Fair Value. The Company follows a fair value hierarchy to measure its assets and liabilities. As of December 31, 2023 and 2022, respectively, the assets and liabilities measured at fair value on a recurring basis were primarily derivative instruments. In addition, the Company measures its pension plan assets at fair value (see Note O). Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value hierarchy distinguishes between (i) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (ii) an entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are described below:

Derivatives. Alcoa Corporation is exposed to certain risks relating to its ongoing business operations, including the risks of changing commodity prices, foreign currency exchange rates and interest rates. Alcoa Corporation’s commodity and derivative activities include aluminum, energy, foreign exchange, and interest rate contracts, which are held for purposes other than trading. They are used to mitigate uncertainty and volatility, and to cover underlying exposures. While Alcoa does not generally enter into derivative contracts to mitigate the risk associated with changes in aluminum price, the Company may do so in isolated cases to address discrete commercial or operational conditions. Alcoa is not involved in trading activities for energy, weather derivatives, or other nonexchange commodities.

Alcoa Corporation’s commodity and derivative activities are subject to the management, direction, and control of the Strategic Risk Management Committee (SRMC), which consists of at least three members, including the chief executive officer, the chief financial officer, and the chief commercial officer. The remaining member(s) are other officers and/or employees of the Company as the chief executive officer may designate from time to time. The SRMC meets on a periodic basis to review derivative positions and strategy and reports to the Audit Committee of Alcoa Corporation’s Board of Directors on the scope of its activities.

Alcoa Corporation’s aluminum and foreign exchange contracts are predominately classified as Level 1 under the fair value hierarchy. All of the Level 1 contracts are designated as either fair value or cash flow hedging instruments (except as described below). Alcoa Corporation also has several derivative instruments classified as Level 3 under the fair value hierarchy, which are either designated as cash flow hedges or undesignated. Alcoa includes the changes in its equity method investee’s Level 2 derivatives in Accumulated other comprehensive loss.

The following tables present the detail for Level 1 and 3 derivatives (see additional Level 3 information in further tables below):


	2023				2022
Balance at December 31,	Assets		Liabilities		Assets		Liabilities
Level 1 derivative instruments	$	16	$	9	$	84	$	14
Level 3 derivative instruments		16		1,297		52		1,212
Total	$	32	$	1,306	$	136	$	1,226
Less: Current		29		214		134		200
Noncurrent	$	3	$	1,092	$	2	$	1,026


	2023						2022
Year ended December 31,	Unrealized gain (loss) recognized in Other comprehensive loss			Realized gain (loss) reclassed from Other comprehensive loss to earnings			Unrealized gain (loss) recognized in Other comprehensive loss			Realized gain (loss) reclassed from Other comprehensive loss to earnings
Level 1 derivative instruments	$	31		$	86		$	116		$	35
Level 3 derivative instruments		(326	)		(221	)		(247	)		(345	)
Noncontrolling and equity interest (Level 2)		—			5			12			(6	)
Total	$	(295	)	$	(130	)	$	(119	)	$	(316	)

The 2023 realized gain of $86 on Level 1 cash flow hedges was comprised of a $91 gain recognized in Sales and a $5 loss recognized in Cost of goods sold. The 2022 realized gain of $35 on Level 1 cash flow hedges was comprised of a $40 gain recognized in Sales and a $5 loss recognized in Cost of goods sold.

