Hydro Seeks Improved Margins in IPhones, Cars Amid Weak Aluminum

Norsk Hydro ASA (NHY) seeks to counter weak prices for its commodity aluminum by deploying more technology and alloys used to make goods from iPhones to lightweight cars.

“These sectors are very important markets not only in volumes but also in margins,” Chief Executive Officer Svein Richard Brandtzaeg said yesterday in an interview. “The margins are much better in producing for the automotive and technology industries than selling primary aluminum in the market.”

Hydro has been cutting primary smelting operations, with about 180,000 metric tons shuttered in 2012 and costs falling by about $300 a ton, as world prices languish near five-year lows. Now it’s spending 130 million euros ($180 million) to expand capacity fourfold to 200,000 tons a year at its Grevenbroich plant in Germany to meet demand from carmakers.

The Oslo-based company is also investing 45 million euros to double recycling capacity for beverage cans at its Neuss smelter, Brandtzaeg said in the interview.

These efforts are helping the company to cope with a slump in aluminum prices that saw the commodity decline to $1,677 a ton in February, the lowest level since July 2009. At the same time output of the metal has increased at a 5.2 percent compound annual growth rate since 2001, according to Ken Hoffman, global head of metals and mining research for Bloomberg Industries.

Hydro reported first-quarter net income of 393 million kroner ($66 million) on April 30, beating the 276 million-kroner average of four analyst estimates compiled by Bloomberg. Aluminum was little changed at $1,785.75 a ton by 5:05 p.m. in London yesterday.

iPhone Bodies

The company, which signed a deal to produce bodies for the iPhone in 2012, combined its extrusion business supplying such high-margin industries with Orkla ASA (ORK)’s Sapa unit into a 50:50 joint venture to help meet increasing demand, Brandtzaeg said.

The iPhone “is a good-margin business and it’s quite a demanding product,” he said. “It takes a lot of competence at technology and such special alloys give us the margins we are looking for. We are absolutely in this market and cooperating with several customers in this business,” he said.

Apple Inc. sold 43.7 million iPhones in its fiscal second quarter, after 37.4 million in the period a year earlier.

Developing new alloys is crucial for companies like Hydro to sustain growth. Hydro, supplying alloy wheels, hoods, doors and tubings for German carmakers including Bayerische Motoren Werke AG and Daimler AG’s Mercedes-Benz, is able to make vehicle side panels in one piece to cut assembly costs, Brandtzaeg said.

Auto Dreaming

“It’s been a dream for the auto industry to produce side panels in one piece,” he said. “The metal used to crack during production before but Hydro has now developed this new alloy to achieve that for the first time.”

Novelis Inc., Hydro’s main competitor in auto parts, is investing about $205 million to raise capacity for carmakers as their global demand for aluminum sheet grows, it said December. The company forecast more than 30 percent annual growth in demand from vehicle producers through the end of the decade.

Carmakers are switching to lightweight aluminum from steel to meet rules on carbon emissions, Brandtzaeg said.

The European Union is continuing to lower maximum emissions for new cars, increasing the need for more fuel efficiency.

To contact the reporter on this story: Firat Kayakiran in London at fkayakiran@bloomberg.net

To contact the editors responsible for this story: John Viljoen at jviljoen@bloomberg.net Tony Barrett, Indranil Ghosh

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