Norway's Hydro says aluminium industry faces challenging time

The aluminium industry is facing a challenging time as producers tackle high input costs and lower prices for aluminium and aluminium-related products, Norwegian producer Norsk Hydro's CFO said Thursday in an interview.

"For many players it's still challenging, there is always more you can do," CFO Jorgen Rostrup told Platts.

Hydro announced its intention to idle one potline at its Kurri Kurri primary aluminium smelter in Australia in January, trimming production at the plant by 60,000 mt from a total capacity of 180,000 mt.

The plant has recently been hindered by a strong Australian dollar, high raw material costs and weaker aluminium prices.

"We will do whatever we need to do... We are evaluating what to do next on Kurri Kurri," Rostrup said.

He noted that the Kurri Kurri operation was Hydro's most troubled plant and that the company may take out more capacity in the future.

In its fourth-quarter results presentation, Hydro states that it took a NOK970 million ($170.1 million) writedown on the Kurri Kurri smelter.

However, Rostrup stated that Hydro was on target with the implementation of its $300/mt operational improvement plan. He said that the company was $200/mt into the program and that Hydro would complete the next $100/mt within the next two years.

Rostrup said that Hydro had closed down inefficient capacity within a very short response time and would continue to monitor downstream capacity in the near term.

He refused to speculate on how much capacity would be curtailed across the entire industry, but noted that 1 million mt had already been cut. "We shall see," he said.

On the general outlook for the aluminium market in 2012 he said that China and other emerging countries looked good, as did the US market. He was more cautious on the European outlook and noted that Southern Europe was particularly weak.

"We haven't changed our outlook since December," Rostrup said. Hydro stated in December that it expects growth outside China of around 3-5% in 2012.

On a positive note, Hydro's Qatalum smelter reached full capacity in September and is now producing 600,000 mt/year of primary aluminium. Rostrup said that this was above expectations.

On Hydro's raw material pricing, Rostrup said that it prices some of its alumina on long-term contracts that perform on a percentage of the London Metal Exchange aluminium price.

However, he added that the company was terminating these contracts gradually out to 2015 and freeing up the long-terms.

The rest of the contracts use index-related products to price alumina. "It's very valuable to have several ways to market a product," he said. "Yes, we are buying and selling on Platts."

Platts alumina price benchmark closed the week Friday at $317.50/mt FOB Australia, little changed over the course of the week, but gaining $5.50/mt in the last month.

Hydro reported Thursday a net loss of NOK739 million for the fourth quarter of 2011, compared with a profit of NOK745 million in Q4 2010.

Fourth-quarter underlying earnings before financial items and tax amounted to NOK1.133 billion, down from NOK1.646 billion in the previous quarter.

The company produced 1.982 million mt of primary aluminium last year, up from 1.415 million mt in 2010.