Good day. Welcome to the Norsk Hydro Q2 conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Line Haugetraa. Please go ahead.
Good morning, welcome to Hydro's Q2 presentation and conference call. Today will run similar to Q1 2020, where we will start with a presentation by CEO Hilde Merete Aasheim, followed by CFO Pål Kildemo, before we end with a Q&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 hydro.com. Please note that you will need to dial into 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 one-on-ones with either Hilde or Pål after the presentation, please contact Head of Media, Halvor Molland. Please change to slide two. With that, I turn the microphone over to you, Hilde.
Good morning, welcome from me as well. Let's have a look at the second quarter results and some highlights for the quarter. Underlying EBIT for second quarter was NOK 949 million, up from NOK 870 million in second quarter last year. The quarter was indeed heavily influenced by COVID-19's negative impact on the global economy through large forced and voluntary closed 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 second quarter 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 a weaker BRL and Norwegian kroner, 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 Alunorte 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 targets of NOK 4.1 billion for 2019 and 2020, with cost efficiency and restructuring initiatives being the main enablers.
Despite very challenging markets, the reduced costs, lower investments than planned, and released operating capital have resulted in a free cash flow of around NOK 1 billion 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 Hydro's capabilities match mega trends 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 to sustain operations in Paragominas and Alunorte and Albras, while at the same time supporting the local communities to reduce the spread and effect of the virus. Our teams have spent countless 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 robustness and protect our liquidity during these times with large uncertainty, which includes freezing CapEx, delaying dividend payment, and issuing a 7 billion NOK bond. Forced 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 Rolled Products plants. We have seen improvement trend during the quarter, and current order intake is now around 75%-80% for Hydro Extruded Solutions and around 80% for Rolled Products. Production at Metal Markets' recycling facilities is largely back to normal after curtailment in second quarter. Our upstream operations, on the other hand, have been operating mostly as normal, obviously with strict precautionary measures to avoid the spread of the virus. Let me now move to the market. Please move to slide four. COVID-19 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, -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 the COVID-19 shutdown, China's positive developments 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-19. 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 first quarter 2020. However, the surplus is 1.7 million tons lower in the second quarter compared to the previous quarter. This is due to the global demand increase of around 10% compared to the first quarter, consisting of an approximately 40% rise 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 needs to take into account the Chinese New Year effect, which normally results in oversupply in the first quarter, followed by a deficit in the second quarter. Looking ahead to the balance for the full year 2020 on the right-hand side, we point to the balance estimates from three different consultancies, which are in the range of 3 million ton-4.7 million ton, with surplus both in China and the world outside China. As we saw last quarter, there remains some variations between the consultancies indicating the uncertainty currently in the market. However, the variation is lower than observed last quarter. As you know, in response to the forecasted surpluses, we have delayed the restart at Husnes. Let's take a look at how COVID is impacting our downstream market. Please change to Slide six.
As mentioned at the start, second quarter was particularly challenging for our downstream business area. Starting with Extruded Solutions, we saw a 30% decline in our sales volume compared to second quarter last year. This decline exceeded the market estimates of a 30%-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 2020. It is worth noting, however, as you see on the right-hand side, that external market expectations are indicating signs of recovery for Q3.
This is also supported by our order intake, which has improved from low 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 seven. Within Rolled Products, we see an 18% decline in our sales from the level of second quarter 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 on the slide. This is primarily due to can, foil, and general extrusion performing better than overall market. In can, our volumes actually grew 11% compared to the second quarter 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 second quarter due to competitors' closures. Similar to the Extruded Solutions, we see indicators that the market is entering into a slight recovery for the second half of 2020 following Q2 lows. External consultancies are forecasting that third quarter will be weaker than third quarter 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. Rolled Products volume are expected to decline more than the market compared to the third quarter last year, as we expect that our competitors are bringing back their production for can and will reduce our market share. Expectation for continued low blister volume will also contribute negatively.
