Century Aluminum Company (CENX) Q1 2017 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you very much for standing by and welcome to the First Quarter 2017 Earnings. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session; instructions will be given to you at that time. [Operator Instructions] I'll now like to turn the conference over to your host, Mr. Peter Trpkovski. Please go ahead.

Thank you, Perky. 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 will take your questions. As a reminder, today's presentation is available on our Web site www.centuryaluminum.com. We use our Web site as a means of disclosing material information about the company after 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 have 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 Web site. 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 will give 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 cost have been equal to or better than our expectations. And I will give you some more detail on the operations in just a couple of minutes. We see some positive developments for Century in commodity prices as you have seen the LME prices 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 of 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 the demand has remained good in the regions that are particularly important to us especially like the U.S. and in Europe. The issue remain supply and of course, the situation in China in particular. On trade as we talked with you about in February, the WTO gate has been brought, it is absolutely clear to us that this administration intends to stand up to China on over production and we believe other governments around the world are also working hard on this matter. There has been plenty of public discourse on this issue, so there is no need to go into it in detail here. I will say that there has been a bit of a delay in the timeline 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 a department that directly oversee the WTO case. Following the filing of that WTO case, we have seen a few favorable announcements come out of China and we don't believe these are coincidental. Most recently, we have seen three large expansions under construction reported to be halted. These of course are being built on the back of massive subsidies. These expansions represented a significant capacity additions and regions in the western part of the country that have been targeted for growth. Of course, it is too early to tell, but if there is real follow through at 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 a 1.5 tons, and this just offsets the deposit in the rest of the world at similar amount. Moving along, the anti-trust lawsuit is proceeding 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, we have a very strong case here. On a related matter, we are closely monitoring the Westinghouse bankruptcy situation, I'm sure you have all read about this. The relevance is obvious, the local power company in South Carolina is a minority partner and one of the two nuclear projects in the U.S. that are being built by Westinghouse. Standard partner made a decision in 2016 to transfer a large portion of the cost risk of completion to Westinghouse. Given the bankruptcy of course is real doubt whether that guarantee will 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 the shift excess cost of this project to [indiscernible], whether the project is canceled or simply severely delayed and over budget. This could be a significant issue for Mount Holly and we are obviously monitoring it very closely. Lastly, its early days now, but we are looking hard at our curtailed U.S. capacity in the U.S. and studying the next steps having the developments in the trade environment. As a remainder, at Mount 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 is different depended on the commodity pricing environment, power cost in Kentucky has been and continues to be supportive of restarting curtailed capacity. Increasing confidence on the free trade front could be supportive of the consideration of restarting at least the portion of the curtailed capacity at Hawesville. And to us, this would be a terrific example as how enforcement of the trade laws could bring manufacturing jobs back to the U.S. in the very short term. And with that, I will turn you over to Shelly for some comments on the market.

Thanks Mike. Okay. Let's move on to Slide 5, please and I will take you through the current industry environment. The cash LME price averaged $18.50 per ton in Q1 which reflects some 8% increase over Q4. In the last month, aluminum prices have climbed as high as $19.62 per ton and are currently right around $19.40. Delivery premiums in both the U.S. and Europe were reasonably stable in Q1. Retail premiums averaged just under $0.10 per pound in the U.S. and $147 per ton in Europe and premiums continued to trade near these levels today. As it's usual for this time of the year, the aluminum market was a meaningful surplus during Q1, with much of Chinese demand shut down for New Year's holiday. CRU reported excess supply of 660,000 tons globally in Q1 including more than a million tons of excess supply from China. So consistent with past quarters, we continue to see Chinese producers oversupplying the market, which should otherwise be in a strong deficit position. In the first quarter of 2017, global aluminum demand would rate at 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 and the building of construction sector. Year-over-year global production growth was up 9.1% in Q1 driven almost entirely by Chinese start ups 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 Chi. Many industry researchers have indicated that aluminum reforms could be a win-win for both leaders agenda benefiting trade in the U.S. and reducing over production and the environmental impact at smelters in China. Since the WTO case was brought, the central and several provincial governments in China have made announcements to acquiring production cuts that could have the effect of significantly reducing Chinese over production if actually implemented. In late February, the central government announced a directive that require smelters in four provinces surrounding Beijing to cut output by 30% over the winter heating season. Analysts have estimated that this could result in cuts of approximately 1.3 million tons. This was recently followed by announcement in a Northwestern Chinese province ordering the suspension of three-smelter expansion projects. The amount of capacity that would be affected by this action is thought to be around 2 million tons. As you know, while we are cautious to put too much weight on the news out of China, while actual implementation of the cuts 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 have devastated aluminum producers in the rest of the world for years are brought to an end. Okay. Moving on to alumina, I will just make a few comments before I hand it back to Mike. As we anticipated on our last call, alumina prices have declined in response to Chinese refinery restart and sizeable inventory balances. Alumina prices averaged $340 per ton in Q1 and are currently around $305 per ton. That's $45 reduction when compared to prices of $350 per ton we saw at year end. The anticipated start-up of the 1.6 million ton Alpart refinery in Jamaica later this year should continue to put down pressure on the alumina price especially in the Atlantic basin. And with that, I will hand it back to Mike.

