2024 presentation and Q&A. We will start off with our President and CEO, Hilde Merete Aasheim, taking you through our presentation before our acting CFO, Trond Olaf Christophersen, will take you through the financial update.
Then we will finish off with a Q&A session. Like last quarters, if you want to ask questions during the pre- or after the presentation, you can write your questions in the chat that you see to the right on your screen, and then later on, after we're finished with presentations, I will read your questions to Hilde and Trond Olaf. But before that, we have a presentation, and I leave the microphone over to you, Hilde.
Thank you, Martine, and good morning, and welcome from me as well. I will talk about the highlights for the quarter, but also reflect on where we are in terms of executing on our long-term strategic direction of pioneering the green aluminum transition. As always, let me begin with what is the most important in Hydro: the health, safety, and wellbeing of our employees.
A safe working environment is the cornerstone for the way we operate. In the past years, we have had a consistent improvement in our safety performance, with the exception of last year, where we had two fatal incidents involving contractors working on our sites. We have a particular focus on high-risk incidents, incidents with fatality potential in areas such as traffic, molten metal, and working in heights. I'm happy to report that also in this area, we have seen a positive development over the past years. Still, our target is zero incidents, and that is why this topic has to be our highest priority at all times.
Now, let's move to the key highlights for the quarter. For the first quarter, we report an EBITDA of NOK 5.4 billion. The financial result for the quarter reflect the continued weak aluminum market, as well as squeezed recycling margins. However, some positive indicators have emerged during the quarter, and revenue drivers are trending upwards. More on that later. In this quarter, we have increased our capacity to use more post-consumer scrap, as well as securing access to more scrap.
On the energy side, I'm happy to report that Hydro Rein, together with partners, have completed construction and commenced commercial operations at the solar parks Mendubim and Boa Sorte in Brazil, providing Hydro Alunorte, as well as Albras, with affordable, renewable power, supporting our decarbonization agenda. On that note, I'm also happy to report that the FSRU Energos Celsius docked in Barcarena on February 22nd. So now we have started using gas in Alunorte, and upon full conversion, the transition will yield substantial savings in terms of cost position, as well as CO2 emissions.
This quarter also marked a milestone on the regulatory side, with the agreement with the Norwegian government on the long-term model for the CO2 compensation scheme. Let us then have a look at the market development and outlook. Building and construction has been struck hard by the macroeconomic situation, and is one of the main drivers for the weaker market, as well as the margin pressure in recycling, both in metal market as well as in extrusions. We are currently at historically low level in demand from B&C.
However, according to CRU, a recovery is expected from the second half of 2024 and into 2025 in both Europe and North America. This is supported by an anticipated overall economic recovery, following indications from the Fed and ECB that peak interest rates have been reached. We have also seen signs of decline in automotive in Europe during Q1. IHS reports that the European production of cars began to decrease during Q1, with production halts no longer due to the lack of parts, but rather due to the lack of orders.
IHS estimates overall automotive production demand to decline by 3% in 2024 versus 2023, much driven by slowing demand for combustion-engined cars. Likewise, while EV and hybrid demand is still growing, projections are lower than expected, and much due to the ending of subsidies in Germany, combined with increased competition from China. Declining automotive demand in Europe is negatively affecting our extrusion in Europe financial results, and our Hungary operations are in particular being impacted due to declining electric car registration in Germany.
Aluminum metal and the Alumetal are less affected, as the largest market, with exception of Germany, are continuing to grow. But let us have a closer look at what is going on in the EV market and the influx of Chinese EVs in the European market. According to Bloomberg's analysis, the number of EVs exported to Europe from China exceed 50,000 cars on a monthly basis, representing roughly a third of the total EV market in Europe. Chinese cars normally have a 20%-25% cost advantage, hence it makes sense for Chinese producers to target countries where even after tariffs, they are competitive on price.
Looking at cars imported from China, small to medium-sized cars in the mass volume segment challenge the European producers, whereas larger and premium cars seem to be less at risk for the moment. However, there is an exception. There is an expectation that China eventually will move also into the high premium segment as well. In comparison, market penetration is substantially lower in the U.S., much due to 27.5% tariff, making this more of a European challenge, where the tariff is merely 9%.
The EU has started an investigation on subsidized EVs from China and stating that they have found sufficient evidence of subsidies. However, it is yet to be concluded if the EU will implement anti-dumping duties against Chinese EVs, and we are, of course, monitoring this development closely. The current market decline has had a direct as well as an indirect impact on demand for recycled products, as well as recycling margins. Building and construction has experienced a slowdown following inflationary pressure, interest rates, and increased economic unpredictability.
As a result, extrusion demand is down, resulting in significant downward pressure on billet premiums. While scrap prices experience upward pressure due to the low scrap generation from reduced construction and demolition activity, as well as rising scrap export to China. Although billet premium have improved since Q4, scrap prices continue to increase, and we expect margin pressure to continue into Q2. This puts recycling margins at historical low.
Average margin in the last 10 years, if you exclude 2022, with record high premiums and including Alumetal, has been around $110 per ton, where Q1 saw average margin one third of this. However, in the longer term, we are confident that the fundamentals and the business case for recycling remain strong. Sorry. Megatrends support recycling with both pull from customers and a push from regulators. Likewise, the geopolitical situation is expected to increase awareness regarding import dependency, where recycling can reduce dependency on foreign supply.
