v3.26.1
Derivatives, Hedging Programs and Other Financial Instruments
 3 Months Ended
Mar. 31, 2026
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivatives, Hedging Programs and Other Financial Instruments

4. Derivatives, Hedging Programs and Other Financial Instruments

Overview

We utilize derivative instruments to manage exposure to: (i) metal price risk related to aluminum and certain alloys used as raw material for our fabrication operations; (ii) energy price risk related to natural gas and electricity used in our production processes; and (iii) foreign currency exchange rate risk related to certain equipment and service agreements. We do not use derivative financial instruments for trading or other speculative purposes. Hedging transactions are executed centrally and are overseen by a committee (“Hedging Committee”) composed of key operations and finance personnel from the management team. Management reviews the scope of the Hedging Committee’s activities with our Board of Directors.

We are exposed to counterparty credit risk on all of our derivative instruments. Our counterparties are major investment-grade financial institutions or trading companies, and our hedging transactions are governed by negotiated International Swaps and Derivatives Association Master Agreements, which generally require collateral to be posted by our counterparties above specified credit thresholds, which may adjust up or down based on changes in counterparty credit ratings. As a result, we believe the risk of loss is remote and contained. The aggregate fair value of our derivative instruments that were in a net liability position was $1.6 million and $0.1 million at March 31, 2026 and December 31, 2025, respectively, and we had no collateral posted as of those dates.

In addition, our firm-price customer sales commitments create incremental customer credit risk related to metal price movements. Under certain circumstances, we mitigate this risk by periodically requiring cash collateral to be posted by our customers, which we classify as deferred revenue and include as a component of Other accrued liabilities. We had no cash collateral posted by our customers at both March 31, 2026 and December 31, 2025.

The above described derivative instruments are typically designated as cash flow hedges. Unrealized gains and losses associated with our cash flow hedges are deferred in Other comprehensive income, net of tax, and reclassified to COGS when such hedges settle or when it is probable that the original forecasted transactions will not occur by the end of the originally specified time period. See Note 7 for the total amount of gain or loss on derivative instruments designated and qualifying as cash flow hedging instruments that was reported in AOCI, as well as the related reclassifications into earnings and tax effects. Cumulative gains and losses related to cash flow hedges are reclassified out of AOCI and recorded within COGS when the associated hedged commodity purchases impact earnings.

From time to time, we enter into commodity and foreign currency forward contracts that are not designated as hedging instruments to mitigate certain short‑term impacts, as identified. The gain or loss on these commodity and foreign currency derivatives is recognized within COGS and Other expense, net, respectively. As of March 31, 2026 and December 31, 2025, we had no outstanding non-designated derivative hedge positions.

Notional Amount of Derivative Contracts

The following table summarizes our derivative positions at March 31, 2026:

 

Aluminum

 

Maturity Period

 

Notional Amount of Contracts (mmlbs)

 

Fixed price purchase contracts for LME

 

April 2026 through July 2027

 

 

72.5

 

Fixed price sale contracts for LME

 

April 2026 through April 2027

 

 

10.1

 

Fixed price purchase contracts for MWTP

 

April 2026 through July 2027

 

 

72.6

 

Fixed price sale contracts for MWTP

 

April 2026 through April 2027

 

 

10.2

 

 

Alloying Metals

 

Maturity Period

 

Notional Amount of Contracts (mmlbs)

 

Fixed price purchase contracts

 

April 2026 through December 2027

 

 

6.2

 

 

Natural Gas

 

Maturity Period

 

Notional Amount of Contracts (mmbtu)

 

Fixed price purchase contracts

 

April 2026 through December 2028

 

 

3,450,000

 

 

 

Electricity

 

Maturity Period

 

Notional Amount of Contracts (Mwh)

 

Fixed price purchase contracts

 

April 2026 through December 2027

 

 

316,228

 

 

Euro

 

Maturity Period

 

Notional Amount of Contracts (in millions of Euros)

 

Fixed price forward purchase contracts

 

April 2026 through July 2027

 

€

0.6

 

(Gain) Loss on Derivative Contracts

The following table summarizes the amount of (gain) loss on derivative contracts recorded within our Statements of Consolidated Income in COGS (in millions of dollars):

 

 

 

Quarter Ended March 31,

 

