Norwegian aluminium producer Norsk Hydro reported third quarter core profit below market expectations on Friday and said it expected higher costs and lower realised metal prices at its smelting business in the fourth quarter. Adjusted earnings before interest, taxes, depreciation and amortisation rose 51.6 percent to 9.09 billion Norwegian crowns, about 974.3 million dollars, but missed the 9.53 billion crown average forecast in a company compiled poll. Shares fell 6.2 percent in early Oslo trading to their lowest level in more than a year.
The outlook is the story. Hydro expects its realised smelter premium to fall to 550 to 600 dollars a tonne in the fourth quarter from 673 dollars in the third, while carbon costs rise by 250 million to 350 million crowns, alumina costs by 100 million to 200 million crowns and fixed costs by 150 million to 250 million crowns. Higher metal prices also lifted working capital needs, and the company raised its year end working capital guidance to 32 billion crowns.
Operations cut both ways. The Alunorte alumina refinery in Brazil is back at full production, but Hydro kept its estimate of a 90 million to 110 million dollar hit from buying gas above contracted prices after supply disruptions, and a dispute over sales from its Qatar joint venture remains open.
Strategically, Hydro is restarting smelting capacity in Slovakia and investing in Norwegian production of aluminium for Europe’s electricity grids. Disruption to Gulf aluminium supplies has lifted the premiums European buyers pay, while expanding alumina production in China and Indonesia has weighed on alumina prices, leaving Hydro squeezed between a softer input price it sells and firmer costs it pays.