Thanks Shelly. If we can turn to Slide 6 please as promised I will just make a couple of 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. Taken a bit of a backward step at Mount Holly and at Grundartangi as you see, this is a remainder that gravity really works against you when it comes to safety and a remainder that you need to stay aggressive, proactive and paranoid in this most important area, if we are 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 cost as I said inline 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 in the cost side. As Hawesville, first and foremost, you see good performance there. Labor and maintenance, spending down nicely, power cost down as well. Going the other way, we are seeing carbon cost trend upward and we expect to see this trend continue at all the plants over the next couple of quarters as global calcium, coke prices are coming up. As 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 worsening trends there. At Grundartangi, power represents all of that cost increase. As you remember, we pay for our power in Iceland as a percentage of the LME price, so what you are seeing there really is just the -- it's just the rice in the metal price. And then, Mount Holly also power represent that entire increase. This again emphasizes why we need to solve this problem, this trend won't represent on its own. And with that, I will pass you on to Erich.

Thanks Mike. Let's turn to the Slide 7 of the presentation and I can walk you through a couple of high level points on Q1 results and then give more detailed look at adjusted EBITDA and cash flow on the following two slides. On a consolidated basis quarter-over-quarter global shipments were up 1.5% and net sales were up 7.5% reflecting the favorable market pricing. Both U.S. and Iceland [indiscernible] pricing were favorable inline with market movements. Again, we made pretty closely to LME and regional premiums on our two month lag basis, so the increase in transaction prices we saw starting in February, will come to our results in Q2. Value added product premiums in the U.S. remain depressed and we expect this to continue well in the 2017. I will speak more to value added products when we look at the quarter-over-quarter detail. Looking at operating profit, adjusted EBITDA was $22 million which is up $10 million quarter-over-quarter. EBITDA adjustment 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 5100 metric tons of month through year-end with the sale price of around $1700 a ton. 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 will see $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 will 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 that the 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 of 2017 are down 145,000 tons year-over-year due to the over supplied value added product market in the U.S. ultimately driven by Chinese over production. 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 priced on a one-month lag, but as we've discussed, alumina typically flows through our financial results in our two to three month lag due to inventory levels. Accordingly, we 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 API. Also just a reminder that beginning in 2017, all of our alumina's price basis of API with no remaining contracts price basis of percentage of LME. You can see power cost increased 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 ton for the U.S. plants starting in June of 2017 with the favorable annualized impact of $15 million a year based upon the sensitivities we provided you on the last call. Other net operating costs were favorable $2 million as the plants continue to maintain the aggressive cost containment initiative as Mike mentioned. Finally, all other cost items were net $2 million favorable primarily related to lower SG&A in the elimination of Ravenswood carrying costs due to the sale of that asset. Turning now to Slide 9, 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 $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 remainder that we expect to make the first settlement payment in connection with Ravenswood would retire in 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 nine 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 results changes in the commercial terms of a portion of our U.S. sales contracts. We believe that the additional investment in working capital acquired for these changes were substantially reflected on the March 31 balance sheet. So looking at the financial results for the quarter on balance, we're able to maintain our aggressive cost structure captured the benefit of the current market pricing. With that, I'll pass 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. Perky, 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. Please go ahead.

