Alcoa 2014 Annual Report Download - page 85

Intersegment sales for the Alumina segment decreased 13% in 2014 compared with 2013 and declined 3% in 2013
compared with 2012. The decrease in both periods was mostly the result of lower demand from the Primary Metals
segment.
ATOI for the Alumina segment improved $111 in 2014 compared with 2013, mostly due to net favorable foreign
currency movements due to a stronger U.S. dollar, especially against the Australian dollar, net productivity
improvements, and a gain on the sale of a mining interest in Suriname ($18). These positive impacts were partially
offset by higher input costs, including natural gas (particularly higher prices in Australia), bauxite (mainly due to a new
mining site in Suriname), and labor and maintenance, all of which were somewhat offset by lower costs for caustic; and
a higher equity loss due to start-up costs of the bauxite mine and refinery in Saudi Arabia.
ATOI for this segment increased $169 in 2013 compared with 2012, mainly caused by net favorable foreign currency
movements due to a stronger U.S. dollar, especially against the Australian dollar, and net productivity improvements.
These positive impacts were somewhat offset by cost increases for bauxite due to a new mining site in Suriname and a
crusher equipment move in Australia, rising natural gas prices in Australia, and higher maintenance costs in Australia
and Latin America.
In 2015, alumina production will be approximately 700 kmt lower due to the sale of the interest in the Jamaica refinery.
Also, the continued shift towards alumina index and spot pricing is expected to average 75% of third-party shipments.
Additionally, net productivity improvements are anticipated and lower energy costs are expected in Spain due to the
conversion of the fuel source at the refinery from fuel oil to natural gas. Furthermore, the refinery in Saudi Arabia is
expected to produce 1,100 kmt (276 kmt is Alcoa’s share) of alumina, as it became fully operational at the end of 2014.
Primary Metals
2014 2013 2012
Aluminum production (kmt) 3,125 3,550 3,742
Third-party aluminum shipments (kmt) 2,534 2,801 3,056
Alcoa’s average realized price per metric ton of aluminum* $2,405 $2,243 $ 2,327
Alcoa’s average cost per metric ton of aluminum** $2,252 $2,201 $ 2,287
Third-party sales $6,800 $6,596 $ 7,432
Intersegment sales 2,931 2,621 2,877
Total sales $9,731 $9,217 $10,309
ATOI $ 594 $ (20) $ 309
* Average realized price per metric ton of aluminum includes three elements: a) the underlying base metal component,
based on quoted prices from the LME; b) the regional premium, which represents the incremental price over the base
LME component that is associated with the physical delivery of metal to a particular region (e.g., the Midwest
premium for metal sold in the United States); and c) the product premium, which represents the incremental price for
receiving physical metal in a particular shape (e.g., billet, slab, rod, etc.) or alloy.
**Includes all production-related costs, including raw materials consumed; conversion costs, such as labor, materials,
and utilities; depreciation and amortization; and plant administrative expenses.
This segment represents a portion of Alcoa’s upstream operations and consists of the Company’s worldwide smelter
system. Primary Metals receives alumina, mostly from the Alumina segment, and produces primary aluminum used by
Alcoa’s fabricating businesses, as well as sold to external customers and traders. Results from the sale of aluminum
powder, scrap, and excess power are also included in this segment, as well as the results of aluminum derivative
contracts and buy/resell activity. Primary aluminum produced by Alcoa and used internally is transferred to other
segments at prevailing market prices. The sale of primary aluminum represents approximately 90% of this segment’s
third-party sales. Buy/resell activity occurs when this segment purchases metal and resells such metal to external
customers or the midstream and downstream segments in order to maximize smelting system efficiency and to meet
customer requirements.
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