Norsk Hydro flags downstream weakness, shares fall

By Jesus Calero

Feb 13 (Reuters) - Aluminium producer Norsk Hydro NHY.OL highlighted continued weakness in downstream markets as it reported fourth-quarter core-earnings which beat market forecasts, sending its shares down 4% on Friday.

Hydro faces a shifting outlook as the EU prepares to impose carbon costs on aluminium imports, a move that could favour its lower-emission metal, even as rising global supply and falling production costs point to more balanced markets.

Adjusted earnings before interest, taxes, depreciation and amortisation came in at 5.59 billion Norwegian crowns ($585.23 million) in the October-December period, down from 7.7 billion a year earlier.

Analysts on average had expected it to report a core profit of 5.2 billion crowns, according to a company-compiled consensus.

JPMorgan and RBC analysts said stronger upstream performance and cash generation were partly offset by weaker downstream trends in the company's first-quarter guidance, suggesting limited scope for broad earnings upgrades near term.

Higher metal prices and steady upstream output lifted results in its aluminium metal and bauxite and alumina divisions, providing the main support despite a stronger Norwegian crown.

Further downstream, performance softened. The extrusion business slipped into a loss on weaker margins and volumes, while metal markets also turned negative amid subdued trading activity and inventory effects.

Alumina prices in the quarter were about 55% lower than a year earlier, as increased supply from China pushed prices closer to production costs.

About 70% of primary aluminium production is priced at roughly $2,803 per tonne with premiums guided at $380–$430.

CEO Eivind Kallevik said in a call extrusion order books are typically short-term and that it is too early to draw conclusions about a recovery in the second half, with demand dependent on broader economic growth.

Goldman Sachs forecasts aluminium will struggle to hold above $3,000 per ton, while others say falling production costs have lowered the industry's marginal cost curve, pointing to weaker structural price support in the coming years.

($1 = 9.5518 Norwegian crowns)