Hey, Mike. Hey guys.

Hi, Brett.

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 cost and he gave you the metric $35 per ton OpEx. So alumina price right now, if you look back to the price that we'd assumed in the -- embedded in the guidance “We put in the slides in Feb or right around there,” so there is really no delta there in terms of that guidance. Anything else we probably wait, we've not because we're stuck on a schedule, Brett but we -- if my memory serves most of the last couple of years and 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. And then, I think in terms of the like capital markets and opportunities and that sort of thing, markets were open, coal prices are going down, maturity dates are coming up, 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 got a couple of years get to the maturity date and as you say call prices in front of us. The only point I would make and your question wasn't suggested in this direction is, we are 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 sometimes used just because the markets are conductive, much of the opposite that as 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, though 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 as when that activity will really start picking up but we're absolutely looking at those markets.

If you look at the breakdown 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 despite kind of an unconducive Icelandic, economic political stance to continue to grow and expand, but not kind of getting the way of what the Green party or whatever 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 debottleneck 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 said, so the simple answer is the capacity Green program continues and we'll continue and we're at the point now as we said where we're getting closed to the -- I'll use the term theoretical maximum amperage, which you can put into this cell -- this cell design and thus, you can get out is the 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 what we talked about before we are running some R&D that speaks to with the same thought changed certain characteristics of the design like the lining in the cap 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 tons that will come as we said over the next couple of years. I think that program should end i.e., deliver that final volume sometime in the next kind of three-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 base depending on the years. 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 some years for the capacity creep that will be less than that. But, that's kind of the program to continue to A, and get more metal units and B, of course every metal unit leverages the fixed cost structure so you are driving down your OpEx. In addition, as we talked about last time, when we continue to look for the right entry point in specific project to de-commoditize fancy word, Grundartangi's business, i.e. build the value-added cash house, 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, I'm pulling the trigger on something like that.

All right, Shelly and guys, thanks very much. I'll pass the baton.

Thanks Brett.

Thank you. And our next question comes from the line of David Gagliano with BMO Capital Markets. Please go ahead.

Hi. Thank you for taking my questions and congratulations on a very strong results and solid outlook.

Thanks David.

Thank you.

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

Sure. So it's, yes, we think it's 150,000 tons that you are pretty closed there. Let me talk about kind of just facts and then perhaps to your question some of the major facts in the decision process. So it's three of the five lines are down, each line is 50,000 tons to 150,000 tons, on those three lines, one as you recall is incapable of making purity. It produces P1020 only and standard grade only. And then, the other two lines are capable of producing purity as you know we're making less purity this year you've seen our estimates have been actuals for as Erich took you through, product premiums down this year because of the excessive supply in those sectors from imports. So number one consideration would be what products could we make there to second consideration obviously the metal prices obvious, 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 Mount Holly and 40% of Hawesville. And then, other than that as we've talked about in the past, it's important to remember, it just goes into the IRR calculation here in the breakeven, or however, you want to describe the financial analysis, there is a start-up cost here to be borne, I'll call it one-time cost and the biggest issue at Hawesville is in addition at Mount Holly are the sales themselves. So we've been unlike using this word, but I'll use it for brevity, we've been cannibalizing sales in the Hawesville in the three curtailed lines every time I sell into the two lines that are producing sales 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 sales in the line or the lines that we brought back in addition at Mount Holly, there is 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, that still cut through walls. But ultimately that the largest issue here as I mumble through is metal price and there it's really not to circle back, but it's really all begins and ends here -- it's our assessment of -- and more importantly the real actions in the trade environment here as 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 -- just to round up that part of the conversation, you mentioned start-up costs. I don't think you quantified that, can you quantify the start-up cost?

It depends, David. Without trying to be scurrilous, it depends on size -- I'll give you a range. It depends specifically on where we are, at what point in time i.e., how many sales we have grabbed and 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 like we restarted first, the lot of technical determinations in that, but it's real money, it's millions of millions of million dollar per line and when I say line again per 50,000 tons of capacity at Mount Holly and the same math for -- I'm sorry at Hawesville, thank you, Shelly and the same math just a little bit bigger, but you should be talking about 115,000 ton line at Mount Holly. So they are big numbers.

