Welcome to Hydro's fourth quarter results presentation. With me here today to present the results is President and CEO, Svein Richard Brandtzæg, and CFO, Jørgen C. Arentz Rostrup. Before we turn to the presentation, I'd like to draw your attention to the cautionary note in relation to forward-looking statement, which is provided in the material. With that, I leave the word to you, Svein Richard Brandtzæg, President and CEO.
Thank you very much, Richard. The result of this quarter was NOK 138 million, which is NOK 157 million better than the previous quarter, approximately NOK 1 billion less than the fourth quarter in 2011. The result is impacted by lower aluminum prices, higher alumina prices, some lower input costs to Bauxite and Alumina, and primary aluminum production, and both lower energy costs to both areas. The Rolled Products had a seasonal somewhat weaker situation in the fourth quarter, but also higher costs due to the yearly maintenance that is done normally in December. Energy had the higher volumes, higher production, and also better, higher prices in the fourth quarter compared to the third quarter.
All our improvement programs are moving according to plan. Finally, the board of directors will recommend a dividend at the same level as last year, also in line with what we communicated in the Capital Markets Day of 0.75 NOK per share. I'm not going to comment on the global economy, but just some comments on the implications for the aluminum industry. In Europe, it was a very weak development during 2012 in several areas, especially Southern Europe. Germany was supported by the export industry, so Germany for us was a better market. With regard to the expectations for 2013, we expect that this will be a sideways development, stable on similar levels as we had on last year.
In the U.S., we see improvements supported by the transport industry. We also see improvements now in the construction industry, which is then also improving the demand for aluminum. It was a strong demand and strong development of demand in aluminum in the U.S. in 2012, and we expect that also to continue during this year. China is back on track. I think the turning point was in the third quarter, and we see that the industry production levels are also showing good figures. The demand increase in China last year was about 8%, and we expect that also to be at similar or maybe even higher levels this year.
If you take a look at the Rolled Products business, 2% below 2011 in total volumes. 1% lower volumes in the fourth quarter compared to the third quarter. Seasonal effect, but it was also supported by more export of can business, especially to South America and Asia. At 5%, better in the fourth quarter of 2012 compared to the fourth quarter of 2011. There are also some differences between different market segments. We moved some production capacity from heat exchanger business into the can business area due to optimization of margins, low margins in heat exchanger business, and higher margins in can business. We improved or increased the area of foil and can with 3%.
Foil, more stable, but we increased, especially the can production. We are a global leader in litho. That was a strong development last year. General engineering, however, and although, as it's written here, it's reflecting a weak situation in general engineering and also the building and construction market, especially in Europe. This figure is showing the supply-demand balance outside China. If you take a closer look at demand in the fourth quarter, somewhat weaker demand on seasonal variations, and also somewhat higher production in the fourth quarter compared to the third quarter. Small variations. The deviation of production is very much that the previous disrupted capacity, like, in South Africa and Canada is now back on track.
We expect a balanced market in 2013, and a growth of about 2%-4% outside China. If you start on the left side and then comment on the inventories first, we see that the total global inventories are quite stable, reflecting a better balance between supply and demand. If you look at ingot premiums, we see still that there is a tight physical market. There are very high premiums, record high in Europe, close to $300 per ton, which again is reflecting the situation on the physical market side. Very much also reflecting the bottlenecks in the LME inventories. Aluminum price continued to be volatile also in the quarter.
We realized aluminum price of $1,940 per ton in the quarter. We have in 2012 realized a total for the year, a price of $2,080 per ton, and we have sold now about 60% of the volumes in the first quarter at the level of $2,050 per ton. Alumina price on the index scale, on Platts Index, continue to strengthen during the quarter. Alumina is now traded at about $350 per ton, moving up from $315-$327 per ton during the quarter. In percentage of LME, of course, very volatile due to the LME price.
We are supporting very much the Platts Index price, and we see a positive development in that respect. In percentage of LME, alumina price continues in the range of 15%-17%. This figure shows the import-export balance in China. As you have seen in the third quarter, it was a significant reduction of import of bauxite, especially from Indonesia, where there has been decided to put the ban on export from 2014. We see some release of that during the fourth quarter, but we believe that the ban from 2014 is still valid, meaning that China is looking for new sources of bauxite.
