Norsk Hydro ASA

OSE:NHY

Earnings Call Transcript 2018-Q1

[Inger Sethov]

Good morning, everyone, and good morning to all of you also following us on the webcast. Welcome to Hydro's presentation of first quarter results for 2018. As usual, they will be presented by our CEO, Svein Richard Brandtzaeg; and CFO, Eivind Kallevik, and after that, we will have time for a Q&A afterwards. So let's start, Svein Richard.

[Svein Richard Brandtzæg]

Thank you very much, Inger. The overall situation for the global aluminum industry is now marked by significant uncertainties. Several factors are influencing us at the same time. We have the U.S. tariffs, the U.S. sanctions against the Rusal, and of course also the Alunorte situation. This is a very demanding situation for Hydro, for our employees and our customers. However, with regard to the Alunorte situation and with the facts we now have in place, and also the measures we are implementing, I'm confident that we are going to resolve this situation to the best for Hydro and the local societies.Let us then move over to the quarterly results and the headlines for the quarter. And I just to remind you, now we are comparing the results with the same quarter last year, instead of the previous quarter as we have done in the past. This is very much due to the fact that we now have a big downstream organization and there are seasonal variations that are significant in that part of the value chain.The underlying EBIT of the quarter was NOK 3.1 billion up from NOK 2.3 billion in the first quarter of 2017 and very much supported by higher alumina and aluminum prices but somewhat offset by higher input costs, material costs. We have strong results in Extruded Solutions, I will come back to that showing also improved margins in that business. With regard to the Better program we continue our efforts in all parts of the value chain to improve the underlying business but due to the situation in Brazil with the 50% production in Alunorte and 50% production in Paragominas and Albras we don't -- do not expect to reach the targets for this year.I'm very happy to see that the Karmoy Technology Pilot is being ramped up and we will be in full production within the first half of this year. And also good to see that the cells are delivering the results that we were hoping for, where we got to the lowest energy consumption in the world. With regard to the market we expect that the demand will increase this year with about -- with 4% to 5% in total. The balance, supply-demand balance will move towards a deficit doing the year, I will come back to that also, but also uncertainties that I've already mentioned related to the tariffs in the U.S. the sanctions against Rusal and also the Brazilian situation.So if we then move to Brazil and take a look at the Alunorte situation. We are now running Alunorte at 50% capacity for the eighth consecutive week and also that is impacting the Paragominas production, where we also are now producing 50% capacity. And then we took down Albras, the alumina smelter, this just beside Alunorte, down to 50% last weekend.We are now rotating -- we have rotated between different lines in Alunorte but we are now -- there are 7 production lines and we are now producing with 5 lines and have a standby situation of 2 lines, meaning that it will take about 1 month to come back to full production with that way of operating.The alumina market is very tight and I will come back to the price effect this situation I have had in the marketplace. With regard to timing, when we can resume full production, is still uncertain. We have introduced several measures in Brazil, we have already decided to increase the business of the water treatment system with 50% capacity increase that is a investment of almost NOK 0.5 billion. And we also decided to establish a sustainable Barcarena initiative, which will be a legal entity that will support the local community with the NOK 250 million. And we have updated emergency preparedness procedures and also in general increased the business of Alunorte due to the increased rainfall.There has been a lot of misunderstandings in the press related to Alunorte, and when I show this picture it shows overflow within the red mud deposit and that has been used as evidence of overflow from the deposit into the nature. The problem is that this doesn't show the full reality. This is the same area, showing the picture of the full area, which is showing that it is -- this is a design effect, where we are transferring water from one part of [ rain ] deposit area to another one and everything is collected in the end in a channel that goes to the water treatment system, so everything is under control. But this has been used as evidence of overflow in Alunorte. I was aware of this situation the night after it happened, the night to the 18th of February and was continuously updated, and of course the situation escalated and to the night to the 27th of February