Q4 results presentation. I would like to welcome both those of you who joined us here live in London, but also those joining us on webcast. Here to present is President and CEO, Svein Richard Brandtzæg, and CFO, Jørgen C. Arentz Rostrup. After the session, there will be a Q&A where both those of you who joined us here and those on webcast will be able to ask questions to Svein Richard Brandtzæg and Jørgen C. Arentz Rostrup. Let me just draw your attention to the cautionary notes in relation to forward-looking statements that is shown on the screen and provided in the materials. I'll leave the floor to you, Svein Richard Brandtzæg.
Yeah. Thank you very much, Richard. The headlines for the quarter is first of all that we saw a weakening in the demand of aluminum, which again underlines the importance of the repositioning and the cost reduction measures that we have already introduced and what we are additional introducing. We had the Q1 with full production in Qatalum, and we have also good production in both Alunorte, but record production in the bauxite mine, Paragominas. Result NOK 1.1 billion, about half a billion Norwegian krone below the Q3 result, and half a billion above the Q4 of 2010.
The result is influenced by lower volumes and lower metal prices due to weaker markets and lower seasonal demand, which is expected, but the demand was lower than the normal seasonal demand in Q4 . Again, Energy delivered very solid result, and the EBIT result from Energy in 2011 is a record high result. The Board of Directors had a meeting yesterday where they decided to propose to the general annual meeting a dividend of NOK 0.75. If you take a look at the downstream business, we saw a weakening in Rolled Products of about 6% during the quarter since the Q3 .
Definitely, foil and general engineering had hit downwards, also automotive heat exchanger, while we had a stable development in can from the third quarter. In extrusion, the Extruded Products in Europe especially hard hit, but also downward development in North America and also in precision tubing. Stable in South America and also stable in Building Systems, but in Building Systems it was stable at a very low level. In total, 8% down in the Q4 compared to the Q3 . If you take a comparison between 2011 and 2010, the picture is a bit different than if you only take a quarterly look at it. There is a change in the product mix since 2010.
Good development in can and automotive heat exchanger, while we had lower volumes in foil and general engineering compared to 2010. 2% down since the previous year. In Extrusion Eurasia, we had a positive development in most segments except Building Systems. The fact that Building Systems volumes went down 12% is one of the main reasons why we are delivering a weak result in Extruded Products, which is not satisfactory. This is volumes that has been lost in a high margin market, while we have increased in low margin markets. Also, some of our competitors in building and construction are also moving into other segments which put the pressure on the margins in the other segments. In total, 1% lower volume in 2011 compared to 2010.
This means we are continuing to adapt to the market as we have done previously. We are restructuring the portfolio in Extrusions with the closure of extruder in Carmaux and also in Prague fabrication, mothballing capacity in Spain and in Portugal. In Building Systems, we announced already in the Capital Markets Day that we are delivering a cost program, reducing the cost with EUR 30 million, but we have increased ambition level now to EUR 40 million by the end of 2012. This is both Iberia and Italy, where the market is especially weak. We are closing down six production plants and nine distribution centers, which then will reduce the fixed cost. We are reducing the manning and in general, turning around the Building Systems business according to the situation.
We also initiated a cost reduction program in Extrusions in Europe due to the weakening market through the quarter and had savings out of the year of about EUR 20 million in Extrusions in Europe. This was also again reducing capacity, reducing shifts, taking out manning, and cash preservation. We also are building up capacity in the emerging markets. We are investing in China, in our plant in Suzhou, which is two-hour drive from Shanghai in China, where we have a precision tubing plant. We are adding 7,000 tons precision tubing capacity for the heating, ventilation, air conditioning, and refrigeration market and the automotive market in China. On top of that, we are building also a press for the high-end extrusion market in China.
In addition, we are also building a new press in our plant in Itu outside São Paulo in Brazil. In total, we are almost doubling the capacity in emerging markets within 2014, which means that the growth in that part of the world will be about 20% per year in next three years. Looking at the development on LME, declining prices during the quarter, starting with about $2,200 per ton, down to about $2,000 per ton. The realized price was $2,439 per ton. Of course the market price in the quarter will be reflected in the Q1 results for 2012.
