Century Aluminum Co (CENX) 2017 Q1 法說會逐字稿

Ladies and gentlemen, thank you very much for standing by, and welcome to the first quarter 2017 earnings. (Operator Instructions)

I would now like to turn the conference over to your host, Mr. Peter Trpkovski. Please go ahead.

Thank you, Courtney. Good afternoon, everyone, and welcome to the conference call. I'm joined today by Mike Bless, Century's President and Chief Executive Officer; Erich Squire, Senior Vice President of Finance; and Shelly Harrison, Senior Vice President of Finance and Treasurer. After our prepared remarks, we'll take your questions.

As a reminder, today's presentation's available on our website: www.centuryaluminum.com. We use our website as a means of disclosing material information about the company and for complying with regulation FD.

I would also like to remind you that today's discussion will contain forward-looking statements related to future events and expectations, including our expected future financial performance, results of operations and financial condition. These forward-looking statements involve important known and unknown risks and uncertainties, which could cause our actual results to differ materially from those expressed in our forward-looking statements. Please review the forward-looking statements disclosure in today's slides and press release for a full discussion of these risks and uncertainties. In addition, we've included some non-GAAP financial measures in our discussion. Reconciliations to the most comparable GAAP financial measures can be found in the appendix to today's presentation and on our website.

With that, I'll hand the call over to Mike.

Thanks, Pete, and thanks to all of you for joining us this afternoon. If we could turn to Slide 4, please. I'll give you a quick update on the last couple of months.

As you can see, all the operations performed well through the quarter and into April. Operating efficiencies have been consistent at favorable levels. And importantly, controllable costs have been equal to or better than our expectations. And I'll give you some more detail on the operations in just a couple of minutes.

We've seen some positive developments for Century in commodity prices. As you've seen, the LME price is up nicely over the last couple of months, and as we expected, alumina prices are down. Further, Midwest U.S. energy prices have been supportive, have continued to be supportive. And importantly, the MISO capacity price has recently fallen significantly. These trends will more fully impact our results over the coming quarters, and Erich will give you some detail on that in just a couple of minutes.

Putting the trends in the pricing environment together with the cost control, we think these resulted in a favorable financial performance for us this quarter. Shelly will give you some more detail on the sector fundamentals, but in summary, I can say that demand has remained good in the regions that are particularly important to us, especially like the U.S. and in Europe. The issue remains supply and of course, the situation in China, in particular.

On trade, as we talked with you about in February, the WTO case has been brought. It is absolutely clear to us that this administration intends to stand up to China on overproduction. And we believe other governments around the world are also working hard on this matter. There's been plenty of public discourse on this issue, so there's no need to go into it in detail here. I will say that there's been a bit of a delay in the time line for the WTO case itself while the full trade team gets confirmed and put in place. For example, the President's nominee for U.S. trade rep hasn't yet been confirmed by the Senate. And this, of course, is the department that directly oversees the WTO case.

Following the filing of that WTO case, we've seen a few favorable announcements come out of China, and we don't believe these are coincidental. Most recently, we've seen 3 large expansions under construction ordered to be halted. These, of course, were being built on the back of massive subsidies. These expansions represented a significant capacity additions in regions in the western part of the country that have been targeted for growth. Of course, it's too early to tell, but if there is real follow-through this time, this could be the beginning of the fundamental change in the supply environment. And of course, that would be a meaningful development. As a reminder, China's expected surplus in primary aluminum in 2017 is in excess of 1.5 million tonnes, and this just offsets the deficit in the rest of the world of a similar amount.

Moving along, the antitrust lawsuit is proceeding as we -- on schedule in South Carolina. We told you about this last -- during the last call. As expected, the power company moved to have the case dismissed by the judge, and this stage of the process is nearing completion. The ruling on that motion to dismiss should come before the end of this quarter, and the next step would be the discovery phase of the case, assuming the motion to dismiss isn't granted. We continue to believe that we have a very strong case here.

