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Norsk Hydro shares dip as weak market sees world’s top aluminum producer take $495m hit

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The world’s top aluminum producer, Norsk Hydro
NHY,
-3.30%
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on Thursday said it would be recording a 5.09 billion Norwegian Krone ($495 million) impairment in its fourth quarter results, causing its share price to dip.

The Norwegian company, which started out as a hydroelectricity producer in 1905 before becoming a major metals manufacturer in the mid-20th century, said it would be writing down the value of its aluminum production operations due to “challenging alumina market conditions.”

Shares in Norsk Hydro, which is now the world’s largest producer of aluminum, fell 2% on Thursday having lost 13% of their value over the previous 12 months. 

The Oslo-headquartered company, which continues to operate hydroelectric power plants in Norway and Brazil, said the impairments were largely due to the impacts of widespread “political turmoil” on markets for alumina, which is used to produce aluminum.  

The relative lightness and low density of aluminum, compared to steel, has seen it used widely in manufacturing of diverse products ranging from Boeing 737 aero planes to cans of Coca-Cola.

Aluminum prices have, however, slumped over the previous year due to weak demand caused by downturns in the world’s major economies.

Norsk Hydro’s writedown largely consists of a 3.8 billion Norwegian Krone impairment to the company’s  Bauxite & Alumina (B&A) division, which mines aluminum-rich bauxite at the company’s Paragominas mine in Brazil and refines it into alumina in a nearby facility. 

The Oslo firm, which is now the world’s biggest aluminum producer, said it expects the impacts of political turmoil on alumina markets will be more long lasting than previously forecast at the end of 2022, when its B&A unit was last tested for impairments. 

“In the short and medium term, we see challenging alumina markets and weak cash flow generation in B&A coming from market volatility in times of geopolitical turmoil, impacting the current valuation of the assets,” said President and CEO Hilde Merete Aasheim.

Norsk Hydro, which pivoted into producing aluminum during the Second World War, also recorded a 600 million Norwegian Krone impairment to Aluminum Metal segment, in relation to the Tomago aluminum plant in Australia, in which it owns a 12% stake. 

The Norwegian company said uncertainty around future power price agreements paired with uncertainty around aluminum markets were responsible for the writedown at the Tomago smelting facility.  

The impairments also include a 1.4 billion Norwegian Krone writedown to its B&A division, related to unused tax positions, which the company said will not be recoverable for deduction in future results. 

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