 

2026

 

 

2025

 

Total of income and expense line items presented in our Statements of Consolidated Income in which the effects of hedges are recorded:

 

 

 

Cash flow hedges

 

$

943.2

 

 

$

673.4

 

 

 

 

 

 

 

(Gain) loss recognized in our Statements of Consolidated Income related to cash flow hedges:

 

 

 

 

 

 

Aluminum

 

$

(8.5

)

 

$

(5.2

)

Alloying Metals

 

 

(0.5

)

 

 

(0.4

)

Natural gas

 

 

(0.3

)

 

 

—

 

Foreign exchange contracts

 

 

—

 

 

 

0.1

 

Total gain recognized in our Statements of Consolidated Income related to cash flow hedges

 

$

(9.3

)

 

$

(5.5

)

Fair Values of Derivative Contracts

The fair values of our derivative contracts are based upon trades in liquid markets. Valuation model inputs can be verified, and valuation techniques do not involve significant judgment. The fair values of such derivatives are classified within Level 2 of the fair value hierarchy.

All of our derivative contracts with counterparties are subject to enforceable master netting arrangements. We reflect the fair value of our derivative contracts on a gross basis on our Consolidated Balance Sheets. The following table presents the fair value of our derivative financial instruments (in millions of dollars):

 

 

 

As of March 31, 2026

 

 

As of December 31, 2025

 

 

 

Assets

 

 

Liabilities

 

 

Net Amount

 

 

Assets

 

 

Liabilities

 

 

Net Amount

 

Cash Flow Hedges:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Aluminum –

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed price purchase contracts for LME

 

$

8.7

 

 

$

(0.1

)

 

$

8.6

 

 

$

2.6

 

 

$

—

 

 

$

2.6

 

Fixed price sale contracts for LME

 

 

—

 

 

 

(0.8

)

 

 

(0.8

)

 

 

—

 

 

 

(0.8

)

 

 

(0.8

)

Fixed price purchase contracts for MWTP

 

 

7.0

 

 

 

—

 

 

 

7.0

 

 

 

3.8

 

 

 

(0.1

)

 

 

3.7

 

Fixed price sale contracts for MWTP

 

 

—

 

 

 

(0.5

)

 

 

(0.5

)

 

 

—

 

 

 

(1.6

)

 

 

(1.6

)

Alloying Metals – Fixed price purchase contracts

 

 

1.9

 

 

 

—

 

 

 

1.9

 

 

 

2.4

 

 

 

—

 

 

 

2.4

 

Natural gas – Fixed price purchase contracts

 

 

0.7

 

 

 

(2.3

)

 

 

(1.6

)

 

 

0.7

 

 

 

(1.3

)

 

 

(0.6

)

Electricity – Fixed price purchase contracts

 

 

1.0

 

 

 

(3.4

)

 

 

(2.4

)

 

 

—

 

 

 

—

 

 

 

—

 

Foreign currency – Fixed price forward contracts

 

 

—

 

 

 

—

 

 

 

—

 

 

 

0.1

 

 

 

—

 

 

 

0.1

 

Total

 

$

19.3

 

 

$

(7.1

)

 

$

12.2

 

 

$

9.6

 

 

$

(3.8

)

 

$

5.8

 

 

The following table presents the total amounts of derivative assets and liabilities on our Consolidated Balance Sheets (in millions of dollars):

 

 

 

As of March 31, 2026

 

 

As of December 31, 2025

 

Derivative assets:

 

 

 

 

 

 

Prepaid expenses and other current assets

 

$

18.0

 

 

$

8.3

 

Other assets

 

 

1.3

 

 

 

1.3

 

Total derivative assets

 

$

19.3

 

 

$

9.6

 

Derivative liabilities:

 

 

 

 

 

 

Other accrued liabilities

 

$

(5.0

)

 

$

(3.1

)

Long-term liabilities

 

 

(2.1

)

 

 

(0.7

)

Total derivative liabilities

 

$

(7.1

)

 

$

(3.8

)

Fair Values of Other Financial Instruments

All Other Financial Assets and Liabilities. We believe that the fair values of our financial assets and liabilities (accounts receivable, contract assets, current assets, accounts payable, and accrued liabilities) approximate their respective fair values due to their short maturities and nominal credit risk.