Norsk Hydro's CEO Discusses Q3 2011 Results - Earnings Call Transcript

Norsk Hydro ASA ( NHYDY.PK)

Q3 2011 Earnings Call

October 27, 2011 10:00 AM ET

Executives

Stefan Solberg – Head, IR

Svein Richard Brandtzæg – President and CEO

Jørgen Christian Arentz Rostrup – EVP and CFO

Analysts

Luc Pez – Exane

Rob Clifford – Deutsche Bank

Cedar Barnes – Merrill Lynch

Jonathan Schroer – Unicredit

Jørgen Christian Rostrup

Timothy John Weaver – Redburn Partners

Presentation

Operator

Ladies and gentlemen good day and welcome to the Hydro’s Q3 Conference Call. Today’s conference is being recorded. At this time I would like to turn the conference over to Mr. Stefan Solberg, Head of Investor Relations. Please go ahead sir.

Stefan Solberg

Good afternoon ladies and gentlemen and welcome to Hydro’s earnings presentation and conference call for the third quarter 2011. We released our earnings today at 7:00 a.m., Central European Time and the presentation material we will use on this call and the third quarter report is available on our website hydro.com. Today’s presentation will be given by President and CEO, Svein Richard Brandtzaeg; and Executive Vice President and CFO, Jørgen Rostrup.

After the presentation, there will as usual be an opportunity to ask questions.

Before we start, I would like to direct your attention to the cautionary note in relation to forward-looking statements, which we have provided in the presentation material.

And with this short introduction, I’m pleased to handover to Svein Richard Brandtzæg, who will take us through the first part of the presentation.

Svein Richard Brandtzæg

Thank you very much Stefan, the headlines for this quarter was first of all, that we achieved the full production at the Qatalum and the 21st of September we started the last electrolysis cell of the 704 that we have now in operation. This represents the major milestone for Hydro and for Qatalum. Secondly we improved performance in bauxite & alumina with higher volumes and bauxite mine Paragominas and Alumina refinery Alunorte.

And the third quarter represented an additional important step towards the nameplate capacities. But we also are seeing the development in the macro economy has – now impacting the market beyond what is not only a seasonal weaker quarter. We also see that our customers are more cautious and the uncertainty is now gradually affecting the market situation.

Highlights from the third quarter is of course done that we have underlying habit of 1.646 million which is 260 million less than the second quarter and 700 million above the third quarter last year. Bauxite and alumina production increased with respectively 13% and 7% during the quarter, which adds to the improvement we did from the first to the second quarter this year.

In different parts of the value chain, we see raw material cost pressure which affects the results. The energy business delivered strong result, in fact highest overall result for the third quarter with lower prices were more than compensated by higher volumes. And we see as a seasonal decline as we have summer holiday in the third quarter, but in addition we see somewhat softening market situation and I will come back to the portfolio streamlining that we have done during the quarter.

If you take a look at the fabricated products and especially the downstream part where we have seen a 5% reduction in the volumes compared to the second quarter but the year-to-date 1% higher in total than the year-to-date, the same period last year. We see in the rolled products which had 6% lower demand this quarter compared to previous quarter, a destocking in general engineering and foil, a seasonal reduction in automotive and heat exchanger, a lower demand in packaging and building and improved demand on the litho and can beverage.

In extruded products we had 4% lower demand than previous quarter. The Extrusion Eurasia had normal seasonal softening, but also weakening building and construction and especially building systems is very much affected by the very soft building and construction market in Southern Europe. The Iberia is stable, but at a very low level and we now see also weakening in Italy and France.

Extrusion North America improved due to higher demand in automotive transport, but also less import and Extrusion South America is minus 7% this quarter but off to a 16% improvement in second quarter this year. We saw a seasonal reduction in demand for – in position to bring which is very much towards the automotive industry.

If you look at the aluminum prices, we realized price in the quarter was $2592 per ton, and second quarter it was $2509 per ton. The situation in the quarter was quite volatile where we saw prices between $2200 and $2650 per ton. The market prices that we observed in the third quarter will mainly be reflected in the Hydro fourth quarter results.

The global inventory is stable and inventory days are going down due to increased consumption, but total volume has been a quite stable during the quarter. Estimated total reported and reported volumes is about 11 million tons. This number is uncertain but fairly well known in the market and in total represent the three months of consumption. A lot of volumes is locked in financial deals which are looking at the metal which is still profitable on a short-term duration due to the Contango and the low interest rate currently.

If you take a look at the Ingot premiums, we saw a quite stable situation in Europe. We saw last quarter surge on premiums in the U.S. market up to lots $200 per ton. But the Midwest premium in the U.S. now has leveled out to $175. In Japan the situation has been quite stable and the high premiums observed in the market assures that in spite of a high inventory level this metal is not available in the physical markets, so there is still a tight metal market. But we also saw in the end of the quarter that there is some weakening of Ingot premiums but a few dollars and it’s too early to say if this will continue into the fourth quarter hurdle.

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