Hydro Annual Report 2011b

86
FINANCIAL AND OPERATING PERFORMANCE
Primary aluminium
Primary aluminium
Three-month LME aluminium prices were relatively strong in the first half of the year, averaging about USD 2,570 per mt
compared with an average of USD 2,270 per mt in the second half of 2011. Prices were volatile, reaching a peak above USD
2,700 per mt in early May, and ending the year around USD 2,000 per mt.
Global demand for primary aluminium (excluding China) increased compared to 2010. Corresponding production also
increased, mainly due to new greenfield smelters in the Middle East and Asia. Annualized production was relatively stable in
the final quarter of 2011, amounting to 26.6 million mt. Annualized consumption declined, however, amounting to 24.7
million mt. Recent announcements of smelter closures and limited new capacity coming on stream are expected to improve the
supply demand balance in 2012. Demand for primary aluminium is expected to grow by about 3-5 percent in 2012. However,
market sentiment continues to be influenced by significant economic uncertainty.
Demand in China increased around 15 percent in 2011, from 16.8 million mt in 2010 to 19.3 million mt in 2011. The
market for primary metal was largely balanced in China throughout 2011, and we expect this to continue in 2012.
LME stocks increased gradually from 4.3 million mt at the end of 2010 to around 5 million mt at the end of 2011. The
majority of the metal in warehouses continues to be owned by financial investors. Global inventories, including unreported
inventories, were estimated to be around 12 million mt at the end of 2011.
Demand for most metal products (extrusion ingot, sheet ingot, foundry alloys and wire rod) in Europe weakened during the
year. North American demand was stronger in general. Demand for foundry alloys continued to be strong in Northern Europe
and in Germany in particular, and also improved in Asia.
Rolled products
European demand for flat rolled products was somewhat higher compared to 2010, as most markets improved in the first half
of 2011. However, demand weakened in the second half of 2011, impacted by customer destocking and weak markets in
general as a result of increasing economic uncertainty in Europe, and in Southern Europe in particular. Chinese exports into
Europe fell during the second half of 2011 as a result of the weaker markets.
Developments varied across the different market sectors. Demand within the automotive segment demonstrated a strong
growth influenced by the robust demand for premium cars in China and the ongoing substitution of steel by aluminium in the
manufacturing process. The building and construction segment remained weak during the year while demand for foil
applications declined. Demand for the beverage can segment was strong throughout 2011. Demand for general engineering
applications declined significantly, driven by destocking activities at distributors and end-users and somewhat weaker industrial
demand, resulting in pressure on margins for this market segment towards the end of the year.
Economic and market developments for 2012 are uncertain with low visibility. However, certain leading indicators are positive.
Extruded products
In Europe, demand for extruded aluminium products increased slightly compared to last year. Demand was higher for most
market segments in Northern Europe, but somewhat lower in Southern Europe. In North America, demand fell compared to
2010. However, shipments from domestic extruders increased due to the implementation of anti-dumping duties on Chinese
exports. Growth in South American extrusion demand slowed compared to 2010, but continued to be positive, particularly in
Argentina. Demand in the automotive market improved during the year for all geographical regions except Europe, supported
by strong economic growth and robust demand from emerging markets.
European demand for extruded aluminium products is expected to decline in 2012, with the building and construction market
continuing as the weakest end use market segment. Outside of Europe, the market outlook is positive, within the automotive
and transport segments in particular.