On a related matter, we're closely monitoring the Westinghouse bankruptcy situation. I'm sure you've all read about this. The relevance is obvious. The local power company in South Carolina is a minority partner and 1 of the 2 nuclear projects in the U.S. that are being built by Westinghouse. They and their partner made a decision in 2016 to transfer a large portion of the cost risk of completion to Westinghouse. Given the bankruptcy, of course, there's real doubt whether that guarantee'll be honored. The major risk is how and to what extent Westinghouse's parent company, obviously Toshiba, backs up that guarantee. The risk is that the power company moves to shift excess costs of this project to rate payers, whether the project is canceled or simply severely delayed and over-budget. This could be a significant issue for Mt. Holly, and we're obviously monitoring it very closely.

Lastly, it's early days now, but we're looking hard at our curtailed U.S. capacity in the U.S. and studying the next steps pending the developments in the trade environment. As a reminder, at Mt. Holly, the status there depends squarely on solving the power issue. Achievement of full market access for power should permit a restart of that curtailed pipeline. Hawesville's different. It's dependent on the commodity pricing environment. The power cost in Kentucky has been and continues to be supportive of restarting curtailed capacity. Increasing confidence on the free trade front can be supportive of the consideration of restarting at least a portion of the curtailed capacity at Hawesville. And to us, this would be a terrific example of how enforcement of the trade laws could bring manufacturing jobs back to the U.S. in the very short term.

And with that, I'll turn you over to Shelly for some comments on the market.

Thanks, Mike. Okay, let's move on to Slide 5 please, and I'll take you through the current industry environment.

The cash LME price averaged $18.50 per tonne in Q1, which reflects an 8% increase over Q4. In the last month, aluminum prices have climbed as high as $19.62 per tonne and are currently right around $19.40. Delivery premiums in both the U.S. and Europe were recently stable in Q1. Regional premiums averaged just under $0.10 per pound in the U.S. and $147 per tonne in Europe, and premiums continue to trade near these levels today.

As is usual for this time of year, the aluminum market, with a meaningful surplus during Q1, with much of Chinese demand, shut down the New Year's holiday. CRU reported excess supply of 660,000 tonnes globally in Q1, including more than 1 million tonnes of excess supply from China. So consistent with past quarters, we continue to see China -- Chinese producers oversupplying the market, which would otherwise be in a strong deficit position.

In the first quarter of 2017, global aluminum demand were at a rate of almost 6% as compared to the year-ago quarter. We saw 8% year-over-year demand growth from China and 3% in North America, driven by strength in the building and construction sector. Year-over-year global production growth was up 9.1% in Q1, driven almost entirely by Chinese startups and restarts.

We talked in depth last quarter about the trade case that the U.S. has filed against China at the WTO, which has since been joined by Japan, Russia, Canada and the EU. As expected, this process is going to take some time to play out, but we were pleased to hear that trade and overcapacity, specifically with regard to the aluminum industry, were an important part of the discussion during the recent meetings between President Trump and President Xi. Many industry researchers have indicated that aluminum reform could be a win-win for both leaders' agendas, benefiting trade in the U.S. and reducing overproduction and the environmental impact of smelters in China.

Since the WTO case was brought, the central and several provincial governments in China have made announcements requiring production cuts that could have the effect of significantly reducing Chinese overproduction if actually implemented. In late February, the central government announced a directive that would require smelters in 4 provinces surrounding Beijing to cut output by 30% over the winter heating season. Analysts have estimated this could result in cuts of approximately 1.3 million tonnes.

This was recently followed by an announcement in a northwestern Chinese province ordering the suspension of 3 smelter expansion projects. The amount of capacity that will be affected by this action is thought to be around 2 million tonnes.

As you know, while we're very cautious to put too much weight on the news out of China, while actual implementation of the tests required by these announcements would be helpful, we believe that the critical importance that the U.S. administration and other producing nations continue to pursue the WTO case and other trade remedies to ensure that unfair Chinese trade practices that's devastated aluminum producers in the rest of the world for years are brought to an end.

Okay, moving on to alumina. I'll make just a few comments here before I hand it back to Mike. As we anticipated on our last call, alumina prices have declined in response to Chinese refinery restarts and sizable inventory balances. Alumina prices averaged $340 per tonne in Q1 and are currently around $305 per tonne. That's a $45 reduction compared to prices of $350 per tonne we saw at year-end. The anticipated startup of the 1.6 million tonne Alpart refinery in Jamaica later this year should continue to put downward pressure on the alumina price, especially in the Atlantic Basin.