when it was -- the authorities required 50% production cut in Alunorte.In this situation it is good to see now that both SEMAS, the local environmental authority and IBAMA has concluded that there is no overflow from -- there has been no overflow as a result of the heavy rainfall in Alunorte from the red mud deposits. And also Ministerio Publico has stated there has been no evidence of overflow. So I feel that this is a good basis and also probably the reason why the negotiation with authorities is now moving forward very positively, we are on a good track but still there is uncertainties related to the final decision to bring Alunorte back to 100% but we are working hard with that and Eivind is frequently in Brazil, is managing the Bauxite & Alumina business area temporarily and doing a good job in Brazil and making sure that we move forward as fast as we can.So the negotiations that are ongoing now is primarily with the government in Para and SEMAS, SEMAS is as I said the local environmental authorities. We are also seeking negotiation with Ministerio Publico and there are also other processes, political, legal processes ongoing, so it is a complex situation but we will resolve it in the end and we are working hard to do that as fast as possible.If you move over to the market situation and supply-demand balance in the quarter and the slide on left side shows the quarterly supply-demand balance since 2016, and now as you see it is fairly balanced market in the first quarter of this year. This is based on the 4.1% growth in the quarter compared to the first quarter on 2017, 4.8% growth in China and 3.3% growth outside China. So all in all if you take a 12 months rolling average we are now in a deficit situation for 12 months average.But if you then take a closer look at the expectation for the supply demand balance for the rest of the year we then basing this balance on a growth in China of 4% to 6% in demand, 3% to 4% growth in demand outside China then we have taken down the expectation for growth in production in China due to the fact that there are slower ramp ups in China than what was expected previously, so we expect that the addition of capacity and production will be 3% to 4%, which will be similar to what we see outside China, also 3% to 4% expectation of growth in production. But today I would say that it will be probably closer to 3% than 4%. So when we add this together now we end up in a supply-demand balance with a deficit of about 500,000 tonnes to 1 million tonnes outside China this year. So this is the expectation for 2018.If you then move over to the aluminum pricing and the development we saw in the beginning of the quarter that was a weakening of LME. We had a realized price of $2,140 per tonne in the quarter up from $1,757 in the first quarter 2017. And after the situation with Rusal, the sanctions towards Rusal, the aluminum price has gone up significantly and it's quite volatile, it was at very high levels and are still at high level, but volatile. There was a significant price difference between the Shanghai price in China and LME, which means that there was arbitrage to export out of China like semi-fabricated products. And that is something we are also have seen in the first quarter.With regard to the premiums, and a result of the introduction of the tariffs in U.S. [indiscernible] standard ingot premium in the U.S. market went up significantly trading at around $496 per tonne, which is quite high from historical levels. And in Europe also the ingot premium is quite high at trading overall on $250 per tonne.If we then move over to alumina also [ here ] after the peak in October last year we had a softening price situation but the Alunorte situation has brought the alumina price to very high level, in fact record high levels. And we are now at price level of $710 per tonne of alumina in the market -- in the Platts index market.There's limited alumina capacity available for restart and also with regard to available capacity both outside China and with regard to new capacity and available for restarts. In China there is capacity, China has not exported alumina previously but have seen a couple of cargoes out of China recently.We are active in third-party market to secure alumina to our smelters to avoid curtailments but if the situation at Alunorte will continue for several months, it could be that there will be a need for curtailments of capacity further on beyond what we have done already to take down Albras with the 50% capacity.If you then take a look at the downstream market and the situation extrusion and rolled products, we see in extrusion market both in Europe and North America we see 3% to 4% growth, very much driven by automotive transport and also building and construction, especially in the U.S., I would say, which we also see in the rolled products market, where we expect 4% growth in demand in this year.In the rolled products market is very much about