Then let me comment on the status of our improvement programs, where we have made significant advancements over the past five years, making us more resilient in a volatile business, allowing us to continue our long-term positioning. During my travels throughout the company, I'm really impressed to see the relentless efforts in terms of continuous improvement in the areas of operational excellence, fixed cost, and procurement, but also in the commercial areas through green premiums, market share growth, better product mix, resulting in improved margins.
This year, we have a target to achieve an extra NOK 700 million in annual improvements and in an additional NOK 5.2 billion improvements by 2030. Our commercial initiatives aim to generate an additional NOK 3.3 billion by 2030, including the NOK 2 billion from potential greener earnings uplift. I'm happy to report that we are well on track to deliver on our improvement targets, as well as on our commercial ambitions. Back to the revenue drivers, which, after some rough quarters, are showing some signs of improvement.
While the three-month aluminum price on LME decreased slightly throughout the first quarter, prices have surged nearly 20% since the end of February, settling in near the $2,600 per ton level. Strong demand growth from China, together with a broad-based increase across most commodities, as well as a more positive economic sentiment, have been the main catalyst for the recent improvements. Turning to standard ingot premiums, we see that European duty paid ended the first quarter at $282 per ton, from $202 per ton at the end of the fourth quarter.
The increase is a combination of improving market, of improving market sentiment and a continued uncertainty and supply chain disruptions due to the Red Sea situation. Likewise, the US Midwest premiums also increased from $414 per ton at the beginning of the quarter to $424 per ton at the end of the quarter, on increasing optimism also in the US market. Alumina prices were trending upwards as well, with the spot PAX during Q1 averaging at $360 per ton, a 10% increase as compared with Q4 2023, and up 2% as compared with the same quarter last year.
The PAX development reflects the Chinese alumina prices increase on the back of bauxite supply challenges. The Chinese domestic bauxite supply in Jiangxi and Henan is tight, reflecting 2-3 million ton alumina refinery capacity curtailed since late December. Then an update on Russian metal. Recently, new US and UK sanctions restrict the trade of Russian aluminum on global exchanges, and the U.S. has banned physical import for metal produced after April 13th. We believe the US and UK sanctions are a step in the right direction.
Now, we would support that EU sanction all Russian aluminum in their 14 sanction package. We stress the need for a common approach among Western countries for ethical, strategic, and economic reasons. Failure to act will leave Europe alone among Western companies in financing the Russian aggression through aluminum purchases.... and failure to act will further undermine the competitiveness of EU aluminum production, as we still see underpriced Russian metal in the European market.
Despite the current market situation, we remain confident about the role of aluminum in the green transition, as well as Hydro's position to create shareholder value, not only through what we produce, but also how we produce it. On the one hand, the green transition is driving the demand for aluminum, for electrification of the transport sector, in energy-efficient buildings, and towards more cable, solar panels, and turbines in the energy transition. On the other hand, customers are increasingly focused on the embedded emissions in the materials they source.
As we have highlighted several times before, analysis show that demand for low-carbon and recycled aluminum will outpace the general growth in demand for aluminum, with an expected growth rate of 20% annually towards 2030 in Europe and in North America. In fact, low carbon and recycled aluminum are expected to cover roughly 60% of the demand in Europe by 2030. We already experienced this demand and interest for low carbon aluminum in the market.
Example of this are our strategic partnerships with flagship customers such as Porsche, Mercedes-Benz, and Volvo Group, and where we now work together to decarbonize our value chains. While these prestige players alone do not impact the market directly, they do contribute to the increased awareness by including carbon content in their dialogue towards their customers, setting a standard for their respective industries. Based on our established position as one of very few companies able to provide low carbon materials in the short term, this also represent an opportunity for our long-term positioning.
Exactly this position and outlook was the basis for the strategy we presented in the Capital Markets Day in November, and on which we are executing on as we speak. A strategic agenda where Hydro takes on the role as the pioneer in the green aluminum transition. We are stepping up growth investments in recycling and extrusion to capture the market opportunities emerging from the green transition. Could you change the slide, please?
To power our green aluminum transition, we are executing on our ambitions within renewable power generation, and we are executing on our decarbonization and technology roadmap, while stepping up our efforts to contribute to a nature positive and just transition. Finally, we are leveraging the sum of these efforts to shape the market for greener aluminum in partnership with customers. To the next slide. We are continuing to grow in recycling.
During the first quarter, we have executed on both growing our capacity to use more PCS, as well as securing access to scrap. On April the tenth, we opened the new recycling unit at Hydro Årdal, adding capacity to process 25,000 tons of PCS annually. And just last week, Friday, the nineteenth, or April the 19th, we cut the ribbon at the new recycling facility in Høyanger, which upon full capacity, will produce 36,000 tons of recycled sow ingot annually, both providing the capability to deliver Hydro REDUXA 3.0 to our customers.
On scrap sourcing, we recently announced a multi-year agreement with Sims Alumis ource, securing access to approximately 36,000 tons of post-consumer aluminum scrap for our US remelting facilities. Likewise, we plan to build a new scrap sorting plant located on the same site as our existing Wrexham casthouse in the U.K. , This will contribute with an additional 30,000 tons of sorting capacity annually, enabling Hydro to process and recycling a wider range of post-consumer aluminum scrap, learning also from our recently acquired Alumetal facilities.
