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Arconic cuts aluminum sales outlook on tighter margins, Tennessee plant disruption


Negative impact from higher costs, logistics blips

Tennessee can recycling disrupted by equipment failure

Arconic has lowered its aluminum sales guidance for full-year 2022, after previously raising it in May, due to tighter margins across its operations and an equipment failure at its Tennessee operations, CEO Timothy Myers said Aug. 2.

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The downstream aluminum producer's revenue is now expected to be in the range of $9.6 billion-$10 billion, Myers said during a second quarter earnings call with industry analysts. The most current outlook is down from ranges forecasted at $10.1 billion-$10.5 billion in May and $9.9 billion-$10.3 billion at the beginning of the year.

Myers said lower aluminum prices, paired with higher input costs and logistics issues, have caused the softer expectations. Arconic also anticipates its full-year adjusted EBITDA to be at the low end of its previously announced $820 million-$870 million range due to these factors.

"This is a result of the ramp-up issues in Tennessee, as well as the cost to replace high purity aluminum associated with Century [Aluminum]'s force majeure announcement and transportation issues associated with the North American railcar labor dispute," he said. "We are currently seeing a slowdown in railcar deliveries, which is driving inefficiencies at our Davenport [Iowa] operations, as well as additional costs to transload material to truck to support production."

In June, Century began a temporary idle of its 250,000 mt/year smelter in Hawesville, Kentucky, in response to surging energy costs. The plant is a significant domestic producer of high purity aluminum in the US and was operating at 80% capacity at the time of the idling.

Myers said high energy and alloyed material prices are also pressuring Arconic's near-term outlook, but the company is planning to "execute on additional pricing actions to address these pressures in our contracting season for 2023."

At its Tennessee plant, Myers said Arconic is working to fix an equipment issue that occurred in Q2 and impacted the site's beverage can recycling capabilities. Operations are expected to return to normal production rates in the fourth quarter, he added.

"The failure disrupted overall production and also increased the amount of higher-cost aluminum scrap inputs with diluted can sheet margins that depend on substantial amounts of lower-cost used beverage can content," he said.

The Tennessee facility began shifting some of its production toward can sheet for the beverage industry in 2021 and is continuing to ramp up that capacity.

The Pittsburgh-based Arconic posted an income of $114 million on sales of $2.55 billion in Q2, compared with a loss of $427 million on sales of $1.80 billion in the year-ago period.