We should also note that the third quarter last year was a strong quarter due to positive results in can, and this will increase the relative decline in the third quarter this year. Next slide, please. Let's take a quick look at the sale prices. Our average sales prices were down in the second quarter compared to the first quarter, very much influenced by the immediate drop in demand. Second quarter average three months LME was $1,524 per ton, while the PAX average was $244 per ton for the second quarter. Prices in PAX and LME improved throughout the quarter, reflecting stronger demand in China. Currently, PAX is trading at $280 per ton, and the three months LME was close to 1,700 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 aluminium on the left-hand side of the slide, we see a slightly improved cost base compared to the first quarter. As mentioned on the previous page, alumina spot has been trending upwards since April and as I said, currently trading above the second quarter average. On the right-hand side, you see the main raw material cost for producing alumina, with prices falling significantly for 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 one and a half 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 costs in the third quarter. Let me then move to slide 10.
As shown on the last slide, the market prices for Primary Metals raw material has trended slightly downward in the second quarter versus first quarter. In addition, Primary Metals cost base benefited from slightly lower fixed costs and positive currency developments, resulting in a lower implied cost. 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 aluminium 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%-75% value-added products, whereas in the second quarter, 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 third and fourth quarter.
As prices and premiums fell faster than Primary Metal cost base, margin fell to $175 per ton 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, $192 per ton. This is the lowest implied alumina cost for the last four years and the lowest Alunorte cash cost since Hydro 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. 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 saving of $30 million per year. This reduced cost base more than compensates for the 6% fall in realized alumina prices from Q1 to Q2, leading to a margin increase of around $17 per ton. The power outage at Paragominas in June has been rectified, and operations have resumed at both Paragominas and Alunorte. The power outage, together with the rescheduled maintenance into Q3, will lead to somewhat reduced alumina production in Q3, estimated at around 85%-95% of full capacity utilization. We still aim to be at nameplate capacity by year-end. Let's 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 4.1 billion for 2019 and 2020. Our overall improvement target of NOK 7.3 billion 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 just explained the improvement in energy consumption in B&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 Alunorte embargo period. Our staff and procurement initiatives are also underway in all business areas. This is anchored by our Fit for Future program with the target of delivering on first quarter staff cost positions for HR, IS/IT, and the finance function. 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 Rolled Products and Extruded Solutions. Over the latter two quarters, we have taken out significant costs well above targeted levels. The portfolio review starting in 2019 in Extruded Solutions has resulted in the divestment of three sites and permanently closed 12 plants in 2019. Restructuring in Rolled Products related to the closure of the two foil lines in Grevenbroich and the related dismantling is also well underway. Here, I should also mention that the strategic review for Rolled Products, looking for potentially other more value-creating opportunities, is progressing. However, the COVID situation has impacted the speed. Next slide, please. We continue to track our sustainability performance the same way as we do with all other target sets for the company. This quarter, I will highlight our safety performance.
If you look in the upper left corner of the chart, you see our safety record in total reported injuries by million hours year to date. The current 2020 levels of 2.3 injuries per million hours worked is our lowest level in years, and we have managed to maintain this high standard despite the challenging COVID-19 situation. Ensuring the safety of our people will always remain our top priority. Next slide, please. 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 we've seen today, we have managed to protect our people and supporting communities, and in doing so, kept the wheels turning at our sites.
We have managed to generate a free cash flow of NOK 1 billion from operating with strict focus on working capital and CapEx. I attribute this achievement to the organization and our business areas with swift responses to the challenging situation, discipline, and flexibility in a very special quarter. 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 vision 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 mega trends.
The starting point is differentiation based on our low carbon position and low carbon products, the Hydro CIRCAL with high recycled content and Hydro REDUXA 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. The CIRCAL 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. Hydro REDUXA is also gaining traction, finding its way to new market segments, along with changing consumer behavior. Swedish stroller company, Emmaljunga, is a small but illustrative example of new markets for Hydro REDUXA.
The last example I would like to mention is that we are now pleased to bring Hydro CIRCAL 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 Hydro CIRCAL produced at our used beverage can recycling line at Neuss in Germany, we enable HELL to offer consumers in more than 50 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 Hydro's 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 at [Alcarràs], we are now ramping up production of Hydro CIRCAL after installing a new delacquering unit and melting furnace to process more consumer scrap. In recent years, we have expanded our renewable power portfolio to also include a significant portion of wind power in addition to hydropower. Our collaboration at the Tonstad wind farm in Norway represents an exciting opportunity to build on our competence. We will operate the plant. We are responsible for market operations, 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, Corvus Energy, producing batteries for the maritime sector. We have a small position in Swedish Northvolt, producing battery cells for cars.