We also saw that the alumina import to China increased from 2011 to 2012 from 2 million to 5 million tons, which we see as a positive development from our side. Semis and fabricated products, stable export as we have seen before. We also see that on the primary metal side, China is balancing this quite well. The net zero export of primary metal and zero import. I mentioned that there has been a reduced raw material input cost, both in bauxite, alumina, and primary production. If you take a look at the market prices on different raw materials for aluminum production and alumina production, it looks quite stable. Alumina or aluminum price is significantly lagging behind the development of other raw materials.
As you see, there are absolutely no relief on the caustic soda price. We see that there are still stable development of the other main input factors for our industry. If you take a look at the situation for energy price, it developed positively in the fourth quarter after some weakening during the first quarter of 2012. We could take a look at the reservoir level. The total reservoir situation was reduced by 13 TW hours during the quarter. If you take a comparison with the normal level, the normal started 6 TW hours above normal level, and ended up somewhat below normal level.
The reservoir level of the Norwegian hydrological balance is showing at about 70% of the total of the capacity as it is now. I'm pleased to see the development of bauxite production in Paragominas. We are now at 9.2 million tons in production. It has been improved over the year, and it was a net increase of 13% compared to 2011. Alunorte production was quite stable, 5.8 million tons, through the year. We have introduced improvement program in bauxite alumina, which we call From B to A. We will come back to that, but we are targeting NOK 1 billion in improvement in that program.
A bit more than half of it will be executed and delivered this year according to our plans. We are also planning to stabilize the production of Paragominas at a similar level as 2012. In Alunorte, we are planning to increase the production somewhat. In primary production, we have delivered according to plan our $300 program, which is now at $235 per ton at the end of 2012. We will finish off this program in 2013. If you take a look at the total smelter portfolio, we have been able to reduce the cost of $225 per ton. Qatalum is of course supporting that figure, which was then introduced in that equation from 2012.
We are now operating with the EBITDA margin of $300 per ton for our total smelter portfolio. With that, I give the word to Jørgen, please.
Thank you, Svein Richard. Let's move over to some financial information. I will follow the same format as most of you are familiar with. First, draw your attention to one reporting issue, and this is related to the Orkla joint venture ambition, where we this quarter are reporting Extruded Products as discontinued operations. It has been reported in our books from 15 October that way. That was the date of signing. It means that we have one separate line of income on discontinued business in the P&L, assets are not depreciated from 15 October. The quarters and fiscal year 2011 and 2012 has been reclassified.
Most of you have obviously seen that we have sent out messages and information about it. Assets and liabilities are held as assets held for sale in the consolidated balance sheet for 2012. The Q4 report is amended. Extruded Products is taken out from the overview here, as you see on this page. It's taken out from the group underlying EBIT, EBITDA, and it's taken out from the overview and market sections. Then in the report, there is a separate Extruded Products pro forma information, where we include market, financial, and operational information. Like I've said, approximately NOK 150 million improvement from Q3 to Q4.
If you look at the last business reporting area, Other and Eliminations, you will see that there is a major negative development there quarter-on-quarter. The charges for common services and businesses in that area are the same as last quarter, namely the guided NOK 150 million. The change here is related to eliminations of internal gains and losses on inventories that are flowing through the value chain. We are eliminating the gains or the losses of that on this line. That was a positive contribution last quarter of NOK 90 million, and it's a negative effect in the NOK 150 million range this quarter. All in all, that's a NOK 240 million change quarter-on-quarter.
If you put that on top of the change of NOK 150 million on the total, you see that the other business areas are performing in the range of NOK 400 million better this quarter compared to last quarter. We do the waterfall analysis, and you will see that it's small changes. I still talk in billions because that's the format we use here. We get help this quarter on variable cost by NOK 0.3 billion. Two-thirds of that is related to Primary Metal. I will come back to it. The last one-third is related to bauxite to alumina, and I will also revert to that. Energy volume and prices are giving us NOK 0.2 billion.
The other way around, aluminum volume and prices in particular are negative, more than NOK 0.2 billion, some help on the alumina side in the quarter. Then we have the elimination effects and obviously some other effects in the last part. All in all, a fairly minor change, but there are some factors underneath. Revenues are up NOK 0.1 billion, 6%, quarter-on-quarter. This is due to increased volumes and prices in bauxite, alumina and energy. The other business areas are reducing on the revenue line.
