Hydro’s main ambition is to increase shareholder returns through:

• Better: Operational and commercial improvement drive
• Bigger: High-grading and selective growth to improve relative industry position
• Greener: Lower energy consumption and footprint to strengthen future competitive climate advantage

The operational and commercial improvement efforts implemented across the value chain are showing clear effects. Delivered improvement efforts from 2011* to YTD Q3-2014 annualized, amount to NOK 3.7 billion, with NOK 1.5 billion left to be delivered (excluding Sapa JV), from the communicated improvement programs.

This includes the USD 180 JV program in Primary Metal, the “From B to A” program in Bauxite & Alumina, the “Climb” program in Rolled Products, Energy’s aspirations, as well as the corporate center improvement program. In addition, Sapa’s restructuring and synergy program is on track to deliver NOK 1 billion in improvements by the end of 2016.

“Market conditions are looking significantly better than a year ago, but we are not losing focus on improvement efforts, which are all on target, further increasing our value creation potential,” says Hydro President and CEO Svein Richard Brandtzæg. “We are doing our utmost to find and define new initiatives as we strive to remain the industry benchmark in operational improvements.”

Bauxite & Alumina continues to lift production towards nameplate capacity and at the same time further reduce costs and increase efficiency. Following operational issues in 2013, production is now back at record levels, and the effects from the “From B to A” program are coming through on the bottom line. The strategic pricing ambitions of pricing bauxite and alumina on their own fundamentals continue, representing a significant upside from the current pricing structure.

Primary Metal has delivered NOK 2.3 billion in improvements since 2009 and continues to find new levers to pull in order to get more value out of the asset base. New initiatives, including aiming to realize 100,000 tonnes production-creep in fully-owned smelters as well as the beyond USD 300 efforts, show how improvements are ingrained in the Primary Metal operational culture. The strategy of focusing on high premium products has also delivered significant earnings, as value-added products are priced at historic high levels above standard ingot.

On the back of an expected strong demand from the automotive industry, Rolled Products continues to differentiate through innovation, quality, service and lead time. Advanced alloys and products are being created in close cooperation with the end customer. The €130 million investment in new automotive capacity will quadruple products to the high-growth Body-in-White market segment, with production expected to start in the second half of 2016. In addition, the construction of a used beverage can processing line in 2015 should provide lower cost of metal in the Rolled Products production chain, and contribute with significant CO2 savings from recycling post-consumed scrap, bringing us closer to carbon neutrality. 

Energy’s aspirations include operational and commercial improvements, as well as competitive sourcing of power for the Hydro value chain. Energy has successfully sourced 2.7 TWh for Hydro’s Norwegian smelters for the period from 2021 to 2030, at levels allowing competitive aluminum production in Norway. As both a producer but also integrated in the value chain of a consumer, Energy aims to capture the full value potential of the unique industry combination of operational and commercial competence.

Creating viable societies is Hydro’s mission and license to operate. Across the value chain, efforts are being implemented to ensure Hydro reaches its climate neutrality target by 2020. Hydro seeks to increase energy efficiency, as the primary producer with the lowest average CO2 footprint across the industry. Low CO2 footprint is a competitive advantage and this advantage will only grow stronger as the world moves to meet the climate challenge. 

World aluminum demand outside China is estimated to grow 3-4% in 2014, as well as in 2015. Aluminium demand has increased over the last year, with broad-based aluminium demand growth across segments and regions, enhanced by substitution in many segments, including transport and electrical.

“The improved primary aluminium market balance is creating the foundation for a roadmap towards sustainable profitability. Although there is still a lot of aluminium in inventories, some macro uncertainty in Europe and slight increases of semis and fabricated exports out of China, the fundamental situation is looking much better then only a year ago,” Brandtzæg says. “In addition to demand exceeding production in the primary market, we have also seen a tightening of the raw material markets, in bauxite and alumina, representing interesting commercial opportunities, as well as pressuring the cost base for Chinese alumina and aluminium producers.”

“After years of depressed earnings, market fundamentals are now providing us some reason for optimism. We will be sure to take advantage of current market conditions and deliver on our number one ambition of increasing shareholder returns, through our aspiration of becoming better, bigger and greener”, Brandtzæg concludes.

Due to optimization of capital expenditures (capex), sustaining capex for 2014 is estimated to be NOK 3.3 billion, which is lower than initially guided due to some projects in Bauxite & Alumina being postponed to 2015. In combination with this, the construction of a red mud disposal area at Alunorte in Brazil, a tailing dam at Paragominas, and above average relining in Primary Metal, is expected to lift sustaining capex to NOK 5.7 billion. Long-term sustaining capex is estimated at NOK 3.5 billion. Growth capex for 2015 is expected to amount to NOK 0.8 billion, including the Grevenbroich automotive line, the Neuss used beverage can line, and some other smaller projects, bringing total capex to NOK 6.5 billion, compared to NOK 3.5 billion for 2014. 

* USD 300 program included from 2009