Derivatives and Other Financial Instruments

3 Months Ended

Mar. 31, 2025

Fair Value Disclosures [Abstract]

Derivatives and Other Financial Instruments

M. Derivatives and Other Financial Instruments

Fair Value

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:

•Level 1 - Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

•Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, including quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates); and inputs that are derived principally from or corroborated by observable market data by correlation or other means.

•Level 3 - Inputs that are both significant to the fair value measurement and unobservable.

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.

During the first quarter of 2025, Alcoa entered into financial contracts with multiple counterparties to mitigate financial risks associated with changes in aluminum prices, natural gas prices, and foreign currency exchange rates. The aluminum and natural gas financial contracts qualify for cash flow hedge accounting. The foreign exchange financial contracts do not qualify for hedge accounting treatment. These contracts are held by a separate wholly-owned subsidiary of Alcoa Corporation and are intended to limit the Company’s net cash outlays to the committed funding under the San Ciprián joint venture agreement. The associated realized gains or losses have no impact on the results of the San Ciprián operations.

Alcoa Corporation’s aluminum, foreign exchange and natural gas contracts are 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 above). 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 included the changes in its equity method investee’s Level 2 derivatives in Accumulated other comprehensive loss through June 30, 2024, when the underlying contracts expired.

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

	March 31, 2025				December 31, 2024
	Assets		Liabilities		Assets		Liabilities
Level 1 derivative instruments	$	19	$	12	$	1	$	20
Level 3 derivative instruments		30		1,096		24		1,079
Total	$	49	$	1,108	$	25	$	1,099
Less: Current		38		258		25		263
Noncurrent	$	11	$	850	$	—	$	836

	2025						2024
First quarter ended March 31,	Unrealized gain (loss) recognized in Other comprehensive income (loss)			Realized loss reclassified from Accumulated other comprehensive loss to earnings			Unrealized (loss) gain recognized in Other comprehensive income (loss)			Realized gain (loss) reclassified from Accumulated other comprehensive loss to earnings
Level 1 derivative instruments	$	24		$	(2	)	$	(3	)	$	4
Level 3 derivative instruments		(109	)		(93	)		120			(57	)
Total	$	(85	)	$	(95	)	$	117		$	(53	)

For the first quarters of 2025 and 2024, the realized loss of $2 and realized gain of $4, respectively, on Level 1 cash flow hedges were recognized in Sales.

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

	Classification	March 31, 2025		March 31, 2024
Aluminum (in kmt)	Commodity buy forwards		173		101
Aluminum (in kmt)	Commodity sell forwards		458		44
Foreign currency (in millions of euro)	Foreign exchange buy forwards		163		79
Foreign currency (in millions of euro)	Foreign exchange sell forwards		11		17
Foreign currency (in millions of euro) (undesignated)	Foreign exchange buy forwards		852		—
Foreign currency (in millions of Norwegian krone)	Foreign exchange buy forwards		20		102
Foreign currency (in millions of Brazilian real)	Foreign exchange buy forwards		160		450
Foreign currency (in millions of Australian dollars)	Foreign exchange buy forwards		41		—
Foreign currency (in millions of Canadian dollar)	Foreign exchange buy forwards		—		26
Natural gas (in millions of megawatt hours)	Commodity buy forwards		2		—

Alcoa Corporation 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 aluminum derivative instruments to manage LME exposures related to profitability improvement actions (expires December 2025) and the San Ciprián smelter (see above) (expires December 2027).

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 March 2028), U.S. dollar aluminum sales in Norway (expires June 2025), U.S. dollar alumina and aluminum sales in Brazil (expires October 2026), U.S. dollar alumina sales in Australia (expires December 2026) and euro expenses (primarily energy and labor) (expires December 2027). Additionally, Alcoa used Level 1 foreign exchange forward contracts to mitigate the risk of foreign exchange exposure related to Canadian dollar expenses in Canada (expired March 2025).

Alcoa Corporation uses Level 1 natural gas derivative instruments to mitigate the risk of price fluctuations on natural gas purchases in Spain (expires December 2027).

