Norsk Hydro CEO Mulls Further Production Cuts In Australia

Norwegian aluminum producer Norsk Hydro ASA (NHY.OS) said Thursday it is considering reducing production further from its Kurri Kurri plant in Australia, after a write-down on the plant weighed on the company's earnings.

Norsk Hydro, Europe's largest aluminum producer, shuttered more than 300,000 tons of production, about 25% of its capacity, after the financial crisis in 2008. Most of this is still idle. Aluminum producers have already announced 1 million metric tons of curtailments in 2012, according to Norsk Hydro, and with continuing overcapacity in the market any further production cuts could affect prices.

The company said recently that production at Kurri Kurri wasn't profitable in current conditions, due in part to a strong Australian dollar.

"Even after reducing our costs [at Kurri Kurri], the strong currency more than compensated for that," said Chief Executive Svein Richard Brandtzaeg, adding that lower aluminum demand, higher raw material costs and high power prices also weighed on operations.

One of the three production lines at the plant was recently closed, reducing production by 60,000 tons a year from a full capacity of 180,000 tons a year.

The company said it has written down the Australian Kurri Kurri plant by 970 million kroner ($168.9 million), and the book value of the plant is now NOK1.2 billion. The write-down weighed heavily on the company's fourth-quarter results, with Norsk Hydro swinging to a net loss of NOK749 million from a net profit of NOK620 million last year. Underlying earnings before interest, taxes, depreciation and amortization, or Ebitda, which excludes write-downs, rose to NOK2.52 billion from NOK2.21 billion a year earlier and against expectations for NOK2.47 billion.

Sales for the period totaled NOK21.75 billion, up from NOK19.4 billion a year earlier.

Brandtzaeg said Norsk Hydro hadn't yet decided on further production curtailments, and that "it is impossible to say" whether it would close just one more production line at Kurri Kurri or shut down the entire plant.

He said that the total industry curtailment of 1 million tons of production will "create a much better balance in the market," but he wasn't sure if this would affect prices, and said he didn't want to speculate about further curtailments in 2012.

Norsk Hydro maintained its guidance of 3%-5% aluminium demand growth, excluding China, in 2012, with the company's chief financial officer, Jorgen C. Arentz Rostrup, saying he expected growth to be in the lower range of that estimate. China is the world's largest consumer of base metals.

He said that although European demand is only about one third of the total, excluding China, the European financial turmoil particularly affected Norsk Hydro's extrusion business and rolled products. The company has written down its building systems operations in Southern Europe by NOK230 million.

At 1136 GMT Norsk Hydro shares traded 3.8% higher at NOK31.75, outperforming a 0.3% drop in the broader Oslo index.