substitution for automotive but also building construction market especially in the U.S. market is moving very positively.With regard to Section 232 and the tariffs, it has had a strong implication on the premiums in the U.S. market, as I've already mentioned, there are countries that are exempted from this temporarily and maybe they will be permanently exempted but there are some uncertainty related to how this will be done if there will be quotas or how this will work out.Canada, Mexico is 2 examples, the European Union, Australia and South Korea is also exempted, so there are still uncertainty related to this and for Hydro it is, first of all, exports from Qatalum to the U.S. market that has been impacted but as I said the standard ingot premium is already corrected to a higher level so basically it is not a very serious impact on Hydro's business as such.With regard to the sanctions impacting Rusal, now that period has been extended for the wind down period up to 23rd of October, so there is still time to adapt but this is a quite dramatic situation. And of course, we are working out how to handle this in the best possible way. We have had relationship with Rusal both on the upstream part on the raw material but also on the metal side, for example through remelting our standard ingots and we are evaluating the effects and implementing mitigating actions to handle this change in the marketplace.If we then move over to the input costs for our production upstream and starting with the Bauxite & Alumina business, of course, caustic soda is a very important part of it, we are consuming about 100 kilo caustic soda per tonne alumina produced and this raw material has increased in price with more than -- more than doubled within the last couple of years. So this has had impacted the cost level, it's now leveling off but there is a time lag of about 2 months on this and will still impact us in the second quarter.Fuel oil is also at high level and the same with the steam coal quite firm on high levels, these are, again showing higher input cost for alumina production.With regard to the metal production, alumina is of course one of the major factors here that are affecting us, there is a time lag about 2 to 3 months in aluminum pricing before it hits the bottom line and meaning that the steep increase in price of alumina will impact the primary business at least in the third quarter of this year.Also raw material for anode production coal tar pitch and petrol coke has increased in price and will still impact us in the second quarter of this year. Although, it's now leveling off.If you then move over to the margins and costs for primary production we see that compared to the first quarter in 2017 we have higher margins in metal production but also higher costs, so the margins are supported by higher prices $2140 realized in the quarter for metal production compared to $1757. Same with alumina, also here higher margins compared to the first quarter 2017 but also higher costs due to raw materials but also due to lower production in Paragominas and Alunorte. But the margins are both in -- with regard to metal and also alumina lower than in the fourth quarter last year.Sales from Rolled Products is 2% higher this quarter compared to the first quarter 2017, it's very much driven by can, but also automotive we are selling now 21% higher body-in-white material to automotive than in the first quarter 2017, it's lower sales of litho and lower on foil. And compared to the fourth quarter there you see, again the seasonal variation, 9% higher sales this quarter compared to the fourth quarter last year, very much again similar there it's automotive, can, driving the businesses, the demand increase.Extruded Solutions again showing the good margins, good development over time, this is a result of the value above volume strategy, we see some higher volumes in this quarter compared to the previous but the most important factor are is the fact that the margins are improving, meaning that we get more value out of the extrusion and also the fabrication that is done in connection with the extrusion business and very good development in extrusion Europe, good development in extrusion North America, and as well as building system and precision tubing is showing margins at good levels.As I mentioned the Karmoy Technology Pilot is now being ramped up, we have 20 cells in operations, and as I said we are now producing aluminum with the lowest energy consumption in the world. We are expecting that the ramp up of this pilot will be finished within the first half year, this year and of course there are very important technology elements that we will benefit from in the [ older ] smelters for spin-off effects from this.We have so far, CapEx of -- the total CapEx is NOK 4.3 billion and we will deliver the project within this limit and we have Enova support of NOK 1.6 billion as a part of the CapEx. Then I leave the word to Eivind, please.

