Century Aluminum Co

NASDAQ:CENX

Earnings Call Analysis

Century Aluminum Navigates Challenging Q3

In Q3, Century Aluminum grappled with reduced adjusted EBITDA of $9 million due to lower LME and regional premiums. The company expects Mt. Holly energy prices to normalize in Q4, with a new power contract starting in January reducing exposure to fuel costs. Amidst a roughly balanced global market, Chinese demand growth, particularly from solar, and potential curtailment of Chinese smelting capacities due to hydroelectric constraints can bolster aluminum prices. Century focuses on cost reduction and efficiency to maintain resilience, announcing new projects such as the Grundartangi casthouse in Iceland and high-efficiency boilers in Jamaica, both set to enhance operations and reduce costs. Despite a power disruption at the Jamalco refinery, insurance claims may recover losses. In Q3, Century saw a slight decrease in shipments and a 6% drop in realized prices, leading to a net loss of $14 million. However, liquidity improved to $306 million, and net debt reduced by $83 million, showing efforts in working capital optimization. Adjusted EBITDA was affected by the lags in metal pricing, but alumina and other raw materials costs provided some relief.

Overview of Q3 Performance and Market Conditions

Century Aluminum Company reported a challenging third quarter, characterized by lower LME (London Metal Exchange) and regional premiums, which were the primary factors behind a reduced Q3 adjusted EBITDA of $9 million. Despite the drop in metal prices, the company managed to somewhat mitigate the impact through lower input costs. Unexpectedly high Mt. Holly power costs somewhat marred the results, falling short of expectations. However, energy prices at Mt. Holly are anticipated to normalize in Q4. On the macro scale, the global aluminum market remains roughly balanced, with Chinese shortfalls largely negating a minor surplus elsewhere.

Operational Progress and Strategic Initiatives

Century is advancing key long-term projects, such as securing a new power contract for Mt. Holly, which is expected to reduce exposure to fluctuating fuel costs and provide more stable energy rates. The Grundartangi casthouse project in Iceland is nearing completion, promising to deliver low-carbon natural billet to European customers soon. In Jamaica, there are efforts to improve the efficiency of Jamalco's refinery. To boost liquidity and optimize operations, Century is also implementing cost reduction and efficiency improvement programs across its facilities.

Financial Outcomes and Q3 Cash Flow Analysis

Century's third-quarter global net sales were down 5% sequentially to $545 million, mainly due to a 6% fall in realized metal prices. Adjusted net loss stood at $14 million, a $29 million decrease compared to the previous quarter. Q3 ended with a positive turn, as liquidity improved by $75 million to $306 million. This stronger financial position follows strategic actions, such as the sale of excess land at Mt. Holly, monetizing excess European emission allowances, and effective working capital management with savings of $76 million registered.

Forward-Looking Expectations for Q4 and Beyond

The fourth quarter is expected to have lower LME and delivery premiums, in turn reducing EBITDA by an estimated $20 million to $25 million compared to the third quarter. However, gains from input costs, operational efficiencies, and possibly higher spot LME prices could offset these challenges. Adjusted EBITDA for Q4 is projected to range between $0 million and $10 million. The potential impact of an Inflation Reduction Act provision—Section 45X—on primary aluminum production costs remains uncertain, as Century awaits further guidance from the U.S. Treasury Department. This guidance could translate into a cash credit, boosting the company's finances in the next five years.

Insurance Claims and CapEx Projections

The company is seeking insurance recovery for equipment failure incidents at the Jamalco refinery, which has affected its operations. While the magnitude of insurance recovery is yet to be disclosed, Century anticipates the losses, less estimated deductibles, to be covered under its insurance policies. Looking ahead, the company intends to guide for 2024 on its Q4 call, with expectations on maintenance and investment capital expenditures, including infrastructure improvements like restoring high-efficiency boilers at Jamalco.

Questions and Clarifications from Analysts

Analysts sought clarity regarding the Inflation Reduction Act's implications for Century's operations, the progress and premiums for value-added products such as billet for 2024, and the capacity increase at Mt. Holly. Analysts also inquired about the potential of restarting curtailed operations at the Hawesville facility, though the focus remains on managing existing active smelters more efficiently. In answering these questions, Century's executives reiterated their strategic focus on optimizing costs, improving liquidity, and positioning the company to capture opportunities as market conditions improve.

Earnings Call Transcript 2023-Q3

[Operator]

Good afternoon, and thank you for attending today's Century Aluminum Third Quarter Earnings Call. My name is Jason, and I'll be the moderator for the call today. [Operator Instructions]

I would now like to pass the conference over to your host, Ryan.

