Companhia Brasileira de Alumínio (CBAV3) Earnings Call Transcript & Summary

Hello. Good morning to all. I'm Amabile Silva, Investor Relations Manager for CBA. Welcome to our first -- call for the first quarter 2025. We have Luciano Alves, CEO of CBA; and Camila Abel, who is our Director and Investor Relations. Important to say the video conference is being recorded [Operator Instructions] Presentation of our event will also be available on the CBA Investor Relations website where we'll make the recording available as well. Before continuing, I would like to say that some of the information, which is contained in this presentation may include declaration depending upon the expectations of the event and future results, depending substantially on the economic, political and macroeconomic scenario in Brazil as well as global market and future regulation. Operational changes may affect the performance of CBA and conduct to results that will affect the future considerations. We can now go to the presentation. And also -- now I pass to Luciano Alves. Thank you, Luciano Alves.

Once again, thank you so much for your participation in [indiscernible] conference of CBA results. I would like to start here by highlighting some of the changes in this quarter. So we saw really great results for the aluminum business, which has improved ever since the second quarter -- the best results in the second quarter of 2022, BRL 517 million, which reflects the increase of average aluminum price as well as the valuation of the dollar. Net, we saw BRL 335 million this quarter. We also saw a capital approval of BRL 410 million for accumulated losses. So the idea here is that we now have the option to pay dividends when profit is once again on the table, like we saw this quarter and this will happen [indiscernible]. As part of our strategy for deleveraging the company, CBA, this quarter, we also liquidated debt with our own resources, the total BRL 525 million, which contributed to the outstretching of our deadlines of paying debt as well as the cost of debt over time. Camila will go into details about that leveraging throughout the presentation. But with that, we go from a leverage of 7.89, the net debt EBITDA level in March 2024 to 2.15 in March 2025. On the next slide, I'll share some of the ESG highlights, where are very important consolidating CBA's market position. In terms of our climate agenda, we just concluded our greenhouse inventory. Our Alumina Refinery has still demonstrated the best carbon performance with 0.21 tons of CO2 per every aluminum oxide produced, and this is measured according to the tool from the CRU consultant. In our [Foreign Language] the result was 2.87 tons of CO2 per ton of liquid aluminum, which is 3.9x lower than the rest of the sector. About ratings and prizes CBA started to the integrate the S&P Global Sustainability Yearbook in 2025 in January, which recognizes companies with the most sustainable practices around the world. We were also selected to compose for the third consecutive year, the B3 ISE portfolio, and this year, we are in the 12th position in that. And also for the second consecutive year, CBA's Annual Report was recognized by Reporting Matters Brasil as 1 of the 15 best reports in the country. It's important to highlight here that we have also launched our 2024 Climate Agenda Report, April this year. They're both available on the Investor Relations website. And you can check it out -- check them out there. Talking about the market now in this first quarter of '25, the global market of aluminum started with a [Foreign Language] after 3 quarters where you can see -- which were very low. And this demonstrates the impact of Chinese New Year besides this, regard -- despite this, the [Foreign Language] was lower than the same year -- the same period last year with -- well, the demand for primary aluminum in China has gone drop in the last quarter, but reached the best historical rates for this period, showing the resilience of this market, the Chinese market, even with the uncertainties that we have seen, the macroeconomic uncertainties. The incentive from the Chinese government continue to feed into the key characters, especially the key sectors, especially those connected to energy transition, which has complemented or added on to the slight deacceleration of building sector. China also -- we've also seen a better result. Now on the next slide, you'll see that the seasonal increase given the Chinese New Year that I mentioned, made stock and consumption go up to 52 in the first quarter of -- 52 days in the first quarter of 2025. But even despite this, the indicator remains lower. Regarding initial stocks, the trend maintains itself since the first quarter, demonstrating the best value since the first quarter -- the fourth quarter of '23. And the volume and stocks have dropped to the lowest levels ever since the fourth quarter of 2022. On the other end in China, the SHFE demonstrated a seasonal increase encouraged by the Chinese New Year as I mentioned. In the next slide, you'll see how LME has behaved itself in this quarter. I would say that in the first quarter, LME aluminum has closed the quarter with $2,627, which -- price dollars per ton, which is the highest average price in the second quarter of 2022. The average price has also been maintained over the quarter with a peak of 2.5 to 2.7 (sic) [ $2,500 to $2,700 ] peaking before then dropping again at the end of March, beginning of April. In this retraction, we saw this was basically caused by the tariff announcements made by the U.S.A., which demonstrated a new scale in the tariff war during that period. The global scenario continues to be very volatile. We have been discussing this with you, discussing economic policy, especially the economic policy connected to tariffs and how those affect the price of commodities. Regarding the prices, I would highlight Midwest in the United States, which saw a big increase during this quarter, reflecting on the impact of the tariff war. So after the 25% tariffs were imposed by the United States on aluminum in February, that's when that premium started rising, reaching a total of -- or an average of $861 per ton in March, reflecting the additional costs of imports and concerns with domestic supply. Now the Rotterdam premium retracted during this period. It had the opposite behavior, but it was pressured by the fear of the redirection of the volumes of aluminum in the United States to Europe, which may end up generating a super demand or extra supply in the region. So there's a concern with that in the near future. Slide 9, I'll go into the Brazilian market. We see those are the dynamics of the global market. But even with all of the uncertainties from the global scenario, especially in the United States, the demand for aluminum in Brazil continues to be strong, solid and following a positive growth, which reflected on our numbers and what we see is still a very positive scenario. So I would like to start by highlighting the automobile industry, which grew 8% first quarter and thanks to the renewal of the industry as well as the renewal of the fleets, which [Foreign Language] continue to be on high demand for those sectors. So we see the resilience of that market -- billets and [Foreign Language]. And despite the challenge -- the economic challenges of the sector, for example, the cost in manpower. Now in terms of urban mobility, buses and -- had the best results when compared to the period of 2023 and 2024. This shows the important importance of the sector and also programs like the path to school are coming in Caminho da Escola, which also helped to heat that market up. And I would also highlight here the evolution of the energy matrix in Brazil. So new projects and improvement in the infrastructure, network of infrastructure, which is encouraging the demand for aluminum cables, strengthening another front of -- sector of opportunities for the sector. So despite the more uncertain global scenario outside of Brazil, the main sectors in Brazil continue demonstrating strength even though there's more concern on our end. We're still very careful regarding what could happen in the future in the short term there are some uncertainties, but we are looking forward regarding what we may expect moving forward. I would like to Camila now, our CFO and CBA Investor Relations, so we can talk a bit about our financial results in this first quarter. Thank you.

