Derivatives and Other Financial Instruments

6 Months Ended

Jun. 30, 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 and second quarters of 2025, Alcoa entered into financial contracts with multiple counterparties to mitigate financial risks associated with changes in aluminum prices, natural gas prices, electricity prices, and foreign currency exchange rates. The aluminum, natural gas, and electricity 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. Due to the widespread power outage across Spain that occurred on April 28, 2025, it became probable that certain of the original forecasted electricity purchases would not occur in 2025. As a result, Alcoa dedesignated certain electricity financial contracts and recognized a gain of $3 in Cost of goods sold.

In June 2025, Alcoa entered into a firming contract to manage the variability and intermittency of renewable energy sources and reduce exposure to the spot energy market for the Mosjøen smelter (Norway) for the period from July 2025 through December 2028. The firming contract converts a certain pay-as-produced wind contract into baseload power. The contract does not qualify for hedge accounting treatment.

Alcoa Corporation’s aluminum, foreign exchange, natural gas and electricity contracts are classified as Level 1 or Level 2 under the fair value hierarchy. All of the Level 1 and 2 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, 2, and 3 derivatives (see additional Level 3 information in further tables below):

	June 30, 2025				December 31, 2024
	Assets		Liabilities		Assets		Liabilities
Level 1 and 2 derivative instruments	$	19	$	51	$	1	$	20
Level 1 derivative instruments (undesignated)		73		—		—		—
Level 3 derivative instruments		40		1,097		24		1,079
Total	$	132	$	1,148	$	25	$	1,099
Less: Current		73		286		25		263
Noncurrent	$	59	$	862	$	—	$	836

	2025						2024
Second quarter ended June 30,	Unrealized loss recognized in Other comprehensive income (loss)			Realized loss reclassified from Accumulated other comprehensive loss to earnings			Unrealized loss recognized in Other comprehensive income (loss)			Realized (loss) gain reclassified from Accumulated other comprehensive loss to earnings
Level 1 and 2 derivative instruments	$	(46	)	$	(2	)	$	(7	)	$	—
Level 3 derivative instruments		(82	)		(78	)		(146	)		(75	)
Noncontrolling and equity interest (Level 2)		—			—			—			1
Total	$	(128	)	$	(80	)	$	(153	)	$	(74	)

For the second quarter of 2025, the realized loss of $2 on Level 1 and 2 cash flow hedges was recognized in Cost of goods sold. For the second quarter of 2024, the realized gains and losses on Level 1 and 2 cash flow hedges were immaterial.

	2025						2024
Six months ended June 30,	Unrealized loss recognized in Other comprehensive income (loss)			Realized loss reclassified from Accumulated other comprehensive loss to earnings			Unrealized loss recognized in Other comprehensive income (loss)			Realized gain (loss) reclassified from Accumulated other comprehensive loss to earnings
Level 1 and 2 derivative instruments	$	(22	)	$	(4	)	$	(10	)	$	4
Level 3 derivative instruments		(191	)		(171	)		(26	)		(132	)
Noncontrolling and equity interest (Level 2)		—			—			—			1
Total	$	(213	)	$	(175	)	$	(36	)	$	(127	)

For the six-month period of 2025, the realized loss of $4 on Level 1 and 2 cash flow hedges was comprised of a $2 loss recognized in Sales and a $2 loss recognized in Cost of goods sold. For the six-month period of 2024, the realized gain of $4 on Level 1 and 2 cash flow hedges was recognized in Sales.

The following table presents the outstanding quantities of derivative instruments classified as Level 1 or Level 2:

	Classification	June 30, 2025		June 30, 2024
Aluminum (in kmt)	Commodity buy forwards		160		133
Aluminum (in kmt)	Commodity sell forwards		575		80
Foreign currency (in millions of euro)	Foreign exchange buy forwards		176		61
Foreign currency (in millions of euro)	Foreign exchange sell forwards		10		16
Foreign currency (in millions of euro) (undesignated)	Foreign exchange buy forwards		821		—
Foreign currency (in millions of euro) (undesignated)	Foreign exchange sell forwards		32		—
Foreign currency (in millions of Norwegian krone)	Foreign exchange buy forwards		8		85
Foreign currency (in millions of Brazilian real)	Foreign exchange buy forwards		107		351
Foreign currency (in millions of Australian dollar)	Foreign exchange buy forwards		821		—
Foreign currency (in millions of Canadian dollar)	Foreign exchange buy forwards		—		22
Natural gas (in millions of megawatt hours)	Commodity buy forwards		6		—
Electricity (in millions of megawatt hours)	Commodity buy forwards		6		—

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 June 2028), U.S. dollar alumina and aluminum sales in Brazil (expires October 2026), U.S. dollar alumina sales in Australia (expires December 2032) 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) and U.S. dollar aluminum sales in Norway (expired June 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).

