If you could class of stake out a payment curve for Alcoa smelters via input costs as you shepherd them today that would be very helpful. For pattern if we demeanour back on fourth favour mediocre costs on primary metals it was about $0.95 per enclosure implying that half your skill is above that and the other half below. Where would the intrude points be if we were to hole that up by quartile? Can you give us some color on type of where the high and low points of your costs are at this point? Klaus Kleinfeld You recall that a sum smelting approach Alcoa has is on the medium of the cost curve.
I mark it would be good if we would produce up the chart that talks about the curtailment. We have announced curtailments of 18% of our capacity. They will be fully operational by the end of the before quarter.
We have applied a maximization algorithm here that maximizes our cash. That is the few one priority. The respect you go through when you do that are multi-fold. For instance, on the operating adaptability you front at what is the merchandise mix, what procurement levels you can mutate specifications, can you get secular in there you can purchase for a lower price? What is the aptitude situation? That is a very, very deprecatory component.
Do you have to suppose a pay contract or do you have the facility to resell power? What is the consequences on the re-powering? As you know we have been very prominent in re-powering our system. However, there are some out there where we are in the immutable stretch of getting things signed. Last but not least the community repercussions which has a multi-fold mien also an aspect of how quickly when the conciseness comes back can you ramp up the system.
Frankly we will maintain to monitor the situation and we will, as we have shown here, not only come back appropriately but answer fast. Operator The next theme comes from Jorge Beristain - Deutsche Bank Securities. Jorge Beristain - Deutsche Bank Securities I ponder if you could accommodate some more details on the revolver, the $1.9 billion incremental revolver. What compassionate of bring in or terms does that have? Secondly are there any plans to emergence tapping the handgun in arrangement to return up the shortfall affluent into the first quarter of cash flow? Charles McLane As I said, it was a $1.2 billion piece that we expanded to $1.9 billion.
It is a 364 date shooting-iron that was an up main payment that is paid out over the course of the year. As far as the residual interest berate on that outstanding it is competitive. I won’t give you the predetermined rate but it is very competitive for today’s surroundings and we don’t have any current plans to have resort on the revolver because we are having great triumph in the commercial paper market. Operator The next doubt comes from Michael Gambardella - J.P. Morgan. Michael Gambardella - J.P. Morgan My dubiousness is about the dividend.
It seems identical to vicious the dividend would be the quickest and highest position of self-assurance aspect to preserve moolah yet you haven’t even talked about that. Is that something the directors is considering and hasn’t met on? Why hasn’t the dividend been addressed in any of your communications? Klaus Kleinfeld Thank you for a problem charming undeviating on the minds of many. Alcoa has been paying dividends for 60 years and we persist in to be committed to engender value for our shareholders. May I leave you with this? Michael Gambardella - J.P. Morgan Are you well-disposed to then refer to to make amends the dividend? Klaus Kleinfeld You have seen the pecuniary character of our company.
As I said we have been paying dividends for 60 years. Alcoa has managed through many downturns and that is all we want to bid fact now. Operator The next ask comes from Charles Bradford – Bradford Research. Charles Bradford – Bradford Research In your throng deliver you talked about a disadvantage from discontinued operations of $262 million or $0.33 per share.
Can you fail to observe that out as to how much of that would otherwise have been included as an operating privation if you hadn’t irrefutable to promote these businesses? Charles McLane I’d be disposed to do that for you. If you remember, just so I can sleeper our numbers together for you, we gave a reduction on the notice we put out after week we said $900-950 million. Our announced shrinkage from continuing operations was $708. $212-262 has to do with the valuations around divestiture of that charge so it would be $920 in total.
That means the outstanding $50 would be operational losses. Operator The next call in comes from Anthony Rizzuto - Dahlman Rose & Co. Anthony Rizzuto - Dahlman Rose & Co. I was wondering if you could discussion a thimbleful flash about working choice changes and what you predict that will be in 2009 if that will liable be a author of legal tender or a use of cash? Also, a itsy-bitsy segment of color on what you show as allowance funding. I separate maybe you haven’t done all the valuations at this moment but if you could just address that a little jot I would be interested.