And with that, I'll hand it back to Mike.

Thanks, Shelly. Pardon me, if we could turn to Slide 6, please. As promised, I'll just make a couple quick comments on the operations before turning you over to Erich to go through the financials.

As you see, safety results here were mixed during the quarter. Sebree has continued its excellent performance. The guys have put up a really admirable record at Sebree, and we couldn't be more proud of them.

Taking a bit of a backward step at Mt. Holly and at Grundartangi, as you see. This is a reminder that gravity really works against you when it comes to safety and a reminder that you need to stay aggressive, proactive and paranoid in this most important area if we're going to accomplish the consistent improvement that we demand.

Moving down the page, production and efficiencies, as you can see, indicative of the stable environment I described at the beginning of my remarks. Controllable costs, as I said, in line with our expectations. Let me just deconstruct these numbers for you a little bit, so you can have a better appreciation as to what's going on with the cost side.

At Hawesville, first and foremost, you see good performance there. Labor and maintenance spending, down nicely; power costs down as well. Going the other way, we're seeing carbon costs trend upward, and we expect to see this trend continue at all the plants over the next couple of quarters as global calcite and petroleum coke prices are coming up.

At Sebree, about half of that increase that you see is also carbon and other raw materials, mostly carbon. The other half is labor and maintenance costs. That was from a really low base in Q4, so we don't see any worsened trends there.

At Grundartangi, power represents all of that cost increase. As you remember, we paid for our power in Iceland as a percentage of the LME price, so what you're seeing there really is just the rise in the metal price.

And in Mt. Holly also, power represents that entire increase. And this, again, emphasizes why we need to solve this problem. This trend won't reverse on its own.

And with that, I'll pass you on to Erich.

Thanks, Mike. Let's turn to Slide 7 of the presentation, and I can walk you through a couple of high-level points on Q1 results and then give a more detailed look at adjusted EBITDA and cash flow on the following 2 slides.

On a consolidated basis, quarter-over-quarter, global shipments were up 1.5% and net sales were up 7.5%, reflecting favorable market pricing. Both the U.S. and Icelandic realized pricing were favorable, in line with market movements. Again, we've paid pretty closely to LME and regional premiums on a 2-month lag basis, so the increase in transaction prices we saw starting February will come to our results in Q2. Value-added product premiums in the U.S. remains depressed, and we expect this to continue well into 2017. I'll speak more to value-added products when we look at the quarter-over-quarter EBITDA detail.

Looking at operating profit, adjusted EBITDA was $22 million, which is up $10 million quarter-over-quarter. EBITDA adjustments this quarter were related to mark-to-market on aluminum forward sales and adjustments to the carrying values of inventories. Forward aluminum sales are predominantly composed of 5,500 metric tonnes a month through year-end, with a sale price of around $1,700 per tonne.

Looking finally at liquidity before we go deeper into EBITDA and cash flow. We have no outstanding borrowings under our revolver other than letters of credit. We ended the quarter with $126 million in cash and $100 million of availability under our revolving credit facilities. We'll see a $25 million increase of revolver availability starting in Q2 as letters of credit in connection with the completed annual MISO power capacity auction for our Kentucky plants were returned in April. I'll speak to the results of that auction momentarily.

Let's turn now to Slide 8, and I can walk you through a high level, quarter-over-quarter adjusted EBITDA bridge. Again, adjusted EBITDA increased this quarter by $10 million. As I mentioned earlier, we saw a nice increase in the transaction prices for both our U.S. and Icelandic operations, increasing EBITDA by $28 million. Product mix contributed net $10 million unfavorable due to changes in product mix that took effect in 2017. As we outlined in our 2017 expectations on our prior call, our expected value-added product sales in 2017 are down 145,000 tonnes year-over-year due to the oversupplied value-added product market in the U.S, ultimately driven by Chinese overproduction. Beyond the lower value-added sales volumes, expected value-added premiums are also down quarter-over-quarter, and we anticipate that they will remain at the current levels for the balance of 2017.