[Ryan Crawford, executive]

Thank you, operator. Good afternoon, everyone, and welcome to the conference call. I'm joined here today by Jesse Gary, Century's President and Chief Executive Officer; Gerry Bialek, Executive Vice President and Chief Financial Officer; and Peter Trpkovski, senior Vice President of Finance and Treasurer. After our prepared comments, we'll take your questions.

As a reminder, today's presentation is available on our website at www.centuryaluminum.com. We use our website as a means of disclosing material information about the company and for complying with Regulation FD. Turning to Slide 1, please take a moment to review the cautionary statements shown here with respect to forward-looking statements and non-GAAP financial measures contained in today's discussion.

And with that, I'll hand the call to Jesse.

[Jesse Gary, executive]

Thanks, Ryan, and thanks to everyone for joining. It was a busy quarter with lots to discuss, so I'll get right into it. Turning to Slide 3. Lower LME and regional premiums were the primary drivers of reduced Q3 adjusted EBITDA of $9 million. While we were able to offset a significant portion of the fall in metal prices with lower input prices, higher-than-expected Mt. Holly power costs resulted in our Q3 results falling a bit below expectations.

We expect Mt. Holly energy prices to return to normal in Q4. And as we recently announced, we entered into a new power contract for Mt. Holly that will become effective on January 1. I'll provide some additional detail on the new contract in a bit.

In general, the macro environment for aluminum remains complex. As you can see on Page 4, the global market remains roughly balanced, with Chinese deficits largely offsetting a small surplus in the rest of the world.

Turning to China specifically, Chinese demand has benefited from strong solar and electric vehicle demand, with Chinese solar demand alone up around 1.5 million tonnes from last year. Recent stimulus announcements in China should drive further recovery in building and construction demand as the Chinese economy continues to recover from COVID lockdowns.

Reports have also recently emerged that Chinese smelters in Yunan will again have to curtail around 1 million tonnes of capacity due to low reservoir levels in their hydroelectric schemes. Once confirmed, this third straight season of Chinese production cuts would add to the Chinese deficit shown on Slide 4.

Overall, while realized LME prices fell to average $2,155 in Q3, global updates of inventory remained below 50 days. With inventories at these historically low levels, LME should be poised to recover quickly on any positive demand recovery or any further supply side disruptions as we saw following the announcement of the Yunan seasonal curtailments.

While we wait for the macro cycle to improve, we have implemented programs across the company to lower costs, increase efficiency and free up cash, where possible. One example of this is the renewed focus on working capital management that Gerry will discuss with you in a minute. These efforts will help us remain robust during this portion of the cycle without interrupting our long-term investments and strategies.

Turning to Slide 6. We can see that falling input prices have also helped to offset the decline in metal prices. Indiana Hub and Nord Pool have both remained constructive, while coke and caustic prices have continued to fall towards normalized levels. Natural gas inventories in both the U.S. and Europe remained well above 5-year averages, making a repeat of the high energy prices from last winter less likely.

Turning to operations. We made significant progress on a number of our longer-term initiatives during the quarter. At Mt. Holly, we were very excited to announce late last month that we reached a new 3-year power contract with Santee Cooper through 2026. The agreement represents extensive work between the Century and Santee teams to structure a mutually beneficial arrangement.

This agreement allows us to continue to invest in this excellent plant, preserve the approximately 470 jobs for our employees and continue to contribute to the economic success of the surrounding community. Under the new arrangement, Mt. Holly will be less exposed to changing fuel costs, including a fixed all-in 2024 energy rate that is below our 2023 realized rates. Mt. Holly also has the right under the agreement to increase the amount of energy provided under the contract, should we decide to return the smelter to full production when market conditions warrant.

In Iceland, operational performance is strong, continuing to reflect the excellent team we have built there. The Grundartangi casthouse project is nearing completion and remains on track to deliver our first sales of low-carbon natural billet to European customers early next year. We will provide you with additional details of the expected benefits of this value-added production on our Q4 call.

In Jamaica, the first major project in our Project Restore CapEx program has been nearing completion, with the recommissioning of one of the plants' high-efficiency boilers set to be completed by the end of Q4. This boiler will increase the efficiency of the refinery's steam generation systems while also driving improved stability in the plant's powerhouse.

A second high-efficiency boiler is expected to be recommissioned in late March. These projects should begin lowering Jamalco's cost of production beginning in Q1. Today, the cost of these programs are coming in on the low end of our expected CapEx spending in Jamalco for 2023.

In September, Jamalco suffered a power disruption resulting from an equipment failure in the same power generation unit responsible for the disruption in Q2. This caused the refinery to operate at partial production levels for a portion of September and all of October.

We believe the refinery has now returned to full and stable operations. Without these disruptions, Jamalco would have operated at roughly breakeven in the third quarter at spot aluminum prices.

