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Norway's aluminium producer Norsk Hydro reported higher than expected earnings on Tuesday boosted by higher aluminium and alumina prices. $NHYDY results came after both Alcoa and Aluminum Corp of China warned on tariffs and trade. The environmental scandal in Brazil is overhanging however.

 Norsk Hydro

Earnings

Adjusted earnings before interest and taxes fell to 2.7 billion crowns ($329.16 million) in the quarter from 2.9 billion at the same time a year ago, in line with expectations for 2.7 billion in a Reuters poll of analysts. 

Norsk Hydro ASA ADR $NHYDY

Market Reaction $5.92 + 0.27 +4.69%

Last quarter the stock was sold off from the scandal after Norsk Hydro was accused of contaminating a river in Brazil with bauxite residue. Norsk Hydro shares are down 14 percent over the past year, while the Oslo benchmark index is up 22 percent over the same period.

Highlights

  • Underlying EBIT of NOK 2 713 million Alunorte, Paragominas and Albras producing at 50%, affecting results negatively
  • Increased costs, mostly offset by higher realized all-in aluminium and alumina prices
  • Downstream results up on volume and margin
  • Higher prices and volume increases result from Energy
  • Better improvement program hit by Brazil situation, not expected to reach 2018 target

 

Parra River Brazil Contamination Update

Chief Executive Officer Svein Richard Brandtzaeg said in a statement to update Parra River

"The process to resolve the situation in Brazil is challenging and has taken longer than expected ... the timing for resuming full production remains uncertain,"

"The earliest time for full production (is) assumed from the beginning of October 2018, and the maximum curtailment period included in the scenarios (is) ending mid-2019,"

Norsk Hydro says it found no evidence of such a spill occuring. However the company has apologised for discharging untreated rainwater into the Para River.

Brazilian authorities imposed two fines of 10 million reais (EUR2.5 million, around US$3 million) on Norsk Hydro. The authorities also ordered the company to halve  production at Alunorte, the world's largest aluminium plant. Furthermore the company was told to suspend the use of the river basin.

This led Norsk Hydro's earnings before interest and tax for its bauxite and alumina activity to collpase in Q1  60 percent from the last quarter, to 741 million kroner.

Alumina is the main component of aluminium, the disruptuon now threatens the Norsk Hydro's supply chain.  Norsk Hydro is currently in talks with the Brazilian authorities but there is no indication when it will be able to operate at full capacity, if ever at the Alunorte plant again.

Sapa Takeover

Hydro completed the acquisition of Orkla’s 50 percent ownership in Sapa that it didn't own on October 2, 2017, giving Hydro full ownership of Sapa. That completed the $3.2 billion deal from July. Sapa’s results for the first nine months are reported as a 50 percent owned joint venture accounted for under the equity method.

Outlook

Additionally international sanctions against major aluminium producer Rusal of Russia, with whom Hydro has business, and the U.S. tariffs on aluminium imports. All these factors have altered Hydro's view of the market balance for this year, it said on Tuesday.

"We see the global primary aluminium market in a stronger deficit in 2018," Hydro said. This updates from the the first quarter that "the market was moving towards a deficit".

Norsk Hydro says it found no evidence of such a spill occuring. However the company has apologised for discharging untreated rainwater into the Para River.

Cash Position

Hydro's net debt position increased from NOK 3.6 billion to NOK 7.5 billion at the end of the quarter. Net cash provided by operating activities amounted to NOK 1.5 billion. Net cash used in investment activities, excluding short term investments, amounted to NOK 1.6 billion. During the second quarter dividends paid to Norsk Hydro ASA shareholders amounted to NOK 3.6 billion.

Source: Norske Hydro

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