Norsk Hydro May Cut Aluminum Output As Demand Falls

OSLO -(Dow Jones)- Norwegian metals company Norsk Hydro ASA (NHY.OS) Monday became the latest company to say it is considering an aluminum production cut in response to falling demand for its products, triggered by a downturn in the construction and automotive industries. The move follows cuts by Alcoa Inc. (AA), the world's largest producer of primary and recycled aluminum, and Chinese producers, as companies try to stem the sharp price falls of recent months. London Metal Exchange prices are currently trading at just over $2,000 a ton, down from a peak of $3,380.15 a ton July 11. Hydro executive vice president Hilde Aasheim said: "The international crisis has hit the metal industry. We are therefore reviewing our entire global operations to consider measures that can adjust the production of primary aluminum to a market demanding less aluminum and fewer aluminum products." She added that it will be difficult for Hydro to maintain current total production volumes if markets don't pick up. The company has already reduced to a minimum all remelting of external metal in Norway, Europe and the U.S., and said earlier it is cutting downstream staffing amid a challenging cost environment. Around 90% of the world's aluminum smelting capacity is estimated to be making losses at current prices. Arctic Securities analyst Eivind Bergkaasa said the news Hydro's reviewing output "shouldn't really come as a surprise. The whole aluminum industry is facing slowdowns in its most important markets and obviously the supply side has to adjust to that." "We expect further capacity cuts going forward," he said, adding that it is logical Hydro has already started to cut remelt capacity before it cuts primary production. Bergkaasa, who rates Hydro buy with a target price of NOK45, said he doesn't see a risk that Hydro's new projects could be jeopardized or delayed as it assesses its portfolio. "There might be further manning reduction...and delays to further acquisitions," he said. Aasheim said Hydro is prepared for a prolonged demand downturn, but that its solid financial position "means that the company is well equipped to tackle the crisis." At 1428 GMT, Hydro traded up 4.5% to NOK28.40, beating a 3.81% increase on Oslo's OSEBX index.