US aluminium industry welcomes clarification on Section 45X

A recent clarification of the Section 45X tax credit under the Inflation Reduction Act (IRA) that includes aluminium in the critical minerals list will help boost domestic production, according to aluminium producers in the United States

Under the Notice of Proposed Rulemaking by the Treasury Department released on Friday, December 15, aluminium is included in the list of 50 minerals that, “if converted or purified to specified purities, are considered an ‘applicable critical mineral’ for purposes of the section 45X credit.”

“First and foremost, the proposed regulations confirmed the application of section 45X to US production of alumina, high-purity aluminum and unwrought primary aluminum,” Jesse Gary, president and chief executive officer of Chicago-based aluminium producer Century Aluminum, said during his company’s conference call on the topic on Tuesday December 19. “Based on the proposed regulations, we estimate that Section 45X will apply to substantially all of Century’s primary aluminum production in the United States.”

Section 45X provides a 10% credit of eligible production costs, including, but not limited to, labor, electricity, depreciation and overhead.

The US aluminium industry has been calling for affordable, renewable energy to revitalize the domestic industry and met with the Department of Energy undersecretary David Turk in late November.

Additionally, Gary said that Century Aluminium was evaluating the restart of its remaining 90 idled pots in their Mt. Holly smelter in South Carolina, which has been running at 75% capacity since 2021 due to high energy costs.

“But certainly, the benefits under 45X, the 10% tax credit, is an incremental benefit that we have not previously anticipated and will certainly be helpful to the prospects of those restarts occurring,” Gary said.

The company continues to prioritize the smelter, according to Gary.

“Our recent power agreement with Santee did include an option to receive the energy necessary for that restart. So, we do have that option to increase,” Gary said, adding that they were not announcing restart plans for the idled capacity in Mt. Holly, but the company would provide an update on the topic in early 2024.

Century intends to recognize a 2023 EBITDA and net income increase of $55-60 million from the tax credit, according to the company.

Pittsburgh-based aluminium producer Alcoa also said it was welcoming the Treasury’s announced guidance on Section 45X.

The company expects to record a benefit in cost of goods sold between $35 and $40 million after tax in the fourth quarter of 2023, related to its Massena smelter in New York and its Warrick smelter in Indiana, Alcoa said.

“The [Notice of Proposed Rulemaking] clarifies that commercial grade aluminum can qualify for the credit, which was designed to incentivize domestic production of critical materials important for the transition to clean energy,” according to Alcoa.

Additionally, the Treasury is considering adding direct and indirect material cost to the eligible costs under Section 45 X and established a 60-day comment period on the proposal.

A public hearing on the proposed regulation is scheduled for February 22 2024.

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