We start. Welcome to you two everyone, welcome to our presentation of 2nd quarter results 2018. They will, as usual, be presented by CEO, Svein Richard Brandtzæg, and CFO, Eivind Kallevik. After the presentation, we will have time for Q&A, and some one on one interviews as usual, and also from those of you on the webcast. We start.
This has partly been compensated by or offset by higher realized all-in metal prices and higher alumina prices. In fact, the alumina prices has been 40% higher than the second quarter last year, and all-in metal prices has been 15% higher than the second quarter last year. If you look at the downstream, we have better results in the Rolled Products and also Extruded Solutions, very much due to a good combination of higher volumes and higher margins. Also energy delivering better results due to higher energy prices, but also higher production than the second quarter last year. We're obviously maintaining strong focus on our improvement program, the BETTER program, and we have good progress.
Due to the situation in Brazil, we are not able to deliver the target, which was half a billion Norwegian krone improvement this year. We are, of course, having a vision to deliver on the 2019 target. We are very happy that the Karmøy pilot is now in full production. We started the ramp up in January, and we finished ramp up the June 26. Now we have all 60 cells at the Karmøy in full operation producing aluminum with the lowest energy consumption in the world. With regard to the market situation, we are now in a deficit situation. There are some uncertainties in the market related to the trade situation, the tariffs, the Rusal sanctions and of course, also the Alunorte situation.
With regard to the total demand expectation for 2018, we maintain an expected growth of 4%-5% in primary demand in 2018. We then move over to Brazil, and I just repeat that we are now producing at 50% in Alunorte. Due to the embargo on Alunorte, we also had to take the bauxite production down to 50% in Paragominas. The neighboring aluminum smelter Albras is also now taken down to 50%. We have a continued dialogue with the government of Pará, with the state environmental agency, SEMAS, and also Ministério Público. There are several other administrative, legal, and political processes ongoing, where HEDNO is cooperating with all relevant authorities to find the solution.
I would just like to reiterate that the third party review that was done after the heavy rainfall in February, and also the internal review that we had concluded that there has been no harmful pollution as a result of the extreme weather in February. It's also good to see that the environmental agencies, the state agency, SEMAS, and also the federal agency, IBAMA, has also concluded that there were no pollution after the heavy rainfall and no overflow of the bauxite residue area. It's good to also that there are external, more external sources now that are supporting our view.
With regard to the operations in Alunorte, we have introduced several measures, both short-term, and also working on longer-term measures to make sure that we can continue safe and sound operations. The biggest part of it is the investment of half a billion NOK in the expanded water treatment system. It will increase the capacity with 50%. The timing for resuming 100% production Alunorte is still uncertain. With regard to operations in Paragominas, we announced on Wednesday last week that we are now adapting manning towards production with the now suspending contracts for 80 of our own employees and 175 contractors. In Alunorte, we are currently now running five lines out of seven, with two lines in standby.
We are now assessing the possibility to curtail three lines out of seven. With the two lines in standby, we can restart the whole plant within 3-4 weeks. If you take three lines in curtailment status, we will spend 2-3 months before we can resume full production. This will lead to a suspension of work contracts for 150 employees and 250 contractors. That will result in a cost reduction of about $10-$15 per ton. This has not been decided yet, but we are now considering this opportunity.
You move on to the market, based on the demand growth of 5%, and also since the second quarter last year, and also the flat production growth development since the second quarter last year, we are now in a deficit situation, as I said previously. There is about 500,000 ton deficit in China, and about 1 million deficit outside China. We had about 6% growth in China and 3.7% growth in the area outside China. All in all, when we also add the total picture to the 12 months rolling calculation, we see that we are in about 1.5 million tons of deficit for the moment.
We are expecting that the market will grow in total 2018 of 4%-5%. If you take a closer look at the picture, then look at the demand growth in China, 4%-6% expected this year, 3%-4% growth in demand expected outside China. Then we have taken down the expected growth in production in China from 3%-4% to 2%-3%. We have done the same outside China. It looks now that the growth in production will be lower this year than expected. So we have taken down from 3%-4% to 2%-3% outside China. All in all, still a fairly good demand growth and lower growth in production.
