Norsk Hydro to Delay Aluminum Capacity Expansion to Aid Prices

Norsk Hydro ASA, Europe’s third-largest aluminum producer, will further delay starting idled plants and investing in new capacity to help shore up prices of the lightweight metal.

“We will hold back, because we think it’s important to maintain a tight physical market to maintain good aluminum prices,” Chief Executive Officer Svein Richard Brandtzaeg said in an interview today in Oslo. “There’s been too much capacity for too many years, which has given low profitability in this sector. We don’t wish to contribute to that.”

Hydro, which slashed production about 30 percent as demand slowed following the financial crisis in 2008, said earlier today the market situation for producers of primary aluminum has improved over the past year. A deficit outside the Chinese market will lead to demand increasing 3 percent to 4 percent annually for the next 10 years, Brandtzaeg said during a presentation today.

Aluminum for delivery in three months on the London Metal Exchange closed at $2,061 a metric ton yesterday, an increase of almost 15 percent this year.

“The balance in the market is much more attractive from our point of view than it’s been for a long time,” Brandtzaeg said. “But you should remember that there is some curtailed capacity that could come online.”

Hydro will almost double its capital expenditure to 6.5 billion kroner ($940 million) next year from 3.3 billion kroner this year. Still, only 800 million kroner will be spent on capacity expansion in 2015, and total investments are expected to average 3.5 billion kroner a year in the long term.

Hydro, which is holding back the expansion of its Qatalum site in Qatar and Alouette in Quebec, is currently operating at 50 percent capacity at its Husnes plant in Norway, and won’t boost production there “until the time is right,” Brandtzaeg said. Capacity in Germany has also been cut, he said.

“We will be very careful building new capacity going forward,” he said. “Will need more time and better predictability before we are thinking of restarting capacity.”

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