Goldman Sachs cuts Norsk Hydro rating as falling aluminium premiums and rising costs cloud outlook

Norsk Hydro’s earnings outlook for 2027 is facing mounting pressure from falling aluminium premiums, rising operating costs and easing supply tightness in Europe, prompting Goldman Sachs to downgrade the Norwegian producer from ‘buy’ to ‘neutral’ and reduce its price target from NOK 100 (USD 10.71) to NOK 79 (USD 8.46). 

Goldman said weaker premiums and higher costs were making further earnings growth harder to achieve in 2027. The bank also lowered its core earnings (EBITDA) forecasts for 2026 and 2027 by 6 per cent each, citing lower aluminium prices and rising costs.

The changing market conditions come as additional metal from the Middle East reaches the market and Indonesian aluminium supply expands faster than expected, easing European supply constraints sooner than Goldman had anticipated.

Falling premiums signal easing European supply tightness

Norsk Hydro expects realised aluminium premiums in the fourth quarter to range between USD 550 and USD 600 per tonne, according to Goldman Sachs. Around 50 per cent of sales had already been booked at USD 742 per tonne, the bank said.

Realised premiums increased to USD 673 per tonne in the third quarter from USD 563 per tonne in the second quarter, but the outlook points to a potential reversal as market conditions change.

Goldman said customers were delaying purchases while additional volumes from the Middle East were reaching the market, easing supply tightness in Europe more quickly than expected. Faster-than-anticipated growth in Indonesian supply is adding to the pressure on the market outlook.

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Higher energy and operating costs add to pressure

The producer is also facing higher costs across its operations. Norsk Hydro expects spot gas purchases at its Alunorte alumina refinery to cost between USD 90 million and USD 110 million in the fourth quarter, following costs of about USD 85 million in the third quarter, Goldman said.

The company’s commercial sourcing and trading unit is also expected to post a loss in the fourth quarter. Goldman attributed the outlook to higher logistics and handling costs, alongside the loss of the Qatar marketing and offtake fee.

The combination of softer aluminium pricing and rising operating expenses has weighed on Goldman’s earnings expectations, leading to the 6 per cent reductions in its core EBITDA forecasts for both 2026 and 2027.

Third-quarter earnings fall short of expectations

Norsk Hydro reported adjusted EBITDA of NOK 9.1 billion (USD 974.38 million) for the third quarter, 6 per cent below Goldman Sachs’ estimate and 5 per cent below analysts’ consensus.

The weaker performance reflected results in its Aluminium Metal, Metal Markets and Energy businesses. Free cash flow came in at NOK 1.4 billion (USD 149.89 million), 41 per cent below Goldman’s estimate. The bank attributed the shortfall to lower EBITDA and a NOK 3.7 (USD 396.13 million) billion increase in working capital.

Goldman’s revised assessment also follows a period of underperformance by the company’s shares. Norsk Hydro shares had fallen 30.1 per cent since Goldman added them to its ‘buy’ list on April 2, compared with a 0.2 per cent decline in the FTSE World Europe index.

The shares closed at NOK 71.76 (USD 7.69) on October 22. Goldman’s revised target price of NOK 79 (USD 8.46) implies potential upside of 10.1 per cent from that closing level.

2027 in focus

Despite the downgrade, Goldman identified a potential supply outage linked to the ongoing Middle East conflict as the main upside risk to its outlook. Any unexpected disruption could alter the supply picture and affect aluminium market conditions.

Norsk Hydro is due to present its outlook for 2027 at a capital markets day next month, which should provide further insight into how the company expects to navigate changing premiums, energy expenses and wider market conditions.

For now, Goldman’s assessment points to a more challenging earnings environment as easing supply tightness and rising costs limit the potential for stronger profitability. 

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