Hydro’s Q2 2018 EBIT for primary aluminium sees 49% Q-o-Q decline on lower production growth

Hydro in its latest report has unveiled results of the second quarter of 2018, covering each product like bauxite, alumina, primary aluminium, and downstream exclusively. In one of our previous news, we have already discussed the results of bauxite and alumina production. Now, coming to primary aluminium, Hydro’s underlying EBIT shrank from NOK 823 in Q1 2018 to NOK 755 in Q2 2018, registering a decline of 8 per cent and 49 per cent from NOK 1486 in Q2 2017. The EBIT for H1 of the present calendar year also dropped to NOK 1578, compared to NOK 2386 in the contemporary period last year.

The drop in EBIT was primarily due to higher raw material and fixed costs and negative currency effects, partly offset by higher all-in metal prices.

According to Hydro President and CEO Svein Richard Brandtzæg, the global primary aluminium market is in stronger deficit in 2018, based on lower-than-expected production growth due to continued uncertainty of US tariffs, US sanctions on Rusal and the Brazil situation.

Primary aluminium production in Hydro dropped 6 per cent from 523 tonnes in Q2 2017 to 492 tonne in Q2 2018, while in Q1 2018; the production was at 514 tonnes. In the first half of 2018, the total aluminium production was seen at 1006 tonnes, in contrast to 1039 tonnes in H1 2017.

Realized aluminium price LME recorded higher in Q1 2018. From NOK 16265 in Q2 2017, the price grew 6 per cent to NOK 17292 in Q2 2018, whereas in Q1 2018, the price hovered at NOK 17103.

Rolled Products and Extrusions:

Underlying EBIT for rolled products, on the other hand, increased significantly compared to the second quarter of 2017. In Q2 2017, EBIT for rolled products was at NOK 84, while that in Q2 2018 was at NOK 212, up 100 per cent but down 9 per cent from NOK 232 in Q1 2018.

Increasing margins, higher sales volumes, improved production performance as well as an accrual for employee compensation in 2017 were partly offset by negative currency effects. Results from the Neuss smelter increased mainly due to positive effects from all-in metal price development and new power contracts, partly offset by increasing raw material prices.

Underlying EBIT for Extruded Solutions increased compared to the pro forma underlying EBIT in the second quarter 2017, driven by improved sales volumes and margins. The result was also positively influenced by the increase in the Midwest premium. It increased 30 per cent from Q1 2018 to stand at NOK 957.

Hydro's net debt position increased from NOK 3.6 billion to NOK 7.5 billion at the end of the quarter. Net cash provided by operating activities amounted to NOK 1.5 billion. Net cash used in investment activities, excluding short term investments, amounted to NOK 1.6 billion. During the second quarter dividends paid to Norsk Hydro ASA shareholders amounted to NOK 3.6 billion.

Due to the situation in Brazil, Hydro's "Better" improvement program is not expected to reach the 2018 target of NOK 500 million.