Alcoa (AA.US), a major global producer of bauxite and aluminum products, released its latest earnings report, showing third-quarter revenue of $3.704 billion, up 23.7% year-over-year from $2.995 billion in the prior-year period; according to MarketBeat consensus, this slightly missed Wall Street analysts' average estimate of approximately $3.77 billion.
Net income attributable to the company was $483 million, up 108.2% year-over-year from $232 million; diluted earnings per share rose from $0.88 to $1.81. Excluding special items, adjusted net income was $485 million, compared with a net loss of $6 million in the prior-year period; adjusted earnings per share came in at $1.82, about 20.5% above the market consensus of $1.51, versus a loss of $0.02 in the prior-year period. Overall, the results reflected a combination of significantly improved profitability and adjusted profit beating expectations, though revenue slightly fell short.
Lower prices and shipment volumes returning to normal levels weighed on sequential performance, but higher alumina prices, restored operations at the Pinjarra refinery, and increased primary aluminum production and cost control provided support. Quarterly operating cash flow was $643 million, free cash flow was $472 million, and cumulative free cash flow for the first nine months was approximately $600 million. Management expects both business segments to continue increasing production and shipments in the fourth quarter; the net impact of operating factors in the alumina business is expected to be flat, though this measure temporarily excludes price changes, and subsequent price increases can still flow through to profit.
Overall, Alcoa's cash generation capacity strengthened in tandem 鈥?third-quarter adjusted EBITDA was $789 million, up 192.2% year-over-year from $270 million; operating cash flow rose from $85 million in the prior-year period to $643 million, while free cash flow unexpectedly swung from a net outflow of $66 million to a net inflow of $472 million. However, compared with the second quarter on a sequential basis, revenue declined approximately 6.6% and adjusted net income fell approximately 13.7%, mainly due to lower aluminum prices and shipment normalization, with operational improvements and higher alumina prices partially offsetting the pressure.
The company is advancing the AliGroup acquisition and has completed $2.6 billion in bond financing to fund part of the $3.1 billion cash consideration, with closing expected in the first half of 2027; deleveraging will be a priority after closing. A partial site sale agreement at Massena East could bring up to $315 million in cash, with an initial $50 million to $65 million expected at closing and the remainder tied to subsequent data center development progress; two other asset monetization opportunities are also being pursued.
On the industry front, global aluminum inventories are equivalent to approximately 42 days of consumption, and structural supply deficits persist in North America and Europe. Management predicted at the earnings call that Indonesia will add approximately 1.5 million metric tons of primary aluminum capacity in 2027, which the market can absorb; the alumina market outside China may tighten further due to production cuts, project delays, and uncertainty around new supply. Approval for Western Australian mining operations is expected to be delayed until 2027, and the company has arranged an additional six months of mining in existing areas, expecting no further material impact on supply, quality, or costs if approval is obtained by mid-2027.
As for whether the previously market-focused "unprecedented AI computing infrastructure boom drives surging aluminum demand for data centers" 鈥?this call did not directly list "AI computing infrastructure" as a driver of aluminum demand growth. Management explicitly stated that "packaging, data center expansion, and electrification markets continue to lead demand," but did not further attribute all electrical market demand directly to AI data centers, grid expansion, or related equipment procurement. The data-center-related highlight of the call was the asset monetization at the Massena East site: the partial site sale could bring up to $315 million in cash, with an initial $50 million to $65 million expected at closing and the remainder realized gradually as data center construction and expansion proceed. Management said the site's ultimate capacity could reach up to 635 megawatts, and the buyer wants to expand as much as possible because larger scale improves project economics; final expansion still depends on demand, regulatory approvals, and capital investment. The company has two other asset monetization opportunities underway but has not yet disclosed their names.
Overall, in management's view, Alcoa is benefiting both from improved aluminum and alumina supply-demand fundamentals and from unlocking industrial site value through data center development demand. From an engineering perspective, a large AI data center is first and foremost a highly industrialized "computing factory": steel goes into building structures, prefabricated steel frames, equipment supports, racks and peripheral facilities; copper, a critical industrial metal, goes into high-voltage and low-voltage power distribution, cables, busbars, grounding, transformer connections, liquid-cooled cold plates and heat exchangers. Aluminum, a lightweight industrial metal, has long been viewed as a substitute for copper, especially in applications where cost and weight are sensitive and conductivity requirements are relatively relaxed 鈥?a substitution trend that has persisted for more than a decade and has accelerated in recent years due to resource security and the new energy industry, though copper remains irreplaceable in high-reliability, high-power applications. Steel, copper, aluminum, nickel, tin and other industrial metals are becoming an "AI core investment theme" alongside AI GPU/ASIC, data center CPUs, HBM/NAND/HDD storage, 2.5D/3D advanced packaging, liquid cooling systems, optical interconnect supply chains, and data center power chains 鈥?building AI applications and data centers requires not only buying models, chips and high-performance AI cloud servers, but also spending heavily on underlying energy, metals, chemicals and resource security premiums that support AI computing infrastructure capacity expansion.
The following is the full transcript of Alcoa's earnings call (assisted by AI translation tools):
Operator: Good afternoon, and welcome to Alcoa Corporation's Third Quarter 2026 Earnings Release and Conference Call. [Operator instructions] Please note that this conference is being recorded. I will now turn the call over to Louis Langlois, Senior Vice President of Treasury and Capital Markets. Please go ahead.
Senior Vice President of Treasury and Capital Markets Louis Langlois: Thank you, and good day, everyone. Joining me today are Alcoa's President and Chief Executive Officer, William Oplinger, and Executive Vice President and Chief Financial Officer, Molly Beerman. After Bill and Molly's remarks, we will take your questions. As a reminder, today's discussion will contain forward-looking statements about future events and expectations that are subject to various assumptions and limitations. Factors that could cause the company's actual results to differ materially from these statements are included in today's presentation materials and in our filings with the SEC. In addition, this presentation contains certain non-GAAP financial measures. For historical non-GAAP financial measures, reconciliations to the most directly comparable GAAP measures can be found in the appendix of today's presentation. For the reasons described on this slide, we have not provided quantitative reconciliations for certain forward-looking non-GAAP financial measures. References to EBITDA in today's discussion refer to adjusted EBITDA. Finally, as previously announced, the earnings press release and slide presentation are both available on our website. I will now turn the call over to Bill.
President, CEO and Director William Oplinger: Thank you, Louis, and welcome to our Third Quarter 2026 Earnings Call. Before discussing results, I want to address the tragic fatality at the Alumar primary aluminum plant in Brazil on September 16. The loss of a colleague has deeply saddened everyone at Alcoa, and our thoughts remain with his family, friends, and colleagues. Our company is grounded in values: acting with integrity, operating with excellence, caring for people, and leading with courage. Safety is fundamental to our values and guides how we operate. No production target, financial result, or operating objective is more important than ensuring every employee and contractor returns home safely each day. Over the years, we have continued to strengthen our safety systems and invested significant resources in improving safety performance. These efforts have driven tangible progress in many areas of our business. But when we lose a colleague, progress alone is not enough. I am personally committed to learning from this incident, taking the necessary actions to strengthen our safety culture, reduce risk across our operations, and hold ourselves accountable to the highest safety standards. This tragedy is a reminder that safety requires relentless focus, constant vigilance, and unwavering commitment from every one of us every day. With that commitment in mind, I will now discuss third-quarter results. We continued to build operating momentum with a strong third quarter. Year to date, we set six production records, increased aluminum production by approximately 15,000 metric tons sequentially, completed the restart at the Alumar primary aluminum plant, and drove a significant recovery in operating performance at the Pinjarra alumina refinery. Together, these results reflect improved operating stability across our portfolio and disciplined execution. We reached a definitive agreement to sell a portion of the Massena East site, with potential cash proceeds of up to $315 million. We expect to receive an initial payment of $50 million to $65 million at closing; closing is expected within six months, subject to customary permitting, regulatory approvals, key development and closing conditions. We expect to receive the remaining cash consideration before the end of this decade, though the agreement allows for a commissioning period of up to seven years. This is the first transaction supporting our goal of $500 million to $1 billion in asset monetization by 2030. The AliGroup acquisition continues to advance. The strong performance of the relevant assets in the first half of 2026 further reinforced our confidence in the strategic and financial merits of the transaction. South32 shareholders have approved the transaction, moving us one step closer to our target of closing in the first half of 2027. Let me now update you on the latest progress toward closing. Since announcing the AliGroup acquisition on June 30, we have made substantial progress in closing preparation. In September, we completed $2.6 billion in debt financing and canceled the bridge facility. Completing financing early reduced transaction execution risk and provided funding certainty for the cash consideration. Based on public information, including production guidance provided by South32, we estimate the value under the locked-box mechanism exceeded $300 million as of the end of the quarter. Regulatory approvals in relevant jurisdictions are progressing well. Earlier this month, I met with South African President Ramaphosa and other important stakeholders. Our engagement with stakeholders has been positive, and we remain confident in obtaining the necessary approvals and proceeding on the timeline for closing in the first half of 2027. Our transition and integration team is actively preparing to take over these assets. This work spans the entire organization, with a focus on maintaining operational continuity, positioning the combined portfolio for value creation, and ensuring we can execute immediately after closing to begin realizing synergies and the broader benefits of the transaction. Until then, both businesses will continue to operate independently. I will now turn the call over to Molly to discuss financial results.
Executive Vice President and CFO Molly Beerman: Thank you, Bill. Third-quarter revenue was $3.7 billion, with the sequential change primarily reflecting lower metal prices. Alumina segment third-party sales revenue increased 7% to $680 million, driven by higher realized alumina prices and increased shipments. Aluminum segment third-party sales revenue was $3 billion, primarily reflecting lower metal prices and shipment volumes returning to normal levels after second-quarter inventory reconfiguration, with higher value-added product premiums partially offsetting these impacts. Third-quarter net income attributable to Alcoa was $483 million, compared with $407 million in the prior quarter, with earnings per common share rising to $1.81. Adjusted net income attributable to Alcoa remained strong at $485 million, compared with $562 million in the second quarter. Now let me discuss the factors affecting adjusted EBITDA. Adjusted EBITDA was $789 million, with strong operating performance and higher alumina prices partially offsetting lower metal prices. Alumina segment adjusted EBITDA increased $95 million, benefiting from higher realized alumina prices and improved operating performance following stabilization at the Pinjarra refinery in the third quarter. The aluminum segment continued to achieve production efficiency gains, including higher molten aluminum output, improved operating stability, and strict cost control. However, lower metal prices, reduced shipments, and higher carbon costs more than offset these gains, with segment adjusted EBITDA at $862 million. Next, let me discuss third-quarter 2026 cash flow. At the end of the third quarter, our cash balance was $4.4 billion, including $2.6 billion in cash raised from the September bond issuance. Net proceeds from the bond issuance, together with existing cash, will be used to pay the $3.1 billion cash consideration for the AliGroup acquisition at closing. Completing financing now avoids funding availability and pricing risk in volatile bond markets. The size of the issuance also reflects the strength of our balance sheet and cash position, supported by consecutive quarters of strong free cash flow generation. Third-quarter operating cash flow was $643 million, and free cash flow was $472 million, primarily supported by strong aluminum segment EBITDA, as the company successfully converted metal price gains into profit. Now let me discuss key financial metrics for the third quarter and year-to-date 2026. Return on equity for the first nine months of 2026 was 25.3%. Year to date, we returned $80 million in cash to shareholders through regular quarterly dividends. In the first nine months of the year, the company generated approximately $600 million in free cash flow. With the AliGroup acquisition close approaching, our strengthened balance sheet, completed financing, and ample cash provide sufficient funding certainty for the transaction. This is the result of disciplined capital allocation, strong cash generation, and consistently stable operating performance. Next, let me discuss the outlook. For the full-year outlook shown here, we have made only minor adjustments to transformation costs, depreciation, interest expense, and capital expenditures. In the fourth quarter, we continue to expect strong operating performance across both segments, extending third-quarter momentum. We expect both segments to increase production and shipments, as improved stability in the refining system is maintained and the primary aluminum portfolio continues to improve efficiency through incremental output and cost discipline. Although we expect higher market prices and planned maintenance to maintain operating stability to increase certain direct input costs, underlying operating performance remains very strong entering the final quarter of the year. For more details on the fourth-quarter outlook, please refer to the business-related items on page 34 of the presentation materials. I will now turn the call back to Bill.