It's interesting also to note that there is quite a steep contango in the aluminum price going forward. This picture shows the market balance outside China. In the end of the quarter, it was a stable production but less demand, so the gap between supply and demand was widening. Since then, and also during the end of the quarter, it was announcements of curtailments. We have also announced curtailment, and we are taking out 60,000 tons in Kurri Kurri. But if you add up all the announcements that has been made, about 1 million tons of capacity will be taken out of the market. We are maintaining the growth of 3%-5% in demand in 2012. That means that the supply-demand balance will be tightening during the year.
The inventories are again picking up in the end of the quarter as a result of the oversupply, of course, but also that there is a contango in the market. 12 million tons if you add up all the inventories, which then corresponds to about three months of consumption. With the contango, we expect the financial deals to continue and being rolled forward in the future. Ingot premium is an important indicator of the tightness in the market. We had the record high levels in the ingot premiums. Some softening in the end of the quarter, which has now picked up again at the beginning of Q1 this year.
This slide we showed in the capital markets day where we show that demonstrate that China is a net importer of aluminum units mainly through the fact that China is importing large volumes of raw material. Quite stable however on alumina. If you add up the alumina import and the bauxite import to China in 2011 it was 25% higher than the raw material import in the year before. Quite stable and balanced in primary metals. The export of fabricated products was higher in 2011 than 2012 and this goes mainly to the local Asian market around China. The alumina price was softening through the quarter starting at 60%-70% of LME down to 14%-15% of LME.
In dollar terms from $360-$300 per ton, and now back to about $320 per ton. Energy started with low prices in the beginning of the quarter due to high inflow and also a high reservoir level. The reservoir level has changed quite dramatically during 2011, and now ending up at around 80% reservoir filling in the end of the year. The prices were quite stable in the middle of the quarter, but softening a bit in the end of the quarter due to mild weather, lower CO2 cost, lower coal cost in Europe. In the beginning of this year we have seen quite a good development in prices due to the colder climate.
In Brazil, we have introduced the Hydro Production System in our facilities both in Paragominas and in Alunorte focusing on operational performance. We have improved our operational performance with regard to volumes in Alunorte with 9% from the first to second half year. We have improved the volumes in Paragominas with 23% from the first half to the second half. Going forward, we are stabilizing the volumes at around 6 million tons in Alunorte going forward and around 9 million tons in Paragominas. We are now in the rainy season in the area of Pará Province in Brazil. We are stabilizing the volumes in the challenging weather conditions. In Primary Metal, we continue with the $300 program that we have talked about previously.
We have now delivered according to plan, and we are now at $200 per ton improvement due to operational improvements, but also reduced fixed cost in the smelters. The cash cost is still at $325 per ton due to higher raw material cost, energy costs, also weaker dollar currency, and we have added Albrás since March 1, 2011. Q4 was the Q1 with full production in Qatalum. We are running the Qatar smelter with a bit higher current density than previously announced. They are producing now a bit above 600,000 tons per year.
We are very happy about the operational performance, and we're now streamlining the smelter, which had additional resources during the ramp-up period that was finished the 15th of September last year. We continue with our active portfolio management, turning around the building systems business. I already mentioned the cost savings of EUR 40 million that is going to be delivered this year. We have sold our stake in Alpart, Jamaica alumina refinery, focusing on our Brazilian asset and raw material production, and then also curtailing one product line, 60,000 tons in Kurri Kurri. We are considering further measures in Australia, in Kurri Kurri going forward. Hydro is much of our global aluminum company. 75% of Hydro business is now priced on a global basis.
Bauxite & Alumina, that is priced globally, means that we are less dependent on the situation in Europe. If you look at the downstream business, about 75% of the downstream business is located in Europe with regional European prices. 2011 was the first year where Hydro was really a fully integrated aluminum company. We are happy that we have achieved operational improvements in Bauxite & Alumina. We have completed a ramp-up of Qatalum. We continue our efforts in the cost-cutting exercises and the programs we have already introduced. We have also increased our ambitions in some of the areas, and we have a good financial situation and will maintain the financial situation going forward due to the market situation.
We have a strong focus on cash preservation and also the cash flow in the company. With that, I leave the word to Jørgen.
Thank you, Svein Richard, and I will take you through the numbers in somewhat more detail. If you look at underlying EBIT, we are at NOK 1,133 million, down some NOK 500 million from Q3. Aluminum prices and lower volumes are obviously, as you probably have read about already. I'll get back to the business areas as normally later, just comment on that other and elimination reporting segment. It is negative numbers last quarter and then positive numbers NOK 92 million this quarter. The cost base on the common cost side, staff and corporate costs and other things are basically unchanged quarter on quarter. But there is a NOK 250 million positive elimination effect this quarter.