We recently announced a joint venture with Northvolt, Hydrov olt, to develop a pilot for recycling the aluminum scrap coming from batteries from electric cars here in Norway. Before I hand it over to Pål, I would also like to touch upon the external framework conditions which are critical for our way forward and our strategic roadmap. Please change to slide 17. Hydro is well-positioned in the political landscape that increasingly favors sustainable solutions. We work actively to build and protect our competitive position. The European Green Deal lays the basis for decarbonization of Europe, which will increase the need for low carbon and circular products and solutions. Hydro's 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 Emissions Trading System.
The EU is currently in final stages of revising guidelines for computation of CO2 costs in power price. We are working to ensure that the revised EU guidelines continue with a robust and predictable compensation mechanism. Trade defense is another focus area. On the 14th of February, the commission opened an investigation into imports of extruded products from China with a conclusion expected in Q3. Hydro welcomed the swift use of trade defense instruments when injury has been caused in the marketplace. 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 kickstart demand after COVID-19. With that, I turn the word to you, Paul, 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 second quarter of 2020. Let me first start with a high-level overview. The results for the second quarter were slightly up from the second quarter last year. We saw positive effects from reduced raw material costs of NOK 2.2 billion, of which NOK 0.6 billion relates to Bauxite & Alumina and NOK 1.4 billion relates to Primary Metal. This reflects a reduction in all raw material costs, but most importantly, energy costs for B&A and alumina for Primary Metal. Fixed costs came down this quarter, primarily related to cost initiatives downstream. This is the second quarter in a row with downstream costs out well above expectations. Currency contributed with NOK 1.6 billion compared to the second quarter of 2019.
Primarily, the depreciating reais and NOK versus the dollar, which positively impacts B&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&A, volume improved results by NOK 0.5 billion, whereas volumes in Primary contributed around NOK 0.2 billion. Not surprisingly, these positive developments were to a very large extent offset by negative COVID-19-induced market impacts. In our downstream divisions, we saw a negative impact of NOK 2 billion, primarily due to reduced volumes, where the largest negative impact came from Extruded Solutions. Realized prices came significantly down compared with Q2 last year, both for alumina and aluminum, with a respective drop of around 30% and 15%. This has a negative impact of NOK 3.4 billion and is evenly split between the two upstream business areas.
The largest elements in the other category of positive NOK 0.2 billion 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. Let me compare the Q2 results to the previous quarter, focusing primarily on Bauxite & Alumina and Primary Metal. Starting with prices, we saw a negative impact on alumina and all-in metal prices of around NOK 1.3 billion, reflecting a $17 drop in realized alumina prices and a $220 drop in all-in aluminum prices. This impacted Bauxite & Alumina negatively with NOK 0.3 billion and Primary by NOK 0.9 billion. Volumes came somewhat down in the second quarter, with the majority of the negative impact being seen in Primary.
Raw materials continued to see a positive trend around NOK 0.3 billion in B&A and NOK 0.2 billion in Primary Metal. In Bauxite & Alumina, the largest impact was a 47% reduction in fuel oil, whereas Primary Metal saw a decline in energy and carbon. The depreciating NOK and BRL versus the USD has a positive impact of NOK 0.7 billion, primarily in B&A. Finally, for our two upstream businesses, we had a positive impact of NOK 0.2 billion on fixed costs, primarily in Primary Metal, being a mix of one-time effects and also some seasonal variations. The downstream businesses, Rolled Products and Extruded Solutions, were both heavily hit by declining markets on the back of COVID-19, with a negative impact of NOK 0.4 billion and NOK 0.6 billion, respectively.
