* Primary aluminium market in a supply deficit
* Q2 underlying EBIT NOK 544 mln vs NOK 698 mln forecast
* Stock falls 3.8 percent early but erases losses
(Recasts with outlook comments, adds CEO, CFO quotes, analysts,
By Ole Petter Skonnord and Balazs Koranyi
OSLO, July 22 The global aluminium market is in
its strongest shape since the financial crisis of 2008-2009 and
the price of the lightweight metal could move higher this
quarter, Norsk Hydro, a top global producer, said.
The company, one of Norway's biggest industrial companies
and also a big producer of hydro-electric power, has ridden a
deep downturn in the global aluminium sector, but its shares
have surged this year on the back of rising prices for the
Posting second-quarter results that fell short of
expectations after all units except for primary aluminium, its
biggest division involved in smelting, performed weaker than
expected, Hydro Chief Executive Svein Richard Brandtzaeg said he
expected global demand for aluminium to exceed production in
2014 after six years of oversupply.
Brandtzaeg said the market was being supported by moves by
some key industries such as car manufacturing to use more
aluminium instead of steel and copper.
"The market is becoming tighter and there is a deficit of
aluminium in the market outside China," said Brandtzaeg, who is
due to leave Hydro in the next six months to become head of
fertiliser maker Yara.
"We see the metal prices ... moving (higher), we have
record-high standard ingot premiums and also record-high metal
products premium," said Brandtzaeg, who has led Hydro since
Global inventory levels fell around 5 percent during the
quarter, the cash aluminium price is up 14 percent since
the start of the year and producers remain disciplined in
keeping down production, after shutting some plants and
curtailing production from others during the worst of the
The price premium for buying the physical commodity should
continue to rise in the third quarter after a $55 per tonne
increase for European aluminium in the second quarter, the
company said, forecasting a similar increase in the current
"So (we would expect) $50 dollars or slightly north of
that," Chief Financial Officer Eivind Kallevik told a news
Buyers of the commodity usually have to pay a premium to get
the actual commodity and the extra cost will depend on their
physical location. Premium levels hit record highs in the second
Producers have shut 4 to 5 million tonnes of annual primary
production capacity over the past several years, or about a
tenth of the global capacity, and Brandtzaeg said only about 1
million tonnes could be restarted relatively easily.
Despite the solid outlook, Hydro's second-quarter figures
disappointed the market and its shares fell as much as 3.8
percent, erasing some of its 35 percent rise since the start of
the year. At 0928 GMT, the stock was trading unchanged.
"Any share price weakness on the back of the result is a
buying opportunity in our view as the second half outlook looks
much improved and aluminium prices continue to strengthen,"
analysts at Societe Generale said.
Hydro's second-quarter underlying operating profit rose to
544 million crowns ($87.8 million) from 520 million a year
earlier, but missed an average forecast of 698 million in a
Reuters poll of analysts.
Most of the miss was on lower power prices, as ample rain
filled Norway's hydro-electric power reservoirs, and on weak
alumina margins as the group is locked into long-term contracts
and was unable to take advantage of improved market conditions.
Analysts at Nordea saw scope for the shares to recover from
any initial weakness, given the strong aluminium price trend and
the fact that the earnings miss was largely due to energy prices
which by their nature are volatile from quarter to quarter.
($1 = 6.1955 Norwegian Krones)
(Editing by Anupama Dwivedi and David Holmes)