Hydro CFO attributes slowdown in German auto and construction sector for Hydro¡¯s profit drop in Q2

Norsk Hydro’s Chief Financial Officer Eivind Kallevik has attributed the slowdown in German auto and construction sector for the missed result expectations in the second quarter. This has lowered aluminium demand and dragged the sale of Hydro in this quarter. Share prices for the company however rise on reports of increased production. This was further worsened by lower aluminium prices, alumina and aluminium production curtailment and the effects of a cyber-attack.

Oslo-based Norsk Hydro missed expectations in the second quarter Tuesday after it reported a drop in underlying profit to 875 million Norwegian krone ($101 million).

Hydro CFO said that demand weakness was acute in Europe and particularly in the biggest European economy Germany.The German central bank's monthly report published on Monday July 22 said that the German economy has "declined slightly" in the second quarter of 2019. According to the bank report, production in Germany's construction sector and auto sector "presumably declined" in the second quarter of 2019 after a favourable first quarter.

“We see construction being low and generally there is also a concern around auto demand and auto production which impacts aluminium demand,” said Kallevik.

The CFO added that though China has also experienced lower growth in construction and auto sector, it did not affect the the supply side, meaning the market was approaching a balance for the first time in “many, many years.”

Hydro’s Alunorte refinery in Brazil was affected by a 50% shutdown due to a leakage in its red mud pond, but Kallevik said production was back up to 85% of its capacity in June exceeding expectations. He expects the refinery to reach 95% of full production capacity by 2020. The cyber-attack in March also impacted several operations especially in the extrusion business.

Hilde Merete Aasheim, chief executive officer at Norsk Hydro has trimmed the company’s outlook for 2019 aluminium demand growth.

“We maintain our view of a global primary aluminium market in deficit for 2019 in the range 1-1,5 million tonnes. We take down expected global primary demand growth for 2019 to 1-2 per cent, as we are seeing signs of weakening in some of our market segments,” said Aasheim.

The company’s share prices have increased today on to the reports of increased production in bauxite and alumina divisions. However, the share price is still 20% lower than a year ago.

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