[Eivind Kallevik]

Thank you, Svein Richard. Good morning, everyone and welcome from me as well. I will then take you through the financial developments for this quarter. Underlying result before financial items of NOK 3.1 billion roughly NOK 800 million up compared to the same quarter last year, but NOK 0.5 billion down compared to fourth quarter in '17, please note that I will focus this quarter's explanation on the development towards the same quarter last year and not versus the previous quarter as we have done historically. This will give us a better ability to talk about the actual online business performance and not talk as much about seasonality as we've had to done -- to do in the past.The main factors contributing positively this quarter versus first quarter '17 is the higher realized aluminum as well as higher realized alumina prices, altogether adding some NOK 2.5 billion to the bottom line. The realized aluminum prices increased by roughly $380 per tonne up from $1,757 to $2,140 per metric tonne.In addition, there's also been an increase in realized premiums up from $266 to $295 per tonne, altogether contributing a positive NOK 1.9 billion improvements within the primary division. Realized alumina prices also increased. They increased by roughly $62 per metric tonne up from $309 to $371, altogether NOK 600 million positive contribution.The flip side is that we've seen an increase in raw material costs. For Primary Metal, this is roughly NOK 1.6 billion primarily driven by higher realized alumina cost for Primary altogether NOK 1 billion, carbon of roughly NOK 400 million and energy roughly NOK 200 million.In Bauxite & Alumina, we've also had increases within fuel oil, caustic as well as coal and bauxite costs adding up to some NOK 400 million for the quarter.The other column here consists of several items such as positive eliminations, positive consolidation effects from taking in Extruded Solutions partly offset by somewhat higher fixed costs as well as depreciation.If we then turn to the key financials, we can see that revenues are up roughly NOK 17 billion between the quarters. This is primarily impacted by the full consolidation of Extruded Solutions adding NOK 13 billion to our revenue line. The remaining NOK 4 billion primarily comes from the higher prices within our key segments.This quarter we have excluded from reported EBIT of around NOK 3.3 billion, a gain of NOK 155 million. This is related to the normal timing effects that we do exclude every quarter as such the underlying reported -- underlying EBIT ends up at NOK 3.15 billion for the first quarter.Financial expenses this quarter is NOK 0.5 billion. This includes a net foreign exchange loss of NOK 0.3 billion. In this quarter, this is primarily related to the strengthening of the NOK versus the dollar having an impact on the dollar-denominated intercompany positions.Net interest expense is also somewhat higher compared to first quarter of '17 driven by the higher debt level that we now carry within the company. As a result, the income before tax for Q4 was NOK 2.8 billion compared to NOK 2.5 billion in first quarter '17.The tax rate this quarter is 27%, very close to the long-term guiding that we do at 30%. This gives us a net income of NOK 2.1 billion up from approximately NOK 1.8 billion first quarter of '17. Consequently, also the underlying earnings per share is also up from the first quarter of '17 and is now at NOK 1.06 per share.If we then turn to the different business areas and start with Bauxite & Alumina. The underlying EBIT is more or less stable compared to what we saw in Q1, '17. This quarter's result has obviously been impacted by the curtailments in Paragominas and Alunorte in March and altogether this had an EBIT impact of roughly NOK 450 million for the quarter.The results have been positively influenced by high realized alumina sales prices, $371 per tonne in this quarter compared to $309 per tonne in the first quarter of '17. This has been partly offset by higher raw material prices for caustic, fuel oil and bauxite as well as the reduced production volumes at both plants.The total sales volumes though are fairly similar to Q1 but they're down from the fourth quarter of '17. Also as you can see here, the production at Paragominas is relatively similar to what we saw in Q1 of '17, the primary reason for that is that we had the pipeline pigging campaign in the first quarter last year reducing the production days with 15 in the previous quarter.If you look into next quarter, and as Svein Richard has already comment on -- we -- commented on -- we are in constructive dialog with the Brazilian authorities to find a good solution for bringing Alunorte back to full production. Now the timing of this is still uncertain and as such it is clear