Welcome everyone to Nijo and to the presentation of our third quarter results for 2017. They will be presented as normal by our CEO, Svein Richard Brandtzæg, and CFO, Eivind Kallevik. Welcome also to all of you following us on webcast today. We will start with presentations, and then we'll have time afterwards for Q&A as usual.
Thank you, Inger, welcome to the presentation. This third quarter marks a new chapter for Hydro's 111-year history. With Extruded Solutions on board, we have now established ourselves as a global leader in aluminum as an integrated company. We have now 35,000 highly competent people in our organization, working in 150 sites in about 40 countries and with more than 30,000 customers. We have a strong position for further profitable growth and a good position for further innovation and application development in aluminum. Now the quarterly result. Underlying EBIT was NOK 2.4 billion, down from NOK 2.9 billion in the previous quarter.
Main reason is higher raw material costs, depreciation of the dollar, also continued weak results in Rolled Products. We finalized and closed the deal with Orkla the second of October. I'm very happy to see that integration moves forward according to plan. Extruded Solutions continue to deliver improved results. The third quarter result this time is the best third quarter result ever in this business. The Better program is also on track for 2019. We are not happy that we are now behind the 2017 target. I will come back to that later in my presentation.
On the Karmøy Technology Pilot project, we are now on plan and on budget and ready to start up later this quarter. If you go to the market, we have a positive market sentiment, especially what has happened in China. It's a tight market. We expect that the market in total this year will be largely balanced. I will also come back to that. Let's take a closer look at the situation in the third quarter. The total demand in the third quarter was about 2% lower than the second quarter, 1.5% lower in China and 2.8% lower outside China, which is normal seasonal variation.
If you take a look at the different areas, China growth, 7.2%, about 4% outside China, in total about 5.6%-5.6% growth since the third quarter last year. In the same period, the production increased with 7.5% globally. If you take a look at the 12 months rolling situation on supply/demand, we see quite balanced market as it looks now. The global inventories are around 12 million tons. Inventory things are coming down towards pre-crisis levels. So it's still a lot of aluminum in stock, but in inventory days it is coming down.
It's about 7 million tons non-registered inventories and both 5 million tons, 5.4 million tons approximately in the registered inventories. All in all, 12 million tons inventory globally. We have seen that now with market development globally, we said previously that we expect 4%-6% growth this year, but we are now saying 5%-6% because we see less or lower downside in the market for the rest of the year.
If you then take an even more closer look now on supply/demand balance, outside China and China, looking first at the outside China situation, there has been some disruption in production capacity and Primary Metal this quarter, we see that the growth in capacity is about 1%. As we said previously, it could be 2%-3%. If you go to demand, in fact we see a bit stronger demand than what we expected previously, still within the range that we set. We set 2%-4% previously. Now we see 3%-4% outside China as a demand growth. In China, the numbers we are showing here is about the same as we did the previous quarter. Capacity increases continues still with the shutdowns and what we have said.
We estimate about 10%-12% growth in supply and 6%-8% demand growth in China. All in all, when we add now the overcapacity in China and the deficit outside China, which is about 1.9 million tons, we see that the market is tight but still a largely balanced market. For the next year, we expect similar development, surplus in China, deficit outside China, and the market could be even tighter but largely balanced when we are talking about the market. Aluminum price development, the third quarter average price was about $2,028 per ton, coming up from $1,915 per ton in the previous quarter.
The realized price was $1,921 per ton. Quite the strong development in the market price with some delays on realized price. If you look at the all-in metal price and then on the ingot premium, we see a weakening premium in Europe from $144 per ton in previous quarter to $141 this quarter, now trading around $145-$150 per ton. In the U.S. market, the ingot premium came down from $199 to $173 per ton this quarter, and now trading at around $209 per ton. All in all, prices are shown here.
In Norwegian krone, however, due to the exchange situation, we saw about 1% lower price in Norwegian krone than the previous quarter. Looking at the export figures from China, we saw so far that it is lower levels than the previous quarter, which is not a big surprise as the Shanghai price now is very close to the LME metal price. We have seen previously that when the arbitrage is bigger than, we also see higher export levels. September figures also indicate that there are lower export levels from China this quarter. It should not be a big surprise that there will be export of semis from China as there is overcapacity in this country also going forward.