President, CEO and Director William Oplinger: Thank you, Molly. On alumina, the market outside China tightened this quarter, and the alumina price index rose sequentially to approximately $370 per metric ton. We expect the market to tighten further in the fourth quarter and into 2027 due to announced production cuts, project delays, and uncertainty around new supply from Indonesia. At the same time, restored alumina production in the Middle East and continued ramp-up of primary aluminum smelters in Indonesia should support further increases in alumina demand. Although the timing of some capacity startups remains uncertain, overall market conditions are favorable. Supply within China remains ample, with new refining capacity driving higher production and inventories. This continues to create a sharp divergence: East Asian market conditions are generally weaker, while fundamentals outside China are tightening. Bauxite prices also rose sequentially, with China CIF prices reaching approximately $73 per dry metric ton. The increase was mainly driven by higher freight rates. For Alcoa, a stronger alumina market and improved operating execution create meaningful upside. Our focus remains on safely and reliably operating refineries, building on Pinjarra's recent operational improvements, and maintaining strict cost management. Now to aluminum. Aluminum prices have pulled back from recent highs but remain supported by solid market fundamentals. On the supply side, production is gradually recovering as Middle East smelters restart and Indonesian capacity ramps up. When Middle East production will fully recover to pre-conflict levels remains uncertain. Global aluminum inventories remain at historically low levels, equivalent to approximately 42 days of consumption, meaning the market has limited ability to absorb further supply disruptions or stronger-than-expected demand growth. Regional premiums in the U.S. Midwest, Rotterdam, and Japan have declined from highs but remain supported by low inventories and regional supply gaps. Supply tightness is particularly pronounced in North America and Europe, both of which have structural metal supply shortages. For Alcoa, our regional footprint, reliable supply, and differentiated product portfolio are important components of our commercial value proposition. Our order book remains solid, with significantly less available for sale than a year ago. Most products are already sold out or clearly committed. Packaging and electrical markets continue to lead demand. Transportation markets remain resilient, while construction, especially in Europe, remains the weakest end market. Customer sentiment is cautious but positive, with continued focus on supply security and long-term agreements. Before closing, I want to return to the three priorities we laid out at our Investor Day nearly a year ago. First, operational excellence. As I said at the start of the call, safety remains our top priority and the foundation of operational excellence. We are strengthening critical risk controls, leadership behaviors, and accountability. Operating stability across the portfolio is improving, we set production records, and we improved efficiency. Today, the restarts at both the San Ciprian and Alumar primary aluminum plants are complete. While the Western Australia Environmental Protection Authority continues its review of our mining plan, we are preparing teams for the upcoming mining area transition. Mining approvals are taking longer than expected. Several steps remain, including the appeals process and the Minister's final decision, and we now expect this process to extend into 2027. Our confidence in ultimately obtaining approval is unchanged. We have incorporated an additional six months of mining in existing areas into our plans and do not expect further material impact on supply, quality, or costs if approval is obtained by mid-2027. We also have contingency plans if necessary. Second, value-creating growth. At Investor Day, we made clear that we will pursue growth only when we see a strong path to creating long-term shareholder value. The AliGroup acquisition reflects that discipline, and we will evaluate any future opportunities by the same standard. We will not grow for growth's sake. Third, disciplined capital allocation. Supported by strong free cash flow year to date, we maintained a solid balance sheet at the end of the third quarter. We have arranged the AliGroup consideration accordingly, resulting in pro forma leverage of approximately 1.5 times, which is manageable. After the acquisition closes, deleveraging will be our priority. Over time, we expect to use multiple sources of cash to reduce debt, including free cash flow, locked-box cash from the transaction, proceeds from further sales of transformation-related assets, and monetization of our stake in the Saudi mining company. Given the combined portfolio's stronger cash generation through the cycle, we will update our adjusted net debt target at closing. The Massena East agreement also marks meaningful progress in our asset monetization strategy. These actions show that we are executing the strategy laid out at Investor Day and strengthening Alcoa's ability to create long-term value. Finally, we are proud of what we achieved in the third quarter, excited about future opportunities, and confident in our ability to create value for shareholders. The following is the Q&A session of the earnings call (AI-assisted summary and translation): I will now ask the operator to begin the Q&A session.