Given the magnitude of these disruptions, we have submitted these claims to our insurers and expect to recover those losses under our insurance policies. In line with our past practice, we will adjust out both the impact of the outage and the future recovery of insurance proceeds from our results. Gerry will cover this more in his remarks. Gerry?

[Gerald Bialek, executive]

Thank you, Jesse. Let's turn to Slide 7, and I'll walk you through the results for the third quarter. Consolidated Q3 global shipments were 172,000 tonnes, down about 1% sequentially. Realized metal prices were down nearly 6% for the quarter, with net sales at $545 million, down 5% sequentially.

Looking at Q3, operating results, adjusted net loss was $14 million or $0.13 per share. This was a decrease of $29 million compared with prior quarter. The major adjusting items for the third quarter were add-backs of $22 million in unrealized losses on forward contracts in costs associated with the Jamalco equipment failure and $1 million for share-based compensation. These partially offset by a $4 million deduction for lower of cost or net realizable value on inventory.

Adjusted EBITDA attributable to Century, which includes our 55% share of the Jamalco JV in Jamaica was $9 million, a decrease of $20 million from the prior quarter. Liquidity improved by $75 million compared with prior quarter to $306 million, consisting of $70 million in cash, $23 million in restricted cash and $212 million available on our credit facilities.

Net debt on September 30 was $424 million, down $83 million from prior quarter. During my first year at Century, we've focused on optimizing working capital and improving liquidity and are beginning to see significant progress. I'll talk more about this in a moment when I have cash flow.

Turning to Slide 8 to explain the third quarter sequential adjusted EBITDA bridge. Realized LME was $2,237 per ton, down $134 versus the prior quarter. while realized U.S. Midwest premium of $493 per ton was down $69 and realized European delivery premium of $323 per ton was up $24. These reflecting our 1- to 3-month lags in realized metal prices. Together, these factors resulted in a $28 million decrease in EBITDA in the quarter.

Power costs were down slightly from prior quarter, with that 51% reduction in Nord Pool market prices being partially offset by a 4% increase in MISO Indy Hub exposure and higher cost of service rates at Mt. Holly, netting to a $3 million benefit to EBITDA. Q3 realized alumina cost was $396 per ton, $4 lower on a sequential basis.

Remember, there's a 3- to 4-month lag for alumina cost to work through our income statement. Realized coke prices decreased 17% and realized pitch prices decreased 8%. together, alumina and other raw material costs resulted in a $4 million improvement in EBITDA. Volume OpEx improved EBITDA by $3 million. Unfavorable sales mix was a $3 million headwind. Overall, adjusted EBITDA was $9 million for the third quarter.

Note the impact of downtime and lost production output at Jamalco that Jesse mentioned in his opening remarks, has been adjusted from the results presented here as Century has filed an insurance claim and expect that losses, less estimated deductibles, will be covered under its insurance policies. You can see the full reconciliation to GAAP in the appendix on Slide 13.

Now let's turn to Slide 9 for a look at cash flow. We started the quarter with $51 million in cash. During the quarter, we completed the transaction to sell certain excess land at our Mt. Holly site, generating cash of $26 million. CapEx, primarily for the construction of our new casthouse in Iceland, used $26 million.

As part of our working capital optimization efforts, we monetize excess European emissions allowances to generate an additional $34 million. In case you are not familiar with the European Union Emissions Trading System, the ETS is a cap and trade system aimed at decreasing emissions over time in line with the EU's climate target.

Each year, Century receives free emission allowances or EUAs for our Grundartangi smelter in Iceland. These allowances must be surrendered in the following year to offset emissions from the smelter. Historically, we have held these units until they become due. As an ongoing source of liquidity, this year, we implemented an EUA monetization program to sell the excess units and to repurchase EUAs at a future fixed price to settle the EUA obligation when due.

Similar to other working capital optimization efforts, this program allows Century to utilize the interim value of the credits more effectively, improving liquidity and lowering leverage. I'm also excited about the progress we're making, driving optimization in the cash conversion cycle across all our sites.

During the quarter, we realized working capital savings totaling $76 million, with $7 million coming from moving to more favorable vendor payment terms at our Jamalco refinery and the balance from various actions at our smelters. We expect to retain $20 million to $30 million of these working capital benefits going forward through aggressive inventory targets and other working capital optimizations.

The remainder of these savings were related to the timing of material flows, which we expect to reverse in Q4. Finally, we used $68 million to pay down our revolvers. These actions resulted in Q3 ending cash and restricted cash of $93 million, a $42 million improvement compared to the second quarter.

Now let's move to Slide 10 for insight into our expectations for the fourth quarter. For Q4, the lagged LME of $2,161 per ton is expected to be down $76 versus Q3 realized prices. The Q3 lagged U.S. Midwest premium is forecast to be $425 per ton, down $68. And the European delivery premium is expected to be $279 per ton or down about $44 compared with the third quarter.