We have talked about the 138, and then you will see that we have a reported EBIT in the quarter of NOK 669 million, which means that we are excluding positive elements of NOK 532 million, that is, in the quarter. This is entirely due to derivative effects. Two-thirds of this is related to our operational LME hedges. They are lower at the end of the quarter than they were when entered into. One-third is related to so-called embedded derivative contracts. It's the Statkraft contracts, excuse me, the Statkraft contracts where we have elements of the pricing mechanism being the LME, the dollar, and the coal.
We have had decline in the quarter on all those three factors, and therefore in these contracts, it give us a gain, which we don't think is necessarily reflecting underlying performance, and therefore we are taking it out from the numbers that we focus our analysis on. Financial income -82 in the quarter, including NOK 100 million currency loss in this quarter versus a large currency gain in last quarter. Then income before tax reported is NOK 587 million and NOK 224 million in tax, which is implying close to 40% tax rate. This is the energy surtax area, which gives that higher tax number than the average corporate tax level should indicate. Just one comment on the year.
It's a significant drop both in revenues of NOK 7.3 billion and in underlying EBIT of some NOK 4.8 billion. The prime reason for this is obviously LME prices from close to $2,500 in 2011 to, as Nikko said, $2,080, $2,080 as a net average price in 2012. A significant drop in earnings due to the LME developments. Let us then move into the business areas, and I will start as normal with bauxite, aluminum, and alumina. As we saw, more than NOK 300 million in improvement quarter-over-quarter till negative NOK 73 million. This is influenced by alumina prices, LME-linked, by energy cost, and by commercial result, improved.
The 300 million could be attributed one-third to each of those elements. Prices were up 6% in the quarter, going from our achieved prices going from $270 a ton for alumina to $285 in fourth quarter. This explains about one-third of the NOK 300 million in improvements. Then bear in mind that this $285 a ton is still significantly below the range that Svein Richard Brandtzæg talked about when he said in the range of 340, 350 a ton on the spot market. We are selling legacy contracts out of our portfolio around 80% and the alumina index 20% of our total sales. Due to this we are 16%-17% short to the spot market prices that we see today.
This is also according to how we saw the acquisition in Brazil at the time of acquisition. As we guided on previous quarter, the apparent alumina cash cost were supposed to come down. It has come down by $22 from $261 to $239, primarily due to the state of Pará's decision to reinstate the ICMS tax exemption on fuel oil. You might recall that we a couple of quarters have discussed the ICMS issue and the fact that we didn't seem to be exempted for a period, and that brought extra cost to the refinery. We are once again confirmed exempted from this, and that has a significant impact on our earnings.
The last one-third of the financial result is in the commercial area. It's improved margins both on alumina and bauxite due to more efficient and better sourcing, and also that we have increased bauxite sales of high margin on high margin contracts. Svein Richard Brandtzæg said production in Paragominas is quite good. The rates in the fourth quarter compares to 9.5 million tons, and as he said, 9.2 million tons produced in the year. For Alunorte, we have a lower rate. It's approximately 5.5 million tons and that is something to work on going forward. We do expect stable production volumes in the first quarter from this business area.
Primary Metal, a slight improvement of NOK 60-some million to NOK 53 million positive in the quarter, in spite of a quite significant negative effect from reduced prices and also seasonality effects on the volume side. The effect of those two elements are more than NOK 250 million negative quarter-on-quarter. We have got some support and help on the raw material side, approximately NOK 200 million lower raw material cost or input cost spread around different factors. It's on the alumina, it's on power, it's on carbon, and it's also on other input factors. We have an improved result in Qatalum by NOK 90 million. I will revert to that.
As you might recall from Capital Markets Day, we have changed our pricing methods for metal sales. We are now adjusting it to the shorter pricing horizon that we and our customers are applying. We are now fixing the prices mainly one month ahead of production, which means including hedging of inventories that we will realize prices with one to one and five to two months lag to the LME spot prices. We have priced 60% of our primary production for Q1 at $2,050. We also do expect next quarter somewhat higher sales volume simply for seasonality reasons.
If we then look at Qatalum, we are quite pleased first to see that the production is high and has been high and very stable throughout 2012. The Qatalum organization together with Qatar Petroleum and Hydro has managed to really put our production on a good start fairly early in a long life of Qatalum. We are producing for 2012 604 kt based on a 100% basis, which is 3%-4% above nameplate capacity, and that also in a year where we have had the fire in the cooling towers. We are actually quite pleased with the production side of it.