Alumina price also had interesting development with the very tight market situation. The alumina average alumina price in the second quarter was around $334 per ton. Average price this quarter was $396 per ton. Realized price was $296. There are some time delays on this on the realized price for us. A very strong development. If you go to the situation in China, we see now that there is a very tight bauxite situation in China. There has been some shutdowns of capacity. There are also some there are some capacity that could be still closed as a part of the winter shutdowns.
There are some restocking among the aluminium companies. Looking at the bauxite imports to China, we see that Guinea is of course coming up as an even more an important source for the Chinese players. In 2015, looking at the Atlantic market, it contributes a good 7% of the bauxite in China. In 2016, it was 34% of the total bauxite to China. This year, we see that it's now at 47% of the total bauxite to China. Atlantic region, and Guinea especially, is very important. The Malaysia moratorium has been prolonged to the end of the year. Indonesia has lifted the ban on export, there are some volumes coming from Indonesia to China, but on low levels.
The main sources now to China is Australia and Guinea, and there are also some bauxite from Brazil. We take a look at the import-export balance from China. All in all, we see higher import again this quarter and previous quarter on alumina units and or equivalents. This is very much on the back on higher import of bauxite to China than previous quarter. Again, reflecting the bauxite situation domestically. There are some higher imports of alumina that coming up from low levels. It's no big changes on the primary scrap import is stable, and we see again, as I mentioned, a bit lower export of semi-fabricated products. Over to operations and the improvement program, the Better program in Norsk.
We are on track towards the 2019 targets, where we are going to deliver NOK 2.9 billion in total. We are lagging behind for the target in 2017. It is different speeds in the different business areas. For example, bauxite alumina is well ahead, and we'll finalize the 2019 target in 2017. There we are far ahead. In Primary Metal, the operations are, I would say, very good in all smelters except one, and that is Alunorte in Brazil, where we have no additional efforts to improve the operations. It's very well identified, but it takes some time before we are now at full speed in Alunorte.
We also see that Primary Metal in total will be behind the target for 2017. In Rolled Products, however, the situation is not so good. As I mentioned previously, the operational issues are affecting us also in the third quarter, and which is as done. We have weak results in Rolled Products in the third quarter. I will come back to more details on this later in my presentation. We then move over to the alumina cost situation and the margins. EBITDA guidance margin is $59 per ton. It's a higher caustic soda cost and also energy costs.
Also, we have currency effect here that is negative, but it's partly compensated by lower consumption of caustic soda and also lower consumption of alumina, of bauxite in the aluminium production. It means that the bauxite quality now has been better this quarter than the previous quarter and affecting the result. Again, it's lower margins, but it is again delay on the realized price, which was $297 as I mentioned previously. Over to Hydro Metal and operations here is also, I would say, it's good operations in general except Albras. Margins are stable compared to the previous quarter.
The realized price, as I mentioned, $910.21, is somewhat higher than the previous, also here we have currency effects and also higher carbon costs, somewhat offset by lower aluminum cost in Hydro Metal this quarter compared to the previous quarter. In Rolled Products, there are some seasonal effects, 1% lower sales than in the previous quarter due to summer shutdowns. In Norway, the general engineering market or sales was much lower than the previous quarter, which is normal. If you compare the third quarter this year with the third quarter last year, 3% down in total. No, 3% up in total. Especially body in white is 10% higher than the previous quarter.
Year-on-year, also there, 10%, 15% higher sales or in body in white, and 3% higher sales in total compared to the previous year as to the third quarter. Also strong sales in the can business, I could mention there. Some more details on the situation of Rolled Products, because also here there are different situation in the different areas where we had the problems previously. With regard to Hamburg, I would say that there we have solved the problems. There were some issues related to customer's furnace, and also a compactor issue. This is solved, Hamburg is now on back to full speed. In Alunorte, we had some issues related to the upgrade of the hot metal previously.
That is now solved. We still have some issues related to cold metal. That is something that is still worked on in Alunorte. With regard to the Neuss can line, there are no modifications ongoing. That will be finalized this month. We have identified the issues. After that, we are going to ramp up the line. It will still take some time before we're at full speed. We expect that we will achieve full speed or at 40,000 tons UBC recycling during the next year. With regard to the Automotive Line 3, qualification is ongoing. We also have progress. It goes slower and slