Good day, and welcome to the North Hydro Q2 Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Lina Haudetra. Please go ahead.
Good morning, and welcome to Heathrow's Q2 Presentation and Conference Call. Today, we'll run similar to Q1 2020, where we will start with a presentation by CEO, Hilde Metzoroffheim, followed by CFO, Paul Hildemo, before we end with a Q and A session. The presentation slides we will walk through can be seen on the webcast. The link to the webcast as well as the slides can be found on hytol.com. Please note that you will need to dial in to the conference call to be able to ask questions at the end.
It will not be possible to ask questions over the webcast. If there are any media inquiries for 101 with either Hilde or Paul after the presentation, please contact Head of Media, Halgo Mollam. Please change to Slide 2. With that, I turn the microphone over to you, Hilde.
Good morning, and welcome from me as well. So let's have a look at the Q2 results and some highlights for the quarter. Underlying EBIT for the Q2 was DKK 949,000,000, up from DKK 870,000,000 in Q2 last year. The quarter was indeed heavily influenced by COVID-nineteen's negative impact on the global economy through large forced and voluntary close down across the world, resulting in reduced consumer spending and a huge drop in aluminum demand. As a response, we have taken strong measures to maintain and adjust our operation and cost base to the lower demand, always with a healthy and safe working environment as our top priority.
In terms of our results for this quarter, the weaker global demand negatively impacted our downstream demand with large reductions in volumes compared to Q2 last year. In addition to this, the weaker demand has reduced prices for alumina as well as aluminum compared to last quarter. On the other side, our result is positively impacted by weaker BRL and Norwegian kronor in addition to lower raw material prices in our upstream businesses. These raw material prices have contributed to a particularly strong quarter in bauxite and alumina, where our production costs at Alnorte are at record low levels, which is also supported by improved operations. We are focused on taking down costs and safeguarding our cash flow during the quarter and improvement initiatives are ongoing with full speed.
We expect to reach our improvement target of SEK 4,100,000,000 for 20 19 2020 with cost efficiency and restructuring initiatives being the main enablers. Despite very challenging markets, the reduced costs, lower investments and plans and released operating capital have resulted in a free cash flow of around NOK 1,000,000,000 for the quarter. The challenging market environment highlights the need for Hydro to continue to focus on lifting profitability, driving sustainability, positioning the company for the future. We believe our position as a low carbon producer of aluminum is an increasingly important competitive differentiator, while also growing and diversifying our portfolio where Hesiod's capabilities match megatrends such as in recycling, renewables and batteries. Next slide please.
Since the outbreak of the pandemic, our top priority has been the health and safety of our employees, contractors, customers, suppliers and local communities. And we have followed the advice of authorities and implemented strict precautionary measures throughout the whole company. Special focus has been in Brazil. We sustained operation in Paragominas and Alunorte in Albras, while at the same time supporting the local communities to reduce the spread and effect of the virus. Our teams have spent countless of hours to assemble and deliver more than 36,000 baskets of food, water and hygiene supplies to the local communities.
In addition, we have also donated funds to build nearly 1,000 field hospital beds as well as equipment to support the local hospitals. As we mentioned last quarter, specific financial measures have been taken to improve our business and protect our liquidity during these times with large uncertainty, which includes freezing CapEx, delaying dividend payments and issuing a NOK 7,000,000,000 bond. Fourth closure and demand driven capacity reductions has mostly affected our downstream operations. Despite the fact that many countries now have opened up after lockdown, the majority of our extrusion plants are still operating at reduced capacity and we also see reduced capacity utilization in our old products plant. However, we have seen improvement trend during the quarter and current order intake is now around 75% to 80% for extruded solution and around 80% for all products.
Production at metal markets recycling facilities is largely back to normal after curtailments in Q2. Our upstream operations on the other hand have been operating mostly as normal, obviously with strict proportionally measures to avoid the spread of the virus. Let me now move to the market. Please move to Slide 4. COVID-nineteen has created a global recession and as such negatively impacted the demand for aluminum.
On the left hand side, you see estimates for 2020 GDP, which has been further revised downwards over the last couple of months from the level seen in dark blue to the lighter blue. We also see that industrial production worldwide is showing the same downward trend as GDP, but to an even larger extent, negative 8% growth worldwide in industrial production. Indications show that the bottom could have been reached. However, the length of time towards recovery remains uncertain and a strong second wave of the virus could further worsen the situation. Among this challenging landscape, however, China has shown a sign of recovery.
It is the only key region predicting a GDP increase in 2020 and development in second quarter has exceeded expectations. As you see on the right hand side, key indicators for aluminum demand in China in Q2 have already begun to approach 2019 levels again. As the first market to experience and emerge from a COVID shutdown, China's positive development are a good sign for the global economy. Next slide please. The global aluminum market is expected to be in significant surplus through 2020 driven by COVID-nineteen.
Starting with the left hand side and where we look at the quarterly supply demand balances, we see a continuation of the global surplus which emerged in the Q1 2020. However, the surplus is 1,700,000 tonne lower in the Q2 compared to the previous quarter. This is due to the global demand increase of around 10% compared to the Q1, consisting of an approximately 40% rights in China, which was tempered by a 20% decline in the world outside China. Over the same period, supply remained flat worldwide. When looking at these figures, one also need to take into account the Chinese New Year effect, which normally results in oversupply in the Q1 followed by a deficit in the Q2.