It came in NOK 90 million higher on the net income, as I said, and approximately NOK 70 million on underlying EBIT in the quarter. If you recall, we had approximately a NOK 70 million extra charge as we communicated it in the third quarter due to the increased energy costs since we had to buy electricity and buy gas from outside the plant because of the cooling tower rebuild. This is now gone and together with some increased sales prices and a fairly stable, somewhat lower cost level, this is the reason behind the improvement.
If you look at 2012 in total, you might recall that since 2008, we have talked about that our target is to reach a cash cost level of, in the range of $1,400-$1,500 on the smelter, at LME reference prices between $2,000-$2,500. When we do calculations based on the information that you have here, and use an average LME price for 2012, we see an average apparent cash cost of $1,450 for the year. It was higher then in the start of the year, and it is at a lower level now towards the end of the year.
We basically feel that we have come very close to the level that we set out to reach, and are pleased with that. We are the first to acknowledge that there remains a lot of work, and it's still a big and good unit, but we have to continue to work on it to make it the good unit it's supposed to be. Metal Markets. It looks like a significant improvement at low levels from NOK 7 million-NOK 69 million. We tend to say that that is very much influenced by currency and in the ingot valuation effects, so more financial implications on those.
If you look at the underlying performance result, it is more a decrease from approximately NOK 100 million-NOK 40 million in the quarter. We are seeing both seasonality effects and also the weak European extrusion billet market hitting our scrap remelters. That is one reason behind it. The other reason is a fairly weak positive, but a fairly weak trading result in the quarter. Going forward, we anticipate obviously higher volumes from this business in the first quarter due to demand picking up for the new year. Rolled Products in spite of seasonality swings, which should indicate lower volumes, Svein Richard Brandtzæg had talked about 1% down only quarter-on-quarter here.
Still, as we said in the third quarter, we said that we regarded the third quarter result as fairly strong, and we gave a guidance that the change to fourth quarter should be anticipated to be larger than what we have seen through the last few years. There is a NOK 140 million reduction in the result down to NOK 71 million. As I said, stable volumes, but the production mix has changed somewhat, leading to weaker margins in this business this quarter. Another reason is also that we have both in second and third quarter talked about strong and good margins from overseas export sales due to the strong dollar.
The dollar has now weakened in the quarter, and therefore also our margins from that export sale is lower. Also, as we know, Rolled Products always have a significant maintenance work in fourth quarter, and that is also hitting the numbers a little bit. We do expect higher seasonal sales and volumes in first quarter, but the market looks to us also now in Rolled a little bit soft amongst other things on the automotive side. We should expect maybe lower sales than in the similar quarter the year before. Energy improvement in result of NOK 102 million to NOK 322 million for the quarter, picking up predominantly because of prices and also production.
Produced 300 GW more in the quarter. However, only 100 GW more sold in the spot market due to higher concession sales. It's quite natural that the concession holders are taking out larger volumes while prices are higher in the winter season around. Some improvement doubling in the price picture from NOK 131 per MWh to NOK 268. Still not a very solid price picture due to large available water resources in the quarter. Temperature has been until New Year quite. It's been warm and nice winter season at the end of 2012. It has been a colder season now. Prices has picked up.
They have actually been at peaks double the NOK 250 level, but is now down to NOK 340-NOK 350 per MWh level. We still expect the first quarter to move up both on realized prices obviously on volumes and thereby also on earnings. It's also worth mentioning that we have produced 10.3 TWh in 2012 versus 9.6 TWh in 2011. The prices has been 40% lower actually the average of the year. The negative correlation between the volume and prices has still been there as expected.
The last of these slides, the one that we now call discontinued operations, which is Extruded Products, in totality. We are just trying to take you down here and give you what we call a pro forma underlying EBIT number, so you can compare with previous quarter, although we are not reporting it that way. There are also information for you in the report, some more information. Basically, I just think I need to say that there has been an if you see the calculation, you will see that we have a pro forma underlying EBIT number of NOK -75 million in the quarter. This is a NOK 100 million reduction from the previous quarter.
This is predominantly due to much softer volumes in Europe primarily seasonality effects, but also reflecting the very weak market in the southern part of Europe. It's, I think, the extrusion, the general extrusion market in Europe for Hydro is down in the range of +10 % in the quarter. If you look at the net cash development in the quarter, we started the quarter with a zero balance net cash or net debt. We have generated NOK 2.8 billion in the quarter from operations, where underlying EBITDA is NOK 1.2 billion and operating capital is NOK 1 billion. We have invested NOK 1 billion.