Thank you so much following the presentation and discussing our volume. Our volume of sales in general has maintained a great level. We sold 120,000 tons this quarter, a volume aligned with what we expected for the first quarter of '24, strengthening the seasonality of the period. Primary, you'll see the reduction in the slide is connected basically to the drop in sales of the billets, which has the seasonal effect, but I would also remind you that the first quarter of '24 was also a bit unstable in terms of billets because we were coming back to production after 2022. Growth of transformed aluminum came through the sale of aluminum sheet, which happened basically thanks to the packages market. And the recycling sector is more volatile. We compare this period by period because it's more sensitive and react more to very specific market effects. Our total allocation of sales here was maintained mostly very strong in the domestic market. You'll see in this slide, you can see the volumes, but the information is also valid when we discuss revenue. And finally, you can see the assessment of volume in quarters, which also follow the seasonality also within the normal rates. Now on the energy balance, I'll first talk about volume. So the increase of the volume of contracts, and 50 megawatts average, it refers to a new contract, which, as we mentioned last quarter -- starting last quarter, was a contract which was installed for 14 years and which started in 2025, very competitive. Besides having a very interesting long-term price, it's in dollars and prefixed. So the goal of that new contract is connected to the strategy of compensating the water capacity. There has new rules being discussed as well as sustaining our potential growth. We also hired some specific packages of energy connected through short-term sales. In terms of our own generation, our volume was a bit lower when we compare to the annual generation, and that's because of the lack of rain. So it was a drier period this year when we compare year-by-year to last year in our Juquiá water reservoirs. Now going a little bit into pricing. The increase in the average term of contracts was a result of the readjustment of prices of the long-term contract, which continues to be in our portfolio, and which cancel in 2028. So the volume is 100 megawatts average, and it went from $45 a megawatt per hour in 2023, 2024 and also by 2025 increased '28 -- to $100 per megawatt per hour, which is also a reflection of the swap. And also along those lines, the contract values, which we have communicated to you. In terms of our generation, this is due to the less generation of the reservoir. Let's go into costs. Our average cost of aluminum liquid -- net cost of aluminum in reais for the first quarter, this is because of cost of energy, the fact that we generated less on our own, a more dry year and as well as the fact that we had to buy more energy for the aluminum. So a less rainy period, generating less water, and using some of our contracts to compose the cost. And another factor, which is very important, there was an increase in the price of alumina, 16% due to a reduction of the availability in the global market and also the negative effect of the exchange rate. When we compare this to the fourth quarter of '24, the increase was lower. There was an impact of exchange on imports and -- imported products and caustic soda. So between the moment of the purchase of our inputs and the way we use them in production, we are still consuming this more expensive stock, and it's important to consider the lags in that. Regarding our fixed costs, the effect was basically a decrease of 9% in terms of the volume of production. And the price continues to be very competitive in dollar. You see that we're still very well positioned in the industry's global curve of costs, which favors our integrated model and regarding the cost of aluminum and the other factors as well as the exchange rates, which favor us in the curve. Talking now about some of the products which are sold and the increase of 18% when compared to the first quarter last year was also a reflection of the cost of production of aluminum. So as we've mentioned between CDP and CPV and the increase of 31% in costs -- the business cost was mainly because of what was explained in the increase in prices for the contract given the scenario. Now regarding the fourth quarter of '24, CPV in the aluminum business became almost stable and the energy business reduced -- saw a reduction. Here, there was something very specific, which impacted this, the impact of BRL 270 million in the reclassification of the hedge accounting in the markation of the swap energy market. So it went from CI where it was being accounted for in a patrimonial account and went to -- was then included in the cost of sold price on the 31st of December 2024. And now that will continue impacting results of CPV. Now looking at some of the consolidated results, strong BRL 2.3 billion this quarter as a consequence of the increase in the price of aluminum and the devaluation of the Real exchange, even though our operations stayed strong. 