Morningstar | Norsk Hydro Fighting to Overcome Fallout From Recent Cyberattack and Alunorte Production Embargo
Norsk Hydro is a vertically integrated aluminum manufacturer that operates on the low end of the global cost curve for aluminum smelting. The company is engaged in every step of the aluminum production process, as it mines bauxite, refines alumina, smelts aluminum, and manufactures finished aluminum products. Key end markets include packaging, construction, automotive, and transportation.Hydro operates one of the world’s largest bauxite mines, as well as the world’s largest alumina refinery, both of which are in Brazil. Although roughly half of the company’s 2.1 million metric tons per year of smelting capacity is in Norway, Hydro also operates smelting facilities in Slovakia, Canada, Australia, Brazil, and Qatar. The company has 1.3 million metric tons of rolling capacity (across a total of six facilities in Germany, Norway, and Italy) by which it manufactures aluminum into finished goods for specific end uses.Over the trailing five years, Hydro has generated nearly half of its segment-level operating income, on average, via its primary metal operations. Given our forecast that aluminum prices will decline below $1,600 per metric ton in real terms through the end of the decade, a level far below the trailing 10-year average, we expect earnings to decline steadily over our explicit forecast period. As a partial offset, however, low aluminum prices should support higher margins for Hydro’s rolled and extruded products segments, as aluminum is the key input for these operations.In light of significant global overcapacity and elevated semi finished aluminum export volumes from China, we expect the aluminum industry will face pressing headwinds in the years to come. Due to its low-cost position, Hydro is unlikely to take capacity off line, but our expectation for low aluminum prices limits potential earnings growth.Norsk Hydro is an aluminium group based in Norway. Co. is engaged in the supply of aluminium and aluminium products. Co. supplies casthouse products, such as extrusion ingots, sheet ingots and foundry alloys. Co's customers are active in sectors such as the packaging, lithographic, building, automotive and transport sectors. In addition, Co. is engaged in the production of power in Norway. Its business is divided into six operating segments: Bauxite & Alumina, Primary Metal, Metal Markets, Rolled Products, and Energy and Other and Eliminations.
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