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Business area outlook for Q4 2023 as provided in the Q3 2023 presentation:

Bauxite & Alumina

  • Alunorte production around nameplate capacity
  • Lower raw material costs
  • Higher fixed cost

Important takeaways from the Q3 2023 Earnings Call:

“For the fourth quarter, Alunorte is expected to be around nameplate capacity, and we expect continued lower raw material prices, which gives a cost release of around NOK 150 million with caustic contributing positively, both bauxite and energy costs pulling down also much impacted by the higher fuel oil prices, which we are experiencing at the moment. The current dollar BRL rate should also impact our results positively if it remains at the spot level of today. Fixed and other costs are expected to increase around NOK 300 million in the fourth quarter due to planned and delayed maintenance, which was supposed to come in Q3 and the TerPaz provision will, of course, not impact Q4.”

Aluminium Metal

  • ~69% of primary production for Q4 2023 priced at USD 2 084 per mt 8)
  • ~49% of premiums affecting Q4 2023 booked at USD ~422 per mt 8) 
         o  Q4 realized premium expected in the range of USD 325-375               per ton
  • Lower raw material costs
  • Higher fixed cost

Important takeaways from the Q3 2023 Earnings Call:

“We continue to see pressure on both LME and especially value-added premiums for the coming quarter. For the fourth quarter, aluminum metal has dropped around 69% of primary production at the price of $2,084 per ton. Furthermore, we have booked 49% of the premiums effect in Q3 at $422 per tonne, and we expect the range for Q4 realized premiums between $325 and $375 per tonne. With respect to the CO2 compensation, our guidance is changing due to the new floor price introduced by the Norwegian government, and we see our quarterly initial guidance decreased by NOK 250 million to a level of NOK 550 million to NOK 650 million per quarter. We also expect further reduction in raw material costs of around NOK 400 million to NOK 500 million. Again, mainly driven by carbon and alumina. However, this is partly offset by increased fixed costs of around NOK 150 million, so overall, we expect a net reduction in costs of around NOK 250 million to NOK 350 million.

We do not foresee any restart of the curtailed volumes coming next quarter. And as the buyback contract between aluminum metal and energy was finalized in Q3, the remaining long power position of aluminum metal of around 400-megawatt hours will be sold in spot. This means that the next quarter power sales will be dependent on the energy price level in NO2 and basing this on the current NO2 price of around NOK 700 per megawatt hour, the power sale is estimated at approximately NOK 300 million for next quarter, which is a relatively flat development Q-o-Q.” 

Metal Markets

  • Continued volatile trading and currency effects
  • Lower recycling margins and volumes

Important takeaways from the Q3 2023 Earnings Call:

“The outlook for the next quarter is, as always, characterized by volatile trading results and also currency effects. We expect challenging markets ahead with potential for further curtailment in the recycler and we also see premiums continue to decline, driven by the softer market and deteriorating economic conditions. We expect a lower, but still positive contribution from sourcing and trading activities for the next quarter.

And I would also like to remind you that our guiding for full year EBITDA of NOK 1.3 billion to NOK 1.5 billion does not include the volatile inventory valuation and currency effects. And that previous guidance did not include Alumetal acquisition. So, this will come on top of that. And as of Q3, the year-to-date adjusted EBITDA, excluding currency and inventory valuation effects, is NOK 1.4 billion, and the full year guidance is NOK 1.5 billion to NOK 1.7 billion, depending unlocked on development in sourcing and trading results.”

Extrusions

  • Strong margins
  • Positive currency effects
  • Lower sales volumes
  • Higher fixed and variable costs
  • Market uncertainty remains and recycling margins under pressure

Important takeaways from the Q3 2023 Earnings Call:

“When we look into the fourth quarter, we should look towards the same quarter last year to capture the seasonal development in extrusion. And compared to last year, we continue to expect higher extrusion and fabrication margins and positive currency effects. On the other side, we expect continued market uncertainty, soft extrusion markets in Europe and North America, which results in lower sales volumes compared to last year. 

Destocking, increased price pressure, automotive strikes in U.S. and weak demand in most happening globally are expected to impact added value services and fabrication activities more in Q4 than what we have experienced earlier in the year. Also here, remelt margins are under increasing pressure. So, if we combine this with higher fixed and variable costs, we expect this to more than offset the positive margin development that we're seeing in the fourth quarter. And we also expect around NOK 50 million to NOK 100 million lower year-on-year metal effect than what we had in Q3. So, if you sum that all together, we expect a year-over-year development, which is similar to as we saw between Q3 last year and Q3 this year when adjusting for the NOK 250 million (inaudible).”

Energy 

  • Lower losses from Aluminium Metal buy-back contract 
  • Seasonally higher prices
  • Continued volume and price uncertainty

Important takeaways from the Q3 2023 Earnings Call:

“If we then look into Q4, the price and volume uncertainty is, as always, large and production and prices will depend on hydrological conditions. Power prices in Southern Scandinavia are expecting and are increasing with seasonality into the winter. However, the above normal hydrological balance and also some nuclear capacity coming back online from maintenance might limit the upside.  

Furthermore, we foresee somewhat lower gains from the NO2, NO3 spread differential. And at current spot prices, the estimate negative delta Q-on-Q is approximately NOK 50 million to NOK 100 million of that will move with spot prices. In addition, there will be no more losses on the aluminum metal buyback contract as the contract was finalized in September."

Additional information

  • The latest available price and currency sensitivities for earnings (as well as information on the price time lags for revenues and costs), are included in the NHY Presentation Q3 2023 

Publicly available information regarding the market prices and currency developments in Q4

 

  Q4-23 Q3-23 QoQ YoY
Average LME 3M market rate1) 2,229 2,203 1% -5%

Average PAX fob Australia (USD/t) 2)

333 337 -1% 5%
Energy prices3)  
Nordic system NOK/MWh 675 318 112% -52%
NO5 NOK/MWh 801 197 307% -53%
NO2 NOK/MWh 818 665 23% -55%
NO3 NOK/MWh 535 196 173% -43%
SE1 NOK/MWh 515 235 119% -57%
SE2 NOK/MWh 515 235 119% -57%
NO2 vs NO3 NOK/MWh 283 469 -40% -64%
Currencies4)  
Average NOK/USD 10.85 10.48 3% 6%
Average NOK/BRL 2.19 2.15 2% 13%
Average NOK/EUR 11.66 11.41 2% 12%
Average BRL/USD 4.96 4.88 2% -6%

1) Realized price in AM lags LME market rate with 1-2 months
2) Alumina prices in B&A are realized with approx. one month lag, in AM with 2-3 months lag
3) Source: Nordpool
4) Source: Norges Bank

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