Norsk Hydro to cut costs to cope with aluminium price slide

Norsk Hydro, one of the world's largest aluminium producers, launched new cost cuts on Thursday to combat a sharp decline in prices triggered by an oversupply of metal from China.

By the end of 2019, the company aims to reduce its annual costs by 2.9 billion Norwegian crowns ($335.70 million), of which 1.1 billion would come in 2016, it said in a statement ahead of a two day investor conference in London.

The new plan follows cost cuts of 4.5 billion crowns since 2011. The benchmark three-month aluminium price has tumbled nearly 30 percent in the past year to six and a half year lows, pressured by output exceeding demand.

China's production of aluminium is expected to be 2-2.5 million tonnes higher than the country's consumption in 2016, resulting in a global oversupply of up to 1 million tonnes, Norsk Hydro said.

"Market conditions have deteriorated compared to a year ago," Chief Executive Svein Richard Brandtzaeg said.

But the company also said the market outlook for 2017 was better and could potentially see a return to a global undersupply of aluminium.

"At today's prices, around 50 percent of global smelter capacity is expected to be incurring cash losses, making curtailments, which are needed to balance the market in the medium term, more likely," Brandtzaeg said.

Norsk Hydro predicted global demand would rise by around four percent this year and four to five percent in 2016, and by three to four percent per year over the next decade.

The company plans to increase its overall investments next year to 8.6 billion crowns from 5.8 billion in 2015 as it moves ahead with building a pilot plant in Norway aimed at producing aluminium using less power.

It also said the estimated capital expenditure necessary to sustain its current business was raised to 3.5-4 billion crowns from a previous forecast of 3.5 billion, reflecting inflationary pressures and an update to the company's portfolio.

($1 = 8.6386 Norwegian crowns)