Klaus Kleinfeld On the working marvellous if you through a deeper look at the fourth clemency and evaluate that in light of what has been going on out there in the market-place we believe that we have been doing reasonably well in improving the working capital. Traditionally the senior humanity kind of swings back if you look at the unforgettable analysis. We will work as unalterable as we can and I am reasonably optimistic we will be able to be prolonged to manage the working capital and make cash from that. On the annuity funding, Chuck let me turn it over to you.
Charles McLane Right now we have a lovely allowable grip on what is going on between the lessen rates we will have to use for funding purposes, etc. I would recount you we made some discretionary payments this year you may remember. Because of that and because we have the funding ignore rates are effective to be utilized. I of it is quite in the $100-150 million range for 2009.
I will put a caveat on that there is separate types of on hold legislation that are in play retaliate for now as a result of the markets going down so dramatically to assign people to defer some of those compulsory payments so it could be even less than that. Operator The next subject comes from [Mark Linima] - Morgan Stanley. [Mark Linima] - Morgan Stanley If the furnished room rolled products partition thrill in China had a $97 million ATOI damage in the fourth quarter. Can you annotation a inadequate on what is prevailing on there now and what level of profitability or shortage thereof we might see there going forward? Klaus Kleinfeld Let’s draw back with Russia first.
The Russian thrift is prospering through pretty dramatic swings currently and as in many other places also there we have seen completely a overdone drop in demand. At the same era the government is stepping up big time to put a suffer package in place to increase the liquidity of equivalent demand and show a strong commitment for pitch industries and key enterprises. The latchkey sectors that have been outlined here and are our three indication sectors for Russia are places have a fondness automotive, aerospace defense, packaging and transportation.
The nobility communication is all of those markets are our end markets in Russia. We are not advantageous with the completion in Russia and that is actually independent of the additional set in Russia. I think about I have spoken to you a number of times. At the same moment those that are closer to Russia have seen we have put more stringent matters in setting there.
We have announced really in Russia keep on week at the same time we announced here our restructuring unite that in Russia that would base an 18% reduction of the Russian workforce. From the model assets we have there some of them are unqualifiedly unique. We are the only Russian [canning] manufacturer.
We have the world’s largest extrusion mob as well as forging host there and on the convalescence of the new stuff we are putting in there things are getting better. We will be able to mould and then faucet in Russia as the only ones according to bloke qualifications in the first half of the initial quarter. That is pretty much where we are. When we gaze at this year’s Stock Exchange first we feel it will more than likely be flat. Building, construction and automotive to all intents and purposes in the subordinate half will probably saunter around and most likely be positive.
Beverage cans is definite growth for next year and on out-and-out rolled and hard alloy we hold it is going to remain weak. On China the ball game is a little alike but it is another big, big market. We have seen construction coming down 40%, auto down 17%. It is a great slope we have seen there.
At the same leisure the authority has stepped up with a $680 billion stimulus package. Of the same greatness of the container here in the U.S. for an terseness that is obviously substantially smaller. The extensive news is they will invest a lot of that in infrastructure and those of you who be sure China better know the infrastructure projects in China are comely much lined up.
The and shin-plasters will surge very quickly through the system and generate regulate demand and for instance one of the projects will be the faster spread of the national electricity grid. How will they do that in China? With aluminum cables. That is just one of the examples. In event we are in already some thetic possessions from that program by some demand stimulation in China. Let me renounce you with that.
Operator The next beyond comes from Jim Brown – J.P. Morgan. Jim Brown – J.P. Morgan Could you also give us an perception of where your old-age pension detriment will be for 2009? Also, what is the monetary bumping of the re-powering you have done? Is this common to be significantly helpful or is this going to be something that after all is said and done raises your costs? Charles McLane Our golden handshake reservoir is going to be essentially flat with this year.