Taken together, the LME and delivery premiums are expected to decrease Q4 EBITDA by approximately $20 million to $25 million compared with Q3 levels. Note, LME prices closed yesterday about $100 higher than our expected realized prices for Q4.

As you can see from our sensitivities on Slide 16, should these spot levels hold, we would expect this change alone to increase EBITDA by around $10 million to $15 million per quarter. Looking at our other key raw materials, lagged realized alumina cost is expected to be $385 per ton, down slightly.

We expect a favorable impact from lower coke and pitch. Caustic soda prices were also down slightly. But as it takes 5 to 6 months for caustic spot prices to flow through our P&L, most of this benefit will be realized in Q1 2024. All in, we expect lower raw material costs to contribute between $10 million to $15 million to EBITDA compared with third quarter.

We expect volume gains and operating cost improvements to add about $5 million to EBITDA in the fourth quarter. All factors considered, our Q4 outlook for adjusted EBITDA is expected to be in a range of between $0 million and $10 million.

And finally, we expect a realized gain of about $10 million in the fourth quarter from hedging activity and tax expense of between $0 to $5 million. As a reminder, both of these items fall below EBITDA and impact adjusted net income.

An update on the purchase accounting for our Jamalco acquisition. As discussed in Note 2 of our current quarter 10-Q, we continue to work through the purchase accounting, which requires the acquired assets and liabilities to be recorded at fair value as of the acquisition date. We have up to 12 months from the acquisition date to perform the necessary work to finalize the fair value. And based on our preliminary fair value estimates, we've recorded a deferred gain as a current liability on the balance sheet as of September 30.

And now back over to you, Jesse.

[Jesse Gary, executive]

Thanks, Gerry. While we find ourselves in a challenging portion of the commodity cycle with LME and delivery premiums reaching 2.5-year lows in the third quarter, we remain focused on operating the business as efficiently as possible. We are proud of the progress we made on our long-term initiatives during the quarter, including the extension of the Mt. Holly power contract, nearing completion of our first major capital investment at Jamalco and completion of the Grundartangi casthouse early next year.

We are also pleased with the continued optimization of our balance sheet, including completion of the Mt. Holly land sale and progressing working capital optimization program, leaving us well positioned with significant liquidity to continue our long-term investments during this portion of the cycle. All in all, despite a challenging macro environment, we are managing the business to continue to provide positive EBITDA and unlock additional liquidity and cash.

Long-term macro trends towards decarbonization and electrification are beginning to play out and grow stronger as government stimulus funds in China and Inflation Reduction Act funds in the U.S. are beginning to be distributed. Our plants are running well and at plant production levels, leaving us well positioned to benefit as the commodity cycle improves. We look forward to your questions today. Operator?

[Operator]

[Operator Instructions] Our first question is from Lucas Pipes with B. Riley Securities.

[Lucas Pipes, analyst]

In your final comments there in your prepared remarks, you mentioned -- I think you mentioned the IRA and the benefits for demand. But then if I understand it correctly, there are also provisions in the IR specifically for primary aluminum production. I think it's Section 45X, and it relates to a credit of 10% of the production cost. And obviously, on the surface, this appears pretty material. So I wondered if you could maybe speak to that and where that currently stands.

[Jesse Gary, executive]

Lucas, thanks. Very good question. So you're correct that aluminum is listed as a critical mineral under Section 45X of the Inflation Reduction Act. Maybe just to back up, Section 45X is a provision that, amongst other things, is intended to incentivize U.S. production of critical minerals here domestically.

We're obviously very excited about the potential benefits that we might receive under Section 45X, but the U.S. Treasury Department has not yet issued guidance for the provision, given that it's a bit difficult at this point to quantify what the potential benefits might be for Century. But the Treasury Department has come out publicly and said that they expect to issue that guidance before the end of the year.

So what we intend to do is once that guidance has been released, we plan to hold a follow-up call to further discuss and quantify what those benefits might be to Century. And until we have a guidance so it's hard to provide too much more information for now.

[Lucas Pipes, analyst]

And -- but at this point, there haven't been any, I guess, it would be an accrual, essentially, potentially, given that I think this credit would -- started at Jan 1, '23. You said there would be a benefit for this year, right?

[Jesse Gary, executive]

Yes. The -- while we await the guidance, the provision did become effective. Obviously, the law has passed. But -- and the version did become effective January 1, 2023. But until we have that guidance, it's tough to really say more than that. But you're correct that the law itself does mention that it would apply beginning on January 1, 2023.

[Lucas Pipes, analyst]

Yes. Really, really appreciate that. And in terms of the guidance or clarification needed, can you elaborate on what exactly you're waiting for? And I know this can be technical, but could you maybe comment on what guidance, specifically, you're waiting for?