Looking ahead to the balance for the full year 2020 on the right hand side, we point to the balance estimate from 3 different consultancies, which are in the range of 3,000,000 to 4,700,000 tonne with surplus both in China and the world outside China. As we saw last quarter, there remained some variations between the consultancies indicating the uncertainty currently in the market. However, the valuation is lower than observed last quarter. As you know, in response to the forecasted surpluses, we have delayed the restart at Usneth. Now let's take a look at how COVID is impacting our downstream market.
Please change to Slide 6. As mentioned at the start, 2nd quarter was particularly challenging for our downstream business areas. Starting with Extruded Solutions, we saw a 30% decline in our sales volume compared to Q2 last year. This decline exceeded the market estimate of 30% to 32% for North America and Europe respectively, which is due to our high exposure to those market segments most strongly affected such as automotive and transport both in Europe as well as in the U. S.
We saw a drop in sales across all customer segments with automotive and transport segment being hit the hardest as we observed shutdowns and curtailments of many OEMs in the first half of twenty twenty. It is worth noting, however, as you see on the right hand side that external market expectations are indicating signs of recovery for Q3. And this is also supported by our order intake, which has improved from lower levels of around 50% to 55% to now being between 75% to 80%. Now let's take a look at Rolled Products and please change to Slide 7. Within raw products, we see an 18% decline in our sales from the level of Q2 last year.
Here, our performance outperformed the market estimate of a 26% to 29% decline for Europe and North America respectively, as you see to the right hand on the slide. This is primarily due to can, foil and GE performing better than overall market. In can, our volumes actually grew 11% compared to the Q2 last year, while the market for can actually contracted 19%. This is driven by our strategy to shift more volumes into can, but also us taking some market share in the Q2 due to competitors' closures. Similar to the extruded solution, we see indicators that the market is entering into a slight recovery for the second half of 2020 following Q2 lows.
Again, external consultancies are forecasting that Q3 will be weaker than Q3 last year, but to a lesser extent than the reduction observed in the last quarter. Our Q3 outlook for Rolled Products is, however, slightly more conservative. Raw product volumes are expected to decline more than the market compared to the Q3 last year, as we expect that our competitors are bringing back their production for can and we'll reduce our market share. Expectation for continued low list of volume will also contribute negatively. We should also note that the Q3 last year was a strong quarter due to positive result in Can and this will increase the relative decline in the Q3 this year.
Next slide, please. Let's take a look at a quick look at the sales prices. Our average sales prices were down in the Q2 compared to the Q1, very much influenced by the immediate drop in demand. 2nd quarter average 3 months LMEA was USD 15.24 per ton, while the PAX average was US244 dollars per tonne for the 2nd quarter. Prices in PAX and EMEA improved throughout the quarter, reflecting stronger demand in China.
Currency PAX is trading at $2.80 per tonne and the 3 months LMEA was close to $1700 yesterday. Next slide please. As with revenue drivers, cost elements are also impacted by the general market development. If we look at the main cost for producing primary aluminum on the left hand side of the slide, we see a slightly improved cost base compared to the Q1. But as mentioned on the previous page, alumina spot has been trending upwards since April and as I said, currently trading above the 2nd quarter average.
On the right hand side, you see the main raw material cost for producing alumina with prices falling significantly from main energy inputs, fuel oil and coal. For caustic soda, market prices rose. However, we remind you that we typically have a time lag of 1.5 months between market price and realized price. Based on prices we see in the market for caustic and fuel oil, this will negatively impact our cash cost in the second in the 3rd quarter. Let me then move to Slide 10.
As shown on the last slide, the market prices for primary metals raw material have trended slightly downward in the Q2 versus Q1. In addition, primary metals cost base benefited from slightly lower fixed costs and positive currency developments, resulting in a lower implied cost. However, during the same period, realized alumina prices fell 10%. Realized premium also fell by 10% from Q1 to Q2, driven mainly by lower demand for aluminum in general. And as we see on the right hand side, lower demand for our high margin value added products.
Primary metal has historically sold 70% to 75% value added products, whereas in the Q2, primary metal sold less than 60% value added products, showing also our flexibility to adjust our production to where we see demand. We expect this trend to continue in the 3rd and 4th quarter. As prices and premiums fell faster than primary metals cost base, margin fell to 175 dollars per tonne in the quarter. Next slide please, Slide 11. In bauxite alumina, the implied alumina cost has continued to decline from 2018 peak levels to this quarter's US192 dollars per tonne.
This is the lowest implied alumina cost for the last 4 years and the lowest alumina cost since future took over in 2011. The reduced cost is driven primarily by reduced raw material costs, especially in fuel oil, which fell 47% compared to Q1. However, which I'm pleased to report that we have also worked hard to lift production and improve our own performance, as shown in the graph on the right hand side, visualizing the reduced energy consumption, representing a saving of more than $5 per ton compared to 2018 levels. When operating at nameplate capacity, this can provide a savings of $30,000,000 per year. This reduced cost base more than compensate for the 6% fall in realized alumina prices from Q1 to Q2, leading to a margin increase of around $17 per tonne.
The power outage at Pergomena in June has been rectified and operations have resumed at both Paragominas and Avonorte. But the power outage together with the rescheduled maintenance into Q3 will need to somewhat reduce alumina production in Q3 estimated at around 85% to 95% of full capacity utilization. But we still aim to be at nameplate capacity by year end. Let's then turn to Slide 12. Our improvement efforts now focus mainly on cost efficiency and restructuring initiatives are on track to deliver on the target of NOK 4,100,000,000 for 2019 2020.
