Hydro’s quarterly results reflect weaker market

Norsk Hydro ASA, headquartered in Oslo, Norway, has announced that its adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) for the second quarter of 2023 was NOK 7,098 million (roughly $706.6 million) down from NOK 11,594 million ($1,154 billion) for the same quarter last year. This resulted in an adjusted return on capital employed, or RoaCE, of 14 percent over the last 12 months, according to the company. The company attributes its lower quarterly results to lower aluminum and alumina sales prices and to lower volumes in Extrusions, partly offset by positive currency effects and lower raw material costs.

Norsk says demand for primary aluminum is declining in the short-term, while Chinese supply is returning, leading to the global primary balance weakening in recent months.

President and CEO Hilde Merete Aasheim says, “The results reflect a weaker market but also the effect of our continuous improvement initiatives throughout the organization. These improvement efforts are key to ensuring robustness and strengthening our value creation when markets are declining.”

Despite the challenging markets, Hydro says it continues to deliver solid results and mitigate risks by improving margins, operational excellence and reducing costs. The company adds that it is on track to deliver on the full-year improvement program target of NOK 8.4 billion ($836.2 million) and making progress toward achieving its 2027 accumulated improvement and commercial targets of NOK 14 billion ($1.394 billion).

“Commercial excellence continues to give good rewards, improving the robustness of our margins in a period with large declines in volumes across Europe and North America. A stronger market position through our greener aluminum product offering separates us from our peers and makes us attractive for partnerships,” Aasheim says.

Norsk saw European and North American demand for extrusions decrease “significantly” in the second quarter compared with the same quarter last year. However, the company says its Extrusions business continues to deliver robust margins through dedicated improvement efforts and by proactively adjusting costs and gaining market share, margin uplift and benefiting from greener product offerings and is on track to deliver NOK 8 billion ($793.3 million) adjusted EBITDA in 2025.

European demand for extrusions in the second quarter of 2023 is estimated to have decreased 22 percent on a year-over-year basis, but it increased 1 percent compared with the first quarter of 2023, Hydro says. Demand for residential building and construction and industrial segments has remained weak in the second quarter, while demand for automotive is growing steadily. Some subsegments, such as solar, are also showing robust growth.

Hydro estimates that North American extrusion demand decreased 15 percent during the second quarter of 2023 compared with the same quarter last year and 1 percent compared with the first quarter of 2023. It cites particularly weak demand in the residential building and construction sector as higher interest rates affect the housing market. However, the automotive segment continues to strengthen, according to the company.

Recycling is a key pillar in the Hydro 2025 strategy to strengthen its position in low-carbon aluminum. The company says it wants to more than double its use of postconsumer scrap by 2025 compared with its 2020 baseline. June 30, Hydro completed its tender offer for the Polish recycler Alumetal S.A., and the share purchase was settled July 7, strengthening its recycling position in Europe and widening its product offering in the low-carbon and scrap-based foundry alloy market. The purchase contributes 150,000 metric tons of annual postconsumer scrap toward Hydro’s 2025 target of using 670,000 metric tons of postconsumer scrap annually. Alumetal delivered a 12-month rolling EBITDA of NOK 700 million ($69.4 million) as of the first quarter of 2023.

The company says it made additional progress to deliver its recycling strategy, having signed an agreement to purchase land in Torija, Spain, with the aim of constructing an aluminum recycling plant that produces 120,000 metric tons per year. Hydro says the facility will further strengthen its capabilities to produce low-carbon aluminum and ensure more scrap is kept in Europe. Also, its recycling facilities in Navarra, Spain, and Sjunnen, Sweden, are ramping up capacity with the addition of 20,000 metric tons each, giving them about 62,000 metric tons of capacity annually. HyForgeRackwitz in Germany delivered its first metal as well. That site recently completed a 40-million-euro ($40.6 million) expansion to produce HyForge forge stock using postconsumer aluminum. These are all important steps in increasing Hydro’s recycling capacity by 1 million metric tons by 2027, where roughly half is expected to come from postconsumer scrap, according to the company.

The company says its customers are recognizing Hydro’s leadership in greener aluminum, including  Mercedes-Benz and U.K.-based bicycle company Brompton.

“Our customers increasingly care about more than the price and quality of aluminum products, including where and how it is produced,” Aasheim says. “All parts of our sustainability agenda, from our net-zero ambition to our social developments in Brazil and around the world, are key criteria for our most advanced customers. They ask for transparency and traceability throughout the aluminum value chain, and I am happy that a major customer like Mercedes-Benz acknowledges our efforts with granting us their sustainability award.”

During the second quarter of 2023, Hydro says it produced the first batch of recycled aluminum using green hydrogen as an energy source at its extrusion plant in Navarra. This is an important step in verifying green hydrogen as an emission-free fuel to address the hard-to-abate industry emissions, the company adds.

The transition to a lower-carbon society is dependent on policy initiatives like the European Green Deal, Hydro says, adding that several initiatives on climate, energy, sustainability and taxonomy are important for the development of a greener economy. The political direction is aligned with Hydro’s growth strategy across the value chain. ​One important aspect of the Green Deal is circularity and what it means for recycling aluminum.​ According to a secondary technical legislation under adoption, the CarbonBorder Adjustment Mechanism (CBAM) will label aluminum based on remelted industrial scrap as “carbon-free,” with zero-carbon cost on import. This allows for greenwashing of carbon-intensive products and undermines the competitiveness of European producers subject to ETS, the EU market for low-carbon products and Green Deal objectives. This needs to be addressed and updated before the CBAM is finally introduced to ensure the CBAM does not cause the problem it seeks to address, but rather solves it, the company says.