In very general terms, I would say that increased internal sales volumes and margins will typically lead to a negative elimination on this item. Opposite, decreased volumes and decreased margins internally on inventories would typically lead to a positive elimination effect. It's kind of taking out the opposite effect on this under this reporting area. There is a NOK 250 million positive number in this, so underlying it's NOK 160 million. It's right there where we are guiding it between NOK 150 million-NOK 200 million a quarter negative. To move over to quarterly result in a little bit broader context. It's half a billion then in change quarter-on-quarter.
We got 0.1 billion positive effect from somewhat lower raw material cost. It is divided on different raw materials in the Primary Metal part of the business. Volume side in Primary Metal and downstream business is down NOK 0.3 billion. Two-thirds of this is actually in the downstream business. It is illustrating the volume development quarter-on-quarter that Svein Richard Brandtzæg was talking about. 0.2 billion is the effect on Primary Metal from lower prices and the currency development. This is $150 a ton in U.S. dollar terms but only NOK 390 a ton. The dollar has obviously strengthened mitigating some of this effect in the quarter. Bauxite & Alumina is delivering 0.1 billion less.
There is obviously many other small elements going against each other. This is the main explanation. Key financials, revenue, NOK 21.7 billion. It's down 9%. Again, the same reasons, prices and the volumes, obviously. Year on year, revenue, excuse me, is up 20%. Fifteen percentage points of this is due to the inclusion of Vale. The remaining five is due to prices. If we look at underlying EBIT. Going on with the report that we are reporting a negative EBIT due to the fact that we are having negative items excluded of NOK 1.5 billion. The impairments obviously being the major part of this. I will revert to that later. Fairly stable and neutral financial items, NOK 26 million in charge.
Quite different last quarter, as we remember, where we took a financial item hit because of the strengthening dollar based on the fact that we have most of our debt in dollar as a hedge to the revenue side. Income then reported income -NOK 388, tax expense NOK 361, and the net income of -NOK 749. An underlying basis, positive net income of NOK 876 in the quarter. I'm not going to comment very much on the other numbers here, just draw your attention to the year in total, where we have a reported EBIT of NOK 9.8 billion versus an underlying lower. It's opposite picture than for the quarter.
This is obviously due to the large item-excluded effect of the write-up of the Alunorte position that we had prior to the Vale acquisition. If we look at tax and finance expenses, again, I think the tables here should give you the yearly picture fairly adequate. We have an effective tax rate of 21% for the year. If we adjust for the curtailments, if we adjust for the tax-free gains effects on this, if we adjust also for the write-up of the Alunorte position we had prior to the acquisition, then we are on an effective tax rate of 32%, which we believe is more where it should be over a normal year.
It is then very low in this quarter, probably, because we had too high taxes through the first three quarters. As I said, financing on the quarter was very minor charge. For the year, 2011 is a much more significant charge, NOK 1.3 billion. This is then due to the dollar development, in particular in the Q3 , which gave a Forex loss of close to NOK 1 billion. Last year, or 2010 was opposite when Norwegian krone appreciated to the euro and gave significant gains. If we then look at items excluded and start with the biggest item on the list, we had impairments announced some weeks ago.
The major part of that was the Kurri Kurri announcement that Svein Richard Brandtzæg mentioned, NOK 970 million in impairments. The remaining book value on those assets is approximately NOK 1.2 billion. As Svein Richard Brandtzæg said, we are continuing our effort in Australia and evaluating what to do longer term with assets and production there. Building Systems, we impaired NOK 235 million based on the situation that Svein Richard Brandtzæg commented on, and we have approximately the same book value remaining. We are quite clear that we will run those remaining assets going forward, as we see it today at least.
Solar business, we had a minor impairment and insignificant book value left on solar. We have kind of started on the lower side of this table. Why don't we continue there and say that the gain on divestment is related to the Alpart refinery that we sold in the quarter. Going towards the top, we have rationalization charges of some NOK 120 million. This is Building Systems and some smaller money on Kurri Kurri. We have the three top items being the commodity influenced effects on unrealized LME power effects and metal effects, approximately half a billion in charge. All in all, one point five billion in charge in the quarter.
