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Derivative and hedging instruments
 12 Months Ended
Dec. 31, 2013
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative and hedging instruments
Derivative and hedging instruments

Derivatives.  Our current derivative contracts include Midwest premium contracts, a primary aluminum sales contract and the E.ON contingent obligation.  We measure the fair value of these contracts based on the quoted future market prices (if available) at the reporting date in their respective principal markets for all available periods.  In some cases, we use discounted cash flows from these contracts using a risk-adjusted discount rate.  See Note 4 Fair value measurements for the additional information about the fair value measurement of our derivative instruments.

Fair Value of Derivative Assets and Liabilities
 
 
December 31,
 
Balance sheet location
2013
2012
DERIVATIVE ASSETS:
 
 
 
Midwest premium contracts
Prepaid and other current assets
$
140

$
—

TOTAL
 
$
140

$
—

DERIVATIVE LIABILITIES:
 
 

 

E.ON contingent obligation - net (1)
Other liabilities
$
—

$
15,369

Primary aluminum sales contract
Accrued and other current liabilities
140

1,170

TOTAL
 
$
140

$
16,539



(1)
See Note 6 Debt for additional information about the E.ON contingent obligation.

As of December 31, 2013, an accumulated other comprehensive loss of $153 is expected to be reclassified to earnings over the next 12-month period.
 
Midwest premium contracts

We entered into a fixed-price forward contract that settles monthly from January 2014 to March 2014 based on the Midwest Premium price published in the Platts Metals Week for the applicable period. Unrealized gains (losses) based on forecasted U.S. Midwest premiums are recorded in net gain (loss) on forward and derivative contracts on the consolidated statement of operations.

Primary aluminum sales contract
 
We had a contract to sell to Glencore primary aluminum produced at Mt. Holly or Hawesville through December 31, 2013 (the “Glencore Metal Agreement”). The Glencore Metal Agreement is a physical delivery contract for primary aluminum with variable, LME-based pricing.  Under the Glencore Metal Agreement, pricing is based on market prices, adjusted by a negotiated U.S. Midwest premium with a cap and a floor as applied to the current U.S. Midwest premium.  We account for the Glencore Metal Agreement as a derivative instrument under ASC 815.  Gains and losses on the derivative are based on the difference between the contracted U.S. Midwest premium and actual and forecasted U.S. Midwest premiums.  Settlements are recorded in related party sales.  Unrealized gains (losses) based on forecasted U.S. Midwest premiums are recorded in net gain (loss) on forward and derivative contracts on the consolidated statements of operations.

Primary aluminum put option contracts
 
In 2012, we held primary aluminum put option contracts that settled monthly based on LME prices.  The option contract volumes accounted for a portion of our domestic production, with a strike price around our domestic facilities’ average cash basis break-even price.  These options were purchased to partially mitigate the risk of a future decline in aluminum prices.

Our counterparties included two non-related third parties and an affiliate of Glencore, a related party.  We paid cash premiums to enter into the put option contracts and recorded an asset on the consolidated balance sheets.  As of December 31, 2013, all primary aluminum put option contracts expired and we held no such contracts.

 
Derivatives not designated as hedging instruments:
 
Gain (loss) recognized in income from derivatives
 
Location
December 31, 2013
December 31, 2012
E.ON contingent obligation - net
Net gain (loss) on forward and derivative contracts
$
16,781

$
—

Primary aluminum sales contract
Related party sales
1,353

1,309

Midwest premium contracts
Net gain (loss) on forward and derivative contracts
140

—

Primary aluminum sales contract
Net gain (loss) on forward and derivative contracts
(323
)
(1,571
)
E.ON contingent obligation - net
Interest expense – third party
(1,412
)
1,411

Primary aluminum put option contracts
Net gain (loss) on forward and derivative contracts
—

(2,725
)
Power contract
Net gain (loss) on forward and derivative contracts
—

147



We had the following outstanding forward contracts that were entered into that were not designated as hedging instruments:
 
December 31, 2013
December 31, 2012
Primary aluminum sales contract premium (tonnes) (1)
1,782

20,400

Midwest premium contracts (tonnes)
6,000

—



(1)
Represents the remaining physical deliveries under the Glencore Metal Agreement.


Counterparty credit risk.  Forward financial contracts are subject to counterparty credit risk.  However, we only enter into forward financial contracts with counterparties we determine to be creditworthy at the time of entering into the contract.  If any counterparty failed to perform according to the terms of the contract, the impact would be limited to the difference between the contract price and the market price applied to the contract volume on the date of settlement.