UPDATE 1-Norsk Hydro to ramp up output at Neuss plant

Tue Sep 4, 2012 6:26am EDT

(Recasts lead, adds spokesman, detail)

* Long-term power deal to boost production

* Also expects higher carbon compensation payments

OSLO, Sept 4 (Reuters) - Norsk Hydro plans to triple production at its primary metals plant in Germany by mid-2013 after striking a long-term power deal and pencilling in higher compensation payments for its carbon emissions.

The Norwegian aluminium producer said on Tuesday a five-year deal with Swedish power supplier Vattenfall would allow it to lift output at Neuss to around 150,000 tonnes per year from 50,000 currently.

Production at the plant, which has an installed capacity of 230,000 tonnes annually, was cut in 2009 because of high German electricity costs.

"Improved framework conditions, including expected CO2 compensation in Germany, are giving relief to this efficient smelter," the company said.

"When the expected CO2 compensation is in place, we aim to resume some of the curtailed production in Neuss."

Changes to the European Union Emissions Trading Scheme from next year allow member states to compensate big energy users, like aluminium producers, for costs linked to carbon emissions, a move aimed at preventing higher costs driving business out of Europe.

"This is not a signal on changes in market conditions, but a change of input factors at the rolling mills, which makes it possible to increase production at the nearby smelter," said Hydro spokesman Halvor Molland.

Hydro said its power deal with Vattenfall totalled 2.2 terawatt hours (250 MW) annually over five years, being a combination of new and existing power arrangements.

The plant has sourced power on a short-term basis since the previous long-term contract expired in end-2005, it said.

Responding to falling metals prices amid concerns about economic weakness and oversupply, Hydro has closed some high-cost capacity while boosting output from more efficient sites such as its 585,000 tonnes-per-year joint venture smelter Qatalum in Qatar.

LME aluminium is trading at 2-year lows below $2,000 per tonne, down more than 30 percent from the peak in May last year, and many aluminium makers are struggling to break even.

Hydro said in July it was stepping up its cost-cutting plans, but that is was not looking to close any more primary aluminium production facilities. (Reporting by Victoria Klesty and Henrik Stolen; Editing by David Cowell)