This number is again excluding extruded products. In total for the year, we have invested, I believe NOK 3.4 billion for the business excluding extrusion and including extrusion, NOK 4.1 billion. Still lower than what we guided for, also last Capital Markets Day . We have been able to to renew and develop our business at some degree with still low CapEx numbers. A different and more technical topic, but nevertheless, important as we all know, is the development in pension liability. We are quite pleased to see that we have a decrease in pension liability calculated this year.
Bear in mind that 2011 here to the right is including Extruded Products, and 2012 is excluding Extruded Products. That is one of the reason why we see a decrease, but there is also another one. If we take a benefit obligation first, the effect of Extruded Products taken out is more than NOK 2 billion on this NOK 5 billion calculated decrease in benefit obligation. The rest comes from changes in assumptions, where the move from government bonds to covered bonds, using covered bond interest rate as a reference for the discount factor, is the most key factor changing this number.
We had some changes in salary and pension increase assumptions, and we are seeing an opposite effect by reduced discount rate in Germany. All in all, this gives more than NOK 2 billion in effect lower pension obligation. Plan assets are down NOK 1.7 billion, predominantly due to the Extruded Products being now taken out as a separate issue, discontinued operations. All in all, net pension liability is going down from NOK 8.4 billion to NOK 4.8 billion, or if you go net of tax at the bottom of the table, it's going down with NOK 2.6 billion. This is the number at the bottom of the table. It's the number that we use into our adjusted debt key number.
I would also like to mention here that we have a pension cost estimate of NOK 600 million for 2013. Also again, down from what we guided at Capital Markets Day, primarily due to the changes in assumptions. One quarter of this is viewed to hit the financial line, and the three quarters remaining will be an EBIT, underlying EBIT, charge in our P&L. That brings us to adjusted net debt, which we see down to now NOK 8.3 billion compared to NOK 19.9 billion at the end of last year. That kind of significant change in a key number like this obviously needs some explanations, but there are very distinct and clear items and rationale for it.
As you can see, net cash is at the same level as last year of NOK 1.7 billion. So it's not the net cash, net debt that makes this, it's the additional lines below, it's the adjustments. We have already talked about one of those, taking it down NOK 2.6 billion on net pension liability, the way I described for you. Then we have taken out associated businesses or Qatalum. We have taken out our share of debt in Qatalum, our share of the project financing from this. The reasoning is simply that there are no longer completion guarantees from the banks related to the project financing on Hydro and Qatar Petroleum anymore.
They have been signed off as of last summer, and therefore we have no guarantees that we are responsible for, and therefore we are taking it out of this key number. This is the way we understand it, also according to how the rating companies would do it. Then there are some other adjustments, some lease arrangements that has been revalued and so on, at the bottom, giving us that NOK 8.3 billion in adjusted net debt number. Then, Svein Richard Brandtzæg, I will finish off with just repeating what you said on dividend. The board of directors are proposing to maintain the level from last year of NOK 0.75 per share.
This will hopefully be approved at the annual general meeting in May. It will give NOK 1.5 billion in payouts, and the payout ratio is way above the stated policy, obviously, of 30%, simply because markets and earnings have been such that that is only one guiding. The other guiding is to acknowledge that we have a fairly solid operational performance, solid financial position, and has very much wanted to maintain the dividend level. Yes.
Okay. Thank you, Jørgen. We'll open up for questions. Yes, Justin, Citi.
Just one question. You talked about regional ingot premiums as sort of moving up about $300 a ton. Obviously, if you look into the realized price, casting price you received the price, it looks like that premium really has moved up. I was just wondering, you know, can you talk a little bit more about that? You know, how you actually are capturing that, whether you can capture that for your metal. Obviously, it's a large number now.
Yep.
Secondly, I guess moving forward, how you transfer price back, particularly in the Rolled Products and logistically to Extruded Products. I guess the third element of that is, can you pass that on to customers? Are you actually seeing that yet rather through margin compression?
That's a very good question, because there are some differences between different products from our cast houses. The metal products from Hydro consist of sheet ingot for the rolling industry, extrusion ingot for extruders, and foundry alloys for the cast house. The foundry alloys and extrusion ingot are priced based on LME plus a premium. Sheet ingots are priced on LME plus ingot premium, plus a conversion premium for sheet ingots. That means that when the standard ingot premium is going up, the price for sheet ingots is following accordingly. That means that we fully get the benefit of the standard ingot premiums increase on sheet ingots. On foundry alloys and extrusion ingots, we see that the premiums of these products have not followed the same development as the development of standard ingots.