Energy results came down on significantly lower prices due to strong hydrology in Norway. Also in addition, we had the record high commercial results in Energy in our first quarter. The other category consists of a negative deviation on Metal Markets results being more than offset by a positive deviation in other and eliminations. We then take a look at the key financials for the quarters. The revenues were down by more than NOK 8 billion compared to the second quarter of 2019, mainly reflecting reduced volumes in our downstream segment and lower prices upstream. Underlying EBIT came out at NOK 0.9 billion, as I have just explained on the previous slide. Depreciation of around NOK 2.1 billion adds up to an underlying EBITDA of NOK 3.1 billion.
Financial income amounted to NOK 0.5 billion for the second quarter, which included a net foreign exchange gain, mainly unrealized, of NOK 0.7 billion. This primarily reflects a stronger NOK versus EUR, affecting the embedded derivatives in Norwegian power contracts, which are denominated in EUR. These positive effects were partly offset by the currency loss on USD-denominated debt in Brazil due to a weaker BRL versus USD and the currency loss on USD assets in Norway due to a stronger NOK versus USD. The tax expense for the quarter amounted to NOK 342 million, reflecting the power surtax in Energy, non-tax-deductible impairment from goodwill in Extruded Solutions, positive income before tax in countries with higher than average tax rates, as well as some write-downs of deferred tax assets.
Overall, this provides a negative net income of NOK 1.5 billion, down from a negative NOK 0.2 billion in the same quarter last year. Underlying net income was therefore positive of NOK 0.2 billion compared to NOK 0.3 billion last year. Translating that into earnings per share resulted in NOK 0.1 for this quarter, down from NOK 0.19 per share in the second quarter of 2019. We then move to next slide, then let me get back to the NOK 2.6 billion that we exclude from underlying EBIT this quarter. As normal, we exclude some timing effects in the second quarter, and in total, these sum up to negative NOK 0.7 billion. The largest items excluded from underlying EBIT this quarter relate to impairments.
On the back of the significant negative market development from COVID-19 and the uncertainty mainly represented in the near and medium term, we performed a large number of impairment tests during the second quarter, 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 a recovery led to impairments both in Extruded Solutions and Primary Metal. NOK 1.5 billion in impairment 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-19 effect and expected recovery. NOK 0.5 billion impairment in Primary Metal was related to Slovalco 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 sufficient 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 million and NOK 12 million, as well as a reversal of provision earlier recognized related to the customs case in Germany of NOK 26 million. If we move over to the more detailed business area explanations, we change the slide and start with Bauxite & Alumina. Underlying EBIT for Bauxite & Alumina increased from NOK 415 million in the second quarter of 2019 to NOK 1,047 million in the second quarter 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 0.5 billion.
Alunorte annualized production came in at around 5.8 million 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, 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 decreased, mainly driven by lower raw material prices as well as positive scale effects on fixed cost, which contributes by around NOK 0.7 billion. There was also a positive currency effect from a stronger dollar against the BRL during the period, contributing by around NOK 1.1 billion. The results were partly offset by lower realized alumina sales prices, impacting negatively by NOK 1.6 billion.
If we look into the third quarter, we expect to see an increase in the main raw material, which has been falling for many quarters in a row now. Prices have come up for fuel, oil, and caustic. Based on current prices observed in the market, costs are expected to increase between 20% and 30% for these two raw material prices, whereas coal is expected to be relatively flat. Alunorte production in the Q3 will be impacted by the Paragominas power interruption and maintenance moved into the third quarter and is expected to be at between 85%-95% of full 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 third quarter.
If we change slides and move on to Primary Metal, underlying EBIT for Primary Metal improved from a loss of NOK 604 million in Q2 2019 to a loss of NOK 37 million in Q2 2020. The improved result was driven mainly by lower raw material prices, contributing positively by NOK 1.5 billion in total. Reduction in alumina was the largest contributor, followed by reduced prices for coke and pitch. In addition, positive currency effects from depreciating NOK and BRL and increased sales volumes contributed with approximately NOK 0.8 billion 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 1.2 billion.
When it comes to the outlook for the third quarter, we have by the end of March, sold approximately 60% of our primary aluminum production forward at a price level of around $1,530 per tonne. On the premium side, we have secured about 55% at around $260. As a consequence, we expect a further decline in realized premiums in Q3 towards the range of $175-$225 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 timeline of two to three months. It is also worth mentioning that we are expecting somewhat higher fixed costs in the third quarter compared to the second quarter, primarily related to positive one-offs and seasonal effects in the second quarter.
