Executive Summary / Key Takeaways

• Century Aluminum (NASDAQ: CENX) is undergoing a strategic transformation, leveraging its integrated "mine to metal" model, favorable policy tailwinds, and operational improvements to enhance profitability and stability.
• Recent increases in U.S. Section 232 tariffs have significantly boosted the Midwest Premium, providing a material positive impact on the company's U.S. operations, with the full benefit expected to flow through in Q2 2025 results.
• The Inflation Reduction Act's Section 45X production tax credit, now clarified to include carbon and other operating supplies, offers substantial annual benefits ($79M for FY2023, ~$73M for FY2024), significantly improving the competitiveness and quality of the company's U.S. earnings.
• The acquisition of a controlling interest in the Jamalco alumina refinery provides a critical, cost-competitive, and integrated supply of alumina, reducing exposure to volatile spot markets and supporting strategic growth initiatives.
• The company is pursuing significant growth projects, including evaluating a potential restart of Mt. Holly, exploring strategic alternatives for Hawesville, and planning the first new U.S. smelter in decades with DOE funding, positioning it to capitalize on growing domestic demand and policy support.

Reshaping the Foundation: Century Aluminum's Integrated Strategy and Market Position

Century Aluminum stands as a key player in the global aluminum market, primarily focused on the production of primary aluminum and, following a pivotal acquisition, alumina. The company operates an integrated "mine to metal" model, managing assets that span bauxite mining, alumina refining, primary aluminum smelting, and carbon anode production. This structure, formalized into a single operating and reportable segment managed on a consolidated basis as of Q1 2025, reflects a strategic shift towards greater control and transparency across its supply chain.

The company's operational footprint includes primary aluminum smelters in the United States (Hawesville, Sebree, Mt. Holly) and Iceland (Grundartangi), a carbon anode facility in the Netherlands (Vlissingen) supporting Grundartangi, and a 55% interest in the Jamalco alumina refinery in Jamaica. This geographic and operational diversity positions Century to serve key markets in the U.S. and Europe, benefiting from regional dynamics and trade policies.

In the competitive landscape, Century Aluminum operates alongside larger, more diversified metals producers like Worthington Enterprises (WOR), United States Steel Corp. (X), and Nucor Corporation (NUE). While these competitors often have broader product portfolios (primarily steel for WOR, X, NUE) and sometimes greater scale or diversification, Century's strategic focus on primary aluminum and its integrated model provide distinct advantages. Century's offerings emphasize the inherent benefits of aluminum, such as its lightweight properties (potentially offering 15-30% greater efficiency in weight reduction for vehicles compared to steel), corrosion resistance, and thermal conductivity, which are increasingly valued in sectors like automotive, construction, and renewable energy.

However, Century faces competitive challenges, particularly concerning energy costs, which can result in higher operating costs per unit compared to some steel producers. This vulnerability to energy price volatility impacts margins and cash flow stability. While precise, directly comparable market share figures for all niche competitors are not publicly detailed, Century holds an estimated 5-10% share in global primary aluminum, trailing larger players. Its historical growth trajectory has sometimes lagged broader market growth and competitors like Nucor, reflecting exposure to commodity price swings.

Century's strategic response to these dynamics involves leveraging its integrated assets, optimizing operations, and capitalizing on policy support. The acquisition of Jamalco in May 2023 was a transformative step, securing a predictable, long-term supply of alumina and reducing reliance on volatile spot markets. This vertical integration is a key differentiator, providing a cost-competitive advantage compared to producers reliant solely on market purchases. The company's power arrangements, such as access to MISO pricing for its Kentucky smelters and LME-linked or fixed-rate contracts in Iceland, are also critical operational levers.

Technological Edge and Policy Tailwinds: Enhancing Competitiveness

While Century Aluminum's core smelting technology is based on established processes, its competitive positioning is increasingly defined by operational integration, strategic investments in efficiency, and the significant impact of U.S. policy. The Grundartangi casthouse, completed in Q2 2024, enables the production of "natural green billets," a value-added product that caters to market demand for lower-carbon materials. This reflects an investment in product technology and market differentiation.