[Jesse Gary, executive]

Sure. I'll try to keep it relatively high level since -- until we have the guidance. It's really hard to comment on what will be in the guidance. But that said, your summary was well done. Section 45X does provide for a production tax credit for critical minerals. And that production tax credit applies to what the law calls cost of production. What the law does not do is provide any guidance as to how that cost of production should be calculated.

So you can imagine a bunch of different provisions that may be included or not included in cost of production. For instance, 1 example might be whether depreciation is included in cost of production. So without further guidance from the Treasury Department, after talking with our advisers, outside advisers, discussing it internally with our team, we thought it was too early to record anything on our financial statements and difficult to do, again, without any guidance on what the quantum of those benefits might be.

So for now, that's where we stand. And what we intend to do is, once that guidance comes out, which, again, the Treasury Department says they expect to do before the end of the year, we'll hold a follow-up call where we can discuss that in more detail.

[Lucas Pipes, analyst]

I really appreciate this discussion. I do have further questions, but now I'll move on to a different theme. I really appreciate that color. And when I look to kind of value-add products and the billet premium for 2024, have those negotiations started? Have they been completed? And could you maybe comment on what you would expect in terms of that billet premium in the current environment for 2024?

[Jesse Gary, executive]

Sure, Lucas. Thanks. Another good question. So both for the U.S. and, of course, as we discussed, our new Grundartangi casthouse will also come online and begin producing billet early next year. We've really just started to discuss 2024 sales. The season has started a bit later this year than maybe it has in past years, which, I think, reflects probably a bit of the general market dynamic that we see.

As I mentioned, there have obviously been a bunch of macro drivers that have resulted in both LME and regional delivery premiums reaching sort of 2.5-year lows. But of course, until we really get very far in those discussions, it's hard to predict what 2024 premiums might be. But we'll definitely include those on our Q4 call when we give you the rest of our 2024 guidance.

And I would definitely expect, definitely, for the U.S., we would have those premiums set. Going forward for Europe, that market is more the quarterly market. So you'll see us start to reflect Philippines and Europe more on a quarterly basis because it can change from quarter-to-quarter, whereas the U.S. is more of an annual market.

[Lucas Pipes, analyst]

Got it. That's helpful. Really quickly on Mt. Holly. Good to see that contract come through. If I recall correctly, Mt. Holly is running at 75% utilization. Have there been discussions about increasing this cost of service power allocation to Mt. Holly so that the plant can run at 100%?

[Jesse Gary, executive]

Yes. And actually, that's something that we negotiated as part of this contract is we do have the right to call the additional power that would be necessary in order to restart the remaining 25% at the Mt. Holly pots. So as we monitor the market conditions, we have that option on -- within a notice period that would work with a restart to call that power. So securing the power won't be a roadblock to restarting those pots in Mt. Holly.

[Lucas Pipes, analyst]

And the power, would it be at the same cost of service rate? Or would there be a different tariff of sorts?

[Jesse Gary, executive]

Yes. The option was in the contract, is linked to -- there was actually a few different tariff schedules that we will take power on from Santee Cooper under that contract. But the option is linked to one of those rates that's in the rest of the Mt. Holly power contract package.

[Lucas Pipes, analyst]

All right. I really appreciate all the color and to you and the team best of luck.

[Jesse Gary, executive]

Thanks, Lucas.

[Operator]

Our next question is from Timna Tanners with Wolfe Research.

[Timna Tanners, analyst]

I hope everyone can hear me okay.

[Jesse Gary, executive]

You sound great, Timna. Thanks.

[Timna Tanners, analyst]

Okay. Super. Just had to check. All right. So I had a couple of questions I thought I would hone in on the situation in Jamalco. As far as interesting, it was material enough to file for insurance recovery, but I didn't -- I might have missed the press release there or an announcement about it. And I wanted to know a little bit more about the incident. You said it was the second time this has happened. Do you feel like you've sufficiently addressed the situation so that, that won't recur?

[Jesse Gary, executive]

Yes. So great question. Maybe I can provide a little more detail and just why we feel confident that we've now got it under control. So within our refinery, in general, you'll have some steam generation -- steam-powered electrical generation units that supply energy to the plant and also regulate the steam pressure going into the refinery.

And in this case, one of our steam generation units suffered a failure originally back in the May-June time period. And then we thought we had it addressed, but it recurred in the late September time period.

And we dug a little further. We've brought in engineers from the manufacturer who went through that machine with us and have now helped us bring it back to its normal operating status. So given those steps, again, with the engineers from the manufacturer as well, we feel confident that, that issue is now behind us.

[Timna Tanners, analyst]

Okay. And then when do you think you might be able to record a recovery from your insurance company? And like so what timing and also what might the deductible look like?

