Norsk Hydro Faces Headwinds: Announces Substantial Q4 Impairments Amid Alumina Sector Challenges

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Aluminium Industry Leader Norsk Hydro Braces for Financial Headwinds with NOK 5.9 Billion Q4 Impairments

In a strategic move to navigate the hurdles posed by tumultuous market conditions, Norsk Hydro ASA, a prominent player in the aluminium industry, has unveiled a noteworthy impairment of approximately NOK 5.9 billion (US$660 million) in its fourth-quarter financial results. The decision, triggered by a convergence of challenges in the alumina sector and uncertainties surrounding power prices in Australia, entails a write-down of key assets. These include goodwill in its Bauxite & Alumina (B&A) operations in Brazil, property, plant, and equipment linked to the Alunorte alumina refinery and Paragominas bauxite mine, deferred tax assets in Alunorte, and assets associated with the Tomago aluminium plant in Australia.

In a press release, Hydro’s President and CEO Hilde Merete Aasheim acknowledged the pivotal role of bauxite and alumina operations in facilitating Hydro’s commitment to spearheading the green aluminium transition. However, she highlighted the short to medium-term challenges posed by volatile alumina markets and weakened cash flow in B&A due to geopolitical turmoil impacting asset valuation.

Aasheim added, “Longer term, we expect a higher share of greener earnings in B&A, as we reduce the carbon emissions from our operations, while growing our greener product portfolio sold at premium pricing. These expected earnings are not included in the current valuation for impairment testing purposes, in line with accounting rules.”

The Bauxite & Alumina segment is expected to incur an estimated impairment loss of around NOK 3.8 billion (US$425 million), primarily affecting the carrying value of goodwill and property, plant, and equipment for Alunorte. This stems from fair value adjustments during Hydro’s acquisition of the company. Additionally, Hydro anticipates impairing tax assets of about NOK 1.4 billion (US$156 million) due to the unlikely recovery of unused tax positions.

In the Aluminium Metal segment, an estimated impairment loss of about NOK 0.6 billion (US$67 million) is projected. This impairment is tied to the partly owned Tomago aluminium plant in Australia, where Hydro owns 12.4 percent. The decision is influenced by the impending expiration of the plant’s current power price agreement in 2028, coupled with uncertainties regarding future power price agreements amidst a weakened aluminium market.

Source: Apazone

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