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Derivative Instruments and Hedging Activities (Notes)
 9 Months Ended
Sep. 30, 2019
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 and zinc requirements. Our hedging strategy is to reduce the effect on earnings from the price volatility of these various commodity exposures, including timing differences between when we incur raw material commodity costs and when we receive sales surcharges from our customers based on those raw materials. 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 September 30, 2019.

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
 
September 30,
2019
 
December 31,
2018
Commodity contracts:
 
 
 
 
 
Natural gas (in MMBTUs)
October 2019 to June 2021
 
37,905,000

 
39,868,000

Zinc (in lbs)
October 2019 to June 2021
 
33,050,000

 
52,150,000

Iron ore (in metric tons)
October 2019 to June 2021
 
1,810,000

 
2,125,000

Electricity (in MWHs)
October 2019 to June 2021
 
1,597,000

 
1,461,000

Foreign exchange contracts:
 
 
 
 
 
Euros (in millions)
October 2019 to November 2019
 
€
1.0

 
€
4.0

Canadian dollars (in millions)
October 2019 to December 2021
 
C$
91.1

 
C$
118.6



The fair value of derivative instruments in the condensed consolidated balance sheets is presented below:
Asset (liability)
 
September 30,
2019
 
December 31,
2018
Derivatives designated as cash flow hedges:
 
 
 
 
Other current assets—commodity contracts
 
$
0.8

 
$
3.4

Other non-current assets:
 
 
 
 
Foreign exchange contracts
 
0.2

 
0.4

Commodity contracts
 
—

 
1.0

Accrued liabilities:
 
 
 
 
Foreign exchange contracts
 
(0.7
)
 
(1.2
)
Commodity contracts
 
(10.6
)
 
(4.7
)
Other non-current liabilities:
 
 
 
 
Foreign exchange contracts
 
(0.6
)
 
(1.5
)
Commodity contracts
 
(2.6
)
 
(1.2
)
Derivatives not designated as cash flow hedges:
 
 
 
 
Other current assets:
 
 
 
 
Foreign exchange contracts
 
0.1

 
0.1

   Commodity contracts
 
13.0

 
9.6

Other non-current assets—commodity contracts
 
2.4

 
1.9

Accrued liabilities—commodity contracts
 
(0.2
)
 
(1.2
)
Other non-current liabilities—commodity contracts
 
(0.8
)
 
(0.4
)

Gains (losses) on derivative instruments included in the condensed consolidated statements of operations and comprehensive income (loss) are presented below:
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2019
 
2018
 
2019
 
2018
Gain (loss)
 
 
 
 
 
 
 
 
Derivatives designated as cash flow hedges:
 
 
 
 
 
 
 
 
Commodity contracts:
 
 
 
 
 
 
 
 
Recognized in accumulated other comprehensive income that were included in the assessment of effectiveness
 
$
(3.4
)
 
$
(3.1
)
 
$
(21.4
)
 
$
(5.4
)
Reclassified from accumulated other comprehensive income into cost of products sold
 
(4.8
)
 
0.1

 
0.4

 
13.1

Foreign exchange contracts:
 
 
 
 
 
 
 
 
Recognized in accumulated other comprehensive income that were included in the assessment of effectiveness
 
(0.8
)
 
0.8

 
0.3

 
(2.4
)
Reclassified from accumulated other comprehensive income into cost of products sold
 
(0.4
)
 
(0.6
)
 
(1.3
)
 
(0.5
)
Derivatives not designated as cash flow hedges:
 
 
 
 
 
 
 
 
Commodity contracts—recognized in cost of products sold
 
(15.3
)
 
4.5

 
41.1

 
(1.9
)
Foreign exchange contracts—recognized in other income (expense)
 
0.1

 
(0.1
)
 
—

 
0.3


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 and nine months ended September 30, 2019, gains (losses) recognized in cost of products sold shown in the table above include $(15.3) and $41.9 for unrealized mark-to-market gains (losses) on iron ore derivatives. Gains (losses) recognized in cost of products sold shown in the table above for unrealized mark-to-market gains (losses) on iron ore derivatives for the corresponding periods in 2018 include $4.4 and $(1.2). Not included in the financial results for the three
and nine months ended September 30, 2019, were realized gains of $13.5 and $26.9 for iron ore derivatives contracts that settled during the periods for which we had recognized mark-to-market gains in our financial results in prior quarters, compared to $5.7 and $17.2 for the same periods in 2018.

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
 
$
(9.9
)
Zinc
 
(3.8
)
Electricity
 
(1.7
)
Canadian dollars
 
(1.5
)