Norsk Hydro’s Aluminum Shipments Exceed Estimates (Update3)

July 22 (Bloomberg) -- Norsk Hydro ASA, Europe’s third- largest aluminum producer, had higher-than-expected second- quarter shipments of rolled and extruded metal and said demand for those products may have bottomed. Sales of rolled products such as foil dropped 28 percent to 187,000 metric tons. Extruded products, which include door and window frames, fell 26 percent to 99,000 tons. The Oslo-based company’s total sales dropped 29 percent to 17.1 billion kroner ($2.7 billion), it said in a statement today, beating the 14.7 billion-krone median of 10 analyst estimates compiled by Bloomberg News. The shares rose as much as 6.4 percent. “The figures for the downstream products definitely came in above our expectations,” Arnstein Wigestrand, an analyst at SEB Enskilda who has a “buy” recommendation on Hydro, said by phone from Oslo. “The cash flow from those units is positive, despite the challenging environment.” Hydro and rival aluminum makers Alcoa Inc., Rio Tinto Group and United Co. Rusal cut production as the global economic slowdown curbed demand from builders and automakers. Hydro reduced output at Norwegian and German smelters by 460,000 tons, or 26 percent, from 2008 levels after prices dropped to a seven- year low in February. The company will cut 4,500 jobs by year end, it said today. Hydro gained 0.84 krone, or 2.6 percent, to close at 33.7 kroner in Oslo, the highest since July 1. The stock has rebounded 21 percent this year as investors bet the worst of commodity price declines were over. ‘Difficult Period’ “Although we are going through the most difficult period the aluminum industry has ever experienced, we see very positive effects from our significant cost and capacity adjustments,” Chief Executive Officer Svein Richard Brandtzaeg said in the statement. Net income dropped to 211 million kroner, or 0.17 krone a share, from 786 million kroner, or 0.65 krone, a year earlier. The decline in rolled product demand in Europe “appears to have reached the bottom” while demand for extruded products “improved slightly” from the previous quarter, Hydro said. Aluminum prices are expected to remain “low” and global use, excluding China, may slip as much as 20 percent this year from consumption of 25 million tons in 2008, Hydro said. Its average aluminum price in the quarter was $1,470 a ton, down from $2,000 in the first quarter. Pre-Sold Output The company expects a “weak result” in the third quarter as it already sold 90 percent of its primary metal output for the period at $1,475 a ton. Inventories monitored by the London Metal Exchange have quadrupled in the past year to a record 4.6 million tons. “We continue to expect a challenging situation when it comes to aluminum prices due to the imbalance between supply and demand and we believe inventories will continue to increase,” Brandtzaeg said in a presentation in Oslo. “Further adjustments in the market are needed. We don’t see any significant improvement in demand.” Hydro made provisions for costs relating to plant shutdowns of about 450 million kroner in the fourth quarter of 2008 and first half of 2009. Additional “substantial” costs would be incurred should permanent closings be necessary, Hydro said. About 13 percent of global capacity, or 3.4 million tons, was curtailed in the first quarter, excluding China, Hydro said. Demand for aluminum in China increased in the second quarter due to “higher activity levels,” following a “sharp fall” in the first quarter, it added. Demand Decline “Demand in the rest of the world was largely unchanged,” Hydro said. Aluminum, used in cars, planes and beverage cans, has fallen 43 percent in the past year and traded as low as $1,279 a ton on Feb. 24 in London. The average price for immediate delivery on the LME was $1,496 a ton in the first quarter, 49 percent less than a year earlier. As much as 70 percent of the aluminum industry is unprofitable at current prices, Brandtzaeg said in March. The Qatalum joint venture smelter project in Qatar was 84 percent complete and is “on schedule” to start up at about the end of the year, Hydro said.