3 April
Olso,
Dow Jones

OLSO (Dow Jones)- Norsk Hydro’s ASA (NHY) chief executive Thursday said high demand growth for primary alumina in China will be a key support for prices going forward, and that the country will account for 35% of total demand by 2020 from 13% in 2000.

Much of the company’s forecast annual growth rate in primary aluminum demand of 4-5% will come from China, Hydro’s Chief Executive Eivind Reiten told reporters at a briefing in Oslo. "That’s quite a lot on a global level. It will really support aluminum prices at a high level, a higher level than we’ve seen before," he said.

Challenges in getting new infrastructure in place, securing environmental permits and "the fight for energy" that’s taking place in the industry will also bolster prices Reiten noted, by limiting capacity.

"$3,000/ton used to be considered a very high price. Maybe it’s not so high in the current environment," he said. Aluminum is currently trading at around $2,900/ton on the London Metal Exchange.

On top of that, Reiten said, "there’s a clear demonstration of how sensitive the market is to disruptions in supply. Winter conditions in China forced plant shutdowns, and prices rose several hundreds of dollars."

Blackouts in South Africa had a similar effect, "bringing prices significantly up," Reiten said, impacts which are felt all the more keenly because the global inventory of aluminum is "quite small, just 3–4 weeks of consumption."

"So if there is a disruption on the supply side, we can see a significant consequence to the upside on the cost side," he concluded.

Hydro’s giant $5.6 billion Qatalum smelter in Qatar remains on cost and time target, for full ramp up in the initial stage due by the second half of 2010, Reiten said. The project is expected to start up on the year turn 2009-2010, he said.

Meanwhile, the company’s future organic expansion will be centered in its upstream business, with long-term, sustained cost positions and energy supply important drivers for growth. "There are very few places where you can say we have cheap energy these days," Reiten said.

Canada, the Middle East and Australia, could continue to be key growth areas, and Hydro’s "still looking for Norwegian opportunities," Reiten said, though he added that the latter country’s high energy prices and other costs render growth plans at places like Karmoey, "an uphill struggle."

Innovation will drive Hydro forward in all parts of the company, enabling it to "keep up the fantastic growth we will experience," he added.

In terms of acquisitions, Reiten said the company is focussed on the "quality of assets," but would not be drawn on specifics.

"You will not see us invest heavily in the downstream business going forward, simply because we see significant capacity there (already)," Reiten said.