In 2011, Hydro completed the transformation of its business into a resource rich, fully integrated aluminium company with the integration of the Vale Aluminium operations. With a global business model based on measured performance, the company is well positioned among the leaders in the aluminium industry.
The establishment of our new Bauxite & Alumina business area secures the supply of key raw materials to Hydro's own operations and creates a strong platform for future growth. These assets, including the Paragominas bauxite mine and Alunorte alumina refinery, are technologically advanced, cost-competitive and integrated through a pipeline that delivers bauxite for processing into high-grade alumina. The completion of our new world-class smelter, Qatalum, and the integration of Albras in Brazil, has significantly increased Hydro's electrolysis capacity to 2.4 million metric tons.
Prepared for a challenging period ahead
There has been a significant increase in uncertainty regarding economic developments within certain countries and geographic regions in which Hydro operates. In Europe, the fiscal crisis has escalated resulting in deteriorating economic conditions in several countries and in Southern Europe in particular. Recovery has been weak in the US and growth has slowed in China and other major emerging markets. Cost pressure has increased for the aluminium industry in general. The negative effects have been exacerbated by a decline in LME prices to relatively weak levels. Due to the deteriorating market conditions and cost pressures, Hydro wrote down fixed assets by NOK 1.3 billion in the fourth quarter of 2011.
Hydro has concentrated on maintaining and reinforcing improvements achieved following the previous downturn. The company has a robust financial position and is prepared to meet the challenges ahead. Capital investments have been reduced and Hydro has maintained a strong focus on operating capital. Substantial cost reductions have been achieved throughout the organization.
Responding to market developments toward the end of 2011, Hydro reduced remelt production and strengthened its emphasis on improvement programs and financial discipline. Due to market conditions, the company decided not to restart the remaining 85,000 metric tons (mt) of curtailed capacity at our Sunndal smelter. In January 2012, Hydro also decided to curtail 60,000 mt of production at its Kurri Kurri aluminium smelter which has been negatively impacted by low aluminium prices, increased raw material costs and the strong Australian dollar. No restart of previously curtailed capacity is currently planned.
Due to a continued decline in market demand, Hydro has implemented measures to turn around its Building Systems business targeting cost improvements of EUR 40 million by the end of 2012, compared with 2010. Further production efficiency and cost reduction initiatives have been implemented across the company's downstream operations.