If we move on to Metal Markets and we change slide, this quarter, Metal Markets delivered an underlying EBIT of NOK 21 million compared to NOK 299 million in the second quarter of last year. If we exclude the currency and inventory valuation effect and look at performance EBIT, the result for the quarter was NOK 135 million, which is down from NOK 352 million in the second quarter 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 and trading activities. If we look into the next quarter, then there is a large uncertainty on the back of COVID-19.
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 third quarter 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 million in Q2 2020, compared to NOK 75 million in Q2 2019. The main impact in the second quarter was a significantly reduced sale 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 Rolled 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 third quarter. As Hilde mentioned, external analysts expect the Rolled Products markets to be down by 7% and 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 second quarter when our peers needed to close down facilities. In addition, the litho market is more challenging than the average market, and we have a higher market share here. We also had an especially good Q3 last year due to some cyber catch-up volumes following a weak second quarter in 2019. Current order intake in Rolled Products is around 80%.
If we move over to the second quarter results for Extruded Solutions, underlying EBIT for Extruded Solutions decreased from NOK 772 million in the second quarter of 2019 to NOK 89 million in the second quarter of 2020. COVID-19 has reduced sales volumes and impacted operations to a large extent, with significant lower capacity utilization and volumes dropping by 36% from the second quarter of 2019. The results this quarter were also, as in Rolled Products, positively impacted by reduced costs from the ongoing improvement effort, as well as positive currency effects. In addition, this quarter, we have received NOK 190 million in insurance compensation related to the cyberattack of 2019. Looking into the next quarter, we expect to see continued market uncertainty and weak demand due to COVID-19, 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%-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 third quarter. If we move on to the final business area and go through the Q2 results of Energy on the next slide, underlying EBIT for Energy decreased by from NOK 176 million in the second quarter to NOK 53 million in the second quarter 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 360 per megawatt hour in the second quarter last year.
Reservoir levels are high going into the third quarter, 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 slide and move over to Other and Eliminations. Other and Eliminations netted out to negative NOK 166 million in the second quarter, compared to a negative NOK 258 million in Q2 last year and negative NOK 560 million in the first quarter. Other is mainly comprised of head office costs and costs related to holding companies, as well as earnings from Hydro's industrial insurance company.
Other also includes costs related to the cyberattack in 2019. This quarter, we had 109 million NOK in cost compared to 253 million NOK last year and 219 million NOK in the first quarter. The first quarter, as you might remember, was impacted by high costs in our captive insurance company. This quarter's eliminations amounted to negative 58 million NOK, mainly reflecting improved volume and margins on the internal alumina sales between Bauxite & Alumina and Primary Metal. Let's move slides and have a look at the net debt development since the last quarter. Overall, our net debt position decreased by 2 billion NOK, a very welcome development in the current market environment and a result of high cash focus this quarter. We started Q2 with 15.2 billion NOK in net debt.
We generated underlying EBITDA of NOK 3.1 billion. We then had a release of working capital of around NOK 1.2 billion. This is positively impacted by prices and effects, but also how we work with inventory management across our system. Other operating cash flow adjustments of a negative NOK 2.0 billion reflects tax and interest payments, cash effects and 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 NOK 2.2 billion in Q2, which is a solid operating cash flow in a very challenging market. Investments came in at around NOK 1.2 billion this quarter. Finally, we saw currency impact of NOK 1.1 billion, reflecting an appreciation of the NOK and BRL versus the dollar during the quarter. With that, we ended Q4 with NOK 13.2 billion in net debt.
If we move on to the adjusted net debt on the next slide, it also decreased to the tune of 4.7 billion NOK compared to the first quarter. As I mentioned, net debt decreased by NOK 2 billion and net pension liabilities decreased by NOK 1.3 billion, primarily on positive currency impacts from converting German pensions to NOK and positive return on Norwegian plan assets. Other adjustments were down by 0.4 billion NOK, while net debt in Qatalum decreased on currency and positive cash generation. With that, the total adjusted net debt included equity accounted investment at the end of the second quarter amounted to 34.6 billion NOK, down from 39.3 billion NOK at Q1 2020.