If we add this to the total supply demand, picture, we will end up this year, at the end of December, with a situation where we have between one and 1.5 million tons in deficit in the world. This means that the global inventories will go down. We are expecting that the global inventories will end up closer to 11 million tons in the end of the year. If you then take a look at the aluminum price development, we had a peak in April as a result of the sanctions in with Rusal. The market price in the second quarter this year was $2,257 per ton on LME.
was $2,183 versus $1,902 per ton in the second quarter of last year. At higher prices, we have seen the softening of prices during the quarter. There is still quite a difference between the Chinese price and LME, which means that there is an arbitrage for export, and we see also higher levels of export during the quarter. If you take a look at the standard ingot premiums in the different markets, we see the effect of the import duty of aluminum to U.S.
This is fairly much compensated by the increased standard ingot premium level, which has been going up to close to $500 per ton, now trading close to $440 per ton. In the European market, the standard ingot premium is now around $150 per ton. You take a look at the alumina price, the market price in the second quarter this year was $521 per ton. The realized price was $430 per ton versus $295 per ton in the second quarter of last year. The peak was of course due to the sanctions in with Rusal, but also the Alunorte situation contributing to that.
We have seen moderating prices after this. We are now close to $500 per ton, $495 per ton alumina price for the moment, which is still quite a high level. We have seen limited capacity for restarts outside China. We also have seen that due to the arbitrage, higher alumina prices outside China, there has been some export. There are some logistical constraints, but we have seen around 300,000 tons of alumina exported out of China. We are actively operating in the third-party market and have secured the sourcing for most of the 2018 for all the smelters in our system.
You take a look at the downstream situation, Extrusion and Rolled Products, and look at the European market compared to the North American market, you see about a 3% higher demand in Extrusion in Europe, and 5% higher demand in Extrusion in U.S. Building construction contributing very much. In the U.S. we have seen a very high demand, an increased demand in the heavy truck and trailer market, which has increased to 6% since the second quarter last year. Substitution and higher demand is driving in the different segments, is driving the development. You look at Rolled Products, we have had about 4% higher demand in Europe and 4% higher demand in the U.S. market.
Also here, good contribution from both building and construction, but also very much in automotive and transport and truck and trailer market in the U.S. Just a couple of comments related to the import duties in the U.S. We have now from first of June, a situation that there is a duty also versus for imports to U.S. from Europe and Canada. As I said, the standard premium is very much compensated for this situation. So for export from our smelter in Qatalum and also our share of the Alouette smelter in Canada, we have been compensated by higher margins. And we of course, have not seen any short-term financial or operational effect of this.
It remains to be see the long-term effects of this trade situation as there are also responses in Europe and other countries there. With regard to 232, there was also started an investigation, a 232 investigation of imported autos, light trucks, and auto parts in May. It is still too early to conclude on this as the investigation is not finalized. On top of this, we have the sanctions towards different Russian companies, and Rusal is a part of it. We have seen now after the sanction was announced, and also the prolongation of the wind down period, that metal flows has been normalized.
We have multiple businesses or business relations with Rusal throughout the value chain, and we are now initiating and mitigating actions to solve this situation. Also here, we don't see any significant negative effects operationally or financially for Hydro. We have been talking about increased cost situation in our industry, in the upstream part of our industry for a couple of quarters. This is update from the previous quarter. If you take a look at the situation for alumina production, it is caustic soda that has been one of the main factors, more than doubling in cost compared to, or during the last couple of years. We see now more leveling off of the price development and even some softening prices in the Asian market.
Fuel oil and also steam coal is now traded at higher levels, and which will impact us in the coming quarters. There are 2-3 months time lag here before the market price are changed to the we see it on the bottom line of our businesses. With regard to aluminium metal production, it is alumina that has been the main factor that has gone up quite a lot. We see now that the alumina is trading below the average market price in the second quarter. The average market price was, as I said, $521 per ton in the second quarter, and we now see a market price and tax around $495 per ton.
Also petroleum coke and pitch has increased quite a lot previously. There we see now a now moderate, and even some softening in the market in some areas, but more stable development for anode raw materials. Again, this is also affecting our businesses, and there are 2- 3 months time lag. If you take a closer look at the business areas and the bauxite alumina cost situation, it is higher cost very much due to increased external alumina sourcing cost, increased raw materials prices, but also fixed cost inefficiencies as we are running Alunorte at 50%. Cost has gone up, but also the LME or the tax price has gone up also substantially.