Moving over to our business areas, Bauxite & Alumina had an underlying EBIT of NOK 159 million, a decrease of NOK 143. It is significantly lower alumina prices in the quarter compared to last quarter, although we have had some positive effects from the alumina hedge that we made related to the acquisition. We have improved production in Paragominas, a 6% increase quarter-over-quarter, and somewhat lower production in Alunorte. Production came out where we guided in Q3 , fairly stable in Q4 compared to Q3 .
Going forward, again, the focus is to stabilize and then gradually continue to improve production for these assets. We are going to realize what we see today, continued lower LME prices, at least based on what we have experienced so far in the quarter and are seeing as we speak. Remember here that most of the contract portfolio that we acquired from Vale is still based on longer term contracts. They are gradually terminating around 2015. But they are now as a percentage of LME with a fairly short response time to the LME. We see the prices that we see on the curve.
If we then move over to Primary Metal, we had an EBIT underlying of NOK 484 million, down 25% or NOK 169 million in the quarter. Of this NOK 169 million decrease, NOK 300 million was the effect of lower prices, lower volumes, and to a lesser degree, somewhat lower premiums. Going the other way around was somewhat better raw material cost. It was lower alumina and lower energy cost, and also some one-off items positively influencing our numbers in the quarter. Negative Qatalum result, and remember then this is after depreciation and also after interest, and minus NOK 8 million our share of that activity this quarter. They have a...
Minus one, they have a very much more LME spot pricing into their numbers in Qatar than the rest of our portfolio. We have, as normal, as operationally hedged, sold approximately 85% of our production for Q1 at approximately $2,150. That is $300 down in Q1 compared to Q4. As you know, we are continuously selling our metal production on a 3- to 4-month time length forward. This is obviously going to make our numbers lower for Q1 , reflecting the Q4 LME price picture externally. I would also like to say that we will expect throughout 2012 some relief in the coke prices.
We see that marketing softening somewhat right now. We will disclose more information on Qatalum next quarter. We will disclose EBITDA and EBIT. Now that Qatalum, as Svein Richard Brandtzæg said, is on full production. They had a full production quarter in Q4 . We believe it's a good time to disclose some more information on this smelter going forward, and we hope you don't mind that we do that. Metal Markets had a negative result of NOK 39 million down from positive NOK 93 million in previous quarter. This seemed like a quite significant change of NOK 120 million quarter on quarter. The currency and inventory valuation effects was largely neutral in Q3 .
They were negative at approximately NOK 120 million in this quarter. The number is fairly flat if you look beyond the currency effects and the inventory valuation effects. Going forward, we will see some increased volumes here due to the seasonality. We believe that the premiums are still holding up, as Svein Richard Brandtzæg said. But obviously, results will continue in this business area to be volatile due to the nature of the business area's business. Rolled Products had a 6% decrease in volume in the quarter compared to last quarter. This is the main explanation explaining probably two-thirds of the decrease of close to NOK 40 million down to NOK 86 million in Q4.
The other one-third of that change is related to margins as we see them somewhat softening in Europe. I think Svein Richard Brandtzæg has been through the changes taking place there. It's a mix of seasonality, obviously, where Q4 is a weak quarter. It's also related to the weaker markets now than time back, and also probably some destocking effects in there. It's hard to distinguish between these three different elements. We expect therefore higher seasonal sales, but as I said, in a continued probably somewhat weak market as we in particular see Europe being today. We're also making a technical change in how we operate things.
From January first, we have moved the Rheinwerk smelter to Rolled Products, consolidating our German operation, having one management for all our key assets. We have then one German agenda, common management to handle the business there. We also make sure we extract the maximum of synergies with these two plants, the Grevenbroich hot mill and Rheinwerk smelter being next to it. Rheinwerk, to the extent it will produce, will be a sole supplier of liquid metal into the rolling system. Extruded Products. It's continued hardship for Extruded Products. We are not pleased with the result, obviously. It's a challenging situation and market that we are facing. Result is NOK -91 million, NOK 150 million change over the quarter.
You would also see from last year that Q4 is typically a weak or the weakest quarter in a normal year. Still, this is beyond a seasonality effect. I think also here, Svein Richard Brandtzæg was quite clear where we see the challenges. We see no relief in the market, so we cut costs and units and adapt to the situation that we see. We should again see some seasonality uptick, but we expect continued weak markets going forward. Energy. Fantastic year for energy. 2011, it was a historical all-time high in EBIT earnings of NOK 1.9 billion almost. We are very happy with that.
