Hydro Q3 earnings up from last year despite negative effect of Alunorte curtailment

Norsk Hydro’s third-quarter earnings were up from a year ago due to higher all-in aluminium and alumina prices, but a continued production curtailment at the company’s Alunorte alumina refinery in Brazil continues to have a negative impact.

The company’s underlying earnings before financial items and tax (Ebit) increased to Nkr2,676 million ($323 million) in the third quarter of this year, up 9% from Nkr2,446 million for the same quarter of 2017.

“The third quarter reflected our continued challenges at Alunorte and increased raw material costs, while higher aluminium and alumina prices, as well as strong energy results, contributed positively,” Svein Richard Brandtzæg, Hydro’s president and chief executive officer, said.

“The market for aluminium is tightening, and we expect the 2018 global primary market in deficit,” Brandtzæg added.

Underlying Ebit for Hydro’s bauxite and alumina business improved in the third quarter compared with the same period of last year with higher alumina prices and positive currency effects managing to balance out the higher raw material prices and the effects of reduced production at both Alunorte and the company’s Paragominas bauxite operation in the Brazilian state of Pará.

Underlying Ebit for the company’s bauxite and alumina business increased to Nkr685 million in the third quarter of this year, up 66% from Nkr413 million in the same quarter of last year. Although an expense of Nkr519 million, relating to the technical and social agreements for Alunorte, was recognized as items excluded from underlying Ebit for this segment.

Hydro’s Alunorte refinery has been running at 50% production since March this year following an embargo from the Brazilian government.

Earlier this month, Hydro announced that it was preparing for a full curtailment of operations at Aluntore due to the embargo– but capacity remains at 50% after Brazil’s environmental ministry reversed the decision.

Hydro’s bauxite mine Paragominas is also at production at 50%, in accordance with Alunorte’s run rate, and Hydro’s Albras aluminium plant in Brazil is also production at 50% due to reduced alumina supply.

Alunorte’s curtailments as well as US sanctions on Russian aluminium producer UC Rusal sent alumina prices to record highs this year, with Fastmarkets’ benchmark fob Australia daily alumina index climbing to a high of $707.75 per tonne in April.

Throughout the third quarter of this year, alumina prices remained in high ground between $500 and $600 per tonne amid tightened supply – Fastmarkets’ fob Australia daily alumina index was most recently assessed at $494.17 per tonne on Tuesday October 23.

“Signing the technical and social agreements in Brazil in September was a step in the right direction towards normalized production. We continue the dialogue with the authorities with the aim to resume full production at Alunorte, but the timing remains uncertain,” Brandtzæg said.

Underlying Ebit for Hydro’s primary metal segment declined by 34% to Nkr861 million in the third quarter from Nkr1,298 million in the same quarter of last year due to higher raw material and fixed costs, partly offset by higher all-in metal prices.