably received.

[Nick Giles, Senior Equity Research Analyst at B. Riley Securities]

Understood. Okay, thanks again.

[Operator]

This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Oplinger for closing remarks.

[William Oplinger, President and CEO at Alcoa]

Thank you for joining our call. Molly and I look forward to sharing further progress when we speak again in July. That concludes the call, thank you.

[Operator]

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Participants

Executives

• Louis Langlois, SVP of Treasury and Capital Markets
• Molly Beerman, EVP and CFO
• William Oplinger, President and CEO

Analysts

• Alex Hacking, Metals and Mining Equity Research Analyst at Citi
• Bill Peterson, Equity Research Analyst at JPMorgan
• Carlos de Alba, Equity Research Analyst at Morgan Stanley
• Daniel Major, Metals and Mining Equity Research Analyst at UBS
• Glyn Lawcock, Head of Mining Research at Barrenjoey
• John Tumazos, Principal and Director of Research at John Tumazos Very Independent Research
• Katja Jancic, Equity Research Analyst at BMO Capital Markets
• Nick Giles, Senior Equity Research Analyst at B. Riley Securities
• Timna Tanners, Managing Director of Equity Research at Wells Fargo