[Jesse Gary, executive]

Sure. We won't give specific guidance on the deductible, although it's just a small -- relatively small portion of the overall claim. So one should not be material from a cash matching standpoint to the losses that we incurred. But that claim, we've just made it. So we really need to engage with the insurer to talk about timing for payment.

You might look back to our 2018 claim for Sebree when we had an outage that stopped some power deliveries to the plant, resulted in some production being lost. That recovery, I think, took about a year to actually get the cash in the door. So that might give you some guidance as what it may be here, although it's hard to say at this point.

[Timna Tanners, analyst]

Okay. That's helpful. And then I know there was a mention, I mean, you're going through the guidance that if the price paid at the recent levels, there would be additional EBITDA. I just want to make sure I understood those comments correctly. Is that just to say that I think I have to go back to my notes, it was an extra $15 million to $20 million of EBITDA or -- and I assume that was to say that if today's LME price were sustained through the rest of the quarter. But I just wanted to clarify what was intended by those comments.

[Jesse Gary, executive]

Yes. You got it almost exactly correct, Timna. Basically, we're just saying that cash prices today are about $100 higher than what our realized Q3 LME prices were. And so if that were to sort of sustain going forward, if you go back to our sensitivities in our deck, you'll see it should have about a $10 million to $15 million quarterly impact on EBITDA going forward.

So in other words, what we're hopeful of is we have started to see some green shoots on both the demand and the supply side globally. Some of the things I talked about, we've seen really strong renewable demand in China, strong EV demand in China, both of which are things that should extrapolate to the rest of the world. As the macro picks, situation rebounds.

And then we've also seen, on the supply side, additional outage in China. So a lot of those are what drove that LME prices start to improve. And so obviously, we're hopeful that those trends continue. And if they do, there's a lot of earnings power in this business as we've shown in previous quarters.

[Timna Tanners, analyst]

Okay. And then just wrapping up, if I could. On the raw material side, just looking at the guidance, I know caustic has yet to fully flow through in your numbers. But do you see a lot further downside with coke and pitch? And then remind us, if you could, on Jamalco, what alumina price is breakeven for you?

[Jesse Gary, executive]

Sure. So yes, on the coke and pitch side, it's -- given the course of the past couple of years, it's hard to really set what your expectations are because we've been stuck for almost 2 years now, with coke and pitch prices that are just materially higher than what we ever saw in any previous period. So as they've come down, I mean, coke prices are down almost 50% from where their height was, but they're still well above where historical levels are.

So obviously, a lot of this will have to do with the oil markets and energy markets globally and steel markets, frankly. But we continue to see them coming back down towards a normalized level. There's really no reason why they shouldn't. So we'd expect that to continue over coming quarters, although we just wish it would happen faster than the past.

Caustic, as we said, last about 6 months, it takes longer to come through. The caustic prices have really come off substantially, and we really haven't started to see the benefit of that really flow through our results because that stand-on trends happened more recently. So we'll start to see that more significantly starting in Q1.

And then on the -- on the refinery side, we're not giving cash breakevens for any of the assets. But what I did say in my prepared remarks was, absent the power disruption that we had at Jamalco in the quarter, it would have been about breakeven for the quarter. So that could give you some sense.

Thanks, Timna. And then maybe just to add on for Jamalco. Obviously, we've got a lot of CapEx programs ongoing there. So we would expect that to continue to improve over the course of 2024, but that's where we stand today.

[Operator]

Our next question is from John Tumazos with John Tumazos Very Independent Research.

[John Tumazos, analyst]

Could you shed some light on the big dip in European power prices or the Nord Pool price? Is it more due to weaker demand slowing European economy as opposed to any increase in electricity supply?

[Jesse Gary, executive]

Yes. So very good question, John. Thanks. If -- when you're looking at European power prices, probably the easiest common factor to look at is natural gas prices. And in Europe, obviously, that's referencing TTF. So if you take a look at TTF over time, they obviously had very, very historically high levels, multiples of where it had been over history in the energy crisis that really hit late last fall, early winter. And the situation has definitely improved from that.

So European natural gas storage is near capacity today. And LNG availability is relatively strong. And so you've seen TTF come back down significantly from the record levels that we saw last year. That said, it's still multiples above where it stood historically. And obviously, multiples above, say, where Henry Hub is here in the United States, more than 10x. So when you look at it from that standpoint, maybe 10x isn't the right multiple, but it's multiples above where Henry Hub is today.

So when you look at it from that standpoint, European energy prices are going to stay high, while that dynamic remains. And well, it thankfully gotten better. I think there are still challenges. And you can then see that in industrial demand, where we've seen relatively subdued European economy.

