Hydro’s Q1 earnings decline year over year

Norsk Hydro ASA, the Oslo-based aluminum and renewable energy company, has reported adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of 5,411 million Norwegian kroner ($491.1 million) for the first quarter of 2024, down from 7,525 million Norweigan kroner ($682.3 million) for the same quarter last year.

The company attributes the decline to lower aluminum sales prices, lower volumes and recycling margins in its Extrusions segment and higher fixed costs, which were offset partially by lower raw material costs.

"Despite weaker markets impacting results, the macroeconomic indicators as well as revenue drivers are showing signs of improvement towards year-end,” President and CEO Hilde Merete Aasheim says. “Hydro is well-positioned to capitalize on strengthening demand for aluminum products.”

The company says primary aluminum demand outside China decreased 2 percent year on year, while Chinese demand remained robust in renewables and electric vehicles (EV), supporting overall growth in global primary demand of 5 percent year on year.

Residential and industrial building construction demand remained muted through the quarter, especially in Europe. The weak building and construction market continues to put pressure on billet premiums. Decreased construction and demolition activity also leads to lower aluminum scrap generation, Hydro notes. Coupled with rising scrap exports to Asia, this supports higher scrap prices, squeezing recycling margins in the company’s Metal Markets and Extrusions segments.

Despite continued growth in EV and hybrid demand, projections were tempered by subsidy cuts in Germany and heightened competition from China, the company says. Reduced EV production in Europe adversely affected Hyrdo's Extrusions business in the first quarter, while the North American transport segment faced constraints from low trailer build rates.

Positive indicators emerged during the first quarter with revenue drivers such as London Metal Exchange (LME), premiums and alumina prices showing signs of improvement. LME aluminum prices increased at the end of the quarter and into April, rising above $2,500 per metric ton as of the middle of the month. European and the U.S. ingot premiums rose, indicating market optimism, Hydro says. Alumina prices trended upward, reaching $378 per metric ton as of mid-April, influenced by Chinese production challenges. April 12, U.S. and U.K. sanctions restricted trade of Russian aluminum, banning imports of metal produced after April 13. Hydro says it stopped buying Russian aluminum after the Ukraine invasion in 2022 and urges the EU to sanction Russian aluminum in the forthcoming 14th package, expected in May.

The company says it remains on track to deliver additional improvements of 8.5 billion Norwegian kroner (771.4 million) by 2030.

It continues to safeguard recycling margins and secure scrap in the short term while securing long-term growth through expanding scrap sourcing and use, according to the company.

Recent milestones, including the inauguration of new recycling units at Hydro Årdal and Hydro Høyanger, will increase its annual recycled aluminum capacity by more than 60,000 metric tons, supporting the Hydro Reduxa 3.0 offering. Hydro also entered a multiyear agreement with Sims Alumisource in North America to secure access to 36,000 metric tons of postconsumer aluminum scrap. Plans to build a scrap sorting plant at the Wrexham casthouse in the U.K. with 30,000 metric tons of capacity will enable the company to process and recycle a wider range of postconsumer aluminum. These initiatives reinforce Hydro's market presence within recycling, fostering growth and resilience in alignment with the 2030 recycling targets, according to the company.

Hydro Extrusions is expanding through strategic investments aimed at improving profitability and sustainability. The business segment is growing with its customers, having signed four new contracts since Hydro’s Capital Market Day in November of last year, for a total contracted value of 1.9 billion to 2 billion euros ($172.8 million to $181.9 million) since the beginning of 2023. An additional 0.9 billion to 1 billion euros ($81.9 million to $91 million) worth of contracts are in process, according to the company, promising solid EBITDA contributions with attractive margins. Through ongoing partnerships, capacity expansions and its sustainability focus, Hydro Extrusions is positioned to deliver on its 2025 EBITDA target of 8 billion Norwegian kroner ($726.14 million) when markets recover, the company adds.

“We have made good progress on our decarbonization agenda this quarter," Aasheim says. "Hydro Rein has successfully brought Mendubim and Boa Sorte into commercial operation on time and on budget, supplying Alunorte and Albras with affordable renewable energy. At Alunorte, we are now producing alumina fueled by LNG [liquified natural gas], with significant CO2 reduction, as well as cost savings when fully ramped up by the second half of this year, lifting profitability and driving sustainability.”

Securing access to renewable power is crucial for low-carbon aluminum production, the company adds.