Our overall improvement target of NOK 7,300,000,000 remains unchanged for 2023. The largest contributor to the improvement programs comes from the curtailment reversals after the embargo, especially at Alunorte. As mentioned earlier, Alunorte is expected to reach nameplate capacity by year end. In terms of operational improvements, optimization efforts are well underway in all business areas. I'll just explain the improvement in energy consumption in B and A as an example.
The same focus we see in Primary with improved technical production parameters, including a positive effect of a consistent alumina quality compared to the 1 of the embargo period. Our staff and improved procurement initiatives are also underway in all business areas. This is anchored by our Fit for Future program with a target of delivering on 1st quarter staff cost position for HR, ISIT and the finance functions. Ambitious procurement initiatives are also ongoing enabled through procurement excellence, but also scale and full value chain potential. Organizational and portfolio restructuring has primarily taken place downstream in raw products and extruded solutions.
And over the latter two quarters, we have taken out significant costs well above targeted levels. The portfolio review starting in 2019 in Extruded Solutions resulted in divestments of 3 sites and permanently closed 12 plants in 2019. Restructuring in rolled products related to the closure of the 2 foil lines in Grevenbroich and the related demanning is also well underway. Here I should also mention that the strategic review for all products looking for potentially other more value creating opportunities is progressing. However, the COVID situation has impacted the fleet.
Next slide please. We continue to track our sustainability performance the same way as we do with all other targets set for the company. This quarter, I will highlight our safety performance. If we look in the upper left corner of the chart, you see our safety record in total reported injuries by 1,000,000 hours year to date. The current 2020 levels of 2.3 injuries per 1000000 hours worth is our lowest level in years, and we have managed to maintain these high standards despite the challenging COVID situation.
Ensuring the safety of our people will always remain our top priority. Next slide, please. So the main focus throughout the quarter has been protecting our people and communities from the spread of the virus, at the same time keeping the wheels turning and generating cash. As you've seen today, we have managed to protect our people and supporting communities and in doing so kept the wheels turning at our side. And we have managed to generate a free cash flow of NOK 1,000,000,000 from operating with strict focus on working capital and CapEx.
I attribute these achievements to the organization and our business areas with swift responses to the challenging situation, discipline and flexibility in a very special quarter. Now before I round off, I would like to give you a couple of examples on how we are working to position Hydro for the future in line with our profitability and sustainability agenda. Please change to Slide 15. Our ambition is to be a leading sustainable industrial company creating value for all stakeholders. We will do so by strengthening our position with low carbon aluminum.
At the same time, as we will explore new business opportunities where our capabilities match the megatrends. The starting point is differentiation based on our low carbon position and low carbon products, the hydrosilkal with high recycled content and hydro reducta with low CO2 footprint. We see clearly that our low carbon aluminum is the differentiator and that the low carbon products start to get traction in the market. A typical example to the left is a new facade contract for the 99 West Tower in Frankfurt developed by BNP Paribas to be delivered by Extruded Solutions. Dinero del Duktar is also gaining traction, finding its way to new market segments, along with changing consumer behavior.
Swedish stroller company, Emaljunga, is a small but illustrative example of new markets for Hydro Redoxa. The last example I would like to mention is that we are now pleased to bring HydroCircale into the beverage can industry with a new strategic partnership with the German Hell Energy Group, a producer of energy drinks, soft drinks and iced coffee. With Hijra Siqal produced at our used beverage can recycling line at Neurth in Germany, we enable Health to offer consumers in more than countries the opportunity to enjoy their drink with historical low CO2 footprint. Next slide please, Slide 16. At the same time as we are strengthening our position with low carbon aluminum in the market, we aim to grow and diversify our portfolio where Hesus capabilities match the megatrends such as in recycling, renewables and batteries.
As we see more demand for recycled content, we are raising our recycling ambition. At our Spanish recycling plant, Atelkka, we are now ramping up production of HydroSilkal after installing a new de lacquering unit and melting furnace to process more consumer scrap. In recent year, we have expanded our renewable power portfolio to also include a significant portion of wind power in addition to Hydro Power. Our collaboration at the Tumsda wind farm in Norway represent an exciting opportunity to build on our competence. We will operate the plant.
We are responsible for market operations and we will buy most of the power for our Norwegian aluminum portfolio. As I said, we are also exploring opportunities in the fast growing battery sector. Today, we have a 26% stake in Norwegian cell manufacturer, Kolvus Energy, producing batteries for the maritime sector. And we have a small position in Swedish Northvolt producing battery cells for cars. We recently announced a joint venture with Northvolt, Hydrovolt, to develop a pilot for recycling the aluminum scrap coming from batteries from electric cars here in Norway.
Before I hand it over to Paul, I would also like to touch upon the external framework conditions, which are crystal for our way forward and a strategic road map. Please change to Slide 17. Hilo is well positioned in the political landscape that increasingly favors sustainable solutions. We work actively to build and protect our competitive position. The Green Deal lays the basis for decarbonization of Europe, which will increase the need for low carbon and circular products and solutions.
Syros aluminum meets all key pillars in EU's climate ambitions. At the same time, we are working actively to protect our low carbon aluminum position in the next phase in the EU emission trade system. The EU is currently in final stages of revising guidelines for compensation of CO2 costs in power price. We are working to ensure that the revised EU guidelines continue with robust and predictable compensation mechanisms. Trade defense is another focus area.
On 14th February, the Commission opened an investigation into imports of extruded products from China with a conclusion expected in Q3. Did you welcome the swift use of trade defense instruments when injury has been caused in the marketplace? Finally, we are closely following now the EU recovery plan process. We are pleased that it recognized the importance of low carbon energy intensive industry and we welcome the plan as an effort to kick start demand after COVID-nineteen. With that, I turn the word to you, Paul Drys, our CFO, for our financial update.