A more profound technological and competitive advantage stems from the Inflation Reduction Act's Section 45X production tax credit. This policy provides a credit equal to 10% of certain eligible production costs for critical minerals like aluminum produced domestically. Final regulations published in October 2024 clarified that direct and indirect materials, including coke, pitch, and other operating supplies, are eligible costs. This significantly enhances the cost competitiveness of Century's U.S. operations. The company expects substantial benefits from this credit, estimated at $79 million for fiscal year 2023 and approximately $73 million for fiscal year 2024. If alumina is ultimately included as an eligible cost (a point reserved for future guidance), this annual benefit could increase by another $30 million. These credits do not phase out over time and would increase with higher U.S. production volumes, providing a durable boost to profitability and helping to offset some of the inherent energy cost disadvantages compared to certain competitors. The company expects to receive the first cash payment of the FY2023 credit ($60 million) during Q2 2025.

Looking ahead, Century is pursuing the development of a new U.S. primary aluminum smelter, supported by a Department of Energy award of up to $500 million announced in January 2025. This project, envisioned as the first new U.S. smelter in 45-50 years, aims to double the size of the existing domestic industry and incorporate "best-in-class technology" targeting enhanced efficiency and sustainability. While specific quantifiable performance targets for this future technology were not detailed, the strategic intent is clear: to build a highly competitive, low-carbon production facility capable of meeting growing domestic demand for military-grade and value-added aluminum alloys, creating over 1,000 direct jobs.

Furthermore, recent changes in U.S. trade policy, particularly the increase in Section 232 tariffs on imported primary aluminum to 25% and the removal of country exemptions effective March 12, 2025, have created a significant tailwind for domestic producers like Century. This action has already led to a substantial increase in the U.S. Midwest Premium, which doubled soon after the effective date. While some front-running of imports temporarily pressured the premium below its peak, the company believes it will rise further to the $0.45 to $0.50 range as excess inventories are consumed. This higher premium directly benefits Century's U.S. sales, providing a material positive impact on financial results, with the full effect expected in Q2 2025 due to contractual lags.

Financial Performance and Outlook: Capitalizing on Tailwinds

Century Aluminum's recent financial performance reflects the interplay of market prices, operational execution, and policy impacts. For the three months ended March 31, 2025, the company reported net sales of $633.9 million, a significant increase from $489.5 million in the prior-year period. This 29.5% year-over-year growth was primarily driven by favorable realized LME and regional price premiums and a substantial increase in third-party alumina sales from Jamalco ($98.1M in Q1 2025 vs. $40.1M in Q1 2024).

Gross profit saw a dramatic improvement, rising to $60.6 million in Q1 2025 from $16.5 million in Q1 2024. This was largely attributable to favorable metal and regional price realization, although partially offset by higher power costs and increased operating expenses, including labor and maintenance related to the Grundartangi casthouse ramp-up. Net income attributable to Century stockholders was $29.7 million in Q1 2025, compared to $246.8 million in Q1 2024, which included a $245.9 million bargain purchase gain from the Jamalco acquisition. Excluding this one-time gain, Q1 2025 demonstrates improved underlying operating profitability.

Adjusted EBITDA, a key profitability metric, stood at $78 million in Q1 2025. While slightly down sequentially from Q4 2024 ($82M), this reflected the impact of higher energy prices due to cold weather and one-time alumina costs related to a Q4 2024 force majeure event, partially offset by higher metal prices. Compared to Q1 2024 ($16.5M gross profit, EBITDA not explicitly stated but implied lower), Q1 2025 shows a substantial operational turnaround, benefiting from improved market conditions and the inclusion of Jamalco.

Liquidity saw a significant boost in Q1 2025, increasing by $94 million to $339.1 million as of March 31, 2025, comprising cash and revolving credit availability. Net debt declined by $55 million to $442 million. This improvement was fueled by strong operating performance and effective working capital management. The company believes its current liquidity and expected cash flows from operations and financing activities are adequate to cover its needs over the next twelve months, including planned capital expenditures.

Looking ahead, management provided specific guidance for Q2 2025, projecting adjusted EBITDA in the range of $80 million to $90 million. This outlook is primarily driven by the full realization of the substantially higher lagged U.S. Midwest Premium ($866/tonne expected in Q2, up ~$265 vs Q1), which is expected to contribute a $10 million increase to EBITDA despite lower lagged LME and European premiums. Energy costs are expected to be a $10 million tailwind, while rising raw material costs (coke, pitch, caustic) are a $5 million to $10 million headwind. A notable factor is a one-time increase in operating expenses of $10 million to $15 million related to planned summer labor increases and bringing forward maintenance at the Sebree carbon plant to enhance reliability. Volume and mix are expected to provide a $5 million benefit.