Realized price, as I said, $430 versus $295 in the second quarter last year. The margins are not far away from what we had in the second quarter of last year due to the price compensation. With regard to aluminium production, also here we have a similar effect, higher raw material prices, but also have higher LME that are partly compensating for this development. We have now similar EBITDA margin in the second quarter as we had in the first quarter this year. Realized price $2,183 per ton versus $1,902 per ton in the second quarter last year.
Rolled product sales has improved 3% during the first half year compared to the first half year last year, and at 5% in the quarter compared to the second quarter last year. If you look at the first half year results, it's very much driven by can and automotive. In fact, we have increased automotive production with 27% during this period. Very much due to higher volumes from Automotive Line 3, that is the new automotive line in Germany. Also the fact that we have resolved production issues in Alunorf, the big hot mill in Germany, and also the Hamburg rolling mill, where we had some operational issues in the first half of 2017.
We had 2% higher sales in this quarter compared to the previous quarter, which is very much a normal seasonal variation during the period. In Extruded Solutions, we have the value above volume strategy. Here we have good development in Extrusion Europe, in Extrusion U.S. Building Systems. In Precision Tubing, there are somewhat more moderate development last quarter due to the fact that we are now included the acquisition in Brazil, which has a negative contribution this quarter. This is the reason why Precision Tubing is showing somewhat weaker results with regard to margins. Overall, it is a very good development in Extruded Solutions, and we see better performance in this business area going forward. If you go up to Energy, as I said, we had also better results in Energy.
This is very much driven by higher coal and gas prices on the continent. On top of that, we have a negative hydrological balance development during the quarter due to dry, warm weather. We have now had higher prices in the Nordic market than what we had in Germany. This is quite unusual for the period. Also we see that the hydrological balance is now 15 TWh below normal after the second quarter. As you probably have seen, we have announced that we have secured the power contracts from 2021 and onwards. We are now replacing the big contract that are expiring in 2020 with new contracts. For Hydro, it is very important to secure contracts with renewable energy suppliers.
It's a very good combination with wind power that is unregulated together with regulated hydropower. We have now secured 8 TWh in total from 2021. 4.5 TWh of this is wind power to where we are then utilizing the flexible controlled or regulated production capacity in the hydropower system with unregulated wind power. The reason why we have a strategy to secure wind power is that there is a huge difference in CO2 emissions, of course, in electrolysis when we have included the emissions from energy production. In electrolysis based on renewable energy, we have about 1.5- 1.6 kilo CO2 per kilo aluminum emissions.
If we have based our energy production on coal, it would be more than 10 times higher. This is a very important part of our renewable strategy. We have the Karmøy technology pilot. This is a part of our strategy to be a leading company in technology and innovation in our industry. This is a big step forward for us, where we are now producing aluminum with the lowest energy consumption and the lowest emissions in the world. We have 60 cells in operation. 48 electrolysis cells are operated, and they're designed to produce aluminum at 12.3 kWh per kilo aluminum.
We have 12 cells, electrolysis cells, that are going to produce aluminum with the energy consumption of 11.5 kWh per kilo aluminum, which is a big step forward. There are several spin-off effects from this pilot to the existing smelter portfolio, and it will take about 1- 2 years before we are verifying all different or the major different technologies. It will lead to higher production in our existing portfolio and also lower energy consumption. Eivind, please.
Thank you. Thank you, Svein. Good morning, everyone, and welcome from me as well. I will take you through the Hydro's second quarter financial results. This quarter we delivered an underlying EBIT result before financial items and tax of NOK 2.7 billion. This is NOK 200 million down from the same quarter last year and NOK 400 million down from the first quarter of 2018. Please also note that in this quarter, and going forward, we will focus on explaining results versus the same quarter previous year, which is also what I did in Q1, not versus the previous quarter, which is what we have done in the past. Of course, gives us a better possibility to discuss underlying performance rather than discuss seasonality every time we go through the numbers.
If we look at the main factors contributing positively this quarter versus second quarter 2017, it is the higher realized alumina and aluminium prices. This all adds up to roughly NOK 2.4 billion in improved results. The realized alumina prices increased by roughly $372 per ton from $2,175 per ton to $2,547 per ton. In total, this gives us an improvement of roughly one and a half billion Norwegian kroner. We realized the alumina prices increased by $135 per ton from the $295 we saw in the second quarter 2017 to the $430 that we realized this quarter, altogether contributing roughly NOK 900 million positively. The increased raw material costs in Primary Metal, it's mainly driven by higher alumina costs, higher carbon, as well as power, altogether a cost increase of roughly NOK 1.4 billion.
