In its biggest quarterly loss since 2015, the company’s underlying earnings before financial items and tax (Ebit) decreased to NOK 534 million ($62.32 million) in the fourth quarter, down from NOK 3,555 million ($414.90 million) in the same quarter last year.
“Our results are reflecting the challenging situation we face in Brazil and higher raw material costs,” president and chief executive officer Svein Richard Brandtzæg said.
Hydro’s Alunorte refinery has been running at 50% production since March 2018 following a Brazilian government embargo after a court in the state of Pará halted operations of the refinery’s DRS2 bauxite residue disposal unit for environmental reasons.
Brandtzæg said that the Alunorte alumina refinery has made progress towards resuming normal production, but that the timing remains uncertain.
Underlying Ebit for Hydro’s bauxite and alumina business fell significantly compared with the fourth quarter of last year, to NOK 493 million from NOK 1,872 million in 2017.
Hydro said the results were due to the reduced production at both Alunorte and its bauxite mine, Paragominas, as well as higher raw material prices. But it was partly offset by higher alumina sales prices and positive currency effects.
The curtailment at Hydro’s alumina refinery, pushed the Fastmarkets MB daily alumina index to a high of $707.75 per tonne in April last year – its highest since Fastmarkets MB launched the index in August 2010 and 71% higher than the level at the start of 2018.
Paragominas is also running at 50% production, in accordance with Alunorte’s run rate, and output at Hydro’s Albras aluminium plant in Brazil has halved due to reduced alumina supply.
Primary metal segment
Underlying Ebit for Hydro’s primary metal segment declined to NOK 677 million in the fourth quarter of 2018 from NOK 1,377 million in the same period of 2017. This was mainly due to higher alumina and carbon costs, as well as lower sales volumes.
Fourth-quarter underlying Ebit for Hydro’s metal markets improved to NOK 275 million, from NOK 185 million in the corresponding period of 2017.
The company said this was due to increased results from the remelters and positive contributions from currency and inventory valuation effects, partly offset by lower results within sourcing and trading activities.
“Even though 2018 has been a challenging year for Hydro, we have also taken several significant steps to strengthen our future competitiveness, including the integration of the Extruded Solutions business area, reaching full production at the Karmøy technology pilot, securing our future power sourcing needs in Norway and improving the performance at our new automotive line in Germany,” Brandtzæg said.
For the full-year 2018, Hydro’s reported Ebit amounted to NOK 8,679 million, down 28.7% from NOK 12,189 million in 2017.
Producer Norsk Hydro's underlying operating profit dropped almost 85% in the fourth quarter due to the effects of its production curtailment at its Brazilian alumina refinery, Alunorte.