Klaus Kleinfeld On the dynamism side, 80% of our outright knack consumption is either self generated or secured by long-term faculty contracts that last a nadir to 2025. When you look at more specifically Canada is all signed and all complete. The extensions initiate at 2014 and go until 2040.
Massena just today was the stop in of Governor [Pareson] who signed it starting in 2013 when the modish deal runs out and it goes until 2043. In Spain we are making well-proportioned advancement and in Italy we have an volume for one year. In Australia it is a hardly any fraction more complex. It expires one in 2014 and the other in 2016.
The convolution here, and we allow we can resolve it this year, the inscrutability for Australia is one has to see it in light around the discussions around greenhouse gas regimen that Australia wants to put in place. Operator The next query comes from John Tumazos – John Tumazos Independent. John Tumazos – John Tumazos Independent Could you characterize the geographic dissemination of the employees and contractors announced verbose on January 6? How many were in the U.S.? How many were in low-wage countries? A $450 million amount and latest week’s hug let go would seem to state a lot of them might have been in Mexico or Russia or low-wage destinations.
Klaus Kleinfeld Let me put into effect a air here so I don’t give you the dishonour number. In the meantime, this sea-chart million twelve shows the total. We will have about sign to 5,000 in North America and we will have in Europe including Russia about 4,400 and then the take to one's bed is in all the other regions.
Operator The next mistrust comes from John Redstone - Desjardins Securities. John Redstone - Desjardins Securities You mentioned at one time you still have some ceilings in your can fitted sheet contracts. I’m just wondering if you still have some claws. Klaus Kleinfeld Can you define what you parsimonious by that? John Redstone - Desjardins Securities You mentioned before there is an higher confine to the amount of aluminum you can outdistance on to your canned skin consumers.
I was just wondering if what is salubrious for the goose is also worthy for the gander. In other words there is a littlest guerdon you can disregard on to your can contour sheet consumers as well? Klaus Kleinfeld As we have reported before, the regular reward contracts that we have on the can surface party are about to dissolve out and we are in the middle of unheard of negotiations. In fact if you followed us on that true closely you could have picked up we actually had some of those prearranged price contracts running out mould year and where we have been very successful in coming up with restored contracts with substantially better pricing.
The indexing party that you refer to is typically more on the verve side. There is typically no floor, a ceiling typically. Operator The next sound out comes from Kuni Chen - Banc of America Securities. Kuni Chen - Banc of America Securities Do you over it is feasible the exertion understanding of needs more of a big bang at this tip in terms of shaping cuts to survive from digging itself a bigger fix and how probable do you endure that big bang type of event playing out in China? Klaus Kleinfeld Let’s convey up the table that shows demand/supply balance.
I characterize that is our witness on trying to find that answer. Let’s found with the supply side first. I reflect that we have seen a lot of curtailments contemporary in here and those curtailments are taking effect. In fact, you adage on the previous graph 800,000 tons is already there and we believe the aggregate effect of those and total 4.2 million surviving from the announced curtailments for next year will be around 3.5 million.
The well-founded and gripping news here is we actually do meet evidence those curtailments are taking make even in places like China. There is a calculate of indications it is really occasion there. The other thing is, and that is a bigger give there, where faithfully is the cost curve these days? I am reasonably sure there is a sizeable share of smelters that even today operate above the LME price. I would put it around 20-25% but for many of those they have the inimitable conditions generated, solely those in China, where you assist provinces like Hunan that have given the smelters they have in their also dependancy very favorable potency rates until basically spring this year.
The same element for inner Mongolia and some other provinces. At the same term if you overlook at the demand side we believe we are assuming desire next year is going to further go down by 2%. If you expression at other projections made by other observers of the determination minus 2 we are rather on the glum end here.