For BNA, this relates mainly to energy, bauxite, as well as increased caustic costs adding up to some NOK 600 million. In addition to this, we also have, amounting to roughly NOK 400 million. We also see some negative effects from upstream volumes, roughly NOK 600 million, and this, of course, is primarily related to the 50% curtailment that we have in Alunorte and the subsequent production reduction in Albras and Paragominas. Happy to see good developments in the downstream areas. We see good volume and margin development both in Rolled Products and in Extruded Solutions, contributing positively with NOK 200 million.
The other line of positive NOK 200 million consisting of several items, such as the positive consolidation effect of Extruded Solutions, improved energy results, and also some negative currency effects relating to the weaker dollar versus NOK and EUR and the weaker BRL. We take a quick look at the key financials. The revenues are up some NOK 17 billion compared to the second quarter last year, and this is primarily driven by the consolidation of Extruded Solutions. This quarter, we have a reported EBIT of NOK 3 billion, of which we've excluded a loss of NOK 274 million related to the normal timing effects that we do exclude every quarter, giving us the underlying EBIT of roughly NOK 2.7 billion. We had a financial expense of NOK 0.4 billion.
This includes a net foreign exchange loss of NOK 0.3 billion. This is mainly due to the weakening of the BRL versus the USD, giving us an unrealized loss of NOK 1 billion on the USD debt that we carry in Brazil. This is partly offset by the unrealized gain that we have on the embedded derivatives in the EUR-denominated power contracts on the back of the weakening EUR versus NOK. We also see somewhat increase in net interest expense as we now carry more debt on the balance sheet post the Sapa transaction. Result of this, the income before tax for the second quarter was NOK 2.5 billion versus NOK 2 billion in second quarter of 2017. This quarter, we have a relatively low reported tax rate of 19%.
That's clearly lower than the long-term guiding of 30%, this is primarily driven by the unrealized currency loss that we then have in Brazil for this period. This gives us a net income for the period of NOK 2.1 billion, up from roughly NOK 1.6 billion same period last year. The underlying EPS is also slightly up versus second quarter last year and is now NOK 1.02 per share. We move to the business areas and start with Bauxite & Alumina. The underlying EBIT for the business area was down from NOK 662 million 2Q 2017 to NOK 364 million this quarter. This is obviously impacted by the 50% production restriction at Alunorte and the subsequent curtailment at Paragominas.
This obviously leads to significant volume with less volumes in both plants, and clearly has negative effects on the results for the quarter, both due to the volume shortfall, but also due to the fixed cost level in absolute terms remaining relatively stable between the periods. Raw materials costs continue to increase compared to the second quarter last year, in particular on the bauxite, energy, and the caustic side. To give you an indication, and it's an indication or a scenario, if you like, of the impact of the curtailment at Alunorte and Paragominas.
If we had assumed that both Alunorte and Paragominas had produced at 100% for the second quarter, and used a realized alumina price of $360 a ton, which was the price level just before the production curtailment was introduced, and if we assume, the same cost level, that we have, realized in the second quarter, the EBIT for BNA would be roughly NOK 1.1 billion. Another scenario would be if we had assumed the realized alumina price, that we had in Q2 of $430, all other as-assumptions being equal, that would lead to an EBIT, for BNA for the second quarter of NOK 2 billion.
It's a clear assumption that the curtailment of Alunorte had a positive impact driving the price up to $430. Also worth noting that this quarter, due to the situation, we had an above average sourcing of third-party alumina to cover for the shortfall at Alunorte, and this is also something we should expect coming into Q3. If you look further into this, third quarter, and as Svein has already explained, we are in constructive dialogues with the authorities to find a solution for a restart at Alunorte, but it's still not possible to be more precise on the timing of such. On the cost side, we still are expecting an increased raw material cost situation in Alunorte, in particular on the fuel oil side, which we expect to increase roughly 15% between Q2 and Q3.