With the fact that we still have very solid reservoir positions in spite of the high production and good earnings in 2011, we still have a solid physical position going into the new year. The quarter ended at NOK 449 million, somewhat down NOK 65 million compared to Q3 , primarily due to lower spot sales. Just the way we are, you know, ending up with our own production contracts in and contracts out, and spot sale was somewhat lower this quarter. Basically, very much the same performance in both these quarters. Going forward, we expect high production. We are at very high reservoir levels.
We expect high productions Q1 , if nothing change significantly also in Q2 . Average prices will therefore have a natural kind of pressure downwards with good reservoirs in Norway. Nevertheless, we have seen cold weather and some uptick in prices lately, so we just had to follow the weather development to see how this continue and develop. Cash flow Q4 NOK 1.8 billion in total change to a positive net cash position of NOK 1.7 billion, NOK 3.5 billion, including generated cash from operating capital is the operational situation.
We have invested net NOK 1.3 billion, and we have some currency effects on the dollar converted to Norwegian krone strengthening dollar, which adds up to then in the end NOK 1.7 billion in net cash position. For the full year, cash flow from operation is, or if I start on the right-hand side of this chart maybe, we are then at NOK 1.7 billion still. If we then adjust in our discussion for the effect of the Vale purchase itself, that is a total effect of NOK 11.5 billion this year. Half of that number relates to the cash part of the transaction with Vale, and the second half relates to the debt that we have consolidated from those assets that we have acquired.
Those debt numbers of NOK 5.7, half of that 11.5 includes then the consolidation effects of minority positions in Alunorte and Albrás. If you exclude that, we have a change of NOK 2.2 billion generated from 11 to 13.2. Cash flow from operations, NOK 7.6 billion, net investments of NOK 3 billion, and then we have paid dividends, and we have the same currency translation effects as the last element. Somewhat increased net pension liabilities. We have slightly less liabilities than what we talked about at Capital Markets Day. They are coming in at a change of NOK 1.3 billion. The net liability after tax is now NOK 6.9 billion, and this is entirely due to a reduced discount rate on the Norwegian pension liability.
There is nothing new there from what we talked about in December. If we look at adjusted net debt, we recognize NOK 1.7 on our balance sheet as a net cash position. Our share of debt in non-consolidated companies has increased slightly, again, due to a stronger dollar, so translating into Norwegian krone. We have NOK 6.9 in net pension liabilities after tax, as we explained on the previous page. We have added a lease arrangement of two ships, two vessels that we will receive during 2012 on the others line. These two ships will be used for transporting bauxite to Alunorte. It's 25-year lease.
I believe in the end, when we receive the ships during the year, it will be a capital lease arrangements, and we will most likely add it to the balance sheet at that time. The board of directors have proposed 0.75 NOK per share in dividends. I believe this will be subject to approval, of course, by the annual general assembly. It will be due for payout in May, in total 1.5 billion NOK. Basically it's in our view confirming the shareholder dividend policy of over the cycle payment.
The numbers seem to be higher than the policy itself, but here we should first of all remember the extraordinary dividend in the beginning of this five-year period, and also the differences this year between underlying and reported numbers. That, Richard, lead us to the summing up.
Yes. The priorities this year is to continue the efforts in repositioning the smelters on the cost curve. The $300 program continues. We are going to deliver additional contribution through that program. We're focusing on streamlining the Qatalum smelter. We are focusing on operational performance in Brazil, in Paragominas and Alunorte, stabilize the production in 6 million tons at Alunorte, 9 million tons bauxite in Paragominas. We are adapting to the market in downstream, where we are now cutting capacity and cutting costs and adapting to the demanding situation, especially in Southern Europe.
We have a strong financial situation, and we maintain focus on cash preservation, which means that we are focusing strongly on net operating capital costs, of course, but also then on capital expenditures going forward, where the potential projects are evaluated, including the CAP project in Brazil, with regard to timing of execution of these projects. That concludes the presentation. Thank you very much.
Should we then check if there are any questions, either here or I also guess online, in the room?
Hi, Rob Clifford at Deutsche Bank. 2 questions. The reason for the loss at Qatalum was higher interest and higher depreciation, which basically points out the capital cost was too high. Does this mean it's not feasible to build, you know, modern smelters in that part of the world? That was the first question. The second was just on the ramp up in the extrusion capacity in China that you talked about. What sort of margins do you think are sustainable in the extrusion capacity in China? Can you compete in that market versus the local extruders?
