KAISER ALUMINUM CORP 10-K

Item 7A. Quantitative and Qualitative Disclosures About Market Risk The following quantitative and qualitative disclosures about market risk should be read in conjunction with Note 8 and Note 11 of Notes to Consolidated Financial Statements included in this Report. Our operating results are sensitive to changes in the prices of primary aluminum, certain alloying metals, natural gas, electricity and foreign currency, and also depend to a significant degree upon the volume and mix of products sold to customers. We have historically utilized hedging transactions to lock in a specified price or range of prices for certain products which we sell or consume in our production process, and to mitigate our exposure to changes in energy prices. 43 Aluminum In 2021 and 2020, settlements of derivative contracts covering 187.2 million pounds and 127.6 million pounds, respectively, hedged shipments sold on pricing terms that created aluminum price risk for us. At December 31, 2021, we had derivative contracts with respect to approximately 78.1 million pounds and 2.2 million pounds to hedge sales to be made in 2022 and 2023, respectively, on pricing terms that create aluminum price risk for us. Based on the aluminum derivative positions held by us to hedge firm-price customer sales agreements, we estimate that a $0.10 per pound decrease in the London Metal Exchange (“LME”) market price of aluminum as of December 31, 2021 and December 31, 2020, with all other variables held constant, would have resulted in an unrealized mark-to-market loss of $8.0 million and $6.7 million, respectively, with corresponding changes to the net fair value of our aluminum derivative positions. Additionally, we estimate that a $0.05 per pound decrease in the Midwest premium for aluminum as of December 31, 2021 and December 31, 2020, with all other variables held constant, would have resulted in an unrealized mark-to-market loss of $4.0 million and $3.3 million, respectively, with corresponding changes to the net fair value of our aluminum derivative positions. Alloying Metals We are exposed to the risk of fluctuating prices of certain alloying metals, especially copper, zinc and magnesium, to the extent that changes in their prices do not highly correlate with price changes for aluminum. Copper, zinc, magnesium and certain other metals are used in our remelt operations to cast rolling ingot and extrusion billet with the proper chemistry for our products. From time to time, we enter into forward contract swaps and/or physical delivery commitments with third parties to mitigate our risk from fluctuations in the prices of these alloys. As of December 31, 2021, we had forward swap contracts with settlement dates designed to align with the timing of scheduled purchases of zinc and copper by our manufacturing facilities. We estimate that a $0.10 per pound decrease in the LME market price of zinc as of December 31, 2021 and December 31, 2020, with all other variables held constant, would have resulted in an unrealized mark-to-market loss of $0.4 million and $0.3 million, respectively, with corresponding changes to the net fair value of our zinc-related derivative positions. We estimate that a $0.10 per pound decrease in the COMEX market price of copper, with all other variables held constant, would have resulted in an unrealized mark-to-market loss of $0.2 million and $0.3 million as of December 31, 2021 and December 31, 2020, respectively, with corresponding changes to the net fair value of our copper‑related derivative positions. Energy We are exposed to risk of fluctuating prices for natural gas and electricity. We, from time to time, in the ordinary course of business, enter into hedging transactions and/or physical delivery commitments with firm prices with third parties to mitigate our risk from fluctuations in natural gas and electricity prices. We estimate that a $1.00 per mmbtu decrease in natural gas prices would have resulted in an unrealized mark-to-market loss of $5.2 million and $6.6 million as of December 31, 2021 and December 31, 2020, respectively, with corresponding changes to the net fair value of our natural gas derivative positions. We estimate that a $5.00 per Mwh decrease in electricity prices as of December 31, 2021 and December 31, 2020, would have resulted in an unrealized mark-to-market loss of $1.1 million and $2.4 million, respectively, with corresponding changes to the net fair value of our electricity derivative positions. Foreign Currency As of December 31, 2021, we hedged certain lease transactions denominated in euros using forward swap contracts with settlement dates through March 2023. We estimate that a 10% decrease in the December 31, 2021 exchange rate of euros to US dollars would have resulted in an immaterial unrealized mark-to-market loss with corresponding changes to the net fair value of our foreign currency derivative positions. Our primary foreign exchange exposure is the operating costs of our London, Ontario facility. We estimate that a 10% change in the Canadian dollar exchange rate as of December 31, 2021 and December 31, 2020 would have resulted in an annual operating cost impact of $2.2 million and $1.7 million, respectively 44 KAISER ALUMINUM CORPORATION AND SUBSIDIARY COMPANIES