In the last part of this series, we saw that Century Aluminum (CENX) posted an adjusted earnings per share, or EPS, of $0.65 in 4Q14. It posted a loss of $0.11 per share in 4Q13. It’s a significant improvement on its year-over-year, or YoY, performance. What were the key drivers of Century Aluminum’s fourth quarter earnings?
The above chart shows the movement in the US Midwest premiums. As you can see, premiums increased sharply in 2014. Higher premiums helped Alcoa (AA) and Rio Tinto (RIO) post higher profits in their primary aluminum segments. Currently, Alcoa forms 3.30% of the Materials Select Sector SPDR ETF (XLB).
Constellium N.V. (CSTM) is negatively impacted by higher aluminum premiums. It hasn’t been able to fully pass on the aluminum premiums to its buyers.
Century Aluminum’s shipments increased in the fourth quarter. It was mainly due to the acquisition of stake in the Mt. Holly smelter. Also, in 2014, it had the full ownership of the Sebree smelter. This also led to higher shipments in 2014—compared to last year.
Lower power prices
Century Aluminum’s input costs came down in 4Q14. This was largely due to lower power prices in Kentucky. It’s important to note that electricity is a major raw material for aluminum companies. Electricity costs can make up almost one-third of aluminum’s production cost.
Alcoa is 20% self-sufficient in its electricity requirements. Recently, it shifted one of its power plants from crude oil to natural gas. This will help it reduce generation costs over the long term.
Why did Century Aluminum’s power costs come down in the fourth quarter? We’ll discuss this in the next part of this series.