Hydro Annual Report 2011b

24
BusIness DesCrIptIon
Business and operating information
At the same time, Hydro invested roughly NOK 18 billion in
its aluminium and energy businesses in Norway, including
NOK 11 billion in its Norwegian smelter system, NOK 2.2
billion upgrading and expanding its hydropower production
operations and NOK 3 billion in research, development and
production support relating to both its upstream and downstream
aluminium operations. As a result, annual electrolysis
production in Norway increased from 760,000 mt to about
900,000 mt, including the shutdown of roughly 250,000 mt
of older, higher cost and higher emission capacity.
Transforming transaction
In 2011, Hydro transformed its business through the acquisition
of the aluminium assets of vale SA, securing its position
in bauxite and alumina and lifting the company to the top tier
in the aluminium industry. Combining vale Aluminium with
Hydro has resulted in a stronger company, fully integrated
into bauxite, with a long alumina position and a preferred
standing in a more consolidated market place.
for further information, see www.hydro.com/about hydro/
our history
Business and operating information
The following section includes a description of the industry
developments impacting our business, our strategies for developing
and exploiting our competitive strengths, key performance
targets, including results, and a description of operations
for each of our business areas including key revenue and cost
drivers.
See section – financial and operating review – later in this
report for comparative production and sales volume information
for our different business areas.
Alumina price
% of LME per tonne alumina for long-term contracts
12-13.5%
1990-2002
Source: Hydro estimates
13-14.5%
2003-2007
13.5-15%
2008-2009
15-16%
2010-2012
Bauxite & Alumina
Industry overview
Bauxite rock is composed mainly of aluminium oxide and aluminium
hydroxide containing minerals. There are three main
qualities: Gibbsite, Boehmite and Diaspore. The qualities
determine the processing requirements, with corresponding
influence on operating costs and the eventual quality of the
resulting alumina. Gibbsite, the highest quality bauxite, is
found mainly in Brazil. Bauxite is typically mined in open pits
and either processed into alumina in close proximity to the
mining operations or shipped to alumina refineries around the
world for processing. Around 80 percent of global alumina
refining, excluding China, is based on integrated bauxite
sources. In China, about 55 percent of alumina refining is
based on integrated sources.
Guinea, Australia and Brazil are the three largest bauxite producing
countries, which account for 66 percent of available
bauxite globally. Within the bauxite mining industry sector, five
of the largest mines controlled around 35 percent of global production
last year, which amounted to about 250 million mt.
Alumina is one of the most significant cost elements in the
production of aluminium. The alumina market is competitive,
but relatively few players hold a long position, compared with
the primary aluminium market.
Bauxite and alumina price developments
Bauxite and alumina prices have been strongly influenced by
developments in China, which is heavily dependent on
imported bauxite. In 2011, China imported roughly 43 million
mt of bauxite, representing roughly 45 percent of its
bauxite requirements and the quality of Chinese domestic
bauxite is deteriorating. However, China has recently started
to mine underground bauxite deposits in order to maximize its
use of domestic resources.
Alumina contract durations
35%
6 years) Spot (< 2 years)
Medium-term contracts (3-5 years)
55%
20%
25%
Source: Hydro estimates