All in all, we are progressing as planned with our growth agenda in the recycling space, and I believe Hydro is well positioned to succeed in the long run. Because our capabilities, including multiple product production, outlets, advanced melting and casting competence, and proprietary sorting technology, allow us to utilize multi scrap fractions and to dig deeper into the scrap pile.
We will continuously work on widening our margin opportunities by diversifying the product portfolio, promoting recycle-friendly alloys to enable higher recycle content in the dialogue with customers, and differentiating with specialty recycled products to secure attractive premiums and upcharges. To Extrusions. One of the most frequently asked questions I get is, "Will Extrusion deliver on their NOK 8 billion EBITDA target in 2025?" Let me try to answer. Extrusion financial result in Q1 reflect the reduced demand, primarily in the B&C sector, with recent softening also in the automotive segment.
Overall, extrusion volumes have declined by 11% compared to Q1 last year, and results are also influenced by lower margins in remelters. Back to 2021, we, when we set the target to reach, NOK 8 billion EBITDA by 2025, that was based on how the market was then... with an EBITDA achieved in 2021 of NOK 5.7 billion. In 2023, despite market being down 15% compared to 2021, Extrusion achieved an EBITDA of NOK 6.5 billion. If I adjust for a 15% volume decline versus 2021, the normalized EBITDA for 2023 would have been closer to NOK 7.5 billion, reflecting the success of our margin-enhancing efforts during these years.
The green shift we see is driving the demand for aluminum in electric vehicles, and since last year, we have seen a trend from our automotive customers to secure supply of responsibly produced aluminum in long-term offtake contracts. At the Capital Markets Day in November, we announced EUR 1.5 billion-EUR 1.6 billion worth of contracts that were signed in 2023, with key OEMs to supply materials for next-generation cars to be introduced after 2025. Since our Capital Markets Day in November, we have signed four additional contracts worth over EUR 0.4 billion.
On the top of that, additional EUR 0.9 billion-EUR 1 billion worth of contracts are now in process, promising solid EBITDA contributions with attractive margins to be phased in over the next years. So operational improvements and investments in new presses are crucial for our achievements and deliveries, and we are well on track, and with several of the new presses that will deliver towards the recently signed OEM contracts.
In summary, as shown on the left side of this slide, achieving the NOK 8 billion EBITDA target depends on a market recovery back to 2021 levels, both on volumes, remake margins, and premiums, as well as the operational improvement and growth investments mentioned above. But when the market rebound, Hydro Extrusion should be well-equipped and positioned to achieve the NOK 8 billion EBITDA target. Let's then move to Energy, where we have made good progress, both within Hydro Energy as well as Hydro Rein.
Pioneering the green aluminum transition is very much about securing long-term access to renewable power. We do this by sourcing renewable power in the market, as well as being an active developer of renewable power. Hydro Energy has recently signed two new renewable energy PPAs this quarter at affordable prices. And Hydro Energy and Hydro Rein are also taking an active developer role in order to secure renewable power for our operations, while at the same time pursuing profitable growth within the energy business area.
As already mentioned, Hydro Rein has successfully commenced the commercial operations in Mendubim and Boa Sorte in Brazil. Both projects delivering on time and on cost, as well as supporting our operations and decarbonization program at Alunorte and Albras. And finally, the transaction with Macquarie Asset Management is progressing as planned, and we expect this to be finalized by end of Q2. Executing on our decarbonization roadmap is a key part of Hydro's ability to capture the market opportunities arising from the green transition.
As I said, carbon content is becoming just as important as the material qualities in itself. Hence, executing forcefully on our decarbonization agenda is an integral part of realizing the value creation potential in growing market for low and ultra-low carbon aluminum. Following the arrival of FSRU in Barcarena in February, we have already started production of alumina using gas instead of heavy fuel oil. When fully ramped up, this conversion alone represents reduction of 700,000 tons of CO2 annually, a significant step towards delivering on our ambition of 30% reduction by 2030.
However, achieving our 2050 target of net zero, we have to remove emissions of CO2 in the whole value chain of aluminum. In electrolysis, our efforts now are on both HalZero and CCS, and they are progressing according to plan. The HalZero pilot is under construction now, and we will start operation in Q2 2025. So all in all, we are progressing well across the board on the decarbonization roadmap and execution towards our 2030 and 2050 targets. Let's have a closer look at how the Alunorte fuel switch is also lifting profitability.
When fully implemented within the second half of this year, the project is expected to yield substantial annual savings in the order of $160 million-$190 million, based on current forward or spot price spread. This is supporting our ongoing work to lift the overall profitability of the business area, Bauxite & Alumina. By adding fuel switch savings, adjusted ROACE is expected to be lifted by 7% compared to 2023 baseline, also supported by greener premiums enabled by fuel switching.
Adding recent alumina pricing development and using current PAX at around $377 per ton versus the realized 2023 price of $361, would contribute with an additional 4%.... Further, if I apply the 2030 CRU assumptions of $380 per ton of PAX and lower raw material costs on top, this would contribute with an additional 3% ROACE, which would bring the total B&A ROACE well above the target 10%. And as a final comment, moving from heavy fuel oil to natural gas also provides the added benefit of reduced price volatility, and in effect, increased predictability for B&A cost position.