The following table presents the outstanding quantities of derivative instruments classified as Level 1:


	Classification	December 31, 2023		December 31, 2022
Aluminum (in kmt)	Commodity buy forwards		78		176
Aluminum (in kmt)	Commodity sell forwards		46		337
Foreign currency (in millions of euro)	Foreign exchange buy forwards		48		60
Foreign currency (in millions of euro)	Foreign exchange sell forwards		9		—
Foreign currency (in millions of Norwegian krone)	Foreign exchange buy forwards		138		302
Foreign currency (in millions of Brazilian real)	Foreign exchange buy forwards		467		1,008
Foreign currency (in millions of Brazilian real)	Foreign exchange sell forwards		—		7
Foreign currency (in millions of Canadian dollar)	Foreign exchange buy forwards		31		—

Alcoa routinely uses Level 1 aluminum derivative instruments to manage exposures to changes in the fair value of firm commitments for the purchases or sales of aluminum. Additionally, Alcoa uses Level 1 aluminum derivative instruments to manage exposures to changes in the LME associated with the Alumar (Brazil) restart (April 2022 through December 2023) and the San Ciprián (Spain) strike (expired October 2022). As a result of delays with the Alumar restart, it became probable that certain of the original forecasted transactions would not occur by the end of the originally specified time period and Alcoa dedesignated certain aluminum sell forwards. The Company reclassified the related unrealized gain of $11 and $20 included in Accumulated other comprehensive loss to Sales during the year ended December 31, 2023 and 2022, respectively. In conjunction with the dedesignations, the Company entered into aluminum buy forwards in 2023 and 2022 for the same volume and periods which were also not designated. The unrealized and realized gains and losses on the aluminum buy and sell forwards that are not designated offset resulting in no impact to Alcoa’s earnings.

Alcoa Corporation uses Level 1 foreign exchange forward contracts to mitigate the risk of foreign exchange exposure related to euro power purchases in Norway (expires December 2026), U.S. dollar aluminum sales in Norway (expires June 2025), U.S. dollar alumina and aluminum sales in Brazil (expires August 2025), and U.S. dollar aluminum sales in Canada (expires March 2025).

Derivative instruments classified as Level 3 in the fair value hierarchy represent those in which management has used at least one significant unobservable input in the valuation model. Alcoa Corporation uses a discounted cash flow model to fair value all Level 3 derivative instruments. Inputs in the valuation models for Level 3 derivative instruments are composed of the following: (i) quoted market prices (e.g., aluminum prices on the 10-year LME forward curve and energy prices), (ii) significant other observable inputs (e.g., information concerning time premiums and volatilities for certain option type embedded derivatives and regional premiums for aluminum contracts), and (iii) unobservable inputs (e.g., aluminum and energy prices beyond those quoted in the market, and estimated credit spread between Alcoa and the counterparty). For periods beyond the term of quoted market prices for aluminum, Alcoa Corporation estimates the price of aluminum by extrapolating the 10-year LME forward curve. For periods beyond the term of quoted market prices for the Midwest premium, management estimates the Midwest premium based on recent transactions. Where appropriate, valuations are adjusted for various factors such as liquidity, bid/offer spreads, and credit considerations. Such adjustments are generally based on available market evidence (Level 2). In the absence of such evidence, management’s best estimate is used (Level 3). If a significant input that is unobservable in one period becomes observable in a subsequent period, the related asset or liability would be transferred to the appropriate classification (Level 1 or 2) in the period of such change (there were no such transfers in the periods presented). There were no sales or settlements of Level 3 derivative instruments in the periods presented.

Level 3 derivative instruments outstanding as of December 31, 2023 are described in the table below:


Description	Designation	Contract Termination	Unobservable Inputs Impacting Valuation	Sensitivity to Inputs
Power contracts
Embedded derivative that indexes the price of power to the LME price of aluminum plus the Midwest premium	Cash flow hedge of forward sales of aluminum	March 2026 December 2029 February 2036	LME price, Midwest premium and MWh per year	Increase in LME price and/or the Midwest premium results in a higher cost of power and an increase to the derivative liability
Embedded derivative that indexes the price of power to the LME price of aluminum	Cash flow hedge of forward sales of aluminum	September 2027	LME price and MWh per year	Increase in LME price results in a higher cost of power and an increase to the derivative liability
Embedded derivative that indexes the price of power to the credit spread between the Company and the counterparty	Not designated	October 2028	Estimated credit spread	Wider credit spread results in a higher cost of power and increase in the derivative liability

