Norsk Hydro forecasts 20 percent annual demand growth for low-carbon aluminum

Norsk Hydro, headquartered in Oslo, Norway, hosted its Capital Markets Day 2022 in December, announcing new improvement and growth targets and new goals to reduce its CO2 footprint.

The company says it is expecting 20 percent annual demand growth for low-carbon aluminum in the coming years, therefore it is increasing its recycling of postconsumer scrap from 140,000 tons per year to 620,000 to 770,000 tons by 2027 and increasing its earnings before interest, depreciation and amortization, or EBITDA, target by an additional 1 billion Norwegian kroner, or $102.6 million, to $3.1 billion to 3.5 billion Norwegian kroner, or $318.1 million to $359.1 million. Hydro also will seek to lower its environmental footprint by targeting a 30 percent reduction of Scope 3 emissions by 2030 on metal delivered to the market.

Sustainability on the agenda

“Health, safety and the well-being of people is on the top of Hydro’s strategic priorities. To date, 2022 has been a record year when it comes to a low number of total recordable safety incidents and high-risk incidents,” Hydro President and CEO Hilde Merete Aasheim says.

In 2019, Hydro set a goal to increase its profitability and drive a sustainability agenda.

“I am also excited to see the high expected growth for low-carbon aluminum, which makes our strategy of strengthening our position in low-carbon aluminum and growing in new energy even more relevant today,” she adds.

The company says greener aluminum with a lower-carbon footprint is seen as an important enabler for the green transition. Hydro’s customers across industry sectors such as transportation, construction, packaging and electrical are setting ambitious decarbonization targets. Low-carbon and circular aluminum is a key lever to reduce Scope 3 emissions for these industries.

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Aluminum demand by 2030 in Hydro’s main markets is set to grow at around 3 percent per year, the company says, and low-carbon aluminum demand is expected to outpace the rest of the market, with a current estimate of 20 percent compound annual growth rate from 2022 to 2030. External consultants expect low-carbon and recycled aluminum will make up a majority of the EU and American market in 2030.

Hydro says it continues to work in strategic customer partnerships to shape the market for low- and near-zero carbon aluminum. The company has announced a new strategic partnership with Mercedes-Benz. In 2023, it will deliver Reduxa 3.0 (defined as having below 3 kilograms of CO2 emissions per kilogram of Al from mine to metal) to a range of Mercedes-Benz models.

Hydro’s primary aluminum produced based on renewable energy is roughly 80 percent and has four- to five-times lower emissions than the world global primary average, placing it among the most carbon-efficient aluminum in the world, the company says.

A move to greener products

To help Hydro reach its goal of net-zero carbon emissions by 2050, the company says it has a number of key initiatives that it expects to be in place before 2030, including a combination of process improvements, switching from fossil fuel combustion to renewable energy and changing to less carbon-intensive fuel sources.

Recycling more postconsumer aluminum is a faster pathway to zero-carbon aluminum and is among the strategies Hydro says it is using. Using 100-percent-postconsumer scrap, Hydro says it will be able to produce near-zero carbon products at a competitive abatement cost. In 2022, Hydro produced its first near-zero aluminum based on recycling 100-percent-postconsumer scrap.

The company says the fuel switch project to replace oil with liquid natural gas at the Alunorte alumina refinery is expected to be in operation in 2023. In addition, Hydro will install three electrical boilers, using renewable energy to replace fossil fuels. The first boiler is already operational, and the second and third boilers are expected to be operational in 2024.

In collaboration with technology provider Verdox, Hydro says it is developing carbon capture and storage (CCS) solutions that can be retrofitted into its existing aluminum plants. The company completed its first test. and a second test is planned to start in early 2023.  

A pathway that is suitable for greenfield smelters is Hydro’s proprietary HalZero technology. This is a technology based on converting alumina to aluminum chloride prior to electrolysis in a process where chlorine and carbon are kept in closed loops, resulting in a fully decarbonized process, the company says. Hydro aims to deliver the first zero-carbon primary aluminum from the HalZero process by 2026.  

