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Aluminium maker Hydro ups capex, offers downbeat outlook, shares drop
Global Banking & Finance Review®
Company
By Gwladys Fouche
OSLO (Reuters) -Aluminium producer Hydro raised its guidance for capital expenditure this year and said global demand for aluminium demand was weakening, pressuring its shares, as it reported a drop in quarterly earnings in line with forecasts.
Hydro guided for capital expenditure of 20.5 billion crowns ($2.04 billion) this year, up from 16.5 billion crowns seen previously, partly due to inflation and the effects of the weaker currency against the euro and the dollar.
The weakened outlook was due to decreasing demand for the lightweight metal, used in a range of sectors from automakers to construction, as well as the resumption of some Chinese production, increasing global supply.
“The results reflect a weaker market,” Hydro said in a statement. “Demand for primary aluminium is declining in the short-term, while Chinese supply is returning, leading to the global primary balance weakening in recent months.”
Hydro said it was also concerned about the growing share of Russian aluminium in the warehouses of the London Metal Exchange, jeopardising the benchmark status of the aluminium contract.
It said on Friday it had written this week to the LME to urge it to reconsider its decision not to ban Russian aluminium.
Adjusted earnings before interest, tax, depreciation and amortisation fell to 7.1 billion crowns ($706 million) for April-June from 11.6 billion crowns a year earlier, in line with an average analyst forecast of 7.0 billion crowns.
Its shares were down 2.8% at 0728 GMT, lagging a flat Oslo benchmark index and are down 13.5% over the past year.
“Guidance more downbeat with capex increased,” JP Morgan said in a note.
Hydro said it was on track with its multi-year cost-cutting programme, including the 8.4 billion crowns expected to be delivered this year, and was “making progress” towards a combined 14 billion crowns to be cut by 2027.
($1 = 10.0508 Norwegian crowns)
($1 = 10.0664 Norwegian crowns)
(Reporting by Gwladys Fouche, additional reporting by Victoria Klesty, editing by Anna Ringstrom and Kim Coghill)
Capital expenditure refers to the funds used by a company to acquire or upgrade physical assets such as property, industrial buildings, or equipment. It is often used to undertake new projects or investments.
Inflation is the rate at which the general level of prices for goods and services rises, eroding purchasing power. It is often measured by the Consumer Price Index (CPI).
Primary aluminium is aluminium that is produced directly from bauxite ore through the electrolytic reduction process. It is used in various industries, including automotive and construction.
A quarterly earnings report is a financial statement that publicly traded companies are required to file with the SEC, detailing their revenue, expenses, and profits for the quarter.
Market dynamics refer to the forces that impact the supply and demand of goods and services in a market, influencing prices and the behavior of consumers and businesses.
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