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Hydro takes action to remain competitive despite weak aluminum market

Thursday, Dec 10, 2009
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Hydro is intensifying efforts to improve its competitive position by launching new cost reduction measures, following a year of demanding markets and decisive corrective actions. Hydro improvement efforts have resulted in positive downstream earnings, while upstream activities remain challenged by the weak aluminum market and a strong Norwegian krone. Mr Svein Richard Brandtzaeg CEO of Hydro said that "Hydro has reacted swiftly to the ongoing crisis by implementing a string of firm and efficient actions which have improved our position considerably. But the weak demand for aluminum and aluminum products combined with the strong Norwegian currency, call for even tougher measures to cut costs throughout the company and improve the upstream cost position." The Norwegian based aluminum and energy company remains optimistic about the long term prospects for aluminum as the light weight and endlessly recyclable metal is seen as a crucial part of the solution to the world's climate challenges. In product application, aluminum makes cars lighter and buildings more energy efficient, paving the way for business opportunities across Hydro value chain. Mr Brandtzæg said that "Our long term view on aluminum is encouraging. Aluminum will play an increasingly important role in an energy constrained world. Hydro's technological edge and leading metallurgical competence provide a solid platform to take advantage of promising upstream and downstream growth opportunities." Hydro's Capital Markets Day includes the following highlights: 1. Hydro is launching a new cost improvement program to reduce cash operating costs by USD 100 per tonne primary aluminum in 2012 compared to the 2009 level. 90% of the improvement is expected to be realized by end 2011. The improvement excludes Qatalum and impact of raw material prices. 2. Qatalum remains on target for start up at the turn of the year 2009 to 2010 and will reach full production during Q4 2010. The earnings contribution from Qatalum is expected to be somewhat negative in 2010 at the current aluminum price and affected by build up costs and full depreciation. 3. Hydro has entered into an agreement to divest its Spanish 30,000 tonnes rolling mill Inasa in a cash neutral transaction. 4. Total capital expenditures in 2010 are expected to be NOK 5.3 billion down from NOK 10.2 billion in 2009. This includes project financed investments in Qatalum of NOK 4.2 billion in 2009. Sustaining capital expenditures are being further reduced from about NOK 3.0 billion in 2009 to about NOK 2.5-3.0 billion in 2010. 5. Hydro prioritizes highly the maintenance of an investment grade credit rating. At the end of Q3, Hydro had a net cash position of NOK 2.4 billion mainly supported by significant operating capital reductions during the first nine months. 6. The current market imbalance for primary aluminum in the world outside China is expected to continue into 2010, but at a lower level. Hydro is well prepared to capture business opportunities should markets change significantly. 7. Long term prospects for aluminum remain encouraging, supported by high aluminum consumption in urbanization and infrastructure development, aluminum as part of the solution to the climate challenge and aluminum recyclability qualities. Aluminum semis consumption is expected to average 6.5% the next 10 years led by the transportation and construction sectors. (Sourced from Azom.com)

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