that the production volumes will also be impacted to a large extent for the second quarter.Given the strong alumina prices we are seeing today, these will also partly hit our income statement in second quarter given the 1 month's time lag we have on realizing alumina prices.On the raw material cost side, we also expect increasing prices when we get into Q2 of next quarter -- of the next quarter, but this quarter will primarily be an increasing caustic prices, where we expect to see an increase of some 5% to 10% compared to this quarter.Turning to Primary Metal, the underlying EBIT for Primary decreased slightly in Q1 '18 versus Q1 '17 from NOK 900 million down to NOK 823. We did realize significantly higher aluminum prices up from $1,757 to $2,140 per metric tonne. Also had somewhat increased premiums in this period, consequently having a strong impact on the results.At the same time and as we've previously guided on, we've also seen a very strong cost push in our Primary division. This is primarily driven by alumina, but also to a certain extent by pet coke and energy costs. Fixed cost and depreciation is also up compared to the first quarter of last yearIf we look into the next quarter. We have at the end of Q1 sold 55% of our primary production, for Q2 at the price level of around $2,125 per tonne. We've also booked 65% of our premiums at a price of around $350 per tonne. And overall we expect to realize premiums for the second quarter to be in the range of $300 to $350 per tonne.Given the latest developments, we've seen on the alumina and the aluminum price, we will see effects of this hitting our books in the second quarter results for Primary. Remember that prices for aluminum is realized with roughly 1 to 2 months lag and alumina costs roughly has a 2 to 3-month time lag.On the raw material cost side, in addition to the alumina that I just mentioned, we're also expecting a slight increase in the carbon anode costs, but we are seeing that both pet coke and pitch prices seem now to be have been leveling off.Turning to Metal Markets, they delivered an underlying EBIT of NOK 178 million, which is up from NOK 24 million in the first quarter of '17. Now if we exclude the inventory and currency valuation effects and these are the main deviations compared to the first quarter last year, the result increased from NOK 83 million to NOK 139 million in this quarter. This improvement is primarily driven by higher volumes and better margins at [indiscernible] but also improved results from our sourcing and trading activities. And as always when it comes to the outlook for this division, please remember that the trading results as well as the currency and inventory evaluation effects are by nature volatile.If we turn to the downstream segments and start with Rolled, the Q1 results for Rolled increased by roughly NOK 125 million up to NOK 232 million. This improvement is driven by increased margins as well as improved production performance and partly offset by negative currency effects on the dollar-denominated exports that we do.The results from the Neuss smelter increased due to the positive effects from the new power contract partly offset by an increase in raw material costs. If you look into the second quarter, we continue to expect a healthy demand growth of rolled products as Svein Richard has indicated before. However, we do also expect continued margin pressure as we have seen for some time within some of our key segments.When it comes to the Neuss smelter, that is of course as always driven by metal prices and raw material price developments, which you know are quite volatile at the moment and they will also be hit then by the increasing alumina prices.Let me again also just remind you that the new energy contract that started January 1st this year has a positive annual impact in Rolled Products of NOK 400 million but it’s partly offset by assumption of some additional or a different energy contract in energy, which I will come back to.Turning to Extruded Solutions, let me first say to make Q1 2017 results comparable to the first quarter of 2018, I will discuss the quarterly results on a pro forma basis. That of course means that the historical figures that I show here cannot be found in the previous Sapa reports, as there are certain transactional related effects that is impacting the results and included in these numbers.Most importantly, this relates to the increased depreciation compared to the old Sapa figures, and this has an annual increase of roughly NOK 300 million a year and this is mainly driven by excess value depreciation.These total figures here then for Q1 to Q3 '17 shown on this slide are all pro forma figures. So if we then move onto the actual result. First and foremost it is very encouraging to see that Extruded