Financial contracts
Hedge power prices	Not designated	June 2035	LME price and power price	Lower prices in the power market or higher LME prices result in an increase in the derivative liability

In December 2022, Alcoa entered into a financial contract with a counterparty to hedge power price exposure through March 31, 2023. The Financial contract was designated as a cash flow hedge of future sales of power. Unrealized gains and losses were recognized in Accumulated other comprehensive loss on the accompanying Consolidated Balance Sheet, and realized gains and losses were recognized in Cost of goods sold on the accompanying Statement of Consolidated Operations.

In addition to the instruments presented above, Alcoa had a financial contract that expired in July 2021 that hedged the anticipated power requirements at one of its smelters and was designated as a cash flow hedge of future purchases of electricity. In March 2021, Alcoa entered into four financial contracts (Financial contracts (undesignated), below) with three counterparties to hedge the anticipated power requirements at this smelter for the period from August 1, 2021 through June 30, 2026. A fifth financial contract (undesignated) was entered into in November 2021, with an effective date of September 30, 2022 through June 30, 2026. In August 2023, the Company entered into a nine-year financial contract (undesignated) effective July 1, 2026 when the current contracts end. Three of these financial contracts include LME-linked pricing components and do not qualify for hedge accounting treatment. Management elected not to apply hedge accounting treatment for the other three financial contracts. Unrealized and realized gains and losses on these financial contracts are included in Other expenses (income), net on the accompanying Statement of Consolidated Operations.

At December 31, 2023, the outstanding Level 3 instruments are associated with seven smelters. At December 31, 2023 and 2022, the power contracts with embedded derivatives designated as cash flow hedges hedge forecasted aluminum sales of 1,456 kmt and 1,683 kmt, respectively.

The following table presents quantitative information related to the significant unobservable inputs described above for Level 3 derivative instruments (megawatt hours in MWh):


	December 31, 2023		Unobservable Input	Unobservable Input Range
Asset Derivatives
Financial contract (undesignated)	$	16	Interrelationship of forward energy price, LME forward price and the Consumer Price Index	Electricity (per MWh)	2024: $50.99 2024: $53.55
				LME (per mt)	2024: $2,352
					2024: $2,424
Total Asset Derivatives	$	16
Liability Derivatives
Power contract	$	197	MWh of energy needed to produce the forecasted mt of aluminum	LME (per mt)	2024: $2,352 2027: $2,796
				Electricity	Rate of 4 million MWh per year
Power contracts		1,100	MWh of energy needed to produce the forecasted mt of aluminum	LME (per mt)	2024: $2,352 2029: $2,904 2036: $3,153
				Midwest premium (per pound)	2024: $0.1880 2029: $0.2300 2036: $0.2300
				Electricity	Rate of 18 million MWh per year
Power contract		—	MWh of energy needed to produce the forecasted mt of aluminum	LME (per mt)	2024: $2,352 2024: $2,381
				Midwest premium (per pound)	2024: $0.1880 2024: $0.2140
				Electricity	Rate of 2 million MWh per year
Power contract (undesignated)		—	Estimated spread between the 30-year debt yield of Alcoa and the counterparty	Credit spread	1.15%: 30-year debt yield spread 6.33%: Alcoa (estimated) 5.18%: counterparty
Total Liability Derivatives	$	1,297

The fair values of Level 3 derivative instruments recorded in the accompanying Consolidated Balance Sheet were as follows:


Asset Derivatives	December 31, 2023		December 31, 2022
Derivatives designated as hedging instruments:
Current—financial contract	$	—	$	20
Total derivatives designated as hedging instruments	$	—	$	20
Derivatives not designated as hedging instruments:
Current—financial contract	$	16	$	32
Total derivatives not designated as hedging instruments	$	16	$	32
Total Asset Derivatives	$	16	$	52
Liability Derivatives
Derivatives designated as hedging instruments:
Current—power contracts	$	210	$	195
Noncurrent—power contracts		1,087		1,017
Total derivatives designated as hedging instruments	$	1,297	$	1,212
Total Liability Derivatives	$	1,297	$	1,212