Okay. Should I go for the Qatalum question, and you go for China?
Yeah.
Yeah. Well, I was maybe not clear enough, and I am sorry for that. My intention was just to say that the number that you see, -NOK 8 million, in result, for the quarter on Qatalum is not an EBIT number. It is a number after interests. Obviously it is a higher share of debt in that company, and there is a fairly significant depreciation level based on the investment. Nothing has changed in our view on the asset and on the cost level of the asset. What we are still working on is to use 2012 to get down to the targeted cost level for the asset.
That is still what we have said earlier, cash cost level of between $1,400-$1,500 a ton, based on metal prices around $2,000-$2,500 as approximate.
Where is it running at the moment, the cost? Where are we running in the Q4 ?
I don't have that comment for you. Obviously, we believe getting to this level, being through this optimization, we still have people packing up their stuff after the investment project. You know, it's still closing down the last tents and buildings and getting the trucks out of the site. We are then having our Q4 being in full production. It's producing above design capacity, produced at a level of 600 kilotons annualized production versus design capacity is in regard to 585. During the year, with the streamlining that we have talked about, we believe we will be at those numbers that I referred to you.
We will get back, based on Q1 numbers, because this is the first full year in operation, with some more detailed numbers on this.
With regard to the question about the margins in China, first of all, we are not competing in the commodity extrusion market in China. We are talking about the high end, first of all, the precision tubing market in multi-port extrusions and aluminum tubes, which is targeting the automotive business in China, but also the heating, ventilation, air conditioning, and refrigeration market, which is a high-end market with good margins. This standard extrusion profile or the extrusion press that we are adding on top of that is for the high-end extrusion market, where we are now, in fact, we have sent profiles from Norway to China through some years to supply the mobile communication market in China.
Which is profiles very advanced that has not been able to produce in China. We see that as a market for the local production also in China. This is the high-end extrusion market, in addition to the high-end precision tubing market in China, where the margins are not far away from what we see in the European market. In Brazil, the picture is also similar. We are targeting also there the high-end market. We have a precision tubing business in Brazil, and we are adding the high-end extrusion capacity through this investment.
Okay, Jason Fairclough from Bank of America Merrill Lynch. Two questions, if I may. Just on Kurri Kurri, you said you've taken the write-down. Obviously you've closed one line. There's two more lines there, and there seems to be a bit of a hint, difficult financial position. Should we expect another write-down and two more line closures at Kurri Kurri? That's the first question. Second question, just on Qatalum, you said you don't hedge, selling mostly on spot. I applaud that. Would you consider doing that for the rest of the business?
Okay. First on Kurri Kurri, Jason. I think you should read out of it exactly what we are saying. We have taken down one production line and closed a NOK 1 billion writedown, yeah? This was the most urgent thing to do simply because this was the least efficient production line and because we also could curb some investments that way. We are using very little money now on relining in the plant. This line is already out.
Are the other two lines cash flow positive at today's price?
I don't want to be that specific, but of course, the dilemma in the plant hasn't been taken away by taking out one line and having fixed costs distributed on less volumes. We are evaluating the situation, turning every stone, and then we will notify you as soon as we have made any conclusions. On the second question, I'm sorry, I might disappoint you somewhat. For us, the operational hedging works perfectly fine. It's a reflection of the fact that we are not in the standard ingot business. We are in the metal products business. We are, through this operational hedging, reflecting more or less the pattern of our customers buying three, four months ahead of their of when they need the products.
It works well. It has this advantage that we are able to inform you about what our prices will be next quarter, and you are obviously benefiting from that because you can understand more where we are coming from. We believe that you are well aware of this. We don't believe this will change.
Stay on spot?
Until that is changed, Qatalum will stay on spot.
Hi there. Ernst Skarstad , Goldman Sachs. Just a quick question. Now that you've sort of improved the assets in Brazil, your mining assets, are you now looking at expanding Paragominas III and then CAP refinery construction?
I mentioned already that we are evaluating all projects, including the CAP project with regard to timing. I cannot give you more specific answer on the CAP project today, but definitely we are evaluating it. With regard to Paragominas, the main priority now is to stabilize the production on the level that we have reached because we have done a substantial improvement in Paragominas, and we want to keep the level going forward. That is the first priority in Paragominas.