If we move to the next slide, then 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-19. At the end of the second quarter, after several months of very challenging markets, we have NOK 15.4 billion in cash and cash equivalents. We also have a NOK 1.6 billion 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 estimates for 2020 through cutting or postponing CapEx, both related to sustaining and growth projects, and our CapEx estimate for 2020 stands at NOK 7.5 billion-NOK 8 billion. On May the 11th, the annual general meeting approved the amendment of the original dividend proposal of NOK 1.25 per share and granted the power of attorney to the board to distribute dividends at the later stage if it seems that market conditions and Hydro's financial situation allows for this. No decision on dividend has been made this quarter. Finally, in May of this year, we raised NOK 7 billion in the bond market to further safeguard liquidity in case the situation deteriorated further. 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.
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 ROACE 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 rolling ROACE. 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 through all business areas at conservative margins and very much supported by our ongoing improvement efforts. 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. This compares to our target of 40% over the cycle.
This reflects the cash generation, 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 influence ourselves this quarter, the NOK 1.1 billion 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 mentioned we are seeing continued progress on the levers we can control ourselves, we are on track to deliver on these improvements by end 2020. On that note, I would like to give the word back to Hilde for her final remarks.
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 my 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. In the meantime, we are managing the areas where we can influence, like our improvement programs, to protect our cash flow. Despite the COVID-19 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.
Operator, we are now ready for questions.
Thank you. If you would like to ask a question, please signal by pressing star one on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. A voice prompt on the phone line will indicate when your line is open. Please state your name before posing your question. Again, press star one to ask a question. We'll pause for just a moment to allow everyone an opportunity to signal for questions. We will take our first question. Your line is open. Please go ahead.
Hi, good morning. 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? 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? 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 third and fourth quarter. If markets develop stronger, then there could be some upside to this. You also know that contracts are not done on a daily basis. Our best guidance currently is for a similar outlook into the third and fourth quarter. That is the basis for the premium guidance that we've given of NOK 175-NOK 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. This is based on how we see the market today.
On the first question, when it comes to the impairment in Extrusion North America and Extruded Solutions, as you are of course well aware of when testing for the coverage in our balance sheet, we take into account what is possible to generate from what we have in our books today. When you see a decline in the, for example, automotive segment that we have experienced, I guess the market consensus is that it will take some years before we're back to the levels that we were expecting before COVID-19, this will impact the internal valuation negatively. Already in the fourth quarter, we had quite limited coverage at Extruded Solutions in North America. Any significant change since that would most likely result in impairment, as we see now.
When it comes to how we view this going forward, it doesn't necessarily change our thoughts around capital allocation and other thoughts with respect to Extruded Solutions. Some segments are maybe a bit less attractive, whereas other segments are more attractive. As you know, within every segment, there are part opportunities also. 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. A lot of the positive opportunities we are not able to bring into an impairment test. That would be an upside if realized going forward. In some, we still see a good potential for return generation in Extruded Solutions, and it is still a strategic growth area within our portfolio.
Thanks for that, Pål. Maybe if I can push you a little bit here. I think in the past, you’ve indicated that 2021, maybe that Extruded Solutions could be close to the 2019 level adjusted for one-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?
Yeah. 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 the big spread in expectations only into the third quarter. However, as we mentioned last quarter, the possibility to deliver on the original improvement efforts in the short term, which includes the market effect, has been taken somewhat down. Whereas the cost out procurement initiatives and restructuring has compensated to some extent, but in 2020 will not be close to compensating enough. 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. We're not in a situation to give concrete guidance on 2021.
Based on external recovery in GDP, it looks like 2021 could still experience some challenging market development. Let us get back to that at our Investor Day towards the end of the year also.
That's very clear. Thank you very much, Pål.
We'll take our next question. Your line is open. Please go ahead.
Hi, it's Dan Major from UBS. A couple of questions. Firstly, on Alunorte, you obviously gave some guidance on lifting costs of energy and caustic into the third quarter. Can you give us a bit more specific guidance around either unit cost expectations or sort of the delta on a NOK or $ basis based on your sort of current assessment? That's, I guess, the first part of the question. Then, once, I guess, things normalize to an extent, is a low 200s cost for B&A or for Alunorte a reasonable assumption? That's my first question.