We've also included this slide this quarter to give you a little bit more insight into the cost composition at both Alunorte and Paragominas. If we then start with Alunorte. As we previously communicated, approximately 15%-20% of Alunorte is fixed cost. 80%-85% is variable. What is proven through this situation is that what we have defined previously as variable cost truly is variable. What we're also seeing is that the fixed costs are sticking basically at the same levels as we saw prior to the curtailment situation. Now, the reason for the fixed cost at Alunorte staying at the same level is, of course, the way we're operating the plant, running five lines, keeping two in standby, and keeping all the manning at the site.
If we get into a situation where we, more permanently curtail 3 lines, this will have an impact on the manning situation, as Sannikka already alluded to, and also have an impact on the cost per ton at the plant. For Paragominas, we, it's a little bit of a different situation. We have roughly 60%-70% fixed costs, and 30%-40% variable costs. What we're seeing here is that we see some abatement of the fixed costs as we have been able to take down maintenance as we're utilizing less of the rotating or mobile mining equipment. As you've also seen in the paper, and Sannikka mentioned, we have temporarily suspended 80 employees last week, and we will take out some 175 contractors over the next coming weeks.
This again will help alleviate the fixed cost situation at the plant. Turning to Primary Metal, the underlying EBIT for this business area decreased in the second quarter compared to the second quarter 2017 from close to $1.5 billion down to $755 million. We did realize significant higher aluminum prices, up from $2,175 last year to $2,547 per metric ton this year. This, as a consequence then, has a very strong positive impact on the results. However, at the same time, we've also seen a very strong cost push in the Primary Metal division. This is primarily driven by alumina prices, but also to a certain extent by pet coke and energy prices.
Fixed cost depreciation are also up in the second quarter, partly driven by the startup of the Karmøy pilot, which is then in with full depreciation, but from an earnings perspective, still not at full production for the full quarter, but which is what we will see in the third quarter. It's also worth noting that there's quite a bit of currency effect as the stronger NOK versus the dollar has a significant impact on the earnings for this business area. If you look into the third quarter, we have at the end of the second quarter sold roughly 60% of our Primary production forward at the price level of $2,275 per ton.
At the same time, we have booked 65% of premiums for the third quarter at roughly $410 per ton. Overall, we expect to realize premiums for the quarter to be in the range of $350-$400 per ton. Given the latest developments in both alumina and aluminum price, we will see effects also of this coming into the third quarter results for Primary. Remember that aluminum prices is realized with a one to two-month time lag, while alumina takes about two to three months time lag.
Given that the price development we've seen on alumina during the second quarter, we do expect a significant cost push on alumina into the third quarter for Primary in the tune of $400 million-$450 million above what we saw in the second quarter. We turn to Metal Markets. We delivered an underlying EBIT of $237 million compared to $244 million same period last year. If we exclude the currency and inventory valuation effect, which was really the main deviation between the quarters, the result increased from $152 million last year to $224 million this quarter. This result improvement is driven by higher sales and improved margins, as well in the remelters, as well as good results in the sourcing and trading activities.
As far as outlook goes, as normal, let me just remind you that due to the nature of trading currency and aluminum prices, Metal Markets results are volatile. Turning to Rolled Products, we did see a good improvement compared to the second quarter last year, up from NOK 84 million to NOK 212 million this quarter. This improvement is driven in part by increased margins, volumes, and certainly production performance in the key assets we have in Germany, partly offset by negative currency effect. The results from the Alunorf melter also improved on the back of improved all-in metal prices, partly offset by higher raw material costs, but again supported by the new power contract that came into effect as of January 1st this year.
We look into third quarter, we do expect continued healthy demand for Rolled Products, as Svein indicated, certainly compared to the third quarter last year. There are some uncertainties when it comes to the trade effects on Rolled Products when we look at this in a global perspective, but it's too early for world to conclude or give indication as to what the potential effect might be. As always, when it comes to noise, these results will be volatile, and will swing in line with LME prices and raw material cost developments. Now, if we turn to Extruded Solutions. To make Q2 results comparable to 2017 results comparable to Q2 2018 results, I will discuss this on a pro forma basis.