Thank you, Hilde. Good morning, everyone, and welcome to me as well. In my presentation today, I will walk you through Hydro's financial results for the Q2 of 2020. Let me first start with a high level overview. The results for the Q2 were slightly up from the Q2 last year.
We saw positive effects from reduced raw material costs of NOK 2,200,000,000 of which NOK 6,000,000,000 relates to bauxite and alumina and NOK1.4 billion relates to primary metal. This reflects a reduction in all raw material costs, but most importantly energy costs for B and A and alumina for primary metals. Fixed costs came down this quarter, primarily related to cost initiatives downstream. This is the 2nd quarter in a row with downstream cost out well above expectations. Currency contributed with SEK 1,600,000,000 compared to the Q2 of 2019, primarily the depreciating reais and NOK versus the dollar, which positively impacts B and A and also primary metal.
In addition, we had a positive volume impact on the continued ramp up of our operations in Brazil. In B and A, volume improved results by NOK 500,000,000 whereas volumes in primary contributed around NOK 200,000,000. Not surprisingly, these positive developments were to a very large extent offset by negative COVID-nineteen induced market impact. In our Downstream divisions, we saw a negative impact of NOK 2,000,000,000 primarily due to reduced volumes where the largest negative impact came from Extruded Solutions. Realized prices came significantly down compared to Q2 last year, both for alumina and aluminium with a respective drop of around 30% 15%.
This has a negative impact of NOK3.4 billion and is evenly split between the 2 upstream business areas. The largest element in the other category of positive NOK 200,000,000 is insurance compensation and positive deviation in other elimination being partly offset by lower energy results, reflecting record low energy prices. If we switch to the next slide, please. Then let me compare the Q2 results to the previous quarter, focusing primarily on bauxite and alumina and primary met. Starting with prices, we saw a negative impact on alumina and all in metal prices of around NOK 1,300,000,000, reflecting a $17 drop in realized alumina prices and a $2.20 drop in all in aluminium prices.
This impacted boxes in alumina negatively with NOK 300,000,000 and primary by NOK 900,000,000. Volumes came somewhat down in the Q2 with the majority of the negative impact being seen in primary. Raw materials continued to see a positive trend around NOK 300,000,000 in B and A and NOK 200,000,000 in primary metals. In bauxite and alumina, the largest impact was a 47% reduction in fuel oil, whereas primary saw a decline in energy and carbon. The depreciating NOK and BRL versus the dollar had a positive impact of NOK0.7 billion, primarily in D and A.
Finally, for our 2 upstream businesses, we had a positive impact of NOK0.2 billion on fixed primarily in primary metal being a mix of onetime effects and also some seasonal variations. The Downstream businesses, Raw Products and Excluded Solutions were both heavily hit by declining markets on the back of COVID-nineteen, with a negative impact of NOK 400,000,000 and NOK 600,000,000, respectively. Energy results came down on significantly lower prices due to strong hydrology in Norway, but also in addition, we had the record high commercial results in energy in our Q1. The other category consists of a negative deviation from metal markets results being more than offset by a positive deviation in other and eliminations. If we then take a look at the key financials for the quarters, then revenues were down by more than NOK 8,000,000,000 compared to the Q2 of 2019, mainly reflecting reduced volumes in our Downstream segment and lower prices upstream.
Underlying EBIT came out at NOK0.9 billion, as I have just explained on the previous slide, And depreciation of around NOK 2,100,000,000 adds up to an underlying EBITDA of NOK 3,100,000,000. Financial income amounted to NOK 500,000,000 for the 2nd quarter, which included a net foreign exchange gain, mainly unrealized, of NOK0.7 billion. This primarily reflects a stronger NOK versus euro, affecting the embedded derivatives in Norwegian power contracts, which are denominated in euro. And these positive effects were partly offset by the currency loss on dollar denominated debt in Brazil due to a weaker BRL versus dollar and the currency loss on dollar assets in Norway due to a stronger NOK versus USD. The tax expense for the quarter amounted to SEK 342,000,000 reflecting the power surtax in energy, non tax deductible impairment on goodwill in Excluded Solutions, positive income tax before tax in country positive income before tax in countries with higher than average tax rate as well as some write downs of deferred tax assets.
Overall, this provides a negative net income of NOK 1,500,000,000, down from a negative NOK 0.2 billion in the same quarter last year. Underlying EBIT underlying net income was therefore positive of NOK0.2 billion compared to NOK0.3 billion last year. And translating that into earnings per share resulted in NOK 0.1 for this quarter, down from NOK 0.19 per share in the 2nd quarter of 2019. We then move to next slide, then let me get back to the SEK 2,600,000,000 that we exclude from underlying EBIT this quarter. As normal, we exclude some timing effects in the Q2 and in total these sum up to negative NOK 0.7 billion.
But the largest items excluded from underlying EBIT this quarter relate to impairments. On the back of the significant negative market development from COVID-nineteen and the uncertainty mainly represented in the near and medium term, we performed a large number of impairment tests during the Q2, in total representing 80% of the carrying value of our long lived assets. Certain assumptions have been changed in light of the current recession and uncertainty on the timing of the recovery led to impairments both in Extruded Solutions and Primary Metal. NOK 1,500,000,000 in impairments in Extruded Solutions were primarily taken in Extrusion North America, driven by weaker growth expectations in key market segments, which is influenced by the COVID-nineteen effect and expected recovery. NOK 500,000,000 impairment in primary metal was related to Sovalco and was driven by challenging profitability on a weakening market environment, cost position and the uncertainty on the renewal of a power contract after expiry in 2021.