You mentioned that you will get 2 new ships on a 24-year lease for shipping bauxite. Does this really make sense? Because if you look at the Baltic Exchange, the freight rates are down so very much. Wouldn't it be cheaper to charter the ships you need on the spot?
Yeah, well, I must probably be a little bit careful here because I'm not our vessel expert and logistical expert. Obviously we see a lot of volatility and also in the freight market, as you're pointing to. These are obviously contracts that has been entered into a long time ago. It is efficient and tailor-made ships for transport of bauxite from MRN and down to Alunorte. As far as I'm concerned, that arrangement makes sense. I'm not able to bring any light on, you know, whether that long-term arrangement was entered into in this market or that market and how that compares to today.
Tim Jarrett from Redburn Partners. Just two questions. Firstly, on growth, is it basically your focus gonna be on bauxite and alumina now and very little effort on expanding primary aluminum? From Qatalum too. Secondly, you keep mentioning that the Albrás smelter is now included in your cash cost slide. So how big a hit did that do to the whole overall picture? What would it look like if you didn't have the Albrás smelter there?
Yeah, with regard to our priorities, it is not necessarily to add more capacity to market in primary smelting. We have already increased our volumes in Bauxite & Alumina, and we will continue to operate the Paragominas and Alunorte at the level we have now reached. With regard to Albrás, we have included that through the acquisition. Albrás is in a more challenging situation, of course, due to the currency. Albrás is a very well-operated smelter that we believe it could be developed further in a positive way. The currency in itself is, of course, impacting the performance of Albrás smelter.
Is it above water at the moment in current pricing?
In the current pricing, yes. Of course, this is again depending on the further development of the currency.
I have Thorsten Zimmermann from HSBC. I have a question on working capital. You've had a very nice free cash flow in the Q4 . A lot of it seems to come out of working capital. The key question is now with alumina prices rising and volumes, higher volumes in the Q1 , how much do you expect to have to plow back into the business, in the Q1 ? Maybe two questions on Rheinwerk. How much of EBIT is moving from one segment into the other, roughly? Could you remind us of the book value of Rheinwerk?
Yes. Let's start last. I need to look at Stian and Richard here and seek advice, but it's very, very low book values on Rheinwerk. I will start there. I would almost say next to-
Only the land.
Only the land. Land in Germany is valuable, but not to that extent that that is a significant number, I would assume. Then your second question was on the P&L EBIT effect. Given that we have said that basically we have run Rheinwerk and had our effort on running Rheinwerk at cash neutral basis. If we assume that Stian is correct on only the land, there shouldn't be much depreciation in it either. There are minor EBIT effects of moving this up till now, moving it over to Rolled Products. We haven't changed the production output from that either, as of now.
It makes sense for us to do it regardless of what is going to be the end game for Rheinwerk. If we are going to run it is clearly best to run it as integrated as possible with the large world scale rolling mill that we have there. Both from a management point of view and also from a metal flow point of view. If we are going to close it down, it makes sense to do that with a presence bigger system around it in order to do that closure as efficient as possible, because they are literally neighbors.
Regardless of what the outcome is, this is a good thing to do, but we obviously hope that we will be a part of the sourcing of metal to rolling mill. The first question was working capital. Thank you. Yes, we had a release of working capital this quarter. We don't expect any significant uptick in Q1 . You never know. It's definitely based on those factors that you're mentioning, besides how much production we run. We have done, at least in the fall, what we could in order to adjust production to lower sales. The way we have done cold metal ingot remelting, et cetera. Out there, both from a management point of view and also from a metal flow point of view.
Out there, both from a management point of view and also from a metal flow point of view. If we are going to close it down, it makes sense to do that with a bigger system around it in order to do that closure as efficient as possible, because they are literally neighbors. Regardless of what the outcome is, this is a good thing to do, but we obviously hope that we will be a part of the sourcing of metal to rolling mill. The first question was working capital. Thank you. Yes, we had a release of working capital this quarter. We don't expect any significant uptick in Q1 . You never know.
It's definitely based on those factors that you're mentioning, besides, how much production we run. We have done, at least in the fall, what we could in order to adjust production to lower sales. The way we have done, cold metal ingot remelting, et cetera. We have taken that down in order to take down production with somewhat, softer markets. We will continue to strive for that. We are busy working on working capital. It is one of the topics that we feel are important, and we feel we still have a way to go. Let's see. Okay. If there are no more questions, should we call it a day or?
It looks like, there's no more questions. Thank you very much for your attention.
Thank you.