Norway's Hydro tipped for robust Q2, Q3 on aluminum margins: S&P

Norway's Norsk Hydro is expected to extend its robust financial performance from the first quarter of 2011 into the second and third quarters, based on continued strong margins for primary aluminum, Standard & Poor's said Thursday.

S&P like Platts, is a division of The McGraw-Hill Companies.

Hydro's primary metal segment logged an EBITDA margin of 13% for Q1 while the group posted an overall EBITDA margin of 11%.

"We expect the robust performance to continue in the second and third quarters of 2011 because Hydro sold substantially all of its primary aluminum production for the second quarter at $2,450/mt and is likely to sell third quarter production at still high prices prevailing in April-June," S&P said in a report.

"We factor into the rating that Hydro will generate EBITDA margin of about $200/mt in its primary aluminum segment, and about $60/mt in the alumina segment, underpinning overall mid-cycle EBITDA for the group of NOK 7.0-7.5 billion ($1.30-1.39 billion)."

"We base this on our long-term aluminum pricing assumption of $0.9/pound ($1,985/mt) and on our assumption that costs on some of consumables, including carbon and caustic soda, will decrease in a weaker market environment."

S&P said its outlook on Hydro was stable, with the group's business risk profile underpinned by integration in electricity generation in Norway, and in alumina and bauxite production in Brazil and Qatar.

S&P noted that Hydro's acquisition of Vale's aluminum assets in February was "moderately positive" for the company's risk profile, because it covered 145% of its alumina requirements and 85% of its bauxite requirements, and improved diversity.

Before the $5.27 billion acquisition Hydro was a net buyer of alumina.

Hydro's risk profile is largely constrained by the volatility of the global aluminum industry, and Hydro's position in the middle of the cost curve, S&P added.