The Capital Markets Day focuses of the delicate financial moment

As usual, Hydro organized the Capital Markets Day which took place in Oslo at the end of last September. This meeting was a chance for the Norwegian aluminium group to present the company’s general situation to its partners as well as to the media and the financial analysts. This three-day event dealt with strategic issues concerning both Hydro itself and the general financial markets.

Hydro’s position on the aluminium market is in all respects continually growing thanks to an excellent energy availability, several development projects as regards the international upstream activities and stable operating results. Focussing on these features the group is trying as hard as possible to face the ongoing tempest on the aluminium and global market.

In line with its growth strategy, Hydro has announced the settlement of an agreement with the Brazilian mining group Vale for the construction of an alumina refinery in the north of Brazil which would further strengthen Hydro’s future supplies of alumina. The refinery should start production in 2011 with an initial capacity of 1.86 million tons. The future potential is expected to expand up to 7.4 million tons since this project would become one of the largest, if not the largest, alumina refinery in the world.
Hydro has also announced that production of the Qatarbased Qatalum smelter project is scheduled to start at the end of 2009 with an investment budget not exceeding 5.6 billion dollars. At the end of August the Qatalum project, joint venture with the long-term partner Qatar Petroleum, had reached a 36% work progress.
Analyzing the aluminium industry overall picture, Hydro’s speakers talked of a stable situation on the medium-long run while the shortterm picture is more uncertain since the financial market crisis is impacting also on the group. Analysts trust in the future since they consider aluminium as a unique material whose use is undergoing an exponential growth.Hydro declared to be aware that the aluminium industry is facing a rise in costs as the consequence of the recent increase in energy and commodities prices as well as of the inflation pressure. The aim is to keep the company’s favourable position by improving the operating performance and strengthening the technological offer.
This is why the new HAL4 technology will play a key role within Hydro’s strategy, that includes its use in the company’s future smelters for operation below 400 kA and with a primary production increase planned at about 1.5 million tons.
In the Aluminium Products sector, Hydro plans a continuous growth thanks to targeted acquisitions in the Building Systems and Extrusion divisions while the operating margin and the cash generation still are the priorities of the Rolled Products sector. As for the energy issue, the Norwegian group enjoys an excellent position since one third of its energy requirements is covered by its hydroelectric power plants.
In addition Hydro is analyzing interesting opportunities in the renewable energy sector and is planning to increase investments in solar energy.

Production cuts as response to the crisis

At about mid-November, Hydro issued an official press release declaring that, in order to face the financial crisis, the group was obliged to plan imminent cuts to production.
The current crisis has caused major problems to the construction and automotive sectors thus triggering a decline in the demand of aluminium, one of the most used materials in these two industries, and generating more and more problems in Hydro’s downstream activities. The drop of the third quarter results witnessed that the group is facing a difficult moment. Consequently, Hydro decided to reduce by 20% the production from the oldest sector at Karmøy aluminium plant, the Søderberg potlines, by cutting about 24,000 tpy. This measure has been recently replaced by the more drastic decision of a complete closure. Hydro’s Søderberg potlines were due for closure by the end of 2009, but the company has announced they may be closed earlier than scheduled. Once this technology has been phased out, annual production at the Karmøy aluminium plant will stand at around 170,000 tonnes.