On key raw materials, you can see a $10 million EBITDA reduction, primarily related to alumina, reflecting the run-up in the alumina price index late in 2016. We purchased alumina price on a 1-month lag, but as we've discussed, alumina typically flows through our financial results on a 2- to 3-month lag due to inventory levels. Accordingly, expect to see the full impact of the API run-up flow through our Q2 results with the much lower prices we're currently paying not affecting results until Q3. Again, our current cash costs are based on the prior month's API. Also, just a reminder that beginning in 2017, all of our alumina is price basis to API, with no remaining contracts price basis a percentage of LME.

You can see power costs increase slightly, reducing EBITDA by $1 million. U.S. Midwest market prices continue to reflect the mild winter weather we saw beginning in Q4 while Icelandic power prices increased with the LME.

Looking to future quarters, results from the earlier mentioned of MISO capacity auction were favorable. So all else being equal, we'd expect the cost reduction of about $35 a tonne for the U.S. plants, starting in June of 2017, with a favorable annualized impact of $15 million a year based upon the sensitivities we've provided you on the last call.

Other net operating costs were favorable $2 million as the plants continued to maintain their aggressive cost containment initiatives, as Mike mentioned. Finally, all other cost items were net $2 million favorable, primarily related to lower SG&A and the elimination of Ravenswood carrying costs due to the sale of that asset.

Turning now to Slide 9, we'll take a look at cash flow during the quarter. Cash decreased this quarter by $6 million. Capital expenditures during the quarter were $9 million, which includes a $2 million of carryover from 2016. We're still targeting to finish the year in line with our expectation of $25 million to $30 million that we provided last call.

We received the remaining $14 million in proceeds from the Ravenswood sale during the quarter. Just a reminder that we expect to make the first settlement payment in connection with Ravenswood retiree medical litigation sometime during the second half of 2017. That will be a $5 million payment followed by annual installment payments of $2 million for 9 years thereafter. All accounting charges related to the settlement have been taken. We had a net cash outflow of $2 million from taxes paid in the quarter related primarily to our Icelandic operations.

Finally, as we noted on our prior call, working capital increased by $31 million as a result of changes in the commercial terms of a portion of our U.S. sales contracts. We believe that the additional investment in working capital required for these changes was substantially reflected on the March 31 balance sheet.

So looking at the financial results of the quarter on balance, we were able to maintain our aggressive cost structure to capture the benefit of the current market pricing.

With that, I'll pass it back to Mike.

We appreciate everyone joining us this afternoon. And I think, Pete, now, we can open it up for questions.

Sure. Thanks, Mike. Courtney, if you could go ahead and facilitate the Q&A session, please.

(Operator Instructions) And our first question comes from the line of Brett Levy with Loop Capital.

You guys provided a lot of reasons to be cheerful, whether it's alumina or other costs flowing through from Q1 to Q2 to even Q3. Is there any plan to issue official guidance for either 2Q or the full year as you kind of get further into the second quarter? And then, I think, in terms of like hedging and other metrics, is there any plan to release additional details?

Sure, Brett. On the updating of the guidance, as you said, Pete really gave the only delta that we would use right now, which is the reduction in the U.S. power costs, and he gave you the metric: $35 per tonne OpEx. The alumina price right now, if you look back to the price that we had assumed in the -- embedded in the "guidance," we put in the slides in Feb, we're right around there. So there's really no delta there in terms of that guidance. Anything else we probably -- we've, not because we're stuck on the schedule, Brett, but we've, at least if my memory serves, most of the last couple of years, had enough change that we've updated that guidance in the July call, and we will provide some data there. But really, power is the only significant change.

Got it. All right. And then, I think, in terms of like capital markets and opportunities and that sort of thing, markets are open, coal prices are going down, maturity dates are coming out. Are you starting to think at least a little bit about what the next steps would be in terms of putting long-term assets against long-term liabilities?

Well, I mean, I'll let Shelly talk about the way we generally look at beginning to prepare that, at least the thought process and then the real process around the refinancing of the existing bond. We've got a couple of years yet to the maturity date. And as you say, coal prices in front of us. The only point I would make, and I -- your question wasn't suggestive in this direction, is we're not the kind of -- we would not look to put capital of any sort on the balance sheet. "Warehouse capital," I suppose, is a term that's sometimes used, just because the markets are conducive. Much the opposite, that far as we're concerned, our job is to run as lean from a capital structure standpoint as we can prudently do. I mean, Shelly, do you want to talk about...