That is also why we have taken down remelting of standard ingots to produce extrusion ingots. That is not profitable anymore. We are also now trying to lift up the margins. It is coming up to higher levels, but not to the same extent and the same speed as we have seen the standard ingot premium has developed into it. Obviously, this is going to be adjusted over time because there are a lot of capacity of extrusion ingots and foundry alloys based on remelting, and that is not profitable as it is now. After a while we will expect to see higher premiums of these two products. On sheet ingots, it is already in place.
That's at least the challenge now is related to foundry alloys, primary foundry alloys, and extrusion ingot.
Okay. We have a question from Evy Hambro in Goldman Sachs.
Just regarding the Norwegian kroner, obviously it's strengthening quite a lot lately, it's 5.5. Is there anything you can do to mitigate against that? Then secondly, on bauxite and alumina, your apparent cash costs, are there some other costs in there? Because if you just do revenue minus EBITDA, you don't really, you can't reconcile that.
I can take the first one with regards to Norwegian kroner, because Jørgen and me can do whatever we like, but it's not possible for us to influence on the currency, of course. On the other hand, the reason for introducing the $300 per ton program for all fully owned smelters, which is mainly located in Norway, is actually to compensate for the strong currency and also obviously the high labor cost in Norway. We have succeeded with that program. What we have delivered in Norway, the $300 per ton program, so far $235 per ton improvement, is at least what we can influence on to compensate for the disadvantages being in Norway and operating smelters. The second question.
Yeah. Let me at least see if I got your question. For the apparent cash costs on alumina. Oh, this is a mixed number. It's a total number of not only the Paragominas volume and the activity in Alunorte, but it also is the sourcing of alumina from third parties, and it's the sourcing of bauxite from the MRN mine, et cetera. It's a total number reflecting the cash costs for our total operation in bauxite and alumina business area.
Question from Robert Clifford at Deutsche Bank.
Yeah, just a couple simple numbers questions. At the moment, there's a NOK 100 million write back in the special items for the Primary Metal business.
Yeah.
I just wanted to know what that was. That's the first one. Second one is related to the question you just answered, actually. Is there trading that goes on in your alumina business, so you are selling some of the alumina as well. Are you able to tell us roughly where the Alunorte site comes out in terms of its underlying EBIT versus the trading EBIT? The third is just on the dividend policy. How far will you defend the 75 NOK dividend if the aluminum price were to improve? Would you continue to? Would that be the floor?
Well, should I start with the NOK 100 million observation that you made? We have effects related to the Kurri Kurri closure that is all together on a net basis zero. But there are two different elements to it. We are reversing some previous impairments simply because we have got an update of the valuation also on property and equipment that is left on the site and you know what residual value is it in there et cetera. We are simply reversing that. That is the NOK 100 million odd number that you observed. The other way goes some increased write-offs or trading call-outs that we expect to see coming in on the environmental side in order to handling the site.
That's why I didn't mention it as an excluded item, simply because it was netting out, but the observation is quite good.
If you go to the dividend, I can just to say that for me and my management team, it is of the utmost important to deliver competitive shareholder returns. The dividend is, of course, an important part of it. We of course have ambitions to deliver more than what we are going to do this year. I cannot promise that we are going to deliver 174% the dividend going forward. At least we feel that this is the level we can defend now due to the fact that we have a robust financial situation. We are also optimistic with regard to the long-term future of aluminum.
Then there was a question about separating out Alunorte and the commercial results, and I'm not, you know, very keen to comment very much more on it. Clearly, the core of the operation in the Bauxite Alumina area is the integrated business unit, Paragominas and Alunorte. That is also giving the biggest swings in our earnings due to whether raw materials are changing or price picture are changing. Therefore, we try to illustrate fairly firmly what that change is giving off effect. I indicated around NOK 100 million this quarter. Following this over some quarters, you can narrow it down.
We prefer to keep it related to the commercial area also simply because it is a large handling of these volumes through the commercial area. There is always a tight relationship between those areas.
Any final questions? The gentleman from Citi again.
Can I ask, I guess, a couple. One, you talked about the Indonesian export ban. Can you give us a little bit more detail on that? You're saying beyond 2014-
I guess, is there any ability or is anyone, the Chinese or you, looking at putting, you know, refining capacity into the equation with obligations if you want to, you know, mine bauxite. You can put in refining.
