Norsk Hydro ASA (NHY) fell the most in a month in Oslo as Goldman Sachs Group Inc. advised selling the shares amid weak demand for the lightweight metal and said Vale SA could sell its stake in the market.
Hydro, Europe’s third-largest aluminum producer, fell as much as 3.2 percent, the most since Dec. 7, and traded 2.6 percent lower at 27.59 kroner as of 2:40 p.m. in the Norwegian capital. More than 4.4 million shares have been traded so far today, compared with a three-month daily average of 3.8 million.
“The aluminum industry remains dogged by overcapacity leading to low returns for producers,” Goldman Sachs wrote in a note today. Hydro’s shares may also underperform if Vale, the largest iron-ore producer, isn’t able to find a strategic buyer for its 22 percent stake in Hydro and instead seeks to sell its shares in the market, the investment bank said.
There’s also a risk that Hydro may announce an impairment on its bauxite and alumina operations, said Goldman, which downgraded its recommendation on the stock to sell from neutral and added Hydro to its “conviction sell” list. Hydro spokesman Halvor Molland declined to comment on the need for impairments when contacted by phone today.
Aluminum producers are reducing expenses and cutting capacity to buoy earnings as falling demand and weakening prices weigh on sales. Hydro plans to cut costs at its fully-owned smelters by $300 a metric ton by the end of this year from 2009 levels.
The company sees world aluminum demand growth excluding China of 3 percent to 4 percent this year, Chief Financial Officer Joergen Arentz Rostrup said in an interview on Jan 9.
Alcoa Inc., the largest U.S. aluminum producer, expects global demand growth will accelerate to 7 percent this year as China’s economic rebound drives demand for cans, cars and office buildings, it said on Jan. 8.
Hydro’s current premium of 9.3 times estimated earnings before interest, tax, depreciation and amortization for 2013 isn’t warranted given the fundamentals of the aluminum industry, Goldman said today.
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