Following on the topic of predictability, this quarter marked a milestone on the regulatory side as well. Through negotiations between the Norwegian government, industry associations, and trade unions, an agreement on the future of the CO2 compensation scheme was reached on March 15. The revised scheme will be valid from 2024 until 2030, and includes an annual maximum CO2 compensation for eligible industries of NOK 7 billion, subject to inflation adjustment. The price floor that was introduced in the state budget in 2022, and further increased for 2023, will be fully removed.
The scheme includes a commitment for participating industries to implement emission reduction and energy efficiency measures corresponding to 40% of the CO2 compensation paid. We are satisfied that this agreement has been reached, providing both Hydro and our shareholders with predictability we need to continue our ambitious decarbonization agenda for our Norwegian portfolio. The agreement is subject to approval both by the EFTA Surveillance Authority, as well as an annual approval in Parliament as part of the ordinary state budget process.
Finally, I'm also excited to report that we are continuing our efforts with full force to shape the market for greener aluminum, and positioning our low-carbon aluminum offerings, attracting premium pricing. As announced at the Capital Markets Day, our ambition is to realize NOK 2 billion by 2030 in greener premium earnings uplift potential, enabled by transforming our current Hydro REDUXA or transforming our current portfolio of REDUXA 4.0- 3.0, and eventually 2.0, and increasing our Hydro CIRCAL offerings. Several of the initiatives announced this quarter contribute towards the 2030 potential.
Firstly, switching from heavy fuel oil to natural gas at Alunorte enables the production of low-carbon smelter grade alumina. The earlier mentioned recycling facilities at Høyanger and Årdal provides the capability to deliver Hydro REDUXA to our customers already now. Further securing more process scrap and enhancing our scrap sorting capabilities with the Sims Alumi source and Wrexam enables us to broaden our Hydro CIRCAL offerings.
This addresses customer demand, which is currently exceeding our capacity. In addition to enable, shaping the market involves fostering a willingness to pay for these products at premium pricing. Again, our strategic partnership with Mercedes, Porsche, and Volvo Group, all committed to ambitious scope three emissions reduction targets, have generated significant market traction, and we are already supplying Mercedes with REDUXA 3.0, demonstrating tangible progress.
Targeting another segment then to automotive, Hydro just recently entered a strategic partnership with a power cable producer, NKT, to develop a best-in-class, low-carbon aluminum power cable value chain. Increased electrification and new decentralized power production will require significant grid investments across Europe. Towards 2030, an estimated $3.1 trillion must be invested in grid infrastructure to support the grid transition.
This is an exciting market segment, where Hydro Karmøy will deliver low-carbon wire rod to NKT for application in medium-voltage power cables already this year, and later, within some of high-voltage power cables for offshore use in the Netherlands. However, it's not only the strategic partnerships which are driving demand.
We are experiencing a real pull in the market for REDUXA as well as CIRCAL, with several smaller, yet equally pioneering customers who come to Hydro to get hold of low carbon and recycled aluminum to support their ambitious climate target, and with a willingness to pay a premium. With that, I give the word to Trond Olaf, who will run you through the financials.
Thank you, Hilde, and good morning from me as well. So, in Q1 2024, economic outlook improved, reducing the risk of recessions, and central banks are reconsidering rate cuts amid easing inflation. Primary aluminum demand outside China slowed, but Chinese demand remained robust in renewables and electric vehicles, supporting overall growth in primary demand globally in the quarter of 5% compared to Q1 2023. For 2024, CRU estimates a surplus of 1.5 million tons of primary in world ex-China, and a deficit of 1.7 million tons of primary in China, resulting in a global deficit for 2024 of 0.2 million tons.
The global alumina balance is influenced by Chinese production challenges, driving up the Chinese alumina deficit by 0.2 million tons from 2023, up to a total of 0.9 million tons in 2024.... In addition, there are also continued uncertainties over Guinea bauxite shipments to China. In the world ex-China, curtailments of the Kwinana Refinery in Australia has been announced, and it is expected that this will tighten the market in second half. CRU estimates a surplus of 0.7 million tons for 2024 ex-China, and overall, the market is increasingly sensitive to production disruptions.
This concludes a net deficit for the global alumina balance of 0.2 million tons in 2024. Moving downstream, extrusion demand remained challenging in both Europe and North America during Q1. European extrusion demand is estimated to have decreased by 10% in Q1 2024 year-over-year, but increased by 7% compared to Q4 2023, partly driven by seasonality. Annual demand growth for building and construction and industrial segments remains negative, but to a lesser extent than previous quarters as demand has started to stabilize.
Automotive demand has been challenged by slowing sales of electric vehicles, negatively impacting order intakes. Despite continued growth in electric vehicle and hybrid demand, forecasts were revised downwards due to subsidy cuts in Germany and stronger competition from China. Looking into Q2, Q2 2024, CRU estimates that the European demand for extruded products will decrease by 2%, year-over-year, as macro headwinds are expected to moderate compared to Q1.