Well, if we look into the third quarter, please be aware that any indications will be partly based on realization and partly based on how the market develops. As you remember from the second quarter, we realized that somewhat lower fuel oil than what we expected when we had this guiding call a quarter ago. It won't be exact, as mentioned earlier, when we look at current market prices, time lags, et cetera, we expect fuel oil prices to increase by up towards 30% in the third quarter versus the second quarter. Similarly for caustic soda, somewhat lower, maybe closer to the 20% mark as we see today. If you take these two things into account, that could impact our cash costs by closer to $15-$20 into the third quarter.
Very clear. Thanks. In terms of sort of the structural cost position in the low $200s once things inputs normalize, a reasonable assumption?
If you take market prices as they are today and you look at an implied cash cost of 192, and you expect also that production should come somewhat up reducing it, then somewhere north of to 200-ish sounds fair based on those assumptions. Somewhat above just the 190 plus 15 to $20 less from dollars on increased production and lower fixed cost per ton would result in somewhat above 200 this is.
Very clear. Thanks. 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?
Yeah. As you know, the majority of the impairments we took were non-cash related. For Slovalco and Extrusion North America, which is a goodwill impairment, we won't have any cash effect. The impairment in Brazil also don't have a cash effect. If we look into effects of the restructuring efforts, et cetera, and provisions taken in 2019 and this year and effects in current year, the profile is still around NOK 600 million in 2020, and around NOK 500 million in 2021.
Great. Thanks. How much of that have you taken in the first half on the 2020 number of the 600? How much has already been incurred?
I will get back to that further.
Okay. Great. Thanks so much.
We'll take our next question. Your line is open. Please go ahead.
Yeah, morning. It is Richard Hatch from Berenberg. I have two questions. First one, just wondering whether you would be able to give us a bit more of your thought process around the premium and how you see that evolving over time, sort of you have 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. Also what levers you have got internally that potentially could enable you to maximize value from what you are producing. 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. As you know, the premium consists of two large elements. It's the standard ingot premium and it's also the upcharge, which translates into the value added premium. The standard ingot premium typically reflects the physical tightness in the market. In periods with a lot of metal available, we've typically seen lower standard ingot premiums. When you have supply shortages, that at times increases. Typically within some form of range, you've had special situations historically driven by inventory financing, et cetera, where you have long queues out of inventories, which really drives up standard ingot premiums.
We see some signs of that now. 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. At the moment, the value add premium and upcharges 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 unalloyed material instead. In order to see that premium increase again, you would need to see a more balanced market for value add premiums. At current level, I guess producers like ourselves have a lot of capacity to increase the value add premiums.
I think 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.
Okay.
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, et cetera. Hydro has typically performed very well there. We believe that when the market improves again, we as a producer are well equipped to be able to regain that market share. We have to work for it.
Can I just ask one follow-up on that? Would you say therefore that we're at kind of trough value-added product premiums, just looking at it on a cycle basis?
Well, all my comments are 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. 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. Yes, it seems to have been flattening out, and our sales forecast for extruded ingot has improved over the latter weeks and months.
Yeah, that's very helpful. Just on the bauxite?
Yeah. Bauxite markets have been quite stable price-wise. They also came down a bit with the development we've seen in all markets. As you know, we're seeing quite some shifts in bauxite and there's been some impacts to larger mines. In general, most large nations seem to be running quite high bauxite production. As we have adjusted down aluminum demand, alumina demand comes down, and of course it impacts the bauxite there also. We haven't seen any short-term large disruptions or triggers currently.
Okay, 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 react a bit faster to positive developments like we've seen now out of China. That might transfer over to bauxite or if input costs go up, it could impact bauxite, but so far it's more flat-ish to negative.
Okay. That's really helpful. Thanks for your time. Appreciate it.
Thank you.
Once again, if you'd like to ask a question, please press star one. It appears there are no further questions at this time. Ms. Line Haugetraa, I'd like to turn the conference back to you for any additional or closing remarks.
Thank you, 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.