97% of our total revenue comes from the cost of aluminum and has all of its costs connected in dollar. So only a part of our cost is dollar. The devaluation of the Real has increased our competitive upper hand, not only increasing the individual results of CBA, but also the comparative costs in the curves when compared to our peers in the global industry. Adjusted EBITDA reached BRL 430 million first quarter '25 being almost 3x higher than first quarter '24 with a margin of 18%, reflecting strong results for the aluminum business, as was mentioned. Regarding CapEx, the concentration of investments in this quarter followed a flow of maintenance -- project maintenance and of modernization of our expansion, which is well known. So everything was up to date along the plan for modernization and expansion for the year. For the next few quarters, I would also say it's worth mentioning that we look at an increase of CapEx connected to the maintenance of the Alumina Refinery. We will maintain our prediction of CapEx estimated for the year because we're going to compensate with other investments in modernization and expansion. Once that maintenance of the refinery is concluded, and the market, which has also been very heated in the last few months. Together, we bought 231 tons of alumina in the market -- 31,000 tons of alumina in the market to adjust our stock and also anticipated reforming our ovens for producing aluminum, which will then start reducing and get closer to about 80,000 tons for the second quarter '25, reaching -- once again reaching in the third quarter back to the level of 90,000. For our cash flow, it was a negative generation of BRL 63 million. This was -- BRL 163 million. This is basically because of an investment in working capital, which is seasonal and is going to be rebalanced in after the stocking period. So it's common for stocking period. And then we'll go to the second -- the end of the second quarter, beginning of the third, with a higher level of stock, but this is also seasonal between quarters. About debt, we continue very committed to deleveraging, which fell from 2.8 net debt EBITDA, adjusted net debt EBITDA to 2.15 in this quarter as well as a lower net debt, which was a reflection of the positive exchange rates, which decreased the level of debt and derivatives due to the strong EBITDA generation. Besides this, we reduced gross debt. So export credit and contracts for exporting credit, which were negotiated with the banks and the prepayment was in this amount of BRL 525 million. With that, regarding our schedule for amortizing the debt, we continue to improve our debt profile, always following deadlines and improving the average cost whenever possible. Prepayments are made as we saw was the case using the exceeding cash and the cash flow. The prepayment that we were able to do also reduce the short-term costs and the average cost in dollar was reduced to 6% a year, which is a great level for that debt. And to close our presentation, I would like to highlight our main points. First of all, the global supply of primary aluminum is stable and the trend is that it will become more and more restricted. So mainly because there is a limit of 45 million tons of capacity, which is still imposed by China, which keeps the market -- global market more narrow and tight. And the other point is that even though there was a drop -- recent drop in the price of alumina, CBA continues to be well positioned as one of the most competitive operations in the world in the global cost curve. So that is one of the highlights of our integrated model. Besides that, CBA continues to be very competitive by generating cash in dollar. and because -- and having a part of the cost of production only connected in dollar. And in the Mexican market, the demand continue to strong -- the domestic market, the demand continue to strong, given the fact that our energy matrix is very much based on aluminum consumption. So about what points we need to be careful with. And well, there's the increase of the geopolitical tensions. Let's say, those points of tension are points that I think everyone is on -- is monitoring a lot, so very volatile, even though there may not be a relevant impact in our business in terms of volume because of the representation of the portfolio as a whole. It generates a feeling of fear in the market in the short term price of commodities and also a point of attention given the redirection of commercial flows here that needs to be monitored. The macroeconomic scenario challenges in Brazil and the world. So lots of things are happening in that aspect and the recent drop in the price of alumina, which were focused on mainly because of the normalization of supply. And with the temporary deacceleration of demand, this caused the whole global curve to drop. But even then, we continue to be competitive and even though the cost of the curve did reduce when we compare it to the level we were at last year. Thank you. And to close, our inputs connected to the dollar. So these are still important and will continue to remain in the levels we've seen in the last quarters and future quarters, considering that period between purchase and the consumption of the inputs in production. Thank you very much for your attention of that very brief and quick overview. We'll pass the word now to Amabile, so she can open our Q&A.