The demand is expected to continue to pick up from second half 2024, with positive demand development year-over-year. The extrusion demand for 2024 as a whole is expected to decrease by 1% compared to 2023. Moving to North America, extrusion demand is estimated to have decreased by 9% during Q1 2024 year-over-year, but increased 10% compared to Q4 2023, also driven by seasonality. The transport segment has been particularly weak, driven by lower trailer and build rates, and demand continues to be moderated in the building and construction and industrial segments.
Looking into next quarter, CRU estimates that the North American demand for extruded products will decrease by 5% year-over-year. Also, in North America, extrusion demand is estimated to decrease by 1% in 2024 compared to 2023. Looking to our volumes, Hydro Extrusion sales volumes declined by 11% in Q1 2024 year-over-year.
Transport volumes have been negatively impacted by the weaker shipments to the truck and trailer market in the U.S. In Q1, we also saw that our automotive sales have been moving into negative growth territory in both Europe and U.S., driven by moderating production at some OEMs and weaker than expected sales of electric vehicles.
Growth for sales volumes in B&C and industrial segments is still negative, but overall, volumes and orders have started to stabilize. CRU estimates relatively less headwinds for Q2 2024 in Europe and North America, but there are downside risks to the volume development in Q2, given current order books, and market conditions. When looking at the results, Q1 versus Q4, we see the positive effects of upward trending revenue drivers contributing with NOK 800 million.
We saw an upstream raw material cost increase of approximately NOK 100 million, and the major drivers behind the cost was alumina, partly offset by lower carbon cost. The seasonally higher midstream and upstream volumes impacted results positively by another NOK 700 million. The positive volume effects were partly offset by NOK 100 million due to pressure in both extrusion and recycling margins. Furthermore, we saw a net positive effect of NOK 200 million due to higher production volumes in energy, partly offset by lower prices and price area differences.
The quarter was also impacted positively by lower fixed costs of NOK 100 million, and the major areas contributing to the fixed cost release are B&A and extrusion. Negative NOK 200 million currency effect impacted Q1, mainly driven by strengthening NOK. Total CO2 compensation for Q1 was NOK 800 million, compared to NOK 1.1 billion in Q4. The negative quarter-over-quarter delta of NOK 300 million was driven by NOK 200 million for the Norwegian smelters and remaining NOK 100 million related to CO2 compensation for the Slovalco smelter.
In Slovalco, the CO2 compensation is related to smelter operations back in 2022, recently approved by the Slovakian government, and no further CO2 compensation for Slovalco is expected going forward. The final positive effect of NOK 700 million is mainly related to commercial results and other and eliminations, and this concludes the adjusted EBITDA development from NOK 3.7 billion in Q4 to NOK 5.4 billion in Q1.
If we then move to the key financials for the quarter, comparing year-over-year, revenue decreased by 2% to NOK 47.5 billion for Q1. Compared with Q4, revenue increased by 2%. For Q1, there was around NOK 100 million effects adjusted out of the EBITDA, which includes mainly net foreign exchange gains of around NOK 140 million, partly offset by unrealized derivative effects on LME contracts and other smaller effects, resulting in an adjusted EBITDA of NOK 5.4 billion. Moving on. We recorded adjusted depreciation expense of around NOK 2.5 billion in Q1, resulting in reported EBIT of NOK 3.1 billion.
Net financial expense of NOK 1.9 billion for Q1 includes NOK 1.6 billion in FX loss, relates mainly to the losses on energy derivatives and bonds from stronger euro versus NOK. In addition to that, we had increased expense of around NOK 750 million, related to financial debt, partially offset by interest and other finance income of NOK 460 million. Then we have an income tax expense for Q1, amounting to NOK 720 million. The quarterly was mainly impacted by power surtax and valuation allowance increase in Brazil.
Overall, this provides a positive net income of NOK 430 million, down from positive NOK 1.1 billion in the same quarter last year, and up from a negative NOK 2.7 billion in Q4. Adjusted net income was NOK 1.5 billion, and consequently, adjusted earnings per share was 0.9 NOK per share. Then let's give an overview per business area, starting with B&A. Adjusted EBITDA for Bauxite and Alumina increased from NOK 437 million, Q1 2023, to NOK 804 million in Q1 2024.
This was mainly driven by lower raw material prices, partly offset by lower sales volumes from lower production. Compared to Q4 2023, the adjusted EBITDA increased from NOK 481 million, mainly driven by higher realized alumina prices. Q1 was impacted by lower production, primarily driven by the fuel switch implementation start. This was, however, compensated by lower fixed cost of roughly NOK 350 million and other variable costs, partly related to lower production levels.
Raw material costs remained stable during the period and in line with guidance. For Q2, Alunorte is expected to be around nameplate capacity. Higher realized alumina prices will impact our results positively. We expect lower raw material costs of NOK 50 million- NOK 150 million, which is driven by the fuel switch effect, and partly offset by higher fuel oil prices. Fixed and other costs are expected to be stable looking into second quarter. Moving to Aluminum Metal. Q1 adjusted EBITDA decreased from NOK 4 billion in Q1 2023 to NOK 2 billion this quarter.
