Citi downgrades Norsk Hydro after aluminium rally boosts shares

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Norsk Hydro has been downgraded to “neutral” from “buy” by Citi Research after the company’s shares surged around 25 per cent since February on the back of rising aluminium prices.

Citi also increased its target price for Norsk Hydro shares to NKr110 (USD 12.1) from NKr105 (USD 11.55).

According to the brokerage, aluminium prices have climbed roughly 20 per cent so far this year, outperforming copper, which has risen around 12 per cent over the same period.

Citi said the rally in aluminium prices has been largely driven by geopolitical disruptions in the Middle East, which have reportedly removed close to 3 million tonnes of aluminium production capacity from the market. That accounts for around 4 per cent of global aluminium supply and roughly 11 per cent of production capacity outside China.

Another 4 million tonnes of aluminium production capacity remains exposed to the conflict zone, the brokerage added.

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Citi noted that stronger aluminium prices were the main reason behind its earlier upgrade of Norsk Hydro earlier this year, although the price surge happened for different reasons than initially expected.

Norsk Hydro shares reportedly outperformed other global aluminium producers by around 15 per cent in the two months leading up to the downgrade.

Despite the rally, Citi said consensus forecasts for aluminium prices through 2027 still remain below current spot prices. Analysts currently estimate aluminium prices around USD 3,067 per tonne, compared with spot prices close to USD 3,500 per tonne.

Following Norsk Hydro’s first-quarter 2026 results, Citi raised its forecast for the company’s underlying EBITDA for 2026 by 9.3 per cent to NKr37 billion (USD 4.07 billion). Its 2027 EBITDA estimate was also increased to NKr38.8 billion (USD 4.268 billion).

The brokerage lifted its 2026 earnings-per-share estimate to NKr8.92, while the 2027 estimate was raised to NKr9.18.

Citi estimated combined EBITDA from Norsk Hydro’s downstream Metals Markets and Extrusions businesses at NKr6.5 billion (USD 715 million) in 2026 and NKr7.3 billion (USD 803 million) in 2027.

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According to the brokerage, a 10 per cent move in aluminium prices could add approximately NKr7.3 billion (USD 803 million) to Norsk Hydro’s group EBITDA, effectively offsetting the contribution from its downstream operations.

Norsk Hydro’s energy division reported EBITDA of NKr4.15 billion (USD 456.5 million) in 2025, compared with NKr3.54 billion (USD 389.4 million) in 2024. Citi currently forecasts EBITDA of NKr3.38 billion (USD 371.8 million) for the segment in 2026.

The brokerage noted that earnings from the energy business are largely influenced by Norwegian rainfall levels and domestic electricity prices rather than broader global energy market trends.

Citi’s bull-case valuation for Norsk Hydro stands at NKr137 per share (USD 15.07), implying potential upside of 31 per cent, while its bear-case target of NKr81 (USD 8.91) suggests downside risk of around 22 per cent.

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