Yes, our current bond, they mature in 2021, so to do something now would be quite expensive. We definitely look at it all the time. I would think that later this year, early next year is when that activity will really start picking up. But we're absolutely looking at those markets.

If you look at the breakeven now, it's not very attractive given the call premium.

Got it. And then last one relates really to Iceland. I think that you guys have sort of done your best just by kind of an unconducive Icelandic economic political stance to continue to grow and expand, but not kind of get in the way of what the green party or whatever is going on over there. Can you talk about kind of your ability to or your plans to add capacity or what you're specifically doing to de-bottleneck or add a little bit more production out of Iceland over the next couple of years and expenditures associated with that?

Yes. Sure, Brett. As we've said, so the simple answer is the capacity [ green ] program continues and will continue. And we're at the point now, as we've said, where we're getting close to the -- this -- I'll use the term the guys use -- the "theoretical maximum amperage" which you can put into this cell -- this cell design, and thus, the metal you can get out is a direct correlation in and out, as you know. And so we're within that, at this point in time, sort of 5% of that theoretical maximum now. As I think, we talked about before, we are running some R&D that seeks to, with the same pot, change certain characteristics of the design, like the lining in the casthouse, without getting technical, to enable sort of another surge on top of that, that might enable you to get another sort of 5%, 6%, 7%, in addition to that 5%, 6%. But in terms of the first 5%, 6% chunk, which is another sort of 15,000, 20,000 tonnes, that will come, as we've said, over the next couple of years. I think that, that program should end, i.e. deliver that final volume sometime in the next kind of 3-ish years. And the spending to answer your question is relatively modest. It fits within the envelope that we've been spending at Grundartangi over the last couple of years, Brett, which is in the sort of -- maintenance CapEx at Grundartangi is in the sort of $6 million to $8 million, $5 million to $8 million. And then on top of that, you can kind of put another $5 million to $6 million to $7 million on an average basis, depending on the year. Some years are going to be lumpy because you got to order a new piece of high-voltage equipment or something, so it will be $8 million or $9 million, $10 million in some years, and some years for the capacity creep, it'll be less than that. But that's kind of the program to continue to, a, get more metal units; and b, of course, every metal unit leverages the fixed cost structure, so you're driving down your OpEx. In addition, as we talked about last time, what we continue to look for the right both entry point and specific project to de-commoditize, fancy word, Grundartangi's business, i.e. to build a value-added casthouse. And that's something that we're still looking at closely. Again, an improvement in the trade environment would be conducive to us, reaching the final -- reaching the goal line on pulling the trigger on something like that.

And our next question comes from the line of David Gagliano with BMO Capital Markets.

The offline capacity, I believe it's at Hawesville. I was wondering if you could walk us the announcements there, what you're thinking about in terms of -- I know you talked about it from a qualitative perspective. But I'm wondering if you could -- first of all, just remind us, what is it, 300 million pounds that you could bring back on there?

Sure. So it's -- yes, we think in tonnes. It's 150,000 tonnes, so you're pretty close there. Let me talk through kind of just the facts and then perhaps, to your question, some of the major factors in the decision process. So 3 of the 5 lines are down. Each line's 50,000 tonnes -- 150,000 tonnes. Of those 3 lines, one, as you'll recall, is incapable of making purity. It produces P1020 only and standard grade only. And then the other 2 lines are capable of producing purity. As you know, we're making less purity this year. You've seen our estimates of an actuals for, as Erich took you through, product premiums down this year because of the excess of supply in those sectors from imports. So the #1 consideration would be what products could we make there. Second consideration, obviously, the metal price is obvious, and it would be alumina pricing because we have to go procure alumina for that capacity. We're only -- we've only procured alumina for the -- in the U.S. for the operating capacity, which is half of Mt. Holly and 40% of Hawesville. And then other than that, as we've talked about in the past, it's important to remember that this goes into the IRR calculation here in the breakeven or however you want to describe the financial analysis. There's a startup cost here to be borne. It's -- I'll call it a onetime costs. And the biggest issue at Hawesville is -- and addition at Mt. Holly are the cells themselves. So we've been -- I don't like using this word but I'll use it for brevity. We've been cannibalizing cells in the -- at Hawesville in the 3 curtailed lines. Every time a cell in the 2 lines that are producing fails, as you know, they fail on average every 4.5 to 5 years. And so we would have to spend the money to rebuild those cells in the line or lines that we brought back. In addition, at Mt. Holly, there's some work that would have to be done in the bakeshop there to refurbish, without getting technical, the bake ovens themselves, the walls that separate them, the so-called slew walls. But ultimately, the largest issue here, as I've mumbled through, is metal price. And there, it's really the -- not to circle back, but it really all begins and ends here. It's our assessment of and more importantly, the real actions in the trade environment here. If we have some serious movement there, and we took a view that the market can now trade based on the true fundamentals of demand and legitimate supply. You could see a very strong case to bring that capacity back on really soon.