That of course means that you cannot take the historical figures of Sapa and compare them to the historical figures here, as we have certain transactional related effects in these numbers. Most importantly, this relates to the increased depreciation or access value depreciation of around NOK 300 million on an annual basis. If we look at the result as such, it's very encouraging, and I'm very happy to see that Extruded Solutions continue to deliver improvements quarter over the same quarter last year. This time around, the results are up NOK 121 million compared to the second quarter last year from NOK 836 million to close to NOK 1 billion or NOK 957 million. The reason or background for these result increases are increased volumes and increased margins.
As Svein has shown before, we see a continued positive trend in the net added value per kilo for Extruded Solutions. Also worth noting that the results this quarter is positively impacted by the change in significant change we have in Midwest premium, impacting the realization of the inventory we had in Extrusion North America, adding roughly $8 million to the bottom line. We look into the second quarter, also for Extruded Solutions, we see strong demand going into the third quarter, and we do expect a higher volume figure in Q3 compared to the one we had last year. When it comes to trade tariffs in North America, we do see some negative effects within Precision Tubing, as well as Extrusion North America.
This relates to the fact that they have businesses where they ship cross-border between Canada and the U.S., or between Mexico and the U.S., where tariffs are impacting the profitability. We turn to energy. The energy EBIT increased significantly from NOK 284 million second quarter last year to NOK 417 million this quarter. The main driver is of course the significantly higher power prices that we saw during the quarter. There was an increase from NOK 252 per megawatt hour in 2017, up to NOK 369 per megawatt hour in second quarter of 2018 in the NO2 area where we do sell most of our own production.
The increased power production, both due to price signals, as well as early snow melt, also impacted the net spot sales and consequently the results positively. First quarter, please remember, was also somewhat lower due to the fact that we had one of our power plants out on maintenance outage. Also, commercial results for this quarter was very good. As we communicated in the past, energy carries a negative effect compared to previous year's performance of roughly NOK 60 million due to the internal power contract with Rolled Products. Also here, let me just remind you that the earnings and profitability levels in energy are highly volatile and depending on weather and precipitation, amongst others. We quickly turn to other eliminations.
This netted to a negative NOK 229 million in 2Q, compared to a positive NOK 170 million 2Q last year and NOK 161 million in 1Q. One factor reducing the result compared to 2Q last year is obviously Extruded Solutions, as we no longer include Sapa, as here, as was the case up until 3Q last year. The other line mainly contains corporate costs, in addition to some other elements like earnings from industrial parks and industrial insurance. This was negative NOK 156 million this quarter. This is more or less in line with the updated guidance we gave you last quarter, to expect a range of NOK 175 million-NOK 200 million on a quarterly basis. Finally, eliminations amounted to NOK 74 million negative this quarter.
This mainly reflects the increased internal margins in Bauxite & Alumina, partly offset by reduced stock of internally reduced internally sourced alumina. Finally, if we look at the net debt development between the quarters, we started the quarter with NOK 3.6 billion of net debt. We had a relatively strong EBITDA contribution of NOK 4.6 billion as a major positive contributor. We saw a build of working capital in this period of NOK 2.3 billion. The majority of that is driven by currency as well as increase in prices. We also saw some inventory build within Metal Markets and Extruded Solutions. Taxes and other primarily relates to tax payments, which is normally higher in the second quarter, as well as reversal of results in Qatalum and the receipt of dividends from Qatalum.
As a result of this, we had cash flow from operations of NOK 1.6 billion for this period. On the investment side, we invested NOK 1.6 billion for this period. We've also paid dividends in this quarter to our shareholders, NOK 1.75 per share, NOK 3.6 billion altogether, leaving us with a net debt position, still very comfortable one, at NOK 7.5 billion at the end of second quarter. Thank you, Svein.
Thank you, Eivind. Just to remind you about the priorities for Hydro for the coming quarters, it is very much about safe and sound operations to bring the Brazilian operation back to full production, continue the value creating integration process that we have in Extruded Solutions and also successful project execution. With that, thank you very much for your attention.
Okay, we open for questions from the audience in Oslo and on webcast. Any questions? Yeah. There will be a microphone for you. Please introduce yourself.
Yes, good morning. Even Vedaa, DNB Markets. Two questions, if I may. One on Alunorte. According to local media, it looks like you mostly agree on many things, and that the new contract has been shipped over to Oslo for review. Can you please elaborate on that and on what you disagree on, how you view this, these comments that were made by Ministério Público? Secondly, moving downstream on tariffs, can you elaborate on your ability to pass this to customers and what effect that could have on demand? Thank you.
