Norsk Hydro to await ‘comfort and visibility’ in aluminium demand before bringing back idled capacity
European aluminium producer Norsk Hydro will not bring smelter capacity back into the market until demand assurance returns, the company’s chief financial officer Pål Kildemo told Fastmarkets in an exclusive interview
“We will not ramp up purely through power prices falling again. What will cause us to ramp up is a comfort and visibility of demand being stronger than expected when we curtailed,” Kildemo told Fastmarkets on Tuesday February 14.
Norsk Hydro, along with several other European primary aluminium producers announced significant production curtailments over the course of 2022, with European gas prices reaching an all-time high of €345 per MWh in August 2022 and following major hits to domestic demand.
Combined capacity at Hydro Karmøy and Hydro Husnes in Norway was temporarily reduced by 110,000-130,000 tonnes. In addition, the company announced that it would stop primary aluminium production at the Slovalco plant in Slovakia because of high energy costs.
“We took out capacity because demand was lower and we did it where we were able to make the most money in taking it out, which was in smelters in southwestern Norway. [Adjusting] capacity [up or down] takes time, and we will take the smaller swings with our remelt system,” Kildemo said. “If we then get confirmation and see further strength materializing, potentially on the back of [demand from] China, then we might ramp up Husnes and Karmøy.”
“They are only temporarily curtailed, but we need to ensure that there is significant demand to ramp up,” Kildemo added.
Data released by the German Automotive Association, VDA, showed that German car production fell by 34% month-on-month to 261,119 vehicles in December.
Production in January rose by 26% to 329,000 vehicles, but remains significantly lower than pre-pandemic levels.
As part of its fourth-quarter results, Hydro announced that European demand for extrusions over the period was estimated to have dropped by 16% compared with the same quarter the previous year. It was also down a further 9% compared with the third quarter of 2022.
Fastmarkets’ assessment of the aluminium P1020A premium, in-whs dp Rotterdam fell by 55% in the second half of 2022 due to weak consumption, but has since risen to $290-315 per tonne during the latest assessment on Tuesday February 14, amid longer-term concerns regarding domestic availability.
“A lot of the market is still looking for signs of physical demand support from China to drive the overall macro picture,” Kildemo said.
Global markets diverged in 2022, with weak demand in China seeing premiums in the region hitting multi-year lows.
Fastmarkets assessed the aluminium P1020A (MJP) spot premium, cif Japan at $70-80 per tonne on Tuesday February 14, unchanged since November 15, 2022 and the lowest level since August 2022.
But news of China’s reopening in early 2023 saw commodity markets take a more bullish stance, with many anticipating that rising demand in the region could support global premiums.
We are [expecting stronger demand from China in 2023] on the back of them opening faster than we had expected
“We are [expecting stronger demand from China in 2023] on the back of them opening faster than we had expected. But we need to see some more concrete signs in order to maintain the development that we have seen in the pricing now, otherwise you risk some weakness again,” he added.
Alcoa previously announced that the San Ciprian aluminium smelter in Spain would restart its production in January 2024, after securing two long-term wind power purchase agreements and in turn reducing the plant’s exposure to volatile gas prices.
But Kildemo was adamant that without strong demand or state subsidies it was not economical to bring back idled capacity.
“When we look at Europe in general, yes, the margin dynamics have improved significantly compared with what we saw some while ago, but if you take the average of some German smelters and you use market prices for all elements, it is still not attractive for restarts without state subsidies,” he said.
The LME aluminium cash price was most recently trading at $2,341.50 per tonne on Thursday February 16, little changed from the beginning of the year but down from $3,292 per tonne on the same date in 2022.
French aluminium smelter Dunkerque is set to relaunch some of its previously curtailed capacity, reaching full production by May 2023, following support from the French government, according to local media reports.