Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Tredegar has exposure to the volatility of interest rates, polyethylene resin prices, aluminum ingot and scrap prices, energy prices, foreign currencies and emerging markets. See Liquidity and Capital Resources regarding interest rate exposures related to borrowings under the ABL Facility.
Profit margins in Aluminum Extrusions are sensitive to fluctuations in aluminum ingot and scrap prices as well as natural gas prices (natural gas is the principal energy source used to operate its casting furnaces). Changes in polyethylene resin prices and the timing of those changes could have a significant impact on profit margins in High Performance Films. There is no assurance of the Company’s ability to pass through higher raw material and energy costs to its customers.
The purchase price of raw materials fluctuates on a monthly basis; therefore, Aluminum Extrusions pricing policies generally allow the Company to pass the underlying index cost of aluminum and certain alloys through to the vast majority of our customers so that we remain substantially neutral to metal pricing. In the normal course of business, Aluminum Extrusions enters into fixed-price forward sales contracts with certain customers for the sale of fixed quantities of aluminum extrusions at scheduled intervals. In order to hedge its exposure to aluminum price volatility (see the chart below) under these fixed-price arrangements, which generally have a duration of not more than 12 months, the Company enters into a combination of forward purchase commitments and futures contracts to acquire or hedge aluminum, based on the scheduled deliveries. See Note 9 “Derivatives” to the Consolidated Financial Statements in Item 15 for additional information.
The volatility of quarterly average aluminum prices is shown in the chart below.
Source: Quarterly averages computed by the Company using daily Midwest average prices provided by Platts.
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The volatility of quarterly average natural gas prices is shown in the chart below.
Source: Quarterly averages computed by Tredegar using monthly NYMEX settlement prices.
The volatility of average quarterly prices of polyethylene resin in the U.S. (a primary raw material for High Performance Films products) is shown in the chart below:
Source: Quarterly averages computed by Tredegar using monthly data provided by IHS, Inc. In January 2023, IHS reflected a 41 cents per pound non-market adjustment based on their estimate of the growth of discounts in the prior periods. The 4th quarter 2022 average rate of $0.60 per pound is shown on a pro forma basis as if the non-market adjustment was made in the fourth quarter of 2022.
The price of resin is driven by several factors, including supply and demand and the price of oil, ethylene and natural gas. Selling prices to customers are set considering numerous factors, including the expected volatility of resin prices. In certain situations, High Performance Films has index-based pass-through raw material cost arrangements with customers. However, under certain agreements, changes in resin prices are not passed through for a period of 90 days or more. In response to unprecedented cost increases and supply issues for polyethylene and polypropylene resin, Tredegar Surface Protection implemented a quarterly resin cost pass-through mechanism, effective July 1, 2021, for all products and customers not previously covered by such arrangements. Pricing on the remainder of the business is based upon raw material costs and supply/demand dynamics within the markets in which the Company competes.
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The Company sells to customers in foreign markets through its foreign operations and through exports from U.S. plants. The percentage of sales and total assets for manufacturing operations related to foreign markets for 2025, 2024 and 2023 are as follows:
Tredegar Corporation
Percentage of Consolidated Net Sales and Total Assets Related to Foreign Markets
2025 2024 2023
% of Total % Total
Assets - Foreign Operations % of Total % Total
Assets - Foreign
Operations % of Total % Total
Assets -Foreign
Operations
Net Sales Net Sales Net Sales
Exports
From
U.S. Foreign Operations Exports
From
U.S. Foreign Operations Exports
From
U.S. Foreign Operations
Canada 2 — — 2 — — 2 — —
Latin America 1 — — 1 — — 1 — —
Asia 6 — 2 8 — 2 5 — 3
Total 9 — 2 11 — 2 8 — 3
Tredegar attempts to match the pricing and cost of its products in the same currency and generally views the volatility of foreign currencies and the corresponding impact on earnings and cash flow as part of the overall risk of operating in a global environment (for additional information, see trends for the Chinese Yuan in the chart below). Exports from the U.S. are generally denominated in U.S. Dollars. The Company’s foreign currency exposure on income from continuing foreign operations relates to the Chinese Yuan.
High Performance Films is generally able to match the currency of its sales and costs for its product lines. Tredegar estimates that the change in the value of foreign currencies relative to the U.S. Dollar on High Performance Films had an unfavorable impact on EBITDA from ongoing operations in High Performance Films of $0.6 million in 2025 compared to 2024.
Trends for the Chinese Yuan are shown in the chart below:
Source: Quarterly averages computed by Tredegar using daily closing data provided by Bloomberg.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this Item 8 is set forth in Item 15 and is hereby incorporated herein by reference.
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Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.