The decrease is mainly driven by lower all-in metal prices, reduced contribution from power sales, and increased fixed cost, partly offset by reduced carbon costs and positive currency effects. Compared to Q4 2023, adjusted EBITDA for Aluminum Metal increased from NOK 1.9 billion, due to higher all-in metal prices and reduced carbon costs, partly offset by higher alumina costs and negative currency effects. The cost release we expected for the quarter did not materialize due to a combination of stronger alumina prices on market and supply chain lags on the carbon side.
Alumina cost increased through the quarter more than initially expected, and carbon cost release was lower than expected due to added time lags related to the Red Sea disruptions. Both effects resulting in a net cost increase of NOK 150 million. Fixed costs were flat through the quarter. Finally, the strengthening NOK resulted in headwinds of approximately NOK 270 million. And this brings me over to the guidance for the next quarter. Both the LME and the premiums have increased since Q1 and are expected to impact positively the revenue side in Aluminum Metal.
For Q2, Aluminum Metal has booked 73% of primary production at $2,272 per ton, including the effects of our strategic hedging program. Furthermore, we have booked 47% of premiums affecting Q2, booked at $393 per ton, and we expect realized premiums in the range of $350-$400 per ton. On the negative side, we expect increased raw material cost, driven by alumina, and partly offset by carbon of between NOK 200 and 300 million. In addition, inflationary-driven fixed costs are expected to impact the quarter negatively by NOK 50 million-NOK 100 million.
On the positive side, we expect higher sales volumes. We continue to closely monitor the demand developments, and we do not foresee any restarts of the curtailed primary volumes next quarter. On CO2 compensation, we expect a flat quarterly development going forward.
Then moving to metal markets. An adjusted EBITDA for metal markets decreased in Q1 from NOK 669 million in Q1 last year to NOK 269 million, mainly due to lower results from recyclers and reduced results from sourcing and trading activities. Premiums decreased in a weakening extrusion ingot market, while the ingot and scrap price reduction were comparatively lower throughout the year. In addition, we continued the ramp-up of Cassopolis, resulting in negative start-up.
Excluding the currency and inventory valuation effects, the result for Q1 was NOK 224 million, down from NOK 592 million in Q1 2023. Compared to Q4 2023, adjusted EBITDA for metal markets increased from a negative NOK 97 million, mainly due to strong results from sourcing and trading activities, while results from the recyclers remained stable. The outlook for Q2 continues to be challenging, as we expect recycling margins continued to be squeezed on the lower scrap availability, keeping margins low.
We also expect the negative effects from the ramp-up of Cassopolis, but to continue, even though on the lower level. At the moment, the recycling margins are at all-time low levels, and we expect those to return to normalized levels over time. However, as mentioned, this is tied to the improvement in the B&C market, which is not expected to come in the first half. For Q2, we expect higher recycling volumes. However, due to tight scrap markets, we expect higher proportion of clean metal to be used in the recyclers, partly offsetting the positive volume effects.
For our commercial area in Q2, we expect positive contribution from sourcing and trading activities and positive hedging effects. Again, as always, reminding of the inherent volatility of the trading and currency effects. Then moving to Extrusions. And in Extrusions, the adjusted EBITDA decreased year-over-year from NOK 2.2 billion- NOK 1.4 billion. Lower sales volumes, pressure on remelt margins, and higher costs were partly offset by higher sales margin and positive currency effects.
Lower remelt margins negatively impacted the results with around NOK 400 million, as remelters continue to be pressured with low billet premiums and elevated scrap prices. In addition, when comparing against Q1 2023, we had a positive metal effect of around NOK 170 million and limited metal effect this quarter. Compared to Q4 2023, adjusted EBITDA for Extrusions increased due to seasonality, higher sales volumes, and low cost, partly compensated by lower sales margins.
Looking into Q2, we should look towards the same quarter last year to capture the seasonal developments in Extrusions. Compared to last year, we expect continued strong margins in our Extrusion business. As mentioned earlier, we expect continued soft extrusion markets in both Europe and North America, resulting in lower sales volumes compared to last year. In addition, the remelt margins continue to be under pressure.
Combined with the higher costs, we expect the negatives to more than offset the positives in Q2 when comparing year-over-year. The final business area is Energy, and where the adjusted EBITDA for Q1 increased to NOK 1.15 billion, compared to NOK 680 million, Q1 2023. The main drivers behind the stronger results were higher production and no loss on aluminum metal buyback contract, partly offset by lower prices, lower gain on price area differences, and lower trading and hedging results.
The price area gain, for this quarter was NOK 148 million, versus NOK 475 million, Q1 2023, a difference of NOK 330 million year-over-year. Compared to the fourth quarter, adjusted EBITDA increased by approximately NOK 350 million from NOK 805 million, mainly due to high production volumes. Those were partly offset by lower price area differences of NOK 160 million. In the first quarter, external power sourcing volumes continued to be affected by a disrupted delivery of volumes from a long-term power purchasing agreement in Markbygden, Sweden.
The non-delivered volumes were 0.5 TWh in Q1 2024, and 1.95 TWh accumulated since the beginning of the disruptions. We will continue to seek compensation for the non-delivered volumes. Looking into Q2, as always, we should be aware of the inherent price and volume uncertainty in energy. Power prices in Southern Scandinavia are expected to decrease further into Q2.