Operator: [Operator instructions] Our first question comes from Carlos De Alba of Morgan Stanley.
Morgan Stanley Research Carlos De Alba: My first question is on guidance. The roughly flat expectation for the alumina business surprised us a bit, because as we understand it, spot prices have risen in recent months. I know there is some lag effect, but it was still a little surprising. Can you explain whether there are certain cost pressures offsetting some of the revenue-side improvement?
Executive Vice President and CFO Molly Beerman: Carlos, the flat guidance we referred to applies only to operating performance factors, not market factors. If you look at the alumina segment, there are some positive and negative factors. Some maintenance schedules shifted across regions, but improved shipment performance fully offset those impacts. So overall, the operating factors offset each other, with a net impact of zero, or flat, consistent with strong third-quarter operating performance.
Carlos De Alba: So...
President, CEO and Director William Oplinger: Carlos, let me clarify: this guidance does not include pricing, right? So if prices improve this quarter 鈥?and they are indeed better than a quarter ago 鈥?those improvements will flow through to results.
Carlos De Alba: Right. Okay. Yes, I did not confuse the two. We are not looking at consensus versus our own estimates; that happens. But okay, that makes sense. Next, I wanted to understand: third-quarter aluminum production increased, but aluminum shipments declined slightly. Was there inventory build or shipment delay that could be made up this quarter? Some color would be great.
Molly Beerman: Carlos, please remember that in the second quarter we sold about 30,000 metric tons of inventory that had been reconfigured in the first quarter. That did not repeat in the third quarter. Aside from that non-recurring inventory reconfiguration impact, third-quarter shipment performance was strong.
Operator: Our next question comes from Timna Tanners of Wells Fargo.
Wells Fargo Research Timna Tanners: I think it is worth discussing the potential exemption for Canadian aluminum prices or aluminum tariffs, because there were related developments this quarter. If you know whether those discussions are still ongoing and what that might mean for Alcoa, I would like to hear your view.
William Oplinger: Thank you, Timna. We do not know what discussions are underway between the U.S. and Canada. We have told both governments we are willing to support them by providing data and information to help them reach conclusions on any discussions that may be taking place. What really matters is whether the U.S. still has a supply gap, right? If Canada receives a full exemption or a lower tariff applies, we believe the marginal ton needed to meet demand will still come from outside North America. Therefore, the U.S. Midwest premium should remain strong. But at this point, all of that is speculation.
Timna Tanners: Okay, understood. I also want to hear how you view the Indonesian capacity ramp-up you mentioned and your confidence in it. Some forecasts suggest fairly aggressive production growth. Is the Indonesian government aware of the risk to aluminum prices, similar to what happened with nickel prices in recent years? How do you view new supply, how much capacity Indonesia might bring on, and the timing? Also, I would like to hear your latest view on China's aluminum production exceeding its self-imposed cap.