Solutions continue their value over volume strategy, again showing growth from an EBIT perspective over the same quarter last year.For Q1 this year, the results are up by NOK 34 million or 5% compared to the same quarter last year. The reason for this is of course the increased volumes, but also and most importantly, the increased margins or the net added value that Svein Richard showed you before. And it is also quite encouraging that we see this positive developments in all the business units within the business areas.If you look into second quarter, we do expect also here to see a continued solid demand growth for extruded products, and we are currently seeing very strong markets both in Europe and in North America, which are the 2 main regions for this business areas, for this business area.If we turn to Energy, the underlying EBIT for Energy decreased in Q1 versus 2018, versus Q1 2017 from NOK 423 million down to NOK 278 million. Now the main driver for this decreased result is the power production has been reduced by roughly 0.4 terawatt hours and this is mainly due to the maintenance outage at one of our power plants, as we previously communicated. That of course in turn leads to lower spot sales into the market. In addition, as we've also communicated before, Energy had a negative effect of re-pricing of a power contract with Rolled Products. For this quarter, that has a negative effect of roughly NOK 60 million or roughly NOK 250 million on an annual basis.On the positive side, we've seen strong prices this quarter compared to first quarter last year, where power prices are up more than NOK 17 per megawatt hour. The higher prices is primarily driven by high consumption due to the cold weather. We have increased export volumes towards the -- Continental Europe and there's been lower available production capacity in the Nordic market.If we look into the next quarter, again as always we do remind you that the price and volume development in Energy for the next quarter is uncertain, depends on future prices, precipitation and water reservoir levels.Again let me also then underline again that the negative effect at Energy from the repricing of the -- parts of the new Rolled Products contracts has an annual effect of NOK 250 million.Other and eliminations this quarter netted to a positive NOK 161 million compared to a positive NOK 74 million in the first quarter last year and NOK 715 million negative in the fourth quarter of '17.One factor when you compare this to the first quarter of 2017 is of course that it included Extruded Solution in this area at that point in time, and now it is reported as a separate business area. The other line mainly comprises of corporate costs, in addition to some other elements like earnings from industrial parks as well as our [ captive ] insurance company in industrial insurance. And this was negative NOK 207 million this quarter, very much in line with the updated guidance we gave you in Q4 with an expected range of NOK 175 million to NOK 200 million per quarter.Finally, eliminations amounted to NOK 368 million in Q1 and this mainly reflects the reduced stock of internally sourced alumina as well as reduced internal margins in B&A. As you may remember, we did have a large negative internal elimination of more than NOK 400 million in Q4 in the previous quarter, and guided that these internal profits would be realized in subsequent quarters, which is partly what we’re seeing then in this quarter.If you now look at the net debt development between the end of Q4 and the end of Q1, we can see that this has now decreased from the NOK 4.1 billion at the beginning of the quarter down to NOK 3.6 billion.The underlying EBITDA of NOK 5 billion is of course a positive, a major positive contributor. We've had, as we always have in Q1 due to seasonality reasons, a net operating capital build up in this period of NOK 2.1 billion.Taxes and others, mainly includes tax payments also some reversals of in common equity accounted investments on the positive sides, it also include NOK 0.5 billion in dividends from Qatalum.As a result of this, we had a cash flow from operations of NOK 1.8 billion during the first quarter. We've also done investments of roughly NOK 1.5 billion then leading to the result of ending with NOK 3.6 billion in net debt at the end of the quarter.Then very quickly on adjusted net debt, as there are not many changes. We already commented on the net debt position of NOK 3.6 billion. There is a slight reduction in pension liabilities due to the strengthening of NOK versus the euro leading to a translation effect. The other lines are more or less stable versus Q4.As a result of this, the net adjusted debt including equity accounted investees at the end of Q1 amounted to NOK 22.6 billion. Thank you.