Furthermore, we expect a lower price area difference of NOK 50 million-NOK 100 million. Last quarter results were at NOK 148 million. Then let's move to the financial, final financial slide this quarter. Net debt increased by NOK 5.7 billion since Q4. Based on the starting point of NOK 8.2 billion in net debt from Q4, the positive contribution for Q1 was a generation of NOK 5.4 billion in adjusted EBITDA. In line with our guidance, we had an increase in net operating capital on NOK 1.3 billion.
Under other operating cash flow, we have a negative NOK 3.9 billion, mainly driven by cash outflow for taxes of NOK 1.6 billion, as well as an increase in long-term receivable for CO2 compensation and performance-related pay of NOK 900 million. On the investment side, we have a net cash effective investments of NOK 3.7 billion, where NOK 800 million were related to reduction in the CapEx payables related to 2023. The rest were investments of approximately NOK 2 billion related to upstream and NOK 900 million related to downstream.
As a result, we had the negative free cash flow of NOK 3.5 billion in Q1. We have also finalized the market share of our 2023, 2024 share buyback program, and the outflow related to those transactions for Q1 is NOK 400 million. Finally, we also had some other negative effects on NOK 1.8 billion, mainly driven by payment to Glencore for deal delay and earn-in of NOK 900 million, and negative FX effect on debt, mainly explained by NOK euro depreciation, partly offset by an opposite effect on cash denominated in US dollar.
When moving to adjusted net debt, we start by adjusting for the following items: hedging collateral and other has increased since Q4 2023, with NOK 500 million, and comprise mainly of NOK 1.4 billion in collateral related to short-term operational hedging positions, and NOK 0.6 billion of committed cash flow on escrow accounts for Albras investments in self-producer energy projects in Brazil. Since Q4 2023, net pension liabilities of NOK 900 million have converted into net pension assets of NOK 32 billion.
And finally, we have a decrease in other liabilities of NOK 600 million since Q4 2023, mainly due to part of the total, financial liabilities of NOK 2.2 billion towards Glencore, following the sale of shares in Alunorte. With these adjustments, we end up with an adjusted net debt position of NOK 22.5 billion at the end of Q1. And with this, I end the financial update and give the word back to Hilde.
Thank you, Trond Olaf. Let me round off today's presentation with some final reflections on our priorities going forward. The health and safety of our people and the people who work for us is our priority number one, always. To meet the increasing demand for low-carbon aluminum, we are determined to deliver on our growth ambitions for recycling and extrusions, all while advancing our renewable energy portfolio and enabling and delivering on our decarbonization and technology roadmaps.
Every day, we see potential for for further value creation in the low-carbon aluminum space, as our customers' appetite for greener aluminum at premium prices continues to grow. And by joining forces on the road to zero emissions, we are not just shaping the market, we are changing the aluminum game. This was my last quarterly update as CEO of Hydro.
As you know, I have decided to step down, and Eivind Kallevik will be the new CEO on March thirteenth. I would like to thank you all for collaboration over these years and for your interest in Hydro, in Hydro during my tenure. And with that said, thank you, and over to you, Martine.
Thank you, Hilde, and thank you, Trond Olav. We are now ready for Q&A. Like I said in the introduction, if you have any questions, you can write those in the chat that you should see to the right on your screen. And I see that we have quite some questions already, so we'll start the Q&A. The first question is from Liam in Deutsche Bank. Two questions here. First, can you provide some details on the Q1 cash flows? What is the breakdown of the NOK 3.9 billion other operating cash flows and the NOK 1.8 billion other? And the second question is: Should we expect higher Extrusions EBITDA in Q2 versus Q1?
Okay.
I leave that for you.
Thank you, Hilde. Yeah, so start with the first question. So on the other operating cash flows, so the main elements is a tax of NOK 1.6 billion. It's the performance-related pay of NOK 900 million, and it's CO2 compensation for Q1 of NOK 800 million. So those are the main elements, and then there's some minor elements. And then for the other operating cash flow, and this NOK 1.8 billion other, that is mainly the Glencore of NOK 900 million, and then it's also currency effects.
On the second question on the Extrusions EBITDA for Q1, as I said in my guidance, when looking at Q2, we should look at Q2 last year. But the extrusion markets are weaker, and as a reference, CRU are expecting reduced volumes of 2% in Europe, and 5% in North America. We continue to expect strong margins in the extrusion part, but for the remelter part in extrusions, we continue to see weak margins also into Q2. And then when we also look at some higher costs, we expect that the negative will be higher than the positives.
And then we have two questions from Jason, Bank of America. On CapEx, you've kept your guidance on NOK 15 billion for 2024. What are your thoughts on the likelihood of approving the extra NOK 1 billion for accelerated global growth? Then the second question is, Extrusions thoughts on the carrying value of this business, any risks of write-downs, given the difficult outlook for construction and automotive?
Thank you, Jason, for that question. First of all, even though we are cautious optimistic on the outlook, we are balancing the short term versus our long-term way of using our cash. And we are- we're keeping a tight ship in terms of capital discipline, as we have done over the years, and the NOK 15 billion we keep, and which will be kept during 2024. When it comes to the extra, it's always opportunities out there and, but perhaps I should not speak about how to dispose of that when I'm leaving, I leave that for Eivind. But that is there to see.