Thank you, Camila. Okay, let's go to questions and answers, and we already have a few people in line for questions. I'm going to start with Edgard Souza from Itaú BBA.

I wanted to start by discussing cost of production. We saw that there was an increase in the cost of production with that price of energy dropping, as you mentioned, because of the lower consumption in contracts in the aluminum business division. My question regarding costs may break out into two different points. First, I would like to understand how you see this cost of production over the next quarters. Is there room for reducing this or a more stable scenario or even an increase? And also, how can we expect to see the increase of this cost on impacting the company? So cost of production has increased over the last few quarters. This was mitigated by an increase in the price of aluminum over the last few quarters, but now we see the price of aluminum becoming more stable or falling over the next quarters. I just wanted to understand if there's any specific quarter and regarding the cost and results that we should be more careful about or pay more attention to, maybe the next quarter or even the next few quarters. How do you see the higher cost of production and lower cost of aluminum over time on results? And then maybe more -- my next question would be more regarding energy. So we saw cost of contracts that are higher and a more negative result in this quarter than what was expected, let's say, not only because of contracts, but also because of consumption of contracts -- cost of contracts on consumption and aluminum. How do you see this trajectory of EBITDA over the year? I know in the last call, you mentioned that there was some room for a possible improvement or for results not to be as negative, the price of energy itself improving in the market. Would you have anything to say about this trajectory of the result of energy over time? That would also be great to hear.

Thank you for those questions. I can definitely add some color to your remarks. I think we talk about the lag. Yes, CPV starts to see higher impact starting second quarter, and then it recovers closer moving into the end of the year. So I would say this new level of energy that we have noticed in the second quarter last year. which improved a little bit in the fourth, but then started the second quarter a little bit more negatively is really the highest level of energy for this year. So I would say that reference for second quarter last year is the same reference for this year, and there also the increase of inputs soda. So the price was a bit higher for soda. But the market has also improved a bit and -- so according to what we expected for the budget, there's also a bit of a higher level for the coal tar pitch. So I would say in terms of -- we can think about cost in reais a bit higher than they were last year. And if the dollar favors us in this comparison, then you can imagine about 50% of influence on price, but when we convert the rest of the margin, that helps us quite a bit. And then a recovery after all of this more in line with the fourth quarter, recovery more for the fourth quarter, you could expect. That's about CPV in general. Now when we think about energy, what you asked about the parts of energy, yes, did privilege us quite a bit. In fact, we have already sold exceeding amount last year when the price of energy increased or changed levels we already were able to sell about 30% of what was the exceeding cost. So I think ever since first quarter, our risk management is very conservative in terms of the fact that we don't -- we can't run the risk of shortage in the first -- in the last quarter, which could be critical. So we only sell what could be exceeding, but we're able to also take advantage of a good part of this price, and it's possible that you'll see an improvement of this energy EBITDA in the next few quarters, which already influences the improvement given this brisk increase in price, in average sales. So since we negotiated this new contract in the house of 30 megawatts per hour. It's very competitive, prefixed and helping with the average price because of the energy swap, the other contract ended up higher. And this average cost with PLD, which is the price of commercialization over the next few months, we were able to achieve and hope to achieve a better margin. So starting second, third and fourth quarter of CBA Energy EBITDA for the year for energy is hopefully going to be a bit better than we started off predicting beginning of this year. So we end up better than we started, let's say, in terms of EBITDA. Just to remind you also, there's another point, if we have a lower level of sales, as I mentioned, because of the maintenance to the system, then we will increase the surplus energy and if price is good for that surplus energy, this can definitely benefit our EBITDA margins.