William Oplinger: Okay. Yes, that includes a lot of questions. For the remainder of 2026, we have actually seen alumina prices strengthen as smelters ramp up and some Middle East capacity recovers. So that is actually favorable for us. By January, we will provide a fuller overview of full-year supply and demand. But to give a preliminary view, we believe about 1.5 million metric tons of primary aluminum capacity may come online in Indonesia next year. For a 75 million metric ton market, that is a meaningful number, but we believe the market can absorb it. Then you asked about China's production cap. Looking at Chinese smelters, the cap appears more like a policy tool to set limits rather than an absolute hard ceiling that cannot be breached, because they allow some Chinese smelters to increase output slightly but not to allow a major jump in capacity. For example, we see China's capacity 鈥?or production 鈥?in 2026 at about 45.8 million metric tons, 400,000 metric tons above the nominal cap. However, they appear to be maintaining restrictions on capacity while allowing production to grow slightly.
Operator: Our next question comes from Nick Giles of B. Riley.
B. Riley Securities Research Nick Giles: Aluminum equities overall have come under a lot of pressure. So, Bill, I wanted to understand where share buybacks sit in the current capital allocation framework?
William Oplinger: We will 鈥?Nick, thank you for your question. We are working to complete the South32 AliGroup transaction in the first half of next year. Clearly, we have issued debt to fund the cash portion. Please note that the cash consideration is $3.1 billion. We raised only $2.6 billion because we will use some cash on the balance sheet. We expect to complete the transaction in the first half. After closing, the priority will be to deleverage quickly 鈥?clearly, based on the cash generation we are seeing, we can do so fairly quickly. We mentioned an estimated $300 million of cash in the locked box. That will of course be used to pay the cash consideration. But at this stage, our objective is deleveraging.
Nick Giles: Understood. Thank you for the explanation, Bill. My second question is: you mentioned the Western Australia EPA approval was delayed by six months and that you have incorporated some contingency arrangements. Could you elaborate on what those arrangements are and what actions you would take if approval continues to be delayed?
William Oplinger: Those contingency arrangements mainly involve rescheduling and adjusting mining activities. We are studying different production plans and will in effect continue mining in the current areas. We are confident there will be no negative impact on bauxite supply or quality, or more precisely, no further negative impact. If it goes beyond the initial six months, we will have to make some harder decisions. However, we are confident we will obtain these approvals in the first half of next year.
Operator: Our next question comes from Katja Jancic of BMO Capital Markets.
BMO Capital Markets Equity Research Katja Jancic: First, I want to discuss the contingent consideration in the acquisition. Given that alumina prices are already above the trigger price, can we assume the alumina-related portion has already begun accruing? Or how should we think about it?
Molly Beerman: Yes, Katja, if currently 鈥?the third-quarter LME average was around the "$32.20" level [as originally stated]. I do not remember the exact number, but that would result in a payment of about $13 million for the first period. So the amount is not large.
William Oplinger: But Katja asked about alumina prices.
Molly Beerman: Alumina prices, sorry. On alumina, there is no 鈥?there are no amounts payable. We have not yet reached the trigger price.
William Oplinger: Katja, at the current level of $370 per metric ton 鈥?sorry, $387 today 鈥?we have not reached the trigger price.
Katja Jancic: Okay. Next, I wanted to ask about asset monetization. I recall you previously said there were two other assets that could potentially move forward soon after Massena East. Could you provide an update?
William Oplinger: There are two other assets that could potentially move forward soon after Massena East. Yes. Katja, I was just joking. We just 鈥?we are pleased to be able to announce the Massena East transaction. As you can see from the structure, it is a relatively complex transaction. It will bring us some cash upfront, but as the data center is built and then scaled, it will continue to generate cash for us over the next five years. So it gives us significant upside. We believe the other two transactions could potentially land relatively soon thereafter. We have not disclosed the names of those assets. But since Massena East is at least under agreement 鈥?of course, we still need to close 鈥?since it is at least under agreement, we will shift focus to the next two transactions. There will be more to come.
Operator: [Operator instructions] Our next question comes from Bill Peterson of JPMorgan.
JPMorgan Research William Peterson: I wanted to follow up on the Massena East agreement. Will you know the final amount when the relevant capacity is approved? Or is it that the additional amount I understand to be up to $250 million can only be received as capacity grows? I am just trying to understand when we will know how much value you ultimately receive. More importantly, will this become a similar template for future agreements? Or should it be viewed as a relatively unique transaction?