Mm-hmm.
Capacity. While I've got the mic. Secondly, just, you talked, I think right at the beginning, you said you were seeing some improvements in sort of residential and non-res construction. You know, if you look at your extruded products business, it looks like it went backwards in Q4 and got worse. I'm just wondering how you can tie those two statements up. Is it seasonal or are you guys seeing any improvements in sort of extrusion or is that. Also if you make some comments around, you know, Europe versus the US on the extrusion side. And just. Sorry, third question. Part of your cost cutting and cost savings, you said you actually got lower alumina prices coming through in the quarter. But obviously then your chart showing the alumina prices going up and the LME prices going up.
I assume that that's due to some of your historical legacy contract, which you've got LME linkages which are not seeing the same sort of pickup.
Mm.
Because they're linked to LME prices and LME prices are going up. If you could sort of remind us or give us some indication in terms of those legacy contracts and things from Alunorte et cetera, and how long they are actually in place, and is there a risk that they break and you actually see your alumina prices start ticking up?
Mm-hmm. Okay.
Sorry
Three important questions. Let's start with Indonesia first. Of course, the intention of Indonesia is that they want to have more value creation on their raw materials. We shouldn't be surprised to see alumina capacity being built in Indonesia preparing for export of alumina to China instead of bauxite to China. That is the natural development. But it's also quite interesting to know that China is looking further on in the world to get hold of raw materials. We have even sold bauxite from Brazil to China recently. It remains to be seen how this will develop.
It is clear that the fight for raw materials is continue to be developed and Hydro is in a good position with regard to that development. Second question about Extruded Products and the situation in Europe. As I said, Europe is in a weak situation. We have no reason to believe that there will be a short-term pickup of demand in the building and construction market in Europe. Some activities in Germany, but on a very low level and so in Europe. We expect that it will remain on a low level at least for some time into the future. It's possible to say how long time that will be, but at least for 2013, I'm not very optimistic with regard to growth in Europe.
The question about the differences between the European and the U.S. market. First of all, it was a strong demand development in the U.S. market in aluminum last year, supported by transportation. We see now that the building and construction market is now starting to be more lively and more demand into that segment. That is supporting the demand going forward, of course. We believe that the development we saw last year in the U.S. market will continue this year. Finally, about alumina and the contracts that we have. We have already announced and communicated the fact that we are honoring the contracts that Vale entered into before we signed the contract in the deal with Vale.
Most of these contracts, or at least some of them, will be released from 2015 and onwards. That means until 2015, we don't have significant amount of alumina to sell into the market. We are delivering now contracts according to the Vale agreements. They are very much linked to. They are LME and percentage of LME. The result from Brazil will be quite different if we could say that we would release that volume today and sell at $350 a ton, which is the market price today. We are not in that situation.
At least until 2015, we are locked in with big volumes, and then from there on, we will be able to sell on more on the market level.
If you look at our own earnings, there are some timing differences on alumina. Bauxite Alumina would typically incur the LME effect with a month delay, while the cost side in Primary Metal has some longer lead times and inventories and so on. They saw a relief in Primary Metal on their alumina cost this quarter, while the earnings due to the LME development in Bauxite Alumina business area was higher price and improved earnings in the quarter. This time, timing differences made it two different effects actually.
One more question.
Yatin Pujara from Citigroup. Are you able to give any comments around 22% stake held by Vale? Do you have any sort of engagement with Vale at this stage? Or what would be your potential standpoint depending on what Vale comes up with? What are the options Vale could potentially be looking at, given they've already taken some impairments on your stake? That's my question. Thanks.
I'm not in a position to speculate on what Vale is going to do, and this is ownership question that you have to ask Vale. The only thing I can say that we have been happy with Vale as a owner. We have had one person on the board of directors that is still there. It remains to be seen what Vale is going to do into the future about their position. Okay, any more questions? If not, I will just take the opportunity to thank Jørgen for 22 years in Hydro and especially for the last four years as CFO in the company. This is his last presentation here in London, and I think we should give him a big hand.
Thank you. Thank you.
Let me also then take the opportunity to present the new CFO, Eivind Kallevik, that is coming directly from Brazil, and will take over this position from the fifteenth of February.
Yeah.
Thank you for your attention.
Thank you.
Thank you.