[John Tumazos, analyst]

In your demand-supply balance, you had almost 1 million tonnes of excess demand in China and 1.5 million tonnes of demand less than output in ex China, is that demand decline mostly in Europe? Or is it more broadly spread out U.S., Europe developing world?

[Jesse Gary, executive]

Yes. I think you got it about right, John, it's definitely most significantly in Europe, which, I would say, really, of all regions globally, has been the most challenged over this period. Much better in the U.S., to be honest, although obviously not at levels that we would like to see it and that we think it could return to.

So we -- for both markets, frankly, are eager to see the cycle go ahead and turn over because both markets remain very short on the aluminum side, and frankly gotten much shorter given the economic situation over the last several years. So as I said, we certainly see some green shoots. Obviously, the end of the UAW strikes here in the U.S. should help automotive demand going forward. It's sort of an interesting one to predict.

But obviously, people saw those UAW strikes coming. So we started to see a little bit of demand impact going in even before the strike started. But now they're certainty there. We think that should help to pick up. Aerospace demand has also been very strong here in the U.S., which is a real nice tailwind for us. And then as interest rates come down, we should see some recovery in building construction as well.

[John Tumazos, analyst]

If I could ask 1 more, and I apologize. Sometimes I try to ignore Washington as the government is so disgusting. Could you explain these strategic tax credits a little more or maybe again because I hadn't been studying them. With the benefit to Century on a full year basis when they're codified, would it be closer to $1 million or $10 million or $100 million or more? Just give us an accrued range or order of magnitude.

[Jesse Gary, executive]

Yes. Thanks, John. As I said before, until we have those regulations come out, it's very difficult to quantify exactly what will be included in cost of production. But you can go back to the law itself and see what it lays out is that a tax credit -- production tax credit equal to 10% of cost of production of these critical minerals. So you can take a look at that. But until we have the regulations, we're not going to estimate what that credit could be.

[John Tumazos, analyst]

So that could be 10%, could be $0.15 a pound for your U.S. output? I don't mean to put words in your mouth, Jesse, I'm sorry.

[Jesse Gary, executive]

No problem. Thanks, John.

[Operator]

Our next question is from Katja Jancic with BMO.

[Katja Jancic, analyst]

Maybe starting with Jamalco. Can you provide any preliminary views on how we should think about CapEx for next year?

[Jesse Gary, executive]

Well, in line with our normal cadence, Katja, I think we'll wait to give any 2024 guidance until our Q4 call. So yes, we'll come back to you with that in February.

[Katja Jancic, analyst]

Okay. And what would be -- can you just say what the maintenance CapEx typically would be?

[Jesse Gary, executive]

Sorry, could you repeat that?

[Katja Jancic, analyst]

Sorry. If you could maybe provide what the maintenance CapEx for Jamalco would be, the typical maintenance?

[Jesse Gary, executive]

Yes. Again, we'll go ahead and give those numbers on our Q4 call. What we did talk about last time was that we expected, basically, second half 2023 CapEx for the refinery to be in the $10 million to $20 million range. What I said in my prepared remarks, we expect to be coming down on the low end of that range for the rest of the year. That includes both the maintenance CapEx and some investment CapEx, including the restoration of the high-efficiency boiler that I mentioned. So if you're just looking for some general provisions that gives you a sense, although again way to guide for 2024 until that Q4 call.

[Katja Jancic, analyst]

Okay. And maybe I missed this on the European credits. Is there further credits you can monetize? Or how should we think about that?

[Gerald Bialek, executive]

Hi, Katja. What we did is we monetized the excess credits that we had that have been allocated to us for free, with the agreement to repurchase them before they're due in 2024. So we've monetized what are available to us or that hurts.

[Jesse Gary, executive]

But I think the best way to sort of think about that going forward is to relate it to our overall working capital optimization programs. So we do -- we will continue to have those ETS credits granted on an annual basis as part of the regulatory scheme. And so what our intention would be to continue to optimize that working capital, namely the EUA credits, continuously over time as an additional source of liquidity.

[Katja Jancic, analyst]

Okay. And maybe just 1 more, if I may. On Mt. Holly, if you were -- if you did decide to increase operations to full capacity, what would the CapEx required be? And how long would it take you to do that?

[Gerald Bialek, executive]

Thanks, Katja, that's a very good question. In terms of the timing, obviously, just a couple of years ago now, we went through a restart of the continuously operating line and an additional 25% of those spots. And that took somewhere from 12 to 18 months to do that. So that will give you a sense -- but the time frame, if we were to restart the remaining pots at Mt. Holly as well. From the cost side, we're undertaking that work now. Obviously, it's a bit hard to predict based on past experience, given the cost environment that we found ourselves in over the past couple of years. So we're actually undertaking that work, working through what the cost would be. And I think we should be in a better position to give you some better figures in Q4 or Q1.

[Operator]

Our next question is from Lucas Pipes with B. Riley Securities.