Molly Beerman: Bill, let me answer the scale question first. We do have one 鈥?the minimum capacity initially applied for permitting will be 180 megawatts. There may then be two expansions, adding another 300 megawatts and 200 megawatts, respectively. Therefore, the site's capacity could reach up to 635 megawatts. So the final scale will depend on the progress of permitting and approvals. However, the initial payment at closing will be based on the initial permit and will initially be at that minimum capacity level.
William Oplinger: As for whether this will become a template, Bill, I think the answer is clearly no. There is no specific template for data-center-related sale transactions. We have found that to fully realize the value of each site, we must negotiate agreement terms specifically for each site. Therefore, one of the next two transactions may use a similar structure, but we will also seek structures with more upfront cash and a smaller share of future value. Because each site has its own complexities, there is no uniform template for these transactions.
William Peterson: Okay, understood. Thank you. Next, I wanted to understand some cost guidance for alumina and aluminum. I recall it was about $30 million for each segment. So I wanted to understand the persistence of these cost increases. For the aluminum business, can you explain specifically where the raw material cost increases are coming from? Likewise, for the alumina business, I think it is mainly caustic soda 鈥?how long will these cost pressures last?
Molly Beerman: Bill, if you look back, let me start with caustic soda. In the second quarter, shortly after the war began, we saw caustic soda prices spike sharply. But that did not last, and prices quickly fell back. So although the cost of caustic soda purchased at high prices at that time is now gradually flowing through the income statement, we are not seeing a significant sequential impact. However, carbon prices did rise. When we provided third-quarter guidance in the third quarter 鈥?sorry, the second quarter 鈥?we thought the impact would be only about $15 million. The final impact was slightly above $20 million. So from the perspective of carbon costs gradually flowing through the income statement, the third-quarter impact was slightly above $20 million, and for the fourth quarter I expect carbon costs to increase by another approximately $10 million. Currently, fourth-quarter purchase prices are still rising, but only slightly. So we are not seeing an acceleration in price increases.
William Peterson: I want to double-check to make sure I understand correctly. I thought you meant costs would increase by $30 million in each segment. That is not actually the case; rather, alumina is flat and aluminum increases by $30 million. I just want to clarify that point.
Molly Beerman: Of that $30 million in the aluminum business, $10 million comes from carbon costs.
Operator: Our next question comes from Lawson Winder of Bank of America.
BofA Securities Research Lawson Winder: I wanted to follow up on the Massena East sale. One thing that is not clear: after closing, will Alcoa still bear any environmental remediation, demolition, or other legacy liabilities? Or will those liabilities transfer to the buyer?
Molly Beerman: No, we will retain environmental remediation responsibility. We continue to remediate the site. For the portion of land being sold, all of our environmental remediation work has been completed.
Lawson Winder: Okay, very clear. One more question. Of course, there has been a lot of discussion about the AliGroup opportunity and how important it is. When you look at potential global M&A opportunities, do you still see other unique opportunities like AliGroup? After completing the AliGroup closing, how interested is Alcoa in further acquisitions?
William Oplinger: AliGroup is a large acquisition for us. Before we start discussing other opportunities, please let us complete this transaction first. What I really want to demonstrate through this acquisition is two things: first, that we can grow the company; second, that we can successfully integrate an acquisition. We have built a fairly large team working on integration preparation to ensure we are ready on day one after closing. In my prepared remarks, I mentioned that I traveled to South Africa and met with President Ramaphosa. He welcomed us warmly to South Africa, and I emphasized to him that we are an aluminum company. We want to own Hillside, we want to be in Hillside for the long term, and we are committed to the aluminum industry. Therefore, before discussing other opportunities, we will first focus on completing this transaction.
Operator: Our next question comes from Richard Garchitorena of Barclays.