The following tables present a reconciliation of activity for Level 3 derivative instruments:


	Assets
2023	Power contracts			Financial contracts
January 1, 2023	$	—		$	52
Total gains or losses included in:
Sales (realized)		(4	)		—
Cost of goods sold (realized)		—			(20	)
Other expenses, net (unrealized/realized)		—			(5	)
Other comprehensive income (unrealized)		4			—
Settlements and other		—			(11	)
December 31, 2023	$	—		$	16
Change in unrealized gains or losses included in earnings for derivative instruments held at December 31, 2023:
Other expenses, net	$	—		$	(5	)


	Liabilities
2023	Power contracts
January 1, 2023	$	1,212
Total gains or losses included in:
Sales (realized)		(245	)
Other comprehensive income (unrealized)		330
December 31, 2023	$	1,297


	Assets
2022	Financial contracts
January 1, 2022	$	2
Total gains or losses included in:
Sales (realized)		—
Other income, net (unrealized/realized)		171
Other comprehensive income (unrealized)		20
Settlements and other		(141	)
December 31, 2022	$	52
Change in unrealized gains or losses included in earnings for derivative instruments held at December 31, 2022:
Other income, net	$	171


	Liabilities
2022	Power contracts			Embedded credit derivative
January 1, 2022	$	1,290		$	3
Total gains or losses included in:
Sales (realized)		(345	)		—
Other income, net (unrealized/realized)		—			(3	)
Other comprehensive (income) loss (unrealized)		267			—
December 31, 2022	$	1,212		$	—
Change in unrealized gains or losses included in earnings for derivative instruments held at December 31, 2022:
Other income, net	$	—		$	(3	)

Assuming market rates remain constant with the rates at December 31, 2023, a realized loss of $210 related to power contracts is expected to be recognized in Sales over the next 12 months.

The disclosures with respect to commodity prices and foreign currency exchange risk do not consider the underlying commitments or anticipated transactions. If the underlying items were included in the analysis, the gains or losses on the futures contracts may be offset. Actual results will be determined by several factors that are not under Alcoa Corporation’s control and could vary significantly from those factors disclosed.

Alcoa Corporation is exposed to credit loss in the event of nonperformance by counterparties on the above instruments, as well as credit or performance risk with respect to its hedged customers’ commitments. Alcoa Corporation does not anticipate nonperformance by any of these parties. Contracts are with creditworthy counterparties and are further supported by cash, treasury bills, or irrevocable letters of credit issued by carefully chosen banks. In addition, various master netting arrangements are in place with counterparties to facilitate settlement of gains and losses on these contracts.

Other Financial Instruments. The carrying values and fair values of Alcoa Corporation’s other financial instruments were as follows:


	2023				2022
December 31,	Carrying value		Fair value		Carrying value		Fair value
Cash and cash equivalents	$	944	$	944	$	1,363	$	1,363
Restricted cash		103		103		111		111
Short-term borrowings		56		56		—		—
Long-term debt due within one year		79		79		1		1
Long-term debt, less amount due within one year		1,732		1,702		1,806		1,744

Cash and cash equivalents and Restricted cash. The carrying amounts approximate fair value because of the short maturity of the instruments. The fair value amounts for Cash and cash equivalents and Restricted cash were classified in Level 1 of the fair value hierarchy.

Short-term borrowings and Long-term debt, including amounts due within one year. The fair value of Long-term debt, less amount due within one year was based on quoted market prices for public debt and on interest rates that are currently available to Alcoa Corporation for issuance of debt with similar terms and maturities for non-public debt. The fair value amounts for all Short-term borrowings and Long-term debt were classified in Level 2 of the fair value hierarchy.