Hydro reports profits but warns on energy costs

Aluminum and energy producer Norsk Hydro has reported earnings before interest, taxes, depreciation and amortization (EBITDA) for the third quarter of 2022 of 9.17 billion Norwegian kroner ($888 million), marking a 27 percent increase in earnings from one year ago.

“Hydro is delivering strong financial results while continuing to make good progress on our strategic agenda,” says Hilde Merete Aasheim, president and CEO of Hydro. “This, combined with our long-term stable access to raw materials and energy, forms a solid foundation to maneuver in a more volatile economic environment.”

The Norway-based company says the war in Ukraine, high energy prices and “concerns around inflation and increasing interest rates continue to add uncertainty and impact growth forecasts for 2022 and 2023.”

In the scrap-fed aluminum extrusion market, demand for the industrial and the building and construction segments “have weakened into the third quarter,” the metal producer says, while growth in automotive demand is improving slightly as supply chain issues are easing. The renewable energy sector also is driving demand for aluminum, says the Europe-based firm, which operates facilities in North America.

“Executing on our improvement program is essential to ensure robustness across our value chain as we face a more unpredictable market environment,” Aasheim says. “We have continued these efforts at full pace this quarter and estimate to deliver on our 2022 target of 7 billion Norwegian kroner [$678 million].”

“Uncertainty remains for some high-cost aluminum production facilities as high global energy prices are weakening demand and putting pressure on smelter margins," the company adds. "As a result, a number of producers in Europe and the United States have curtailed parts of their production, resulting in around 50 percent of European continental aluminum industry currently being curtailed. For 2022, external sources are estimating a global deficit of primary aluminum between 0.4 million metric tons and 0.7 million metric tons.”

In response to what it calls “adverse framework conditions” and high electricity prices, Hydro says it decided to cease primary production at its majority-owned Slovalco aluminium facility in Slovakia during the third quarter. “The casthouse in Slovalco continues its recycling operation, serving customers in the region with 75,000 metric tons of recycled aluminum annually,” the firm says.

While addressing short-term challenges, Hydro says it has made progress in strengthening its position in low-carbon aluminum and growing in “new energy” areas. Hydro says in 2022 it has continued to see higher demand for Hydro Circal and Hydro Reduxa aluminum products.

Year to date, sales have been 45 percent of those metals, “supporting Hydro’s ambition to double sales of greener products by 2025.” Extrusions, often dependent on recycled aluminum feedstock, remain “a key growth area in Hydro’s 2025 strategy and in the third quarter,” the firm says, noting Hydro has invested in 12,000 metric tons of additional capacity at its extrusions plant in Rackwitz, Germany.

Hydro adds, “Progress was also made on greenfield recycling projects in the quarter, supporting the strategic ambition to double recycling of postconsumer scrap by 2025. In the U.S., Hydro Extrusions decided to invest [$484 million] to expand recycling capabilities at its Cressona plant in Pennsylvania, including remelt and extrusion billet casting.”

That project, the company says, is expected to be fully operational in late 2024 and will expand Cressona’s casting capacity by more than 50,000 metric tons. 

In Europe, construction started for the new aluminum recycling plant in Szekesfehervar, Hungary. That new facility will have an annual capacity of 90,000 metric tons and is expected to start production in the first quarter of 2024. 

In the second quarter 2022, Hydro announced a tender offer for 100 percent of the shares of the Polish recycler Alumetal S.A. This October, the European Commission decided to open a Phase II review of the proposed acquisition of Alumetal S. A., but Hydro says it remains committed to the transaction and will continue to work closely with the EC over the coming months on the Phase II review.