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Thu 13 Jan 2011 01:10 PM

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Norway's Hydro warns technical delays at its Qatar plant

Aluminium producer ramps up its cost saving programme; sees increased global demand

Norway's Hydro warns technical delays at its Qatar plant
PRECIOUS METAL Norsk Hydro repeated its planned $4.9bn purchase of Brazilian miner Vales aluminium assets was expected to be finalised in the first half of 2011 (Bloomberg Images)

Norwegian aluminium producer Norsk Hydro said on Thursday it had ramped up its cost saving programme and saw increased global demand this year, while warning of technical delays at its new smeltng plant in Qatar.

Shares in Norsk Hyrdo fell 1.6 percent in early trading as analysts expressed concern about a potential eight-week delay at the Qatalum smelter and noted that Norsk Hydro's market growth estimate for the coming year is lower than recent guidance from US rival Alcoa.

"Hydro has accelerated the $300 per tonne improvement programme which is now expected to be achieved in 2013, a year earlier than previously indicated," the company said in a statement published ahead of a day of briefings for analysts and investors in Oslo. It said it had realised savings of $50 per tonne and targeted a further $125 per tonne for 2011. Hydro launched its first efficiency push in the autumn of 2009.

The firm said said it saw aluminium demand growing about 7 percent this year and 3 to 6 percent in 2012, adding it expected an improved supply and demand balance.

It said demand for primary aluminium increased by 19 percent in 2010 in the world outside China.

Hydro also said technical problems at its new Qatalum smelter in Qatar, a 50/50 venture between Qatar Petroleum and the Norwegian aluminium firm, could delay full production by eight weeks.

The smelter ramp-up is now at 50 percent and is expected to reach 100 percent by June 2011. The previous estimate was for full production by the end of the first quarter.

Nordea Markets analyst Morten Normann said the report was slightly bearish for Hydro.

"The overall impression is on the negative side. It's good that they are ahead on cost cuts, but the Qatalum delay may be affecting them more negatively, even if its only eight weeks," he said.

Henrik Schultz, analyst at Argo Securities said Hydro's comments were on the whole neutral.

"What strikes me immediately is that Hydro is guiding slightly lower demand volumes than for example Alcoa. But these are after all just indications," Schultz said.

"What's more important is perhaps that they are now talking about a more balanced market situation in 2011 and I quite agree."

Alcoa Inc, the largest US aluminium producer, reported a its fourth-quarter earnings earlier this week and projected a 12-percent rise in demand for the metal in 2011, driven by aerospace and auto manufacturing.

Hydro's total capital expenditures in 2011 were seen at 5.0 billion Norwegian crowns ($844.7m), down from 6.7 billion last year.

Norsk Hydro repeated its planned $4.9bn purchase of Brazilian miner Vale's aluminium assets was expected to be finalised in the first half of 2011.

In May, Norsk Hydro agreed to buy alumina and bauxite assets from Vale, which will get a 22 percent stake in Hydro as partial payment, a transaction the Norwegian government has approved.

"I don't expect any big market reaction to this report," SEB Enskilda analyst Oddvar Bjorgan said.

"The Qatalum delay is obviously not good news and I'm sure some in the market will perceive it negatively. The real effect is small though."

The accelerated cost cuts were a positive factor he said, while adding that the biggest question for Hydro remained the pending takeover of Vale's aluminium assets.

Aluminum prices, which slumped dramatically during the recession, rose 11 percent last year - 5 percent in the fourth quarter alone - and are now near a two-year peak of $2,500 per tonne.

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