[Lucas Pipes, analyst]

One of my goals for this evening is to get continuing education credits on U.S. tax law. And I really appreciate you taking all these questions. I have 1 more. It is a credit, right? So it's not a deduction of U.S. federal income tax, it's a credit. So whatever the amount is, this is a cash reduction of your operating costs, correct?

[Jesse Gary, executive]

Well, Lucas, I think you know I used to be a lawyer. I wasn't a tax lawyer. So plenty of disclaimers around that, and I can't give any continuing credits directly. That said, you might imagine I have read the law. And again, until we have that guidance, this is all very preliminary, and we can't say for sure.

But what the law does provide is that for the first 5 years that a credit would be realized, that credit would be a direct pay, so a cash credit, or you're going to elect to have it via cash credit, if you're not otherwise a U.S. taxpayer, or you don't otherwise have U.S. tax -- enough U.S. taxable income during the period. After the first 5 years, that direct pay provision, that's phased out, and the tax credits become tradable.

[Lucas Pipes, analyst]

Very helpful. Very helpful. I'll take those credits for continuing education. I really appreciate that.

[Jesse Gary, executive]

All right. Thanks, Lucas.

[Operator]

Our next question is from Timna Tanners.

[Timna Tanners, analyst]

Two quick follow-ups. One was that my team and I were kind of confused. Actually, we weren't 100% clear on how to think about the impact from Jamalco being closed, it sounds like, most of October. So if part of September was $16.9 million equipment failure, is it going to be an increased amount into the fourth quarter? And then assuming that's not going to be in your adjusted EBITDA, but just for our own calculations.

[Jesse Gary, executive]

Thanks, Timna. Good question. It is in the guide what we expect for Q4 impact to be. So it's included in that guide.

[Timna Tanners, analyst]

Wait, but you excluded the Jamalco equipment failure from third quarter EBITDA guidance. So we didn't think that you would include it for the fourth quarter.

[Jesse Gary, executive]

Yes, it is excluded. But the impact -- sort of calculated as we run through those results, but it is adjusted out. That's correct. As you might imagine, kind of we haven't closed the books for October yet even so it's a bit difficult to say exactly what that will be. But we do expect that, at that point, we will have fully in through any deductibles, frankly, well before that. So all of that should be recoverable dollars, which is why we decided to test it out. Does that makes sense?

[Timna Tanners, analyst]

Okay. But you aren't going to -- but for the fourth quarter, you'll include it and not exclude it? Is that what you're saying?

[Jesse Gary, executive]

Sorry, no, no, we'll adjust it out. What -- I guess what I'm saying is, dollar for dollar, it should be included under the insurance policies, deductibles already have been well before that.

[Timna Tanners, analyst]

Okay. But the fourth quarter relative to the third quarter, would you expect at larger similar, smaller? Just not clear on that dynamics given it's out for a longer period of time in October. Or do you not know? I'm sorry if that -- you know what I'm saying?

[Jesse Gary, executive]

I understand. Sorry, I understand your question. I'm sorry, I understand your question now. It's a bit hard to relate it back to the previous period because the Q3 number had some impact from the June outage running through it. And -- so it's a bit hard to sort of compare there's a few different things going on there. So I think it's probably easier just to wait until the Q4 call. We'll give you the exact total what it turned out to be. But again, it should be fully covered under the insurance policy. So...

[Timna Tanners, analyst]

Got it. Okay. One last thing, if I could. So the discussion is moving Mt. Holly total capacity makes me wonder if Ravenswood is becoming less likely to return? So I just wanted to ask about any updated thoughts there? And the longer that Ravenswood out doesn't that make it also more difficult to restart?

[Jesse Gary, executive]

Timna, you're showing how long you covered Century because you're referencing Ravenswood, which was in West Virginia, and it was permanently curtailed back in -- yes, 2008.

[Timna Tanners, analyst]

Sorry. You know I meant Hawesville, I'm sorry, not Ravenswood. Yes, I'm sorry, it's Hawesville.

[Jesse Gary, executive]

But I know what you mean. Yes, I know. I know what you mean. So no, no real comment on Hawesville at all. Obviously, it's much easier to take action at an operating smelter like Mt. Holly than it is to restart a curtailed smelter like Hawesville. And so when we look at options going forward, I think it will be pretty consistent that you'll see us talk about Mt. Holly is the first option to add production, but it's really not a comment on the future prospects of Hawesville at all.

[Operator]

There are no more questions, so I'll pass the call back over to the management team for closing remarks.

[Jesse Gary, executive]

Thanks, everyone. We really appreciate the questions, and we look forward to talking to you in February for our Q4 call. Thanks.

[Operator]

That concludes the conference call. Thank you for your participation. You may now disconnect your lines.