INTERVIEW: No end in sight for trade-related uncertainty in aluminium, Norsk Hydro CEO says

The aluminium market has been thrust into a period of uncertainty that has become a feature of the trade in recent months because of tariffs and sanctions, a situation that seems unlikely to change, the head of Norwegian producer Norsk Hydro said.

A key effect was to push aluminium premiums in the United States to near-record highs at one point, Svein Richard Brandtzæg told Metal Bulletin on Wednesday August 22.

The lack of clarity began in April, when the US announced sanctions against several Russian individuals and companies, including aluminium producer UC Rusal. These sanctions created a lot of uncertainty in the market, which in turn led to a price spike in April and high volatility, Brandtzæg said.

But since April, metal and alumina flows have resumed to a great extent, and prices have moderated, he added. The US Midwest aluminium 6063 extrusion billet upcharge reached an all-time high of 17-19 cents per lb in June, although since then it has eased to 15-17 cents per lb.

“However, there is still uncertainty on how the sanctions may be resolved. Hydro has multiple business relations with Rusal, throughout the value chain, and we are initiating mitigating actions to address the situation,” Brandtzæg said.

“Hydro does not expect any significant negative short-term effect on its operational and financial performance as a result of the sanctions,” he added.

The company said in April that it had notified Rusal that it may have to declare force majeure on its contracts with the company because of the US sanctions.

The market uncertainty continued in June, when the US implemented Section 232 tariffs against aluminium imports from Canada, Mexico and the EU, adding a 10% tax on aluminium from those areas. A round of retaliatory tariffs imposed by the affected regions has followed.

Similarly, the US tariff added to uncertainty and pushed premiums higher, Brandtzæg said.

“As a short-term effect of the tariff, we have seen a significant increase in the US premium, while the long-term market effects remain uncertain,” Brandtzæg said, noting that the company expected only limited financial and operational consequences to arise from the US tariff in the short term.

“So far, increased premiums have compensated for some of the increased tariffs,” he added.

The US Midwest aluminium premium was most recently assessed by Metal Bulletin at 20.75-21.25 cents per lb, down from a near-record high of 22-23 cents per lb in early April.

There could be more disruption to come for the market, however. On May 23, the US Department of Commerce initiated a Section 232 investigation into imported cars, light trucks and car parts.

“The outcome of this is still too early to assess,” Brandtzæg said. “In addition, there are other trade issues being discussed, further adding to the uncertainty, such as the Section 301 investigation into Chinese technology and intellectual property practice, and EU countermeasures.”

According to Brandtzæg, Norsk Hydro generally expects continued positive market developments in North America and Europe for aluminium extrusions and rolled products for the rest of 2018.

“In extrusions, the main sectors – building and construction, and transport and automotive – are growing steadily in Europe at 2-4%,” he said.

“In North America, transport and automotive have seen higher-than-expected build rates for heavy trucks and trailers, as well as continued substitution [of aluminium parts for those more commonly made of steel], and as an effect we have adjusted upward our growth expectation for 2018 from our first-quarter reporting, to 6% from 3%,” he told Metal Bulletin.

“These segments are the main contributors [toward] extrusions growth, expected at 3% in Europe and at 5% in North America. In rolled products, total growth is expected at around 4% for both regions,” he added.

Building and construction are also seeing steady growth of 3% in Europe and 4-5% in North America.

Hydro has traditionally had a strong foothold in Europe with its rolled products and metal products businesses, but the $3.23 billion buyout of extruded aluminium business Sapa brought new downstream markets into the company’s operations, especially in the US.

Hydro and Orkla International combined their aluminium profiles, building systems and tubing businesses into an equal joint venture in September 2013 to create Sapa, the world’s largest extrusions maker. Hydro later went on to acquire Orkla’s stake.

“Our Extruded Solutions business has a value-over-volume strategy, intended to increase the value after the press. I am pleased to see positive results from this strategy, with a general increase in net added value,” Brandtzæg said.

Egil Hogna, executive vice president of Hydro Extruded Solutions and a former chief executive officer of Sapa, will participate on a panel at Metal Bulletin’s 33rd International Aluminium Conference in Berlin on September 12-14. His discussion will focus on end-uses including extrusions, as well as electric vehicles, construction and packaging.

Hydro recently also acquired a new extrusions business in Brazil, the only country where it is represented throughout the full value chain from bauxite to extruded products.

There is still no certainty about when the Alunorte alumina refinery in Brazil’s northern state of Pará will return to capacity although talks are continuing in an attempt to resolve issues at the site, Brandtzæg said.

The refinery is the world’s largest, with nameplate capacity for 6.3 million tonnes per year. It has been operating at 50% of capacity since March, following an order by the country’s authorities prompted by environmental concerns.

The reduction in capacity came after a period of heavy rainfall that led to flooding in Barcarena, where the refinery is located. Authorities were concerned that this may have resulted in water contamination from Alunorte.

“Alunorte is currently producing at 50% following orders from environmental authorities and the court,” Brandtzæg said.

“We have a continuing dialogue with the government of Pará, including the state environmental agency as well as the Ministerio Publico, trying to agree on a way forward and a solution [that would lead] to resuming production at Alunorte, The discussion is related to both technical and social matters,” he added.

“We are in constructive dialogues with Brazilian authorities to find a solution to the situation at Alunorte, but we are still not able to be more precise on the timing of restarts,” he said.

The cut in capacity led to a surge in alumina prices, with the Metal Bulletin fob Brazil index peaking close to $720 per tonne in mid-April before slipping to nearly $450 in June and then moving up to around $573 per tonne currently, amid strike action in Australia.

Metal Bulletin’s fob Australia alumina index currently stands at $567.33 per dry metric tonne, up from $524.13 per dmt before the strike began.

Hydro owns a 92.1% stake in Alunorte, having inherited the refinery following its acquisition of Brazilian state-owned miner Vale’s aluminium assets in the state of Pará in 2011.

So far, there has been no evidence that the flooding did indeed lead to water contamination from the refinery.

“It is important to reiterate that internal and external surveys have confirmed that there were no harmful spills from Alunorte during the heavy rain in February,” Brandtzæg said. “This has been confirmed by the environmental authorities in Brazil.”