Okay. And then just a last metric to finish it off, if you just give us a range on reasonable cash cost assumption, say range for Hawesville and Mount Holly.

So you're talking about right now or…?

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

It would be so, okay, I understand your question. So we've never broken out obviously plant-by-plant for obvious competitive reasons. But, if we go looking at the U.S. average the incremental -- please when I finish talking, tell me if I got -- 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 cost that you're bearing already so that marginal cost would be lower than the cost that you have right now. Now the commodities -- it depend on a point in time where alumina was trading, where coke was trading, but if all else being equal, if those commodities were the same then the cost should be lower because you're leveraging your fixed costs.

Okay. All right that's helpful. And then just one you 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…

You never asked annoying questions there, Pete, I'm going to -- so we use we have -- we have common shares of course and we have preferred shares which are other than and in fact they don't vote -- I think early as maybe they count like this really common shares, that's what they are from an economic standpoint in our strong opinion that's what -- so go ahead Pete please.

All right, thanks, Mike. All end we are just shy of 95 million in total shares.

Includes the preferred?

Correct.

Right, when you swing too positive, is that change at all?

I was talking GAAP versus economic, yes, sorry go ahead.

Yes. From a management perspective we always look at it over keep 95 million shares, we are always with 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 are negative, it's [indiscernible].

It's GAAP, but with all do respect again from an economic standpoint, those shares are always diluting the shares -- they are always there and our opinion where we report our GAAP profit already or report a GAAP loss so that's why when we do our adjusted EPS, the denominator, they always includes all those shares.

Got it. Thanks.

Sure.

Thank you. And our next question comes from Novid Rassouli with Cowen & Company. Please go ahead.

Hi guys, Novid from Cowen. Just a couple of quick questions, Michael, you'd mentioned that the WTO timeline have been delayed, I'm just wondering what the next signpost is to watch for with the Dutch trade case?

It's hard to -- if there is no strict -- well, there are certain timelines that are noted in the WTO rules. At this point in time, Novid not 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 conformation of the President nominee for U.S. trade rep, which when you just read the public domain looks like it should be take place here over the coming weeks. So we're encouraged by that. We've been talking to the USTR folks. Obviously, there's been a whole team there right now, but they're missing a leader and that -- it really is USTR here that is mandate and too responsible for prosecuting the WTO case. So after that, there is the consultation period about which we talked before that should start several months and if that period is unsuccessful in reaching an agreement then as we said before the cases needs to be litigated in that, that can take quite some time, it 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 are recently dealing with steel 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 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 is a study period that's mandated under section 232 and that's what 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 in trades on the market. So that could be very interesting one for us -- I would say we still believe that the prosecution of whether to consultation or ultimately litigation of the WTO cases is necessary here because that's what cuts off the problematic source, right, that's -- it aims at the excess production that's propped up by the illegal subsidy, but 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 case is what's required here.

Right, the financing side basically.

Precisely.

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

Yes, sure. That's a good question. So, look this was not great foresight, we just looked at as Shelly said restart in China refineries and two, look at the -- they basically are been 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 is a little bit given all those factors, we think there is a little bit -- it's not going to be in our opinion and it can't be -- and perhaps it gets us to the second part of your question, which I'll address in a moment. There is a little bit further to fall in and going to be 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, deep third quarter, bad third quarter tile smelter, pardon me, refinery is, it's in Pete and Shelly -- 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.

Yes.

I mean, we're back right now, I haven't done a long division, but just doing it in my head 305 divided by -- it's like 15 point -- these guys are shouting at me, 15 in change, right, 15.5% give or take and that traditionally -- traditionally other than the last year, year-and-half has been sort of where alumina has traded and so when you put all that together Shelly rated a good example of very large refinery that do really start here in the Atlantic Basin, which is obviously positive for us. We think that alumina can still give a little bit and metal to your point at a 1.5 million tons of surplus, that's one thing, but that assumes that Chinese capacity continues to come on as expected.

Great. Thanks so much.

Thank you.

[Operator Instructions] 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.