The other units that were tested shows insufficient coverage despite deteriorating short- and medium term assumptions. Other effects this quarter relates to insurance fund for property damage in Neuss and Albras of respectively NOK 26,000,000 and NOK 12,000,000 as well as a reversal of provision earlier recognized related to the custom case in Germany of NOK 26,000,000. If we then move over to the more detailed business area explanations, we change the slide and start with bauxite and alumina. Underlying EBIT for bauxite and alumina increased from NOK415 1,000,000 in the Q2 of 2019 to NOK 1047,000,000 in the Q2 of 2020. The ramp up of Alunorte is progressing successfully, and there was a positive volume effect in Q2 from higher alumina and bauxite production contributing some NOK 500,000,000.
Alunorte annualized production came in at around 5,800,000 tonnes, somewhat impacted by the power outage at Paragominas, which also impacted Alunorte. Power was restored as of early July and ramp up at Alunorte is in progress, but this quarter's production in Q3 will also reflect maintenance, which has been moved into the quarter. During the quarter, production cost per tonne at Alunorte mainly driven by lower raw material prices as well as positive scale effects on fixed costs, which contribute by around NOK 700,000,000. Finally, there was also a positive currency effect from a stronger dollar against the BRL during the period, contributing by around NOK 1,100,000,000. The results were partly offset by lower realized alumina sales prices impacting negatively by NOK 1,600,000,000.
If we look into the Q3, we expect to see an increase in the main raw material, which has been falling for many quarters in the row now. Prices have come up for fuel oil and caustic. And based on current prices observed in the market, costs are expected to increase between 20% 30% for these 2 raw material prices, whereas coal is expected to be relative flat. Alunorte production in the Q3 will be impacted by the Paragominos tower interruption and maintenance moved into the Q3 and is expected to be at between 85% to 95% of total production capacity. We are still targeting nameplate capacity by the end of 2020.
The lower production and also rescheduled maintenance will also increase the fixed cost price level in the Q3. If we change slides and move on to primary metal, then underlying EBIT for primary metal improved from a loss of SEK604,000,000 in Q2 2019 to a loss of NOK 37,000,000 in Q2 2020. The improved result was driven mainly by lower raw material prices, contributing positively by NOK 1,500,000,000 in total. Reduction in alumina was the largest contributor followed by reduced prices for pet coke and pigs. In addition, positive currency effects from depreciating NOK and BRL and increased sales volumes contributed with approximately NOK 800,000,000 positively.
The positive cost effects were partly offset by 8% lower realized aluminum prices as well as more than 30% lower premiums, taking the results down by NOK 1,200,000,000. When it comes to the outlook for the Q3, we have, by the end of March, sold approximately 60% of our primary aluminum production forward at a price level of around $15.30 per tonne. On the premium side, we have secured about 55 percent at around $2.60 And as a consequence, we expect a further decline in realized premiums in Q3 towards the range of $175 to $2.25 per tonne. When it comes to the cost side, we are expecting some further relief in raw material costs, primarily due to alumina, which has a time lag of 2 to 3 months. It is also worth mentioning that there are that we are expecting somewhat higher fixed costs in the Q3 compared to the Q2, primarily related to positive one offs and seasonal effects in the second quarter.
If we then move on to metal markets and we change the slide, then this quarter metal markets delivered an underlying EBIT of NOK21 1,000,000 compared to NOK299 1,000,000 in the Q2 of last year. However, if we exclude the currency and inventory valuation effect and look at performance EBIT, the result for the quarter was NOK135 billion, which is down from NOK 352 1,000,000 in the Q2 of 2019. This quarter, lower results from the recycling facilities were the main factor explaining the result deviation, both related to volume as well as margin. In addition, we have also had lower contributions from our sourcing trading activity.
If we look into
the next quarter, then there is a large uncertainty on the back of COVID-nineteen. However, our recycling facilities have now been operating at close to full capacity at the end of Q2. And as the market looks now, we expect that to continue into the Q3 also. In addition, remember that our trading results and currency effects in metal markets are by nature volatile. Let's then move on to the next slide and the results of Rolled Products.
The results in rolled products decreased to negative NOK 57,000,000 in Q2 2020 compared to NOK75 1,000,000 in Q2 2019. The main impact in the second quarter was a significantly reduced sales volume, coming down with close to 20%. We also saw lower margins. However, this was offset by positive contribution from the cost improvement efforts in both products this quarter. The results from the Neuss smelter also improved on lower raw material costs.
Looking forward, there is high uncertainty with respect to estimated sales for the Q3. As Hilde mentioned, external analysts expected all product markets to be down by 7% 11% in North America and Europe respectively. And based on current internal forecasts, we expect to be somewhat worse than this as we will get back some of the market share we gained in the Q2 when our peers needed to close down facilities. And in addition, the litho market is more challenging than the average market, and we have a higher market share here. And we also had an especially good Q3 last year due to some tighter catch up volumes following a weak Q2 in 2019.
