Derivative Instruments and Hedging Activities (Notes)

3 Months Ended

Mar. 31, 2018

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Instruments and Hedging Activities

Derivative Instruments and Hedging Activities

Exchange rate fluctuations affect a portion of revenues and operating costs that are denominated in foreign currencies, and we use forward currency and currency option contracts to reduce our exposure to certain of these currency price fluctuations. Contracts to sell euros have not been designated as cash flow hedges for accounting purposes, and gains or losses are reported in earnings immediately in other (income) expense. Contracts to purchase Canadian dollars are designated as cash flow hedges for accounting purposes, and we record the gains and losses for the derivatives and premiums paid for option contracts in accumulated other comprehensive income (loss) until we reclassify them into cost of products sold when we recognize the associated underlying operating costs.

We are exposed to fluctuations in market prices of raw materials and energy sources. We may use cash-settled commodity price swaps and options to hedge the market risk associated with the purchase of certain of our raw materials and energy requirements. For input commodities, these derivatives are typically used for a portion of our electricity, iron ore, natural gas, nickel and zinc requirements. Our hedging strategy is to reduce the effect on earnings from the price volatility of these various commodity exposures. Independent of any hedging activities, price changes in any of these commodity markets could negatively affect operating costs.

All commodity derivatives are recognized as an asset or liability at fair value. We record the gains and losses and premiums paid for option contracts for commodity derivatives designated as cash flow hedges of forecasted purchases of raw materials and energy sources in accumulated other comprehensive income (loss) and reclassify them into cost of products sold when we recognize earnings for the associated underlying transaction. We record all gains or losses from commodity derivatives for which hedge accounting treatment has not been elected to earnings immediately in cost of products sold.

We have provided no collateral to counterparties under collateral funding arrangements as of March 31, 2018.

Outstanding derivative contracts and the period over which we are hedging our exposure to the volatility in future cash flows are presented below:

Derivative Contracts	Settlement Dates	March 31, 2018		December 31, 2017
Commodity contracts:
Nickel (in lbs)		—		500,000
Natural gas (in MMBTUs)	April 2018 to March 2020	37,843,000		41,338,000
Zinc (in lbs)	April 2018 to December 2019	51,300,000		50,350,000
Iron ore (in metric tons)	April 2018 to December 2019	2,065,000		2,340,000
Electricity (in MWHs)	April 2018 to December 2019	1,308,000		1,553,000
Foreign exchange contracts:
Euros (in millions)	April 2018 to December 2018	€	18.0	€	26.0
Canadian dollars (in millions)	April 2018 to December 2021	C$	147.9	C$	148.1

The fair value of derivative instruments in the condensed consolidated balance sheets is presented below:

Asset (liability)	March 31, 2018			December 31, 2017
Derivatives designated as cash flow hedges:
Other current assets:
Foreign exchange contracts	$	0.1		$	0.2
Commodity contracts	6.4			9.0
Other non-current assets:
Foreign exchange contracts	0.9			1.7
Commodity contracts	0.7			2.3
Accrued liabilities:
Foreign exchange contracts	(0.5		)	(0.2		)
Commodity contracts	(2.8		)	(4.6		)
Other non-current liabilities:
Foreign exchange contracts	(0.3		)	—
Commodity contracts	(1.4		)	(0.5		)
Derivatives not designated as cash flow hedges:
Other current assets—commodity contracts	13.7			26.2
Other non-current assets—commodity contracts	3.4			8.3
Accrued liabilities:
Foreign exchange contracts	(0.4		)	(0.1		)
Commodity contracts	—			(0.3		)

Gains (losses) on derivative instruments included in the condensed consolidated statements of operations and comprehensive income (loss) are presented below:

	Three Months Ended March 31,
Gain (loss)	2018			2017
Derivatives designated as cash flow hedges:
Commodity contracts:
Recognized in accumulated other comprehensive income that were included in the assessment of effectiveness	$	0.3		$	(8.0	)
Reclassified from accumulated other comprehensive income into cost of products sold	7.6			0.6
Foreign exchange contracts:
Recognized in accumulated other comprehensive income that were included in the assessment of effectiveness	(1.7		)	—
Derivatives not designated as cash flow hedges:
Commodity contracts—recognized in cost of products sold	(8.7		)	15.3
Foreign exchange contracts—recognized in other income (expense)	(0.3		)	(0.1		)

We routinely use iron ore derivatives to reduce the volatility of the cost of our iron ore purchases. These derivatives do not qualify for hedge accounting treatment. Therefore, adjustments to mark these derivatives to fair value each period are recognized immediately in our financial results versus being recognized in the period that iron ore purchases affect earnings. For the three months ended March 31, 2018 and 2017, gains (losses) recognized in cost of products sold shown in the table above include $(7.7) and $16.3, for unrealized mark-to-market gains (losses) on iron ore derivatives. Not included in the financial results for the three months ended March 31, 2018 and 2017 were realized gains of $2.3 and $11.4 for iron ore derivatives contracts that settled during the period for which we had recognized mark-to-market gains in our financial results in prior quarters.

Gains (losses) before tax expected to be reclassified into cost of products sold within the next twelve months for our existing derivatives that qualify as cash flow hedges for hedge accounting are presented below:            

Hedge	Gains (losses)
Natural gas	$	(0.5	)
Zinc	(6.8		)
Electricity	0.5
Canadian dollars	(6.8		)