Hydro Annual Report 2011b

Aluminium market price weakens
LME 3-month in USD/metric tons
3,000
2,750
2,500
2,250
2,000
1,750
1,500
Jan
2010
Apr
2010
Jul
2010
Oct
2010
Jan
2011
Apr
2011
Jul
2011
Oct
2011
Jan
2012
Due to deteriorating market conditions and cost pressures,
Hydro wrote down fixed assets by NOK 1.3 billion in the
fourth quarter of 2011. Responding to market developments,
Hydro has reduced remelt production, curtailed higher cost
production and reinforced improvements achieved earlier. Significant
measures have been implemented to turn around our
building systems operations.
Hydro established its new Bauxite & Alumina business area in
2011 with the acquisition of world-class bauxite and alumina
operations from vale. Significant improvements in operational
stability and capacity utilization were achieved during 2011.
Hydro’s new Qatalum smelter in Qatar reached full production
capacity during the third quarter, contributing to
increased production during the year.
Qatalum and Albras in Brazil have contributed to a significant
increase in electrolysis capacity for Hydro’s Primary Metal operations,
which has reached 2.4 million metric tons. Cumulative
operating cost improvements have been achieved, representing
roughly NOK 1 billion compared to 2009. However this was
more than offset by higher prices for key raw materials. Cost pressure
has increased for the aluminium industry in general, exacerbated
by a decline in LME prices to relatively weak levels.
Portfolio restructuring continued in 2011 with the sale of
Hydro’s non-strategic 20.9 percent interest in the Norwegian
power company, SKS Produksjon, and divestment of its 35
percent interest in the curtailed Alpart alumina refinery, resulting
in total gains amounting to roughly NOK 1.1 billion.
Climate gas emissions per metric ton from our smelters
declined in 2011. Hydro did not achieve its safety target in
2011 and suffered three fatal accidents.
Strategic Direction
Hydro enters 2012 fully integrated throughout the value chain,
with a global business model based on measured performance.
AnnuAl report
Hydro in brief
Estimated primary aluminium cash cost
In USD/metric tons
2,500
2,000
1,500
1,000
500
0
2008
2009
2010
Estimated cash cost excluding LME-linked alumina cost
Estimated LME-linked alumina cost
2011
We are prepared for a challenging period ahead and will take the
steps necessary to secure our operating results and sound financial
position, including a strong emphasis on safety.
Our new Bauxite & Alumina business ensures the supply of key
raw materials to our own operations, enhances our alumina
market position, and creates a strong platform for further
growth. Our main goal for this business in the coming year will
be to reduce operating costs and further improve the capacity
utilization and efficiency of our activities.
To improve the competitiveness of our Primary Metal operations,
we have targeted cost improvements of USD 300 per mt
for our wholly-owned smelters by the end of 2013. following
the completion of a successful ramp-up, we will focus on securing
stable production and the first quartile cost position of
Qatalum in the coming year.
Metal Markets will utilize its position as the leading world-wide
supplier of metal products and our flexible and extensive multisourcing
network to respond to market conditions and create
additional value. Exploiting the full production volumes of
Qatalum will be a key priority.
Improving returns for our Extruded Products and Rolled Products
operations will be a strong focus area in the uncertain markets
expected in 2012. Key priorities will be differentiation and
continuous cost reduction to secure margins, while protecting
our market share.
A key priority for our Energy business will be enhancing the
value of our power production assets, including further optimization
activities. Efforts aimed at sourcing competitive energy
for Hydro’s global operations will be strengthened.
Hydro is committed to safe operations in all of its business operations.
In 2011, we enhanced our strategy related to people,
social responsibility and the environment.
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