Current order intake in all products is around 80%. If we then move over to the 2nd quarter results for Excluded Solutions, then underlying EBIT for Excluded Solutions decreased from SEK 772,000,000 in the Q2 of 2019 to SEK 89,000,000 in the Q2 of 2020. COVID-nineteen has reduced sales volumes and impacted operations to a large extent with significant lower capacity utilization and volumes dropping by 36% from the Q2 of 2019. The results this quarter were also as in raw products positively impacted by reduced costs from the ongoing improvement effort as well as positive currency effects. In addition, this quarter, we have received NOK190 1,000,000 in insurance compensation related to the cyber attack of 2019.
Looking into the next quarter, we expect to see continued market uncertainty and weak demand due to COVID-nineteen as mentioned earlier. Although we are seeing a positive trend from the lowest level seen in Q2 and our current order intake is here around 75
percent to 80%.
At the same time, Extruded Solutions are working very hard to support their earnings in challenging markets with the ongoing portfolio optimization, fixed cost reduction initiatives and procurement optimization, which we expect to also contribute positively into the Q3. If we move on to the final business area and go through the Q2 results of Energy on the next slide, The underlying EBIT for Energy decreased by from NOK176,000,000 in the decreased by NOK 176,000,000 from NOK 176,000,000 in the second quarter to NOK 53,000,000 in the Q2 of 2020. The quarter saw a significant drop in prices, mainly attributed to strong hydrological balance with prices averaging NOK 50 per megawatt hour compared to NOK 3.60 per megawatt hour in the Q2 last year. Reservoir levels are high going into the Q3, and we are seeing very low power prices in the Nordic region with an average NO2 spot price of NOK 15 per megawatt hour so far in July. Please let me also remind you that NO2 spot prices are publicly available and the realized price levels for the company should not deviate significantly from the prices observed on the Nordic power exchange for NO2.
Let's then change slides and move over to other elimination. Other eliminations netted out to negative NOK166 1,000,000 in the second quarter compared to a negative NOK 258 1,000,000 in Q2 last year and negative NOK 560,000,000 in the Q1. Other is mainly comprised of head office costs and costs related to holding companies as well as earnings from Hudoz Industrial Insurance Company. Other also includes costs related to the cyber attack in 2019. This quarter, we had NOK 109,000,000 in cost compared to NOK 250 3,000,000 last year and NOK 219,000,000 in the Q1.
And the Q1, as you might remember, was impacted by high costs in our captive insurance company. This quarter's eliminations amounted to negative NOK 58,000,000, mainly reflecting improved volume and margins on the internal alumina sales between bauxite and alumina and primary metal. Let's then move slides and have a look at the net debt development since the last quarter. Overall, our net debt position decreased by NOK 2,000,000,000, a very welcome development in the current market environment and a result of high cash focus this quarter. We started Q2 with SEK 15,200,000,000 in net debt.
We generated underlying EBITDA of NOK 3,100,000,000 and we then had a release of working capital of around NOK 1,200,000,000. This is positively impacted by prices and FX, but also how we work with inventory management across our system. Other operating cash flow adjustments of a negative NOK 2,000,000,000 reflects tax and interest payments, cash effects on provisions as well as non cash elements included in the underlying EBITDA. As a result, we generated net cash flow from operations of a positive NOK2.2 billion in Q2, which is a solid operating cash flow in a very challenging market. Investments came in at around NOK 1,200,000,000 this quarter.
And finally, we saw currency impacts of NOK 1,100,000,000, reflecting an appreciation of NOK and BRL versus the dollar during the quarter. And with that, we ended Q4 with SEK 13,200,000,000 in net debt. If we move on to the adjusted net debt on the next slide, then it also decreased to the tune of NOK 4,700,000,000 compared to the Q1. As I mentioned, net debt decreased by NOK 2,000,000,000 and net pension liabilities decreased by NOK 1,300,000,000, primarily on positive currency impact from converting German pensions to NOK and positive return on Norwegian plant assets. Other adjustments were down by NOK 400,000,000, while net debt in Kataloom decreased on currency and positive cash generation.
And with that, the total adjusted net debt included equity accounted investments at the end of the second quarter amounted to NOK 34,600,000,000 down from NOK 39 point 3,000,000,000 at Q1 2020. If we move to the next slide, the let me in the situation we are in remind you of our strong liquidity as well as measures we have taken to safeguard liquidity in response to COVID-nineteen. At the end of the second quarter, after several months of very challenging markets, we have SEK 15,400,000,000 in cash and cash equivalents. We also have a $1,600,000,000 multi currency revolving credit facility maturing in 2025, which is currently undrawn. It is important for us to maintain a strong liquidity given the significant uncertainty surrounding us, and we have taken strong measures to maintain and improve that situation.
We have had to temporarily curtail or reduce utilization at several plants, reduce cost levels through temporary layoffs and cost discipline across the company, knowing that we might need to do more to adapt to whatever might happen in the world around us. We have reduced the CapEx estimate for 2020 through costing or postponing CapEx both related to sustaining and growth projects and our CapEx estimate for 2020 stands at SEK 7,500,000,000 to SEK 8,000,000,000. Also on the May 11, the Annual General Meeting approved the amendment of the original dividend proposal of SEK 1.25 per share and granted the power of attorney to the Board to distribute dividend at the later stage, if it deems that market conditions and Hydro's financial situation allows for this. And no decision on dividend has been made this quarter. Finally, in May of this year, we raised SEK 7,000,000,000 in the bond market to further safeguard liquidity in case the situation deteriorated further.
So currently, our liquidity looks robust, and we hope that it stays like this. However, if the market should experience a strong second wave, we are well prepared from a financial perspective. If we then move over to my final slide, then we will finish with an update on our capital return dashboard, which summarizes our key financial targets and priorities. At the end of the second quarter, we delivered a rolling 12 month underlying Roache of 3.8%. The Alunorte situation, the cyber attack as well as the weak market and high market uncertainty are still impacting our 12 month role in Russia.
