Norway-based Hydro ASA has reported earnings before interest, taxes, depreciation and amortization (EBITDA) for the second quarter of 2022 of 11,594 million Norwegian kroner, or $1.18 billion, compared with 6,598 million kroner, or $670 million, for the same quarter last year, resulting in a 12-month rolling adjusted return on capital employed of 27 percent. Hydro says its Aluminum Metal and Extrusions businesses delivered their strongest quarterly results on record, fueled in part by higher metal and alumina prices, stronger margins in Extrusions and currency effects. However, these positive factors were offset in part by higher fixed and raw material costs upstream, the company adds.
President and CEO Hilde Merete Aasheim says the company’s results are backed by strong markets, continued demand for Hydro’s greener aluminum products and its 2025 improvement program, which calls for strengthening the company’s position in low-carbon aluminum and metal recycling and diversifying and growing in the area of new energy.
“We continue to implement initiatives to support our 2025 strategy of low-carbon aluminum and renewable energy,” Aasheim says. “This quarter we have pursued strategic recycling growth projects to meet increasing customer demand for low-carbon aluminum, and we have progressed on our decarbonization road map.”
In the last quarter, the company announced the groundbreaking for its aluminum recycling plant in Cassopolis, Michigan, which will produce some 120,000 metric tons of aluminum extrusion ingot per year from scrap. Hydro says it plans to double its use of postconsumer scrap by 2025. Hydro’s Extrusion North America division is upgrading recycling capabilities at its site in The Dalles, Oregon, allowing it to process an additional 10,000 metric tons, or 11,023 short tons, of postconsumer scrap annually and to increase overall recycled aluminum output by 27,000 metric tons, or nearly 30,000 short tons.
More recently in Europe, the company began construction on the expansion of its aluminum recycling plant in Rackwitz, Germany, in July, enabling the plant to produce 25,000 metric tons of HyForge per year and increasing recycling capacity of postconsumer scrap. In addition, Hydro made the decision to upgrade and restart the foundry alloy casthouse in Årdal, Norway, to increase capacity for recycling of PCS by 25,000 metric per year. The two investments further support Hydro’s ambition to double recycling of postconsumer scrap by 2025.
Despite the record quarterly performance, Aasheim says the company sees “increasing market uncertainty” going forward, noting rising energy prices and a softening market for aluminum products.
The war in Ukraine has affected second-quarter growth and 2022 forecasts, with Europe being the most exposed to the resulting economic and social impact, Hydro says. Global supply chain shortages, high energy prices and concerns about inflation and increasing interest rates are sources of uncertainty. Hydro is facing a new reality and the changes are happening faster than before.
Although realized aluminum prices and results were strong in the second quarter of 2022, the three-month aluminum price decreased during the quarter as fears of recession and weak demand in China led to a large drop in base metal prices, the company says. The outlook for some aluminum production capacity remains uncertain as high global energy prices put pressure on smelter margins, resulting in producers in Europe and the U.S. curtailing parts of their production.
Nordic power prices increased significantly compared with the same quarter last year and are relatively stable compared with the previous quarter, Hydro says, adding that Norwegian transmission system operator, Statnett, has stated that energy security in Norway may be a concern towards the end of the year.
In these volatile markets, Hydro says it continues to address challenges and mitigate risks while also continuing to position the company according to the Hydro 2025 strategy.
Greener aluminum with a lower carbon footprint is seen as a key enabler for the green transition, and in the second quarter, Hydro continued to see increased demand for the greener products, Hydro Circal and Hydro Reduxa. In the second quarter of 2022, sales were 89 percent higher year on year, supporting Hydro’s ambition to double sales of greener products by 2025, the company says.
A significant step in Hydro’s recycling ambitions could be delivered if its acquisition of the Polish recycler Alumetal S.A., announced in May, is successful. Following the launch of a tender offer for 100 percent of the shares of the company in the start of the second quarter, Hydro announced in July that it will extend the subscription period to Oct. 10 to provide additional information requested by the European Commission.
In the second quarter, Hydro Extrusions decided to invest 300 million kroner, or $30.5 million, in a new extrusion press in Tønder, Denmark. The 12-inch press will serve the European automotive and electric vehicle market. Automotive customers continue to set ambitious decarbonization targets, Hydro says, and low-carbon and recycled aluminum will be key levers to meet their Scope 3 emissions targets.
At its Capital Markets Day in December 2021, Hydro launched a new climate ambition, confirming the target of cutting its own carbon emissions by 30 percent by 2030 and setting new ambitions of becoming net zero in terms of Scope 1 and 2 carbon emissions by 2050 or earlier. An important enabler to meet the ambition is the decarbonization of the Brazilian alumina refinery Alunorte, where the Alunorte fuel switch project to replace heavy fuel oil with natural gas is progressing according to plan, the company says.
In the second quarter, Hydro Rein announced two renewable energy projects in Brazil that will supply Hydro’s bauxite and alumina operations with renewable power for existing and planned electrical boilers, supporting Alunorte’s decarbonization efforts. Hydro Rein and Macquarie Asset Management’s Green Investment Group entered into agreements to form a joint venture to build and operate Feijão, a 586-megawatt combined wind and solar power project in the northeast of Brazil. Hydro Rein, together with Equinor and Scatec, also started construction activities for the 531-megawatt Mendubim solar project in Brazil.
The transition to a lower-carbon society also provides opportunities for Hydro's new energy areas. In May, Hydro's 50/50 joint venture with Northvolt, Hydrovolt, commenced operations of its industrial-scale battery recycling pilot in Norway. In parallel, Hydrovolt will, in the second half of 2022, be taking steps to develop production in Europe to support growing demand.
A central pillar in Hydro’s 2025 strategy is the financial framework, and the company says its profitability and sustainability agenda continues to guide capital allocation. Hydro says it continues its commitment to an investment grade credit rating and aims to keep adjusted net debt less than 2x adjusted EBITDA throughout the cycle.
Hydro has updated its targeted capital structure, aiming to have adjusted net debt of around 25 billion kroner, or $ 2.5 billion, over the cycle.
Hydro strives to drive a cost of capital advantage based on the sustainability of its operations, and in the second quarter Hydro launched a green and sustainability-linked financing framework, including a second-party opinion by the Centre for International Climate and Environmental Research (CICERO). Hydro’s framework is ranked Medium Green by CICERO, the second greenest ranking after dark green, and can be used for future sustainability-linked financing products.Adjusted EBITDA for the first half year of 2022 increased compared with the same period last year. Higher realized all-in metal and alumina prices, record high results in Extrusions and positive currency effects partly were offset by higher fixed and raw material costs upstream, according to