Alcoa Corporation uses Level 2 electricity derivative instruments to mitigate the risk of price fluctuations on electricity 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; megawatts in MW):

	June 30, 2025		Unobservable Input	Unobservable Input Range
Asset Derivatives
Financial contract (undesignated)	$	31	Interrelationship of forward energy price, LME forward price and the Consumer Price Index	Electricity (per MWh)	2025: $73.11 2025: $38.35
				LME (per mt)	2025: $2,598
					2025: $2,605
Financial contract (undesignated)(1)		9	Interrelationship of forward energy price and the contract price	Electricity (per MWh)	2025: $6.86 2028: $40.98
			MW of renewable energy produced (per month)	Electricity	2025: 31 MW 2028: 84 MW
Power contract		—	MWh of energy needed to produce the forecasted mt of aluminum	LME (per mt)	2025: $2,598 2025: $2,600
				Midwest premium (per pound)	2025: $0.7000 2025: $0.7000
				Electricity	Rate of 2 million MWh per year
Total Asset Derivatives	$	40
Liability Derivatives
Power contract	$	128	MWh of energy needed to produce the forecasted mt of aluminum	LME (per mt)	2025: $2,598 2027: $2,655
				Electricity	Rate of 4 million MWh per year
Power contracts		969	MWh of energy needed to produce the forecasted mt of aluminum	LME (per mt)	2025: $2,598 2029: $2,701 2036: $2,888
				Midwest premium (per pound)	2025: $0.7000 2029: $0.7000 2036: $0.7000
				Electricity	Rate of 18 million MWh per year
Power contract (undesignated)		—	Estimated spread between the 30-year debt yield of Alcoa and the counterparty	Credit spread	1.21%: 30-year debt yield spread 7.02%: Alcoa (estimated) 5.81%: counterparty
Total Liability Derivatives	$	1,097

(1)Increases in the power market or in renewable energy production would result in a higher fair value measurement of the derivative asset or a lower fair value measurement of the derivative liability.

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

Asset Derivatives	June 30, 2025		December 31, 2024
Derivatives not designated as hedging instruments:
Current—financial contract	$	35	$	24
Noncurrent—financial contract		5		—
Total derivatives not designated as hedging instruments	$	40	$	24
Total Asset Derivatives	$	40	$	24
Liability Derivatives
Derivatives designated as hedging instruments:
Current—power contracts	$	264	$	251
Noncurrent—power contracts		833		826
Total derivatives designated as hedging instruments	$	1,097	$	1,077
Derivatives not designated as hedging instruments:
Current—embedded credit derivative	$	—	$	1
Noncurrent—embedded credit derivative		—		1
Total derivatives not designated as hedging instruments	$	—	$	2
Total Liability Derivatives	$	1,097	$	1,079

Assuming market rates remain constant with the rates at June 30, 2025, a realized loss of $264 related to power contracts is expected to be recognized in Sales over the next 12 months.

At June 30, 2025 and December 31, 2024, the power contracts with embedded derivatives designated as cash flow hedges include hedges of forecasted aluminum sales of 1,118 kmt and 1,230 kmt, respectively.

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

	Assets
Second quarter ended June 30, 2025	Financial contracts
April 1, 2025	$	30
Total gains or losses included in:
Other income, net (unrealized/realized)		34
Settlements and other		(24	)
June 30, 2025	$	40
Change in unrealized gains or losses included in earnings    for derivative instruments held at June 30, 2025:
Other income, net	$	34

	Liabilities
Second quarter ended June 30, 2025	Power contracts			Embedded credit derivative
April 1, 2025	$	1,093		$	3
Total gains or losses included in:
Sales (realized)		(78	)		—
Other income, net (unrealized/realized)		—			(3	)
Other comprehensive loss (unrealized)		82			—
June 30, 2025	$	1,097		$	—
Change in unrealized gains or losses included in earnings    for derivative instruments held at June 30, 2025:
Other income, net	$	—		$	(3	)

	Assets
Six months ended June 30, 2025	Financial contracts
January 1, 2025	$	24
Total gains or losses included in:
Other income, net (unrealized/realized)		42
Settlements and other		(26	)
June 30, 2025	$	40
Change in unrealized gains or losses included in earnings    for derivative instruments held at June 30, 2025:
Other income, net	$	42

	Liabilities
Six months ended June 30, 2025	Power contracts			Embedded credit derivative
January 1, 2025	$	1,077		$	2
Total gains or losses included in:
Sales (realized)		(171	)		—
Other income, net (unrealized/realized)		—			(2	)
Other comprehensive loss (unrealized)		191			—
June 30, 2025	$	1,097		$	—
Change in unrealized gains or losses included in earnings    for derivative instruments held at June 30, 2025:
Other income, net	$	—		$	(2	)

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:

	June 30, 2025				December 31, 2024
	Carrying value		Fair value		Carrying value		Fair value
Cash and cash equivalents	$	1,514	$	1,514	$	1,138	$	1,138
Restricted cash		88		88		96		96
Short-term borrowings		8		8		50		50
Long-term debt due within one year		75		75		75		75
Long-term debt, less amount due within one year		2,574		2,644		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.