However, we maintain our target of 10% over the cycle and we recently confirmed through our annual internal strategy update that such roadmaps are in place for all business areas as conservative margins and very much supported by our ongoing improvement efforts. If we look at our balance sheet and the key ratio of funds from operations to adjusted net debt, then we have been around 29% over the last period. And this compares to our target of 40% over the cycle. This reflects the cash generation, and this is what we need to lift towards the 40% in order to ensure that we meet the rating agencies' hurdles for investment grade credit rating and also have a more robust earnings to debt situation going forward. We have been supporting this with initiatives that we can implement ourselves this quarter and the SEK 1,100,000,000 in free cash flow, which was generated in very challenging markets, supports the development towards a sustainable cash flow generation level.
On the improvement program, Hilde has already we are seeing continued progress on the levers we can control ourselves, and we are on track to deliver on these improvements by end 2020. And on that note, I would like to give the word back to Hilde for her final remarks.
Then let's change to the last slide. Our top priority remains the health and safety of our employees and communities going forward. We will continue to follow advice provided by local authorities and assume our role as a good neighbor and supporter of the communities where we operate. We will continuously monitor the demand situation and conditions which would support our return to full capacity. But in the meantime, we are managing the areas where we can influence like our improvement programs to protect our cash flow.
Despite the COVID situation, we will continue positioning Hydro for the future focusing on an agenda to lift profitability, driving sustainability and to support our goal of becoming the leading sustainable industrial company creating value for all stakeholders.
Then operator, we are now ready for questions. Thank you.
This is Ioannis Masvoulas from Morgan Stanley. First of all, well done on the results. Just a couple of questions from my side. First of all, in terms of Extruded Solutions, you took the impairment during the quarter, quite a large number there. How should we think about implications for the medium term profit outlook, especially given the relatively constructive guidance you have given in the past?
And then secondly, can you talk about the mix in primary metal? You did give the split in Q2. Is this going to be the trough in terms of value add share? Or would Q3 be worse on a sequential basis? And then how we should think about the realized premium on that basis?
Thank you.
If we start with the latter question first, then we expect a similar split between unalloyed and alloyed products into the 3rd Q4. If markets develop stronger, then there could be some upside to this, but you also know that contracts are not done on a daily basis. So our best guidance currently is for a similar outlook into the 3rd Q4. And that is the basis for the premium guidance that we've given of 175 to 225 If the markets stand at current levels, we should probably be in the middle part of that range. If premiums move up, then we could be in the higher part.
And if they move down, we could be in the lower part. So this is based on how we see the market today. On the first question, when it comes to the impairment in North America and excluded solutions, Then as you are, of course, well aware of when testing for the coverage in our balance sheet, we take into account what we are what is possible to generate from what we have in our books to date. And when you see a decline in the, for example, automotive segment that we have experienced, and I guess market consensus is that it will take some years before we're back to the levels that we were expecting before COVID-nineteen, then this will impact the internal valuation negatively. Already in the Q4, we had quite limited coverage at Excluded Solutions North America.
So any significant change since that would most likely result in impairment as we see now. And when it comes to how we view this going forward, then it doesn't necessarily change our thoughts around capital allocation and other thoughts with respect to Excluded Solutions. Some segments are maybe a bit less attractive, whereas other segments are more attractive. And as you know, within every segment, there are parts opportunities there also. So even if automotive might be looking a bit tougher, there might be parts of the automotive market where we can take market share or where we can deliver more advanced products.
And a lot of the positive opportunities are we are not able to bring into an impairment test. So that would be an upside that is realized going forward. But in sum, we still see good potential for return generation in Excluded Solutions, and it is still a strategic growth area within our portfolio.
Thanks for that, Paul. And maybe if I can push you a little bit here. I think in the past, you've indicated that 2021 EBITDA Extruded Solutions could be close to the 2019 level adjusted for 1 offs. Is that still achievable from today's point of view? Or is it more of a, let's say, 2022 story at this stage?
Yes. And that's a good question and hard to give concrete guidance on given that we're in the middle of the recovery and you see that the big spread in expectations only into the 3rd quarter. However, as we mentioned last quarter, possibility to deliver on the original improvement efforts in the short term, which includes the market effects, has been taken somewhat down, whereas the cost out procurement initiatives and restructuring has compensated to some extent. But in 2020, we'll not be close to compensating enough. And without being too forward leaning into 2021, it still looks like the current macro environment will have quite a big effect on especially Europe and North America, as you can see from the latest updates from IHS, for example.
So we're not in a situation to give concrete guidance on 2021, but based on external recovery in GDP, it looks like 2021 could still experience some challenging market development. But let us get back to that at our Investor Day towards the end of the year also.
That's very clear. Thanks very much, Paul.
We'll take our next question. Your line
is open. Please go ahead.
Hi, it's Dan Major from UBS. I have a question. Firstly, on Alunorte. You obviously gave some guidance on lifting costs of energy and caustic into the Q3. Can you give us a bit more specific guidance around either unit cost expectations or sort of the delta on a NOK or U.
S. Dollar basis based on your sort of current assessment? That's, I guess, the first part of the question. And then once, I guess, things normalize to an extent, is it low 200s cost for B and A or for Alunorte a reasonable assumption? That's the first question.
