February 7, 2020 / 6:33 AM / 10 days ago

Hydro's shares sink as profits disappoint, aluminum market cools

OSLO (Reuters) - Aluminum producer Norsk Hydro on Friday reported lower-than-expected fourth-quarter profits, sapped by dwindling demand and falling metal prices, and said it expected global supply to outstrip demand in 2020.

FILE PHOTO: Norwegian aluminium producer Norsk Hydro CEO Hilde Merete Aasheim pose for a picture in the company's headquarters in Oslo, Norway May 8, 2019, REUTERS/Terje Solsvik/File Photo

The company’s shares fell more than 11% to a six-month low as major business units missed forecasts, analysts said.

Softer demand from European industry throughout last year, and a more recent decline in U.S. markets, reduced the sales of finished products, such as components for the auto industry and for construction, Hydro said.

Underlying earnings before interest and tax rose to 560 million Norwegian crowns ($60.69 million) from 534 million crowns a year earlier, but lagged the 1.02 billion expected by analysts in a company-provided poll.

“I think the fourth quarter (had) ... lower demand than we anticipated at the end of the third quarter,” Chief Executive Hilde Aasheim told a news conference.

Hydro maintained an annual dividend of 1.25 crowns per share, while analysts on average had expected a decline to 1.20 crowns.

SUPPLY TO EXCEED DEMAND

The Norwegian company, one of the world’s biggest makers of aluminum, said it expected global aluminum demand for 2020 to grow by 0%-2%.

However, the industry’s output will likely exceed demand by 500,000 to 1 million tonnes and so Hydro must continue to cut costs to try to boost results, the company said.

The market situation led Hydro to initiate a cost-savings program in September, with a view to cutting costs by 7.3 billion crowns by 2023. It achieved 1 billion crowns in improvements in 2019, ahead of target.

Additional restructuring and savings initiatives in its extruded products unit, which serves the automotive and construction industries, are underway, it said.

Aluminum prices are trading at $1,730 per tonne, having lost around 9% over the last year.

The market weakness is another blow after Hydro last year restored output at its Brazilian operation after a spill in 2018 that led to the forced curtailment of production of alumina used to make aluminum.

Its Alunorte alumina refinery ramped up production to 90% of capacity in the fourth quarter, ahead of schedule, and is expected to reach 100% by the end of 2020, the company said.

Still, lower prices pushed the bauxite mining and alumina refinery unit to a loss of 75 million crowns in the fourth quarter after a profit of 493 million a year earlier.

Aluminum smelter operations swung to a profit of 155 million crowns from a loss of 677 million a year earlier, but still lost almost 1.3 billion crowns for 2019 as a whole.

Slideshow (2 Images)

“Both of the major divisions appear to have underperformed our expectations, as well as those of the financial market,” brokers DNB Markets wrote in a note to clients.

Hydro shares were trading down 11.2% at 27.97 crowns at 1242 GMT and have lost 14.3% so far in 2020.

($1 = 9.2269 Norwegian crowns)

Editing by Muralikumar Anantharaman, Aditya Soni and Barbara Lewis

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