Yeah. With regard to the discussions we have in Brazil, we have a dialogue with the authorities, governor, Ministério Público, and we are moving forward, it's still too early to say when we can expect lifting of the embargo. If you think about the timing here, we are still not clear about when we can expect lift of the embargo. We have ongoing discussions. With regard to the effect of the 232 import duties on the downstream business, as also Even indicated, we have maintained the margins in the market.
ions, we have almost 600,000 tons extrusion business in the U.S. market, and of course, they are sourcing in metal. The metal cost has gone up due to this situation, but this cost is transferred to the customers. So, it is the end users that are now paying for these duties
If I may also add to that, Svein. What we also have is, in some cases, we have tubing or extrusions manufactured in the U.S. going to Mexico for further manufacturing and work and then taken back to the consumers in the U.S. You get tariffs on both sides. Not all of that is possible to pass on to the customer on day one. There will be a little bit of an impact, but it's not so significant that you will potentially see a big impact in the books. If you're not only to look.
Okay. Any other questions from Oslo? No. I know we have some questions from webcast.
Question from Daniel Major, UBS. You plan to spend the $750 in water treatment plant and community projects. Can you give more detail on timing, as well as confirming that Alunorte could potentially restart before completing these projects?
Yeah. The major technical part we are now. The measures we are now introducing is that, as I said, to increase the water treatment capacity. This is a project of around half a billion NOK. It will increase the water treatment capacity with 50%. This is the plan is to be ready with this project within the first quarter next year. Maybe, Even, you can comment on the other.
Yeah. Of course, CapEx spending would mostly follow that. Most of the CapEx that will go in 2018 and some into 2019. When it comes to the SBI, Sustainable Bauxite Initiative, the platform for when that money will be spent is not quite clear. The structure is being set up. The organization is being.
filled up and firmed up. We will spend that in a wise way when the organization is good and ready to do that. This will obviously be over more longer period of time.
10-year period.
Yeah.
On the working capital increase, what was the main driver here, and how do you expect working capital to develop into the second half of 2018?
If you look at the net operating capital increase, it's roughly $2.2 billion. The majority of that is driven by currency and price increases for material. A little bit of working capital inventory build-up and Extruded Solutions and Metal Markets in this period. Predominantly affects on currency. Due to normal seasonal patterns, we should expect then working capital release in the third quarter compared to the second.
A question from Menno Sanderse, Morgan Stanley. When will Norsk Hydro take a decision around curtailing lines at Alunorte, and what does it take to this, to take this decision? As well as does this indicate a step back in the negotiation process with the Brazilian authorities?
This is something we are now evaluating, as it has already taken longer time than expected. With the curtailment of three lines, it is, I would say, a more stabilized way of production. There are many reasons why we could do that, and also of course reduces the cost. We don't have any view on the timing here, but it's based on the fact that it has taken longer time than what we expected. This is the reason for it.
On Rolled result for Q2, have you now seen a full recovery in the operations? Or is there still upside for some operational improvements going forward?
In Rolled Products we had several operational issues last year. I mentioned already the Alunorte issue, the Hamburg issue, which has now been resolved. We also had the wrap-up issues related to Automotive Line 3. This has now improved significantly. It's going much better than what we had just a few quarters ago. We still have the UBC situation, where we need to have installment of or modification of the UBC recycling line for cans, where there is a dust issue, where we are producing seven weeks, and then we have to stop for one week, and then producing seven weeks again and stop. The problem is the dust production in this integrated production line, that will be also solved.
We are doing that in the end of the year. There will be some limitation of production in the UBC during this year, but there are of course also upsides going forward in this production line.
A final question from Manny, Sylvain Brunet, Exane BNP, and Jason Fairclough with Bank of America Merrill Lynch. You've previously been more optimistic about the restart at Alunorte. Now you have layoffs. What has changed? What does it take for the authorities to give you a green light?
As I said, we don't know exactly what it takes for authority to give us the green light. Since it has taken a longer time than what we expected previously, we are now implementing measures that we see will also smoothen the organization and with regard to adapting the organization's capacity to the production capacity. Also, with the curtailments of three lines in Alunorte, it will also be smoother production. It will be a more stabilized production situation there.
Okay. No more questions. We will say thank you very much for coming, and have a lovely day. Thank you.