The next question is from Marcelo Arazi from BTG Pactual.

Two questions here on my end. The first is about leveraging. We saw that the company's leverage has improved quite a bit in this quarter, I think, mainly thanks to the improvement in the EBITDA. I want to know if you see a target for this -- have a target for this to understand at what moment should we expect to see a more comfortable CBA in terms of leverage and even accelerating through distributing dividends or accelerating CapEx. That's one question that I would like to cover. And then another question would be to understand how your negotiation with your American client where you have a product that you sell, there were tariff discussions. Were you able to pass on this in terms of price? And just a question regarding that.

I can start maybe answering about leverage and then you can answer after. So definitely, the significant cost reduction was because of two factors. First, there was a strong exchange of EBITDA in the beginning of this quarter when compared to last first quarter. So stronger EBITDA this quarter. We hope to have a great year with a stronger EBITDA throughout '25, obviously, that will depend on all of the X factors. But since that talks about an EBITDA level that could sustain a similar EBITDA starting second quarter. And there's also the exchange rate, which influences debt. So we had an almost a return of almost 6.20 and this exchange variation benefited us quite a bit, regarding our dollar debt in the derivatives market. And so considering that exchange stays in this level, and we are able to generate cash and this cash can be then redirected to prioritize deleveraging, which is our plan. So as you prepare a more expensive debt and improves flow and it also financial results. So the strong generation and stable exchange rates and also the EBITDA being actually reverted into cash flow, so we can make payments and reduce our net debt has improved our debt profile, and that's definitely where we're headed. So our financial policy has a limit of 2x net debt EBITDA level. So even though we've reduced this, we're still above it. We don't have financial covenants. It's an issue of management also requesting internal waivers regarding our policy until we're able to readjust below this into what we understand is an excellent deleveraging target, which would be 1.5x EBITDA. So that's where we want to get, and we'll get there eventually depending on the different levels.

Thank you, Camila. Marcelo, talking about discussing the United States, we talked in the last quarter about the fact that we were expecting reduced impact because of CBA given that situation and what we discussed in the last quarter was a bit of what happened. So it's a mix of two factors really. First of all, there was a reduction in sales, which is natural. We expected this to happen in this moment, but it wasn't -- it didn't go down to 0. So we continue, our clients kept buying. They kept buying a smaller volume. But for this amount that they bought -- that they buy, they're still tariff. So it's responsibility of the client to then maybe bring that tariff back in his American market. So that's a bit of the dynamic with stock for market price, there's tariffs and then they have to try to pass on those tariffs. So it's more of a challenge of -- it's more of our clients' challenge than our challenge ourselves. But even though we were -- we lost this fall into the United States, we were able to compensate this with our stronger domestic market. You saw there was an increase in sales to Brazil and also to other places like Europe. So we were able to compensate the loss in this volume with sales to other markets. So reminding you what is happening in the United States. Some of our clients or at least most of the clients we have discussed to understanding that this was a possibility, they stocked up at the end of last year. So I think that there is a level of stock, which is higher than normal, which was built in the beginning of last year in light of what's happening. So I would say they also have a few months of stocks where they're able to hold up with this lower level of sales. So that's what we understand that while the market uncertainty remains and these clients remain with their stock, then we'll continue to see the behavior we saw this quarter. But on our end, a minimal impact, we were able to compensate this with sales to Europe and the United States, and we will continue to fight this fight until things become more stable.

Really understood. If you allow me to ask another question, I would say, market-oriented question. We saw the price of aluminum suffering a bit with this. Given tariff discussions and everything. There was also an impact of aluminum and all the other factors you mentioned. But I would like to hear from you what you understand to be the support for your cost price -- for the cost of price. We've seen more recent weakening, but things seem to be stabilizing. Are there any -- do you have any price support that you think would be interesting to sort of keep the market with its head above water.