There could be opportunities also in the downturn of the market that we could take as an opportunity. But the short answer is, we keep a very tight capital discipline, and NOK 15 billion should be the guidance. Then on the Extrusion, I think that we have demonstrated over the last years that we have had decent returns on the capital employed.
When we look at over the last few years, it's well above cost of capital. And, I think we also previously guided that when we do investments, it's in the range of an internal rate of return about 20%. So I don't think there is any risk of write-down on the capital base of Extrusion.
We have a question from Magnus in SV. Can you explain how the exclusion of Russian metal from the LME impacts Hydro? The exclusion seems to have had a positive effect on the LME price, but to what extent were you already receiving a premium for selling non-Russian metal versus the LME, and how should we think about this in terms of the realized price for Hydro?
Yeah, so on the Russian metal and impact for Hydro. I mean, Hydro stopped buying Russian metal in 2022. So in terms of physical sourcing, it basically has no impact on us. And we have sort of been self-sanctioning, as many other companies have been doing. And LME is the official reference price in the market. And from our point of view, I mean, our view has been that it's not been wrong to buy Russian metal in the West.
But secondly, we have also been concerned about the price reference price when 90% of all the metal on LME warehouses has been Russian. So now with this decision and the sanction decision, I think this situation have been then clarified. And LME will not now allow any more warehousing of metal produced on or after the thirteenth of April.
And then we have two questions from Ioannis in Morgan Stanley. One, how much benefit do you expect from the fuel switch in Q2? And the second is, can you explain the increase in fixed costs in aluminum metal in the first quarter and second quarter? Will this reverse in the second half?
Well, I can start with the first one. We are ramping up now and we should be done at full capacity using gas at the second half. So, I don't have the number for Q2. It's a much smaller number than the full effect, obviously. But obviously, Martine, you can provide that if-
Yes. So I would... Since we are looking at least half a year ramp-up, I would assume somewhere between 30%-40% of the full annual effect.
In Q2?
Yeah, in Q2.
Yeah.
30%-40% of the annual effect divided by four.
Yeah, you can, you can, I think you should come back on that.
Yeah.
Yeah.
The fixed cost in aluminium metal?
Yeah, on the fixed cost, no, so in Q1, I think we had a quite flat fixed cost development in aluminum metal, but we expect some more fixed cost pressure in aluminum in second half. So and I don't think we see any sort of reversal of that in second half. So that is the basis.
Then we have another question from Magnus, SEB. You have been successful in maintaining high extrusion prices the past year, despite falling aluminum prices. Will you now be able to increase extrusion prices again in the back of the recent increase in aluminum prices, or is there a risk for weaker gross margins now in Extrusions?
Just a comment on the extrusion margin. So, you know, in the extrusion business area, we both have the extrusion presses, and we have the remelters as well. And what we see in Q1 is that we are able to maintain the strong margins on the extrusion side, but it's really the remelter side where we see the pressure. And that is sort of more a market effect.
Mm.
That you also will see in our metal markets segment, with the squeeze, due to the relatively lower billet premiums, and higher scrap prices. So that is the main driver, if you look at the total margins, for extrusions.
Then we have a question from Jensen Ong. And do you see expectations of LME prices and power costs supporting more aluminum smelter restarts in Europe and corresponding impact on alumina and primary aluminum premiums?
How to bring back smelter? You have to have a view on the power cost, not only for the last month, but to see that affordable prices prevail for a certain period of time. That has been our experience when we have curtailed during low season or low demands. And even though gas prices has come down quite substantially from the high peaks after the invasion of Ukraine, it's still at levels where I would question if this is affordable for operating smelter. But if LME prices prevail at the level we see now, and it might be a good business case.
So it's, I think it's about where we see LME prices and where we believe the LME prices will stay over some time, and then obviously sourcing affordable power, not only for the next months, but because it's costly to go up and down with the smelters in smelters.
And then we have an additional question from Jensen Ong. How do you view the CBAM positioning regarding re-melted scrap affecting accountability of carbon emissions moving forward? And what are Hydro's plans to compete if CBAM methodology implementation remains as per in the transitional phase?
Well, what I can say there is that we have a very high activity level on advocacy towards EU on that particular topic. In order to explain the effect of not putting a carbon emission on pre and distinguish between pre and post-consumer. We have high activity also together with peers to explain this to the EU Commission. I have been involved myself to make sure that this loophole is closed.
Then we have a question from Bengt at ABG . Can you please explain the dynamics behind the NOK 900 million outflow to Glencore related to the Alunorte transaction? Are there any other potential sources of outflows related to this transaction going forward?
Yes, the 900 million was part of the transaction. I think we also announced that we set aside NOK 2.2 billion, Martine. So, NOK 2.2 billion is the total what's in the accounts, and then we are taking NOK 900 million in this quarter.
We have a question from Hans Erik Jacobsen, and Nordea. Can you comment on the, on the NOK 513 million loss attributable to non-controlling interest?
I think that's a question that we need to come back on then, Martine. Yeah, we can come back.
Yeah. Seems to be no further questions on the line. And then I think we are close on time as well, so I think we need to round it off there. So thank you everyone for joining us today, and don't hesitate to reach out to us in Investor Relations if you have any further questions. Thank you so much.
Thank you!