Norsk Hydro is to miss its cost-cutting target this year and faces possible write-downs as its Brazilian operations work at reduced capacity following a spill, the Norwegian aluminum producer said yesterday.
Norsk Hydro was ordered by regulators to cut output from Alunorte, the world’s largest alumina refinery, which triggered cutbacks at its nearby Albras aluminum plant and a scramble among other factories and customers for supplies.
Unless it gets permission in the second quarter to restart output, it might have to write down the value of Alunorte and its related Paragominas bauxite mine, and also faces the risk of impairments at Albras and other plants, the company said.
Even if Norsk Hydro wins permission to restart Alunorte, it would take about three weeks to reach full production, it said.
As a result, the company said its “Better” improvement program is now expected to miss its target of 500 million kroner (US$63 million) in cost cuts this year.
Brazilian authorities have ordered Alunorte, which has a capacity of about 6.3 million tonnes of alumina per year, to slash production by 50 percent after the plant admitted to making unlicensed emissions of untreated water during severe rains in February.
Earlier this month, Norsk Hydro said the neighboring Albras aluminum plant would also halve production, cutting the equivalent of 230,000 tonnes of aluminum per year.
Norsk Hydro’s Brazilian outage and US sanctions imposed on Russian rival Rusal have caused fears of a supply crunch, briefly sending prices this month to seven-year highs, although the rally later faded.
“The US sanctions on Rusal have caused great uncertainty in the world’s aluminum markets and will impact trade flows and availability of metal and raw materials throughout the aluminum value chain,” Norsk Hydro chief executive officer Svein Richard Brandtzaeg said in a statement.
“The Brazilian authorities’ embargo on Alunorte adds to the uncertainty in the aluminum industry,” he added.
The company still expects 4 to 5 percent growth in global aluminum demand this year, but now predicts a supply deficit, rather than the balanced market that it had previously anticipated.
It reported 3.15 billion kroner in first quarter operating profits, up 38 percent from the same period last year, but an 11 percent drop from the fourth quarter of last year.
That is better than the 3.06 billion kroner expected in a Reuters poll of analysts.
Additional reporting by AFP
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