Norsk Hydro Maintains Aluminum Volumes Amid Push to Cut Costs

Norsk Hydro ASA (NHY), Europe’s third-largest aluminum maker, will maintain production volumes as it closes in on a cost-reduction target and global oversupply of the lightweight metal eases.

“We have no plans to cut additional capacity at the moment,” Chief Executive Officer Svein Richard Brandtzaeg said in an interview in London today. “We will reach the target of cutting $300 a ton from the cost of aluminum production at the end of the year and will further focus on cost reduction.”

Hydro, competing with United Co. Rusal and Rio Tinto Alcan Inc., has shut capacity after aluminum prices slid about 35 percent from a May 2011 peak. Oslo-based Hydro last year cut 180,000 metric tons of aluminum capacity after shutting its Kurri Kurri smelter in Australia. Falling global output, with Alcoa Inc. (AA) closing 149,000 tons of smelting production this year, is helping to bring supply nearer to demand.

“Demand has been growing at a steady rate, while aluminum producers have been cutting supply in the past few years,” Brandtzaeg said. “The aluminum market has been oversupplied for several years.”

Hydro today reported a surprise second-quarter loss of 637 million kroner ($106 million) because of currency charges and the lowest prices since 2009. Aluminum prices fell 11 percent to average $1,926 in the quarter, while Hydro booked a foreign-exchange loss on external U.S. dollar debt and currency balances in euros and dollars.

Hydro, which expects global demand outside China to grow 2 percent to 4 percent this year, has sold about half of its primary production for the third quarter through forward contracts at about $1,850 a ton.

Weaker Quarter

Third-quarter earnings will be weaker than the previous three months because of the lower prices, Brandtzaeg said.

Blackouts at its Alunorte alumina refinery in Brazil prompted Hydro to declare force majeure on June 12 on deliveries from the plants. The company is seeking to restart the 10 percent of capacity that’s offline within months to avoid any effect on the fourth-quarter output, Brandtzaeg said.

Force majeure is a legal clause allowing companies to miss deliveries because of circumstances beyond their control.

Hydro is arranging an emergency power system at the refinery, provided by a local electricity supplier, to avoid future disruptions, he said.

To contact the reporters on this story: Firat Kayakiran in London at fkayakiran@bloomberg.net; Maria Kolesnikova in London at mkolesnikova@bloomberg.net

To contact the editor responsible for this story: John Viljoen at jviljoen@bloomberg.net

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