Marcelo, I can't give you this number, but it's obviously a volatile number. It depends a lot on cost factors. And as you can see, there was a big variation in cost from aluminum from last quarter to this year. But you can see that aluminum stayed in a level between 230 to 240 (sic) [ $2,300 to $2,400 ] almost all of last year. Then jumped to 700 (sic) [ $2,700 ] this year because of this Chinese impact and then a certain instability of the market before the tariff war started and with a market that had a trend towards a capacity cap, which shocked the price up to 700 (sic) [ $2,700 ]. There was also the fact that there was alumina at this price cost. So the price moved back, but it moved back to a level, I would say, is quite healthy. So level of 235 today -- $2,350 today, I would say for industry, that's a good price. It used to have a lower price than that. I think $2,200, but then it hit that and shot up again. So I think because of the behavior of price over these last few years, we can consider that this is a healthy level and a level that you could count on that it could be more stable between this $2,400. And if it stays at around this $2,400, it's positive. It's good, it's stable. It's good for the market as well. When you look at market, this price offers an adequate profitability for a good part of the cost curve. So on our end, once again, when we look forward, difficult to predict expressive drops in this price. But obviously, this would depend on the uncertainties in the market. And then for to go up, it will depend on removing these uncertainties in terms of tariffs and helping us to have an increase in demand. Remember, supply is not an issue at the moment. supply exists, supply is safe and it has this sealing expenditure cap, which won't be reached some of the moments this year. So paying attention to the price of demand really be it Chinese -- China impacted or the rest of the world because any more expressive impact of demand that we might see moving forward, supply is more restricted than that. So I think you have a moment a positive impact of price, but this positive impact will depend on demand increasing as well.

Next question comes from Guilherme Nippes from XP.

Two questions here. My first question comes from the energy cycle. So we saw an increase in the cost of contracts of over 50%. But this was basically expected. Of course, this higher cost of contract has an effect on the energy business as a whole, which you already explained very well, you went into very well as well as a better -- higher consumption of energy and contracts in the aluminum business. So I'd like to understand, moving forward, two main issues. First of all, what can we expect from the perspective of energy balance between your own generation and your contract generation. So we can try to estimate what is consumption in the energy business versus consumption in the aluminum business. And the second point, also considering this energy issue is regarding price. Could we maybe see it -- the price of the contract that we're seeing now is a price that would somehow be more normalized, would there be a more negative or positive impact looking forward, thinking about the cost of energy? So we could project that as well moving forward. So balance up our generation contracts and prices in contracts. Second question would be regarding CapEx. You mentioned that there was a maintenance in the refinery, et cetera. So I'd like to understand, following up CapEx-wise, something we've always commented about [indiscernible], this number is maintained or also within a context of buying more alumina, higher volume of alumina. Could you -- would we see any impact to the production of alumina moving forward, and then possible cost changes in this line and also with that CapEx, if it changes the pathway of CapEx over the year, considering you might then use CapEx to do the maintenance of the refinery and hold off investments moving forward. Those are my two questions regarding that.

Thank you, Guilherme, for those questions. First of all, about energy. So discussing our contracts in the portfolio. Today, you can see our normalized number by 2028. So consider we're done disconsidering any new contracts, which we will always communicate to you as needed. What we see up to now is included in this level until 2028. So this is the volume of contracts of 150 megawatts average. Big older contracts that ended '28. Also reminding you that ever since we did the swap, it's corrected in dollars and is predictable CPI. So it's a swap went from $45 to $100 starting '25, $100 per CPI per average megawatts until '28. That's the basic count. Besides this, there's this new contract of 50 megawatts average with a price -- pre-fixed price for the next 14 years. So it's clear to us what the average cost of -- cost is for the volume of contracts in the balance. So about the allocation, we're optimistic because our reservoirs are full. And so the price is high, which helps us to sell energy, and we can then strategically optimize that margin, helping to protect us from this, as I mentioned. But a very dry year for the country, a lot of drought. So this gives us a little bit of leeway there since we ended up accumulating energy over time or a very positive surplus of water in our reservoirs. So that gave us a little more space and gives us a lot of flexibility for selling energy and maximizing that energy EBITDA over the next 3 quarters. So this gives us, let's say, a little bit of room to not see a drop that's much worse for 2024 and 2025 -- from '24 to '25, starting '23 was a dry year and then maximizing that with this higher price for the part that wasn't sold yet. So sorry, you also asked about -- and that was about energy. Now you asked about alumina. Yes, we will have a higher cost on alumina for the second quarter because there is a lower production. And if there is a lower production, there is a decrease of the fixed cost at the KPIs. When there's a drop in maintenance or something of the sort, it takes some time to reestablish KPIs, the main operational KPIs, and I talked about the refinery and in consequence of a reduction of that. But we hope all of this can be very -- will be very specific to the second quarter. And the CapEx for the ramp-up that will be involved -- will be managed in the year's plan. We still don't -- still not clear to us if we're going to have to postpone one of the modernization and expansion projects for this year, because there's always this natural dislocation from the budget that we expect for the year in terms of timing and value. So the upgrade of the technology itself, very phased out. The other one is the modernization of our production for the [indiscernible], which this year of CBA. And this is the one that's furthest along and will continue throughout the year as predicted. So we have flexibility of timing in our schedule, which can then naturally be adjusted regarding what we need for the maintenance CapEx that I just mentioned. So we're still not clear to us if it will be necessary to postpone this compared to the dates that we had originally presented. If it is, we will communicate this to you in the next few quarters for sure.