Additional Level 3 Disclosures

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

	March 31, 2025		Unobservable Input	Unobservable Input Range
Asset Derivatives
Financial contract (undesignated)	$	30	Interrelationship of forward energy price, LME forward price and the Consumer Price Index	Electricity (per MWh)	2025: $31.92 2025: $60.48
				LME (per mt)	2025: $2,516
					2025: $2,547
Power contract		—	MWh of energy needed to produce the forecasted mt of aluminum	LME (per mt)	2025: $2,516 2025: $2,530
				Midwest premium (per pound)	2025: $0.5200 2025: $0.5200
				Electricity	Rate of 2 million MWh per year
Total Asset Derivatives	$	30
Liability Derivatives
Power contract	$	135	MWh of energy needed to produce the forecasted mt of aluminum	LME (per mt)	2025: $2,516 2027: $2,624
				Electricity	Rate of 4 million MWh per year
Power contracts		958	MWh of energy needed to produce the forecasted mt of aluminum	LME (per mt)	2025: $2,516 2029: $2,701 2036: $2,888
				Midwest premium (per pound)	2025: $0.5200 2029: $0.5200 2036: $0.5200
				Electricity	Rate of 18 million MWh per year
Power contract (undesignated)		3	Estimated spread between the 30-year debt yield of Alcoa and the counterparty	Credit spread	1.35%: 30-year debt yield spread 6.70%: Alcoa (estimated) 5.35%: counterparty
Total Liability Derivatives	$	1,096

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

Asset Derivatives	March 31, 2025		December 31, 2024
Derivatives not designated as hedging instruments:
Current—financial contract	$	30	$	24
Total derivatives not designated as hedging instruments	$	30	$	24
Total Asset Derivatives	$	30	$	24
Liability Derivatives
Derivatives designated as hedging instruments:
Current—power contracts	$	249	$	251
Noncurrent—power contracts		844		826
Total derivatives designated as hedging instruments	$	1,093	$	1,077
Derivatives not designated as hedging instruments:
Current—embedded credit derivative	$	1	$	1
Noncurrent—embedded credit derivative		2		1
Total derivatives not designated as hedging instruments	$	3	$	2
Total Liability Derivatives	$	1,096	$	1,079

Assuming market rates remain constant with the rates at March 31, 2025, a realized loss of $249 related to power contracts is expected to be recognized in Sales over the next 12 months.

At March 31, 2025 and December 31, 2024, the power contracts with embedded derivatives designated as cash flow hedges include hedges of forecasted aluminum sales of 1,175 kmt and 1,230 kmt, respectively.

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

	Assets
First quarter ended March 31, 2025	Financial contracts
January 1, 2025	$	24
Total gains or losses included in:
Other income, net (unrealized/realized)		8
Settlements and other		(2	)
March 31, 2025	$	30
Change in unrealized gains or losses included in earnings    for derivative instruments held at March 31, 2025:
Other income, net	$	8

	Liabilities
First quarter ended March 31, 2025	Power contracts			Embedded credit derivative
January 1, 2025	$	1,077		$	2
Total gains or losses included in:
Sales (realized)		(93	)		—
Other expenses, net (unrealized/realized)		—			1
Other comprehensive loss (unrealized)		109			—
March 31, 2025	$	1,093		$	3
Change in unrealized gains or losses included in earnings    for derivative instruments held at March 31, 2025:
Other expenses, net	$	—		$	1

There were no purchases, sales, or settlements of Level 3 derivative instruments in the periods presented.

Other Financial Instruments

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

	March 31, 2025				December 31, 2024
	Carrying value		Fair value		Carrying value		Fair value
Cash and cash equivalents	$	1,202	$	1,202	$	1,138	$	1,138
Restricted cash		88		88		96		96
Short-term borrowings		45		45		50		50
Long-term debt due within one year		75		75		75		75
Long-term debt, less amount due within one year		2,573		2,594		2,470		2,499

The following methods were used to estimate the fair values of other financial instruments:

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 amounts 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.