If you appearance at [McQueary] is at minus 1.6% and in reality projects China on the same level we do. We do think over in the demand surface on China their massive stimulus program I just mentioned of $680 billion is as a matter of fact starting to show gripping power and so we suppose it is pretty likely that is going to happen. For the U.S. we forecast that the downturn continues but you always have to warrant in mind the U.S. got into this already earlier and this is the third year where we would guide a adverse growth rate here.
Same show for the EU and then there are places be the brick countries and Russia we talked about in India but Brazil, for instance, was 0.8% crop rate. Still holding up nicely. So that is the picture. The only act not on this image that you have to continue is we have accumulated about 2.4 million tons on the inventory. Not all the 2.4 will in fact shove off as we truism even in the boom times.
You privation still a substantial total that is kind of a healthy logistics there of all things considered more than one million. If you add the numbers you can undergo the big question here is really around how is the stimulus incorporate going to work. That is the big impetuous card.
Other than that there is a incidental this could be a balanced picture next year with inventories present to be drawn down. One action is for sure. We are fetching the 18% out and we will be done with that by the end of the first quarter. Operator The next proposition comes from [Mark Linima] - Morgan Stanley. [Mark Linima] - Morgan Stanley Could you victual any additional dirt on the timeline for the assets you have now identified as held for sale? Whether you have begun the organize of identifying buyers, etc.? Klaus Kleinfeld Sure.
We would not have announced that if we hadn’t already looking at our options. There are prejudiced parties. We will indubitably perform as soon as possible.
We assume that we can get this done by the end of the year. [Mark Linima] - Morgan Stanley LME inventories have been accelerating. That has been one of the things that have blown out prices to get as far below infinitesimal chap oeuvre as they have. Presumably a lot of it is de-stocking.
Are you considering any reason of coppers in fellow behavior or any call they have to come back and transmute purchases? Klaus Kleinfeld That is to be sure cure and I’m willing you raised that. Frankly, the de-stocking that has happened there has brought it down to levels that we think the significance when this responsibility turns immediately shifts because they are not maintainable. They are only maintainable when the insistence goes down.
We have not seen a swop in the behavior in the replenish chain. The consumable news is once this thing turns it will have to happen extremely instantaneously. Operator The next dispute comes from Brian MacArthur – UBS Securities. Brian MacArthur – UBS Securities I just want to go back to tabulation 12 and the smelting costs.
You very nicely laid out the 2-3 month fail on aluminum input costs so certainly in the fourth mercy there was a disproportional wedge plainly because prices came down so very, very swiftly for aluminum. But you also talked about managing inventory actually effectively in Q4. I just want to prepare convinced that relation will still hold in the fourth locale that is because you haven’t just basically taken out the inventory so unwavering in the fourth quarter that relationship is getting distorted whereas most of the working prime saved in the fourth three months was interrelated to Singapore and the downstream business.
Charles McLane No, I don’t imagine it is successful to get distorted. The pricing conventions we have listed in the average inventory abundance would be under a normal basis. I reckon we, feel favourably impressed by everybody else, have had a flight to liquidity where you want to drive with as low inventories as accomplishable and we are going to try and do that.
So I don’t expect you will sit down with any anomalies take place. We just wanted to steel the fact there was a big LME evaluation decrease between the third and fourth quarter. You are not current to get all the benefits of the deign link costs or other procurement initiatives straight away and now the price has come down again so far anyway between the fourth phase and what we are currently whereas so you are going to have an additional lag on get on top of that just to keep people more comfortable. In the days when it was motile $50-100 in a post it wasn’t that big a deal. When you disquiet $900 in a quarter it is a big deal.
Brian MacArthur – UBS Securities Especially if your inventory has changed between 1-2 months or you have mow it down from 2 to 1 that will still deliver a nature and not real [caution] as well too. That flows through set of goods. That is all I was getting at. So you are saying these relationships mostly still hold that inventory coming out evenly if you want to countenance at it that way.
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