In Energy, Hydro secured two new long-term power purchase agreements (PPAs) during the first quarter. Statkraft will supply 1.28 Terawatt-hours from 2024 to 2027, and Alpiq will provide 0.54 Terawatt-hours from 2025 to 2033. Hydro Rein has started commercial operations in the Brazilian solar plants Mendubim and Boa Sorte, providing approximately 1.55 Terawatt-hours of renewable power to Hydro Alunorte and the Albras smelter. Both projects were delivered on time and cost, the company says. Its transaction with Macquarie Asset Management in which that firm will acquire 49.9 percent of Hydro’s renewable energy company Hydro Rein, is progressing as planned and is expected to be completed by the end of the second quarter.

During the first quarter, Hydro says it executed on its decarbonization roadmap, aiming for a 30 percent reduction in carbon emissions by 2030. At Alunorte, fuel switching and boiler electrification are driving this effort, enabling production of low-carbon smelter-grade alumina. Hydro Alunorte started producing alumina with natural gas in March and this is expected to cut annual CO2 emissions by 700,000 metric tons, yielding substantial cost savings estimated at $160 million to $190 million annually based on current spot and forward price spreads when fully implemented by the second half of this year, the company says.

Regulatory advancements include the agreement on the CO2 compensation scheme in Norway, effective from 2024 to 2030, setting an annual maximum compensation of 7 billion Norwegian kroner ($635.4 million) eliminating the CO2 quota price floor and requiring participating industries to implement emission reduction measures equivalent to 40 percent of the compensation received. However, the agreement is subject to approval by the European Free Trade Association Surveillance Authority (ESA) and the Norwegian Parliament.

“The recently announced agreement with Norwegian authorities on the future of the CO₂ compensation scheme is an important enabler for our continued investments in decarbonizing our Norwegian portfolio, while providing predictability towards 2030,” Aasheim says.

Other key financials

Adjusted EBITDA for Aluminum Metal decreased in the first quarter of 2024 compared with the first quarter of 2023 from NOK 3,972 million ($360.5 million) to NOK 1,965 million ($178.4 million) mainly given lower all-in metal prices, reduced contribution from power sales and increased fixed cost, partly offset by reduced carbon cost and positive currency effects, Hydro says.

Global primary aluminum consumption was up 5 percent compared with the first quarter of 2023, driven by an 8 percent increase in China. The three-month aluminum price decreased slightly throughout the first quarter of 2024, starting at $2,384 per metric tons and ending the quarter at $2,337 per metric ton.

Adjusted EBITDA for Metal Markets decreased in the first quarter compared with the first quarter of 2023 from 669 million Norwegian kroner ($60.7 million) to 269 million Norwegian kroner ($24.4 million) in light of lower results from recyclers and reduced results from sourcing and trading activities. Lower results from recyclers are because of reduced sales premiums in a weakening extrusion ingot market, the company says.

Adjusted EBITDA for Hydro’s Extrusions business decreased in the first quarter compared with the first quarter of 2023 from 2,223 million Norwegian kroner ($201.8 million) to 1,437 million Norwegian kroner ($130.4 million) driven by lower extrusion sales volumes and decreased margins from recyclers. General inflation pressured fixed and variable costs, partly offset by cost measures and currency effects.

European extrusion demand is estimated to have decreased 10 percent in the first quarter of 2024 compared with the same quarter last year but increased 7 percent compared with the fourth quarter of 2023 partly driven by seasonality. Annual demand growth for residential building and construction and the industrial segments remains negative but to a lesser extent than in previous quarters as demand has started to stabilize. Automotive demand has been challenged by weaker EV production.

North American extrusion demand is estimated to have decreased 9 percent during the first quarter of 2024 compared with the same quarter last year but has increased 10 percent compared with the fourth quarter of 2023 partly driven by seasonality. The transport segment has been weak, driven by lower trailer build rates. Demand continues to be moderate in the residential building and construction, and industrial segments.

Compared with the fourth quarter of 2023, Hydro’s adjusted EBITDA increased from NOK 3,737 million to NOK 5,411 million ($339.2 million to $491.1 million) in the first quarter of 2024. Higher realized aluminum and alumina prices combined with higher Extrusions and recycling volumes and reduced fixed costs were partly offset by lower production in Bauxite & Alumina and negative currency effects.

Net income amounted to 428 million Norwegian kroner ($38.8 million) in the first quarter of 2024. Net income included a 50 million Norwegian kroner ($4.5 million) unrealized derivative loss on LME-related contracts, a net foreign exchange gain of 135 million Norwegian kroner ($12.3 million), a 24 million Norwegian kroner ($2.2 million) gain from unrealized derivative power and raw material contracts and 32 million Norwegian kroner ($2.9 million) in rationalization charges and closure costs.

Hydro’s existing share buyback program, initiated in September 2023, completed its purchases Jan. 31. The redemption and cancellation of shares held by the Norwegian state is subject to approval by the Annual General Meeting on May 7.