Hydro Reports Third-Quarter Loss on Currency, Qatalum

Oct. 27 （Bloomberg） -- Norsk Hydro ASA, Europe’s third- largest aluminum maker, said third-quarter earnings were wiped out by currency losses and an outage at its Qatari plant.

Hydro suffered a surprise net loss of 104 million kroner （$17 million） after posting net income of 1.01 billion kroner a year earlier, the Oslo-based company said today in a statement. Sales expanded 9.5 percent to 18.4 billion kroner.

The aluminum maker reported an underlying loss of 229 million kroner from Qatalum, its joint venture plant with Qatar Petroleum, after primary aluminum production was shuttered for more than a month last quarter. The fourth-quarter loss will be 400 million kroner, excluding insurance payouts that are expected to cover a “majority” of the charges, it said.

Hydro fell as much as 2.7 percent in Oslo trading and was down 2.3 percent at 36.48 kroner by 10:28 a.m. local time.

Aluminum smelters are struggling to restart capacity after a slump in demand last year and because of rising prices for power, which makes up about 40 percent of production costs. Hydro won’t reverse its 26 percent cut in capacity as industry output is still outpacing demand by about a million metric tons, Chief Executive Officer Svein Richard Brandtzaeg said today.

Consumption in countries excluding China declined in the quarter on “seasonal effects” and as users slowed accumulation of stockpiles, Hydro said. Demand outside of China will probably grow 17 percent to 24 million tons this year, and little of the industry’s shuttered capacity is likely to restart, it said.

Currency Losses

The cost of producing aluminum averaged $1,750 a ton in the first nine months, increasing from $1,675 in 2009, Hydro said.

The company began a project last year to reduce operating expenses for every ton of primary metal produced by $100 by the end of 2011 and expanded that goal last month to $300.

The third-quarter results included 246 million kroner of net currency losses, Hydro said, compared with a gain of 59 million kroner in the prior three months. Hydro was expected to post a third-quarter net profit of 565 million kroner, according to the average estimate of nine analysts surveyed by Bloomberg.

The company raised its net cash to 8.9 billion kroner at the end of September from a negative cash position of 100 million kroner at the end of June.

Aluminum will probably be the first industrial metal used to back an exchange-traded product in a market where $100 billion has already been invested in precious-metal funds, a Bloomberg survey of analysts showed this month. Russia’s United Co. Rusal, the largest aluminum maker, held talks to supply the metal to a fund, Chief Executive Officer Oleg Deripaska said.