Well, if we look into the 3rd quarter, then please be aware that any indications will be partly based on realization and partly based on how the market develops. And as you remember from the Q2, we realized that somewhat lower fuel oil than what we expected when we had this guiding call a quarter ago. So it won't be exact. But as mentioned earlier, we when we look at current market prices, time lag, etcetera, then we expect fuel oil prices to increase by up towards 30% in the Q3 versus the Q2 and similarly for caustic soda, but somewhat lower, maybe closer to the 20% mark as we see today. If you take these two things into account, then that could impact our cash cost by closer to $15 to $20 into the 3rd quarter.
Very clear. Thanks. And is in terms of sort of the structural cost position in the low 200s once sort of things inputs normalize a reasonable assumption?
If you take market prices as they are today and you look at an implied cash cost of NOK 192 and you expect also that production should come somewhat up reducing it and somewhere north of 200 ish sounds fair based on those assumptions. But somewhat above, just the $190 plus $15 to $20 less some dollars on increased production and lower fixed cost per tonne would result in somewhat above 2.50.
Very clear. Thanks. And then second quick part of the question. You've obviously announced some additional impairments. Can you give us an update on what you expect the cash impact of restructuring charges previously taken in the downstream businesses, particular to be in the balance of this year and into next year?
Yes. As you know, the majority of the impairments we took were non cash related. So for Slovelco and excluded North America, which is a goodwill impairment, we won't have any cash effect. So what you're left with is really the restructuring efforts related to Europe and Excluded Solutions. The impairment in Brazil also don't have a cash effect.
So if we look into affecting or effects of the restructuring efforts, etcetera, and provisions taken in 2019 and this year and the fact in current year, then the profile is still around NOK 600,000,000 in 2020 and around NOK 500,000,000 in 2021.
Great. And how many how much of that have you taken in the first half on the 2020 number of the 600,000,000? How much has already been incurred?
Yes. We'll get back to that, sir.
Okay. Great. Thanks so much.
We'll take our next question. Your line
is open. Please go ahead.
Yes, morning. It's Richard Hatch from Berenberg. I've got two questions. First one, just wondering whether you'd be able to give us a bit more kind of a of your thought process around the premium and how you see that evolving over time. So you've been very clear on sort of the Q3 into Q4, but perhaps we can just talk a little bit out into 2021 and how you see that evolving and what kind of factors there are that could drive that and also what levers you've got internally that potentially could enable you to maximize value from what you're producing?
And then the second one is just on the bauxite price. Would you be able just to give us your thoughts on bauxite here and what your outlook is on the price there? Thanks.
Well, if we start with premiums, it's difficult to give a long term view on it. But I guess your question related a bit more to the dynamics, which you should keep in mind. And as you know that the premium consists of 2 large elements. It's the standard ingot premium and it's also the upcharge, which translates into the value added premium. And standard ingot premium typically reflects the physical tightness in the market.
So in periods with a lot of metal available, we've typically seen lower standard ingot premiums. And then when you have supply shortages, that at times increases. But typically within some form of range, you've had special situations historically driven by inventory financing, etcetera, where you have long queues out of inventories, which really drives up standard income premiums. We see some signs of now, but there's still rules in place by the LME, which should restrict the length compared with what we've seen in earlier years. The value add premium is, of course, also driven by supply and demand.
And at the moment, the value add, the premium and off charges are quite low because there is a lot of value add metal available, which you see producers like ourselves now having to adjust their demand accordingly and produce our alloyed material instead. So in order to see that premium increase again, you would need to see a more balanced market for value add premiums. And at current level, I guess producers like ourselves have a lot of capacity to increase value add premiums. So I think you typically, you would need to see a more balanced situation than what we see current and into next year before you should expect a physical increase in those premiums at least. So our ability to impact that is, of course, present.
We capture value add customers through quality in products. We capture value add customers through technical support and similar. And on historical benchmark studies, etcetera, he has typically performed very well there. So we believe that when the market improves again, we as a producer are well equipped to be able to regain that market share, but we have to work for it.
I just ask one follow-up on that? Would you say therefore we're at kind of trough value added product premiums, just kind of looking at it on a site cycle
basis? Well, all my comments are really reflecting market now. And I think you have started seeing some increases in some value add premiums in Europe on the back of somewhat stronger demand. So that could indicate a drop, but I'm very hesitant to call a bottom as you could have a second wave or similar, which again impacts demand. But yes, it seems to have been flattening out and our sales forecast for excluded ingot has improved over the latter weeks and more.
Okay. That's very helpful. And then just on the bauxite?
Yes. Bauxite markets have been quite stable price wise. They also came down a bit with the development we've seen in all markets. And as you know, we've seen quite some shifts in bauxite, and there's been some impacts to larger mines. But in general, most large nations seem to be running quite high bauxite production.
And as we have adjusted down aluminum demand, aluminum demand from sand, and of course, it impacts bauxite there also. So we haven't seen any short term large disruptions or triggers currently.
Okay. So prices probably see some form of downward pressure just with supply being quite buoyant and demand sort of coming off a bit?
That's what we've seen in all our markets. Typically, aluminum and those markets, they a bit faster to positive developments like we've seen now out of China. That might transfer over to bauxite or if input cost go up, it could impact bauxite, but so far it's more flattish to negative.
Okay. That's really helpful. Thanks for your time. Appreciate it. Thank you.
It appears there are no further questions at this time. Ms. Lina Haudetra, I'd like to turn the conference back to you for any additional or closing remarks.
Thank you, and thank you for joining us today. If you have any follow-up questions, please do not hesitate to contact us. Thank you, and have a nice day.