Barclays Research Richard Garchitorena: My first question is mainly about the acquisition. You have obtained South32 shareholder approval. Looking ahead, what are you currently doing to prepare for final integration? Can you do some planning in advance? Or must you wait until relevant country approvals and procurement-related contractual arrangements are in place before acting? Is there any work that can be done ahead of time to accelerate synergy realization?
William Oplinger: Yes. From now until closing, we are mainly focused on two things. First, obtaining the required regulatory approvals. There are about a dozen approvals needed, some of which have already been obtained. At this point, we do not see any obvious obstacles to obtaining these regulatory approvals. Second, over the past roughly 60 days, we have established a sizable integration management office preparing to operate these assets from day one after closing. Given the complexity of acquiring assets of this scale, this is by no means a simple task. They are preparing for bauxite, alumina, and aluminum sales, production, and accounting. So this is not a small undertaking, and we are taking it very seriously. Molly, I know you have also been closely involved. Is there anything you would like to add?
Molly Beerman: I would add that we have signed an 18-month transition services agreement with South32. Therefore, after the legal closing date, we still have related service support. However, we are already preparing for all the work ahead so that once closing is completed, we can immediately work closely with the relevant teams to integrate the organization, systems, and processes, and realize the synergies we have already identified.
William Oplinger: I should also note that even before closing, both companies are working together to ensure this is a successful asset sale for them and a successful acquisition for us.
Richard Garchitorena: That is helpful. Next, I wanted to ask an industry-level question. You mentioned the Middle East is considering increasing primary aluminum production. My question is whether there are any constraints. Do they have sufficient raw materials to run these smelters at full capacity by the target time of the first quarter next year? How would continued disruption to shipping through the Strait of Hormuz affect their ability to reach those levels?
William Oplinger: I do not have a good answer to that. You really need to ask them how they plan to achieve that. If I may offer a bit of macro-level thinking, I believe the world has changed when it comes to aluminum supply involving areas inside the Strait of Hormuz. I think it will take some time for logistics into and out of the region to fully normalize. So I think the impact is significant. Even though prices have fallen from previous levels, today's price is still close to $3,000 per metric ton, which reflects that impact. So it has already had a major impact, and I think it will continue to have a major impact in the future.
Operator: Our next question is a follow-up from Timna Tanners of Wells Fargo.
Timna Tanners: If I may, I wanted to follow up on working capital. There was a large seasonal cash absorption in the first quarter, but we have not seen a meaningful release since. If aluminum prices remain at current levels, I think you could see a fairly significant release. To the extent possible, can you indicate what you would expect if these price levels continue into the fourth quarter?
Molly Beerman: Tim, if you look at working capital days and review history, we typically go from about 50 days down to 35 to 40 days. Therefore, I expect we will release at least about 10 days' worth of working capital entering the fourth quarter. Clearly, the actual amount will depend on year-end prices, but that is our expectation.
Operator: Our next question is a follow-up from Carlos De Alba of Morgan Stanley.
Morgan Stanley Research Carlos De Alba: Yes, regarding approvals for the AliGroup transaction, do you need approval from China?
William Oplinger: No.
Morgan Stanley Research Carlos De Alba: Okay. Then, regarding the Massena East transaction, does the phased increase in capacity depend only on regulatory approvals? Or 鈥?how do you ensure this will not depend on the data center side's decision? For example, if economics change, they may be unwilling to proceed with the first or second phase of expansion?
William Oplinger: Carlos, in my view, they very much want to deploy as much capacity as possible at Massena East. The larger the facility, the better its economics. Therefore, I think it will depend on several factors: how quickly they move, how much demand there is, and how many regulatory approvals they can obtain. Those are the two main issues. I think it also includes how much capital they can ultimately invest. However, I believe they want the scale to be as large as possible, because I believe larger scale significantly improves the economics.
Operator: That concludes the Q&A session. I will now turn the call back to Mr. Oplinger for closing remarks.
William Oplinger: Thank you, operator, and thank you all for joining this call. Molly and I look forward to sharing further progress when we speak with you again in January. That concludes this call. Thank you.
Operator: This conference is now concluded. Thank you all for participating in today's earnings presentation. You may now disconnect.
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