Hydro says its 2025 strategy leverages its competitive advantages to seize opportunities within the current megatrends and positions the company to capture value from growing demand for greener and circular aluminum.

Low-carbon aluminum enables customers to meet their carbon reduction goals. Over the past year, Hydro says it has seen increased demand for its low-carbon brand products Hydro Circal, which is made with postconsumer recycled content, and Hydro Reduxa, which is produced using hydropower at the company’s plants in Norway, and has the capacity to respectively triple and double sales in the mid-term, following five times growth since 2020.

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In 2022, positive traction for greener products, improved product mix, higher margins and market share growth has supported the company’s 2025 commercial goal of 2.5 billion Norwegian kroner, or $ 256.5 million.

Hydro says its Extrusions business, which the company has defined as a strategic growth area, has improved over the last years and is on track to realize its 2025 target EBITDA of 8 billion Norwegian kroner, or $ 820.9 million, despite the current market volatility.

Extrusions continues to position itself for future growth through key investments, according to the company, adding roughly 50,000 tons of new capacity through investments across the portfolio in 2022. Last week, Hydro announced its acquisition of Hueck building systems and extrusion business. The acquisition will strengthen Hydro’s presence in Germany and other European markets and create a platform for further growth of the combined businesses.

The company says recycling is an important enabler to strengthen Hydro’s position in low-carbon aluminum. Key investments into additional recycling capacity have been announced so far in 2022, increasing capacity by 335,000 tons, including the proposed acquisition of Alumetal S. A. Hydro says it is on track to deliver on its 2020 recycling goal to double postconsumer scrap use by 2025. Hydro now aims to further increase the recycling EBITDA growth target for 2025 by 500 million Norwegian kroner and an additional 500 million Norwegian kroner by 2027 through its goal to increase postconsumer scrap recycling by 140,000 tons, requiring an increased capital allocation toward recycling in the range of 2 billion to 2.5 billion Norwegian kroner, or $ 205.2 million to $ 256.5 million.

New energy areas

The transition to a lower-carbon society also provides opportunities for Hydro’s new energy areas. Over the past year, Hydro has continued to execute its strategy to grow in new energy areas that can decarbonize high-emitting industries, including renewable energy production, investment in battery value chain and production of green hydrogen. Hydro says it continues to develop projects and partnerships in these areas.

Hydro’s renewable energy company, Hydro Rein, is executing its portfolio strategy and has matured several large-scale projects in Brazil and the Nordics.

Over the past year, the company says it has developed a more focused battery strategy concentrating on exploring opportunities within sustainable battery materials mainly in Europe. The Hydrovolt recycling operations in Norway have started commercial production. In addition, Hydro Batteries has a 30 percent share in Vianode, a company jointly owned with Elkem and Altor, producing synthetic graphite. Full-scale production is expected to start in 2024.  

Hydro’s green hydrogen unit, Hydro Havrand, seeks to develop, own and operate production sites for green hydrogen based on renewable energy to reduce emissions in hard-to-abate sectors. It has started projects at Hydro’s Høyanger smelter in Norway and is working to support Vetlanda’s extrusions facility in Sweden to introduce green hydrogen into industrial processes and develop a potential hydrogen supply for the Alunorte refinery in Brazil.    

The company also is working to reduce its environmental footprint by eliminating the landfilling of recoverable material by 2040. It is working with Wave Aluminium to potentially build a pilot plant at Hydro Alunorte to process 50,000 tons of bauxite residue per year, extracting metals from bauxite residue.

Hydro says its strategic agenda guides its capital allocation. For 2022, the company expects 11.6 billion Norwegian kroner ($1.2 billion) in investments, while for 2023, excluding M&A and Hydro Rein, it is 13.5 billion Norwegian kroner ($1.4 billion) which includes 2.1 billion Norwegian kroner ($215.5 million) in carryover from 2022, and 1.7 billon Norwegian kroner ($174.4 million) in foreign exchange and inflation effects. For 2024-2026, the guidance is 12.5 billion Norwegian kroner ($1.28 billion) reflecting foreign exchange and inflation, in addition to strengthened growth ambitions within Recycling and Extrusion.