Okay. And then just to round up that part of the conversation, you mentioned start-up costs. I don't think you quantified it though. Can you quantify the start-up costs?

It depends, David. Without trying to be squirrely, it depends -- I'll cite -- I'll give you a range. It depends specifically on where we are, at what point in time, i.e. how many sales made -- have we grabbed, what's been cannibalized, again, to use that word again. But it's $5 million-plus per line. It's kind of in the $5 million to $6 million to $7 million to $8 million, again, depending upon facts and circumstances, depending upon which line we restarted first; there's a lot of technical determinations in that. But it's real money. It's millions and millions and millions of dollars per line and when I say "line," again, per 50,000 tonnes of capacity at Mt. Holly. And the same math for -- I'm sorry, at Hawesville. Thank you, Shelly. And the same math, just a little bit bigger, because you're talking about a 115,000-tonne line at Mt. Holly. So they're big numbers.

Okay. And then just the last metric to finish off. If you could just give us a range on a reasonable cash cost assumption, say, range for Hawesville and Mt. Holly.

Are you talking about right now? Or...

Well, for the capacity that you're bringing. I'm assuming it's the same.

It would be -- so okay, I understand the question. So we've never broken out, obviously, plant by plant for obvious competitive reasons. But if you go look in the U.S. average, the incremental -- please, when I finish talking, tell me if I've gotten -- if I've answered the question that you asked. The incremental OpEx would be lower, because obviously, you're not -- you've got a lot of the fixed costs that you're bearing already, so that marginal cost would be lower than the cost that you have right now. Now the commodities, it's dependent on the point in time where alumina was trading or coke was trading. But all else -- if all else being equal, if those commodities were the same, then the cost should be lower because you've -- you're leveraging your fixed costs.

Okay. All right. That's helpful. And then just one kind of annoying question, but I think it matters given directionally where -- it looks like we're heading here. What is the right diluted share count to use when [ trying to ] positive on the (inaudible)?

You never ask annoying questions, David. Pete, I'm going to -- so we use -- we have a -- we have common shares, of course, and we have preferred shares, which are -- other than vote -- [ as effective ] they don't vote, they're -- I think of them really as, maybe the accountants won't like this, really, common shares. That's what they are. I mean, from an economic standpoint in my -- in our strong opinion, that's what they are. So go ahead, Pete, please.

All right. Thanks, Mike. All in, we're just shy of 95 million total shares.

That includes the preferred.

Correct.

Right, but when you swing to positive, does that change at all to 95 million (inaudible).

Oh, we're talking GAAP versus economic, yes. Sorry, go ahead.

Yes. From a management perspective, we always look at it over Pete's 95 million shares. We always (inaudible) preferred shares. When you are looking at the accounting, you're correct that they are included when you swing positive. They are not included when you're negative. It's a bit confusing.

That's GAAP, but with all due respect, again, from an economic standpoint, those shares are always diluting the shares. They're always there, in our opinion, whether you report a GAAP profit or whether you report a GAAP loss, so that's why when we do our adjusted EPS, the denominator there always includes all those shares.

And our next question comes from Novid Rassouli with Cowen and Company.

Novid at Cowen. Just a couple of quick questions. Michael, you'd mentioned that the WTO time line had been delayed. I just wanted to see what the next signpost is to watch for with the Dutch trade case.