The next question comes Caio Greiner from UBS.

First, about premiums. I think that was a big surprise for us this quarter when we talk about the primary -- premium for primary is this increased 40%. What happened for you to be able to capture such high premiums? And was this because of some anticipation of purchases, global uncertainty or -- and also, do you see this as something sustainable for the next few quarters when we model, can we also model that these premiums that were above $500 per ton, is that sustainable? Is that something we can keep? So the second question is about the volumes and productive capacity for the company. Have you been able to sell this amount of tons per year. And also, do you see today this as a potential for CBA's sale? Do you see room for any type of increase for 2025? And what would be the amount that you're able to understand that CBA reaches the demand of the market.

Thank, Camila. I will answer this one about premiums. I would say there wasn't so much the impact of premiums that happened this quarter. Maybe more of a mix of sales. So we have a much richer mix of sales. So I mean, obviously, you have average -- better averages. And Caio, you mentioned very well. The beginning of the year was super strong. So this is basically thanks to what the market has seen. And as I mentioned -- so we always have that concern with some sort of negative impact in the market, but we haven't felt them so much. I would say maybe the one of the sectors where it saw some more negative impact was building, civil construction, but it's very marginal. So -- and well, very low cost or very low reduction. So it's natural that moving forward, even because of this and because of the premiums and the prices for the -- which we use as a reference, the ingots. So we can't predict it so much, but the market in Europe and here is demonstrating lower premiums because of as a reflection of what's happening in the market. So it's natural to have this impact and see the market impacted by and see some of those volumes impacted as well. Thank you. So that's really some of the idea, that's some of what we expect. Speaking of volume, I think $500 is a good number here, it's a good number as you mentioned, Caio. So we're at the limit of what we can produce in terms of liquid aluminum. And scrap is one of the areas where we also can have a good margin. So scrap is not only an issue where we have the capacity to produce. But depending the price of scrap and if we're going to add or not add scrap to the mix, well, at this moment, what's happening is the -- there's an increase in the price of scrap. And we look at -- we'll make possible changes in this mix. So why? Because of an increase -- because scrap doesn't have tariffs. So scrap is tariff-free. So there was and has been a better -- a higher demand of scrap for the United States and which ends up impacting the market. So for us, scrap is a part of our production, of our consumption, of our main consumption. So of course, there's this impact, but we continue to buy. Well, looking at trade-off, looking at what can or cannot be done. But I think moving back to your question, $500 for this year is a good expectation.

Great. Luciano, just an issue on those premiums, what we can expect for the second quarter are lower premiums because of the market references. But with your mix, I had the impression that, that mix can be maintained at a higher level for the second quarter?

Yes. I think, yes, Caio, just careful with this issue that I just mentioned. Our visibility at the moment is that we can keep those sales. But there are still 2 more months, May and June, to look at the market and so that the market can, in fact, prove this to us. But I would say that, yes, in general, remember, if everything remains the way it is, you have this double issue in revenues for the drop in LME and this can potentially happen this quarter.

There's a question here from Ricardo Monegaglia from Safra.

Can you hear me now?

Yes, we can.

Congratulations for your great results. Good to see you had solid results in [indiscernible] prices, energy a little better than we expected. So good pathway so far. Some questions. When we think about cash generation, there were some comments about your main lines, but I would like to understand if here in the next quarter, we can already think of positive cash generation, maybe some working capital reversion or anything that could help with cash generation flow for the next quarter? First question. My second question is energy, obviously. So I thought it was very interesting to listen to you talk about in some way, connecting the exceeding energy to negotiation at a more profitable price. So do you think this is a chance to see also new contracts for energy generation at prefixed prices over the next quarters? And then my last question to end would be a question from the market, regarding the alumina market. So if you look at demand at the end user, is it really already dropping? Because if we look for the quarter, for the whole quarter, stocks in China fell. And so there was actually a positive demand. So how do you understand this demand actually falling at the edge, let's say? And could this together allied with alumina, explain this drop in the price of commodities or -- and if the demand doesn't drop as much as what was expected and et cetera.