[Svein Richard Brandtzæg]

Thank you, Eivind. To summarize the priorities for Hydro going forward this year is very much as we have stated before, safety has always first priority. We also are going to deliver on the sustainability agenda in Brazil. We have already decided on the Barcarena sustainability initiative. We have ongoing negotiations as we have talked about and it's important for us to resume their production to 100% in Alunorte and that will have impact on Paragominas and Albras.And with regard to the integration of Extruded Solutions that continues, there are synergies that we are going to deliver and that is confirmed and we are working with that. And on the project side, we are ramping up the technology pilot that come as I have talked about and also the used beverage can line in Germany is moving in the right direction as well as the automotive line number 3 in Germany that is also a important addition to deliver to the automotive industry.Thank you very much for your attention.

[Inger Sethov]

Okay, [indiscernible] are there any questions maybe from the audience, yes, there is.

[Unknown Analyst]

[ Yakub Sen with Nodal ] You are a big seller of alumina and if the situation in Brussels should continue, can you explain how this will affect your clients? Are they able to source alumina or do you think they will have eventually to close down capacity as well?

[Svein Richard Brandtzæg]

Well if the situation at Alunorte continues it is difficult to see how the volumes can be replaced short term. As I mentioned, there are also movements in China. If China will be a supplier to -- of alumina of significance it’s very difficult to say, but there are couple of cargoes we have seen already, but as I mentioned, there is very little capacity to be restarted and also little new capacity coming on stream outside China so it -- if it last for very long time it will have an impact on the capacities, also of course for Hydro but also for other players. So it's too early to say but again there is difficult to see how all this capacity can be replaced short term.

[Inger Sethov]

There is a question here.

[Bengt Jonassen, Lead Analyst]

Bengt Jonassen from ABG. How long can you operate at Alunorte now at the red mud depository #1 with current production rates before it is filled up?

[Svein Richard Brandtzæg]

We have sufficient time and there is also other alternatives on how to fill the red mud deposit area so we are not concerned about time in the short run so we can continue to operate as is.

[Inger Sethov]

Any more questions from the audience here? Otherwise, we have some questions from the webcast. Also, we need the microphone down here,[ Christian ].

[Operator]

Question from Menno Sanderse, Morgan Stanley. What is the additional cost inflation going into Q2 for Norsk to take into account the price delay versus spot in purchasing raw materials?

[Eivind Kallevik]

If you look at the Bauxite & Alumina area the primary cost driver there will be caustic costs, which we expect to go upwards some 5% to 10% in Q2 compared to Q1 a quarterly effect of around NOK 60 million. On the Primary side again there is 1 to 2 more [ flag ] on the alumina price so that will have an increase and then there will be some a bit more slight compared to previous quarters, increase in pitch and coal prices.

[Operator]

How does the uncertainty around Rusal effect Hydro's intention to acquire Rusal which uses a lot of alumina produced by Rusal?

[Svein Richard Brandtzæg]

Okay, we are continuing the process we expect the process will be closed within next few months to say that way. So this is a smelter that will be of important for us it is a smelter based on renewable energy and it is same technology as we have in Husnes. So we know that very well. Then we go to alumina situation maybe you could comment on that Eivind.

[Eivind Kallevik]

So far this is of course the obligation of Rio Tinto to supply the alumina situation and we will monitor that situation carefully going forward as we get towards closing.

[Operator]

And a question from Johannes Grunselius from Handelsbanken. Is the cost breakdown at Alunorte roughly 20:80 fixed and variable costs still valid and is it possible for you to say something about how we should see the development and cost B&A in Q2.

[Svein Richard Brandtzæg]

Just as a comment to that, before I leave it to Eivind. That depends very much on the price level also and again the input cost prices and with the increasing EBIT cost it will have impact on the percentage of fixed cost of course but maybe you could clarify that Eivind.

[Eivind Kallevik]

I think if you analyze the fixed cost development today given the raw material prices, fixed cost at Alunorte is probably closer to 15% of the total cost situation than the 20% that we have said in the past and in Paragominas it is between 65% and 70% after total cost.

[Operator]

And a question from Daniel Major in UBS. What is the next key date event in the restart process for Alunorte, am I correct in that lifting of the court order is the next requirement to restart.

[Svein Richard Brandtzæg]

We don't have any specific dates, we have good constructive dialog with the authorities and the government of Para. There are basically 2 steps, 1 is that the government and SEMAS need to lift their embargo then there is still an embargo which were requested by Ministerio Publico, which sits in the court system and then that also needs to be lifted. So it is basically 2 steps.

[Operator]

And then the final question. Why did you choose to close Albras smelter specifically rather than the others in the portfolio that also relied on feed from Alunorte?

[Svein Richard Brandtzæg]

With regard to Albras, there is no storage capacity in Albras and there is no alternative sources so with the obligations we have and the situation we were forced to take down capacity at Albras.

[Inger Sethov]

Okay, any more questions from Oslo? No, then we would like to say thank you very much for coming and have a nice day.