It's hard to -- there's no straight -- well, there are certain time lines that are noted in the WTO rules. At this point in time, it's -- not to try to duck it, it's really hard to answer that because at this point in time, the U.S. would have to begin to work that case. That's not a technical term again. And we believe, it's not just our belief, that the first step has to be the confirmation of the President's nominee for U.S. trade rep, which when you just read the public domain, it looks like it should take place here over the coming week. So we're encouraged by that. We've been talking to the USTR folks. Obviously, there's a whole team there right now, but they're missing their leader. And that -- it really is USTR here that is mandated to be responsible for prosecuting the WTO case. So after that, there's the consultation period about which we talked before. That should start in several months. And if that period is unsuccessful in reaching an agreement, then, as we've said before, the case is -- the litigators in that, that can take quite some time. It's measured in years.

Got it. And one more on the trade front. We've heard that the Trump administration may be looking to target aluminum with respect to national security the way they recently did with steel -- with Section 232. So I just wondered if you could speak to the potential for that, what exactly is the process, the logistics, and maybe what you think your exposure is as far as applications that are sensitive to national security.

Sure. So I'll take your questions in order. So you can just go look at the steel case. There's a study period that's mandated under Section 232, and that's what's going on right now in steel and the same would be -- at the end of which, remedies can be imposed by the President. In aluminum, we really are -- without being -- trying to be unbiased about it, we really are the example here. As you know, we produce, in essence, all of the -- we're the only producer of high purity metal. We are the only producer of high purity metal now in the U.S. The rest of the purity in the U.S. market is from foreign sources, mostly one smelter in the Persian Gulf. And so this would be one that really -- I don't like to say "would", should benefit us greatly because it would -- if remedies were imposed, it would greatly increase the value of our production capacity in the U.S., especially for the highest grades of metal, P0202, which is generally the purest grade of metal that's produced and traded on the market. So that could be a very interesting one for us, Novid. I would say, we still believe that the prosecution of, whether it's a consultation or ultimate litigation of the WTO case is necessary here because that's what cuts off the problem at its source, right? That's -- it's aimed at the excess production that's propped up by the illegal subsidies. That's the only solution that's going to give a long-term relief to this problem. Other things can do things in the short term and we welcome them, but really, the prosecution of the WTO -- pardon me, WTO case is what's required here.

Right, the financing side, basically?

Precisely.

Okay, and my last question. So your view of aluminum price is that it would head lower. You guys have been correct on that. I think you mentioned on the call that you expect them to continue to lower. I'm just wondering how realistic it is for aluminum prices to remain near the current range of alumina prices are continuing lower and there's an expected deficit -- or sorry, expected surplus for aluminum this year?

Yes, sure. That's a good question. So look, this was no great foresight on our part. We just looked at, as Shelly said, the restarts in China refineries; and two, looked at the ARB -- basically, the ARB in the price in China. And one can predict with -- at least over the short term, with some measure of, if not accuracy, at least confidence. So we think there's a little bit -- given all of those factors, we think there's a little bit -- it's not going to be in our opinion and it can't be -- and perhaps this gets at the second part of your question, which I'll address in a moment. There's a little bit further to fall, and it ain't going to another $50 in our opinion. But if you look at -- before getting to the balances, if you look at sort of where the third-ish -- third quarter -- bad third quartile smelt, pardon me, refinery is, it's in -- Pete and Shelly, it's probably in the low -- the high 200s and so we're not quite there yet. If you look -- you're talking -- and think about the relationship between the alumina price and the aluminum price, I mean, we're back -- right now, I haven't done the long division, but just doing it in my head, 305 divided by -- it's like 15 point -- these guys are shouting it at me. 15 and change, right? 15.5%, give or take. And that traditionally, other than the last year, 1.5 year, has been sort of where alumina has traded. And so when you put all that together, Shelly raises a good example of a very large refinery that's due for restart here in Atlantic Basin, which is obviously positive for us, we think that alumina can still give a little bit. And metal, to your point, at 1.5 million tonne surplus, that's one thing, but that assumes that Chinese capacity continues to come on as expected.

(Operator Instructions) And allowing a few moments, there are no further questions in queue. Please continue.

Thank you. We very much appreciate everybody's time this afternoon, and we look forward to talking with you over the coming months. Thank you so much.

Thank you, ladies and gentlemen. That does conclude your conference for today. Thank you very much for your participation and for using the AT&T Executive TeleConference. You may now disconnect.