Capital expenditures for 2025 are estimated at $70 million to $80 million, including $40 million allocated to investments at Jamalco, primarily for the new steam power generation turbine project aimed at lowering costs and increasing self-sufficiency by Q1 2026. Total shipments are expected to improve to 700,000 tonnes in 2025 as plants operate at targeted utilization levels.

Risks and Challenges

Despite the positive momentum, Century Aluminum faces inherent risks. Commodity price volatility remains a primary concern, as fluctuations in aluminum, alumina, and energy prices directly impact profitability. Geopolitical events can disrupt supply chains (as seen with the Jamalco port damage from Hurricane Beryl and bauxite/alumina market disruptions) and influence trade policies. Operational risks include potential curtailments (like those experienced at Grundartangi, though now ended), equipment failures, and the challenges of maintaining efficiency across multiple facilities.

Financial risks include managing debt levels and complying with credit facility covenants, although the company was in compliance as of March 31, 2025. Internal control weaknesses, previously reported and still undergoing remediation as of March 31, 2025, pose a risk to financial reporting accuracy. Legal and environmental contingencies are also ongoing considerations.

Furthermore, the realization of strategic initiatives, such as the potential restart of Mt. Holly, the outcome of the Hawesville strategic review, and the successful execution of the new U.S. smelter project, are subject to market conditions, financing availability, regulatory approvals, and operational execution risks. The DOE funding for the new smelter is also subject to review following recent Executive Orders.

Competitive Positioning and Strategic Response

Century's competitive strategy is to leverage its integrated structure and operational base in key Western markets to differentiate itself. Against larger steel producers, Century highlights aluminum's performance advantages and increasingly, the sustainability profile of its production, especially with the benefits of the 45X credit and future low-carbon initiatives. While competitors like Nucor may exhibit stronger financial metrics (higher margins, ROIC) and operational efficiency, Century's vertical integration (Jamalco, Vlissingen) provides cost control benefits in raw materials.

The company's presence in the U.S. and Europe allows it to benefit directly from trade protection measures and regional premiums, providing a buffer against global price volatility and competition from regions with lower production standards or costs. The strategic review of Hawesville, exploring potential redevelopment for alternative uses like data centers, demonstrates adaptability in maximizing asset value beyond traditional aluminum production, potentially capitalizing on the site's energy infrastructure in a market segment (AI/data centers) where competitors like WOR, X, and NUE are not directly positioned.

The planned new U.S. smelter is the most significant strategic response to the competitive landscape and policy environment. By aiming to double domestic capacity with advanced technology and policy support, Century seeks to solidify its position as the leading U.S. primary aluminum producer, catering to national security needs and growing domestic demand driven by nearshoring and infrastructure investment, areas where U.S. Steel and Nucor also compete with steel products.

Conclusion

Century Aluminum is navigating a period of significant opportunity, driven by favorable market dynamics, impactful U.S. trade policy, and the benefits of the Inflation Reduction Act's production tax credits. The increase in Section 232 tariffs has provided a material boost to U.S. regional premiums, directly enhancing profitability. Coupled with the substantial, ongoing benefits from the 45X tax credit, the financial profile of Century's U.S. operations is fundamentally improved, offering enhanced competitiveness and stability.

The strategic acquisition of Jamalco has de-risked alumina supply and provides a platform for cost reduction and volume growth. While operational challenges and market volatility persist, the company's focus on operational efficiency, strategic investments in its existing assets (Jamalco CapEx, Sebree maintenance), and the pursuit of transformational growth projects like the new U.S. smelter position it to capitalize on long-term trends in aluminum demand and domestic manufacturing. The investment thesis hinges on Century's ability to continue leveraging policy tailwinds, execute on its strategic initiatives, and maintain operational discipline to translate favorable market conditions and structural advantages into sustained financial performance, despite facing competition from larger, more diversified players. The outlook for Q2 2025 reflects the immediate financial impact of these positive factors, setting the stage for potential further value creation.