[OSLO] Norsk Hydro, one of the world's largest aluminium producers, will increase its capital expenditure by 86 per cent next year, and said it expected higher metal prices to lift earnings for aluminium producers.
The Oslo-listed firm, also a big producer of hydro-electric power, has ridden a deep downturn in the global aluminium sector, but its shares have surged 53 per cent this year on the back of rising prices for the metal and lower energy costs. "After years of depressed earnings, market fundamentals are now providing us some reason for optimism," Chief Executive Svein Richard Brandtzaeg said on Thursday.
The benchmark aluminium price rose to more than US$2,100 in the third quarter from US$1,800 at the start of the year and now trades at around US$2,060. The premium to receive the actual physical commodity rose to record levels in November. . "Market conditions are looking significantly better than a year ago, but we are not losing focus on improvement efforts, which are all on target," Brandtzaeg said.
The firm has gradually cut its costs since 2011 and will cut them further in 2015 and 2016. Costs are currently 3.7 billion Norwegian crowns (US$544 million) lower per year than they were at the outset and will shrink by a further 1.5 billion over the next two years.
Its Sapa joint venture is also on track to deliver savings of 1 billion crowns per year by the end of 2016, Hydro said.
Total capex in 2015 is expected to be 6.5 billion Norwegian crowns, up from 3.5 billion crowns this year as the company invests in some of its plants and grows its business, although the company said the long-term average would be lower than the forecast for next year.
SEB analyst Truls Engene said Hydro's comments on the overall market prospects were positive and the 2015 capex outlook was well above his expectations of 3.7 billion crowns, and the average market forecast of 3.9 billion. "We expect the stock to be quite neutral vs. market today,"he wrote in a note to clients.
The firm confirmed its outlook for 2014 demand growth of 3-4 per cent globally excluding China this year and said it was expected to be similar in 2015. Hydro also repeated a 10-year outlook of global annual growth rates, including China, of between 4 and 6 per cent.