Thanks. Camila can you comment on the first one.

So the first one is about well -- thank you for your question. First question about working capital throughout the year. So our seasonality always demonstrates higher investment in stocks in the first quarter, brings us closer to the neutral in the second quarter and gives us some more space over the second quarter. So the second quarter is even more neutral. We always look at the fact that there are a lot of opportunities for tax credits, but we still don't have any predictability on that. So we're working operationally in those credits, especially the ICMS, almost BRL 400,000 in our balance that we are unable to work with the accumulation of credit of the monetization of our operation, especially because of our prices and the sale of primaries in the case of Sao Paulo being exempt and also something that tax reform will help us a lot with over time. So we're very excited to advance this. Though, there's a transition period, but this generates a value generation for CBA results plus working capital. So I think the other issues are well managed, without big high hopes or anything. So there's always something in terms of receivables and payments, but it's not where we see a lot of recovery for CBA. So I would say, probably some gains, but that we don't see in the short term. So this may be an upside we can expect for the second quarter and also the stocks that because of seasonality also will recover better in the second quarter. So another thing you mentioned here, the better energy moment than what was expected. So -- and the commercialization has room to be done improving the results of the second quarter. So there was some improvement in March, but I would say that part of that price improvement comes over the next quarters compensating the average price of exceeding contracts. So finally, the ability to have new contracts -- new energy contracts, we're seeing this in the market. We had also commented a bit about this because in the end energy is our strategic upper hand, a competitive advantage in the price for the renewables market and also the long-term dollarized contract is very competitive. We see that as a good moment for the market for this. So we're looking at it always as an opportunity. And we're going to need energy because there's a year of growth ahead. So we have to renew concessions, obviously, which is great for our portfolio. And if we're able to renew with competitively as we have today, that's great. Some are under risk, which is -- which are those 100 megawatts contracts. And then there are some that have less chances of -- and also so that we can secure self we are still being competitive in case our water portfolio goes down, and also showing the growth that we need for the next few years and a series of other options that we always have available of the business, we would prefer to already allocate the exceeding volume for these competitive factors. When we do so, we can follow two path, which are positive. The first is to curb a cost if we use aluminum more competitively. And the second, if I don't use it because my growth only comes in 3, 4, 5 years, because of the 50,000 tons, which is looking like it's a bit more forward, then we'll leave it as exceeding and with the volatility of prices that we have over time. In Brazil, we can make money, we'll make a margin off of that by selling energy at some point with a price of over $30-something megawatt per water. So this can be really good for the price of aluminum as well as for sales, which gives us security to grow. That's what we -- that's how we see things moving forward. That's why we continue to work on new contracts, and we'll continue to communicate with you in the correct volumes.

Ricardo, talking about the market, you're very correct. First quarter was good, and that's how we were understanding things and some increase in demand. Then a more restricted supply. But what happened now is that with price and demand, there is much more an expectation of things getting worse and in fact, they're getting worse. So if we look at the tariff which was imposed in the United States in terms of aluminum, what impact is that going to have on the American demand for aluminum because the Americans are going to have to buy metals not only from us in Brazil, some other countries abroad also at 25%. Will they sell it at that? Will that impact demand? Will there be a substitution of aluminum for other materials in the United States which are not tariff material right now, is basically steel and aluminum and 10% for countries. So that's some of the uncertainty at the moment, which ended up impacting our prices and with everything that's happening, how will this reflect in China's demand or China's production was an important market for the United States, not only in terms of the products that demand aluminum but also the market as a whole. When you look at the financial position also of LME, remember, LME is also -- has an important financial component. So we went from a few months with longer contracts than short contracts, and it's just swapped in the last few weeks. We started having more short contracts than long contracts. So this obviously puts price pressure -- it brings price pressure to the table. So just telling you that what happened if price connected to those two factors and also to the market expectation of what could happen much more than what is happening. Well, we're always playing on the safe side looking forward.

Okay, guys. Thanks, Ricardo. We reached the end of our call, another CBA first quarter '25 results call. Thanks for coming and we'll see each other soon in the next quarter, 7th of August. I pass the word to Luciano for closing remarks.

Thanks, Amabile, thanks everyone. Thanks for the questions. Very welcome always and very interesting. We love this debate. It's a super good debate for us and for that we keep it flowing. I invite you to keep relating with us, with our Investor Relations team and connecting to our next conference next quarter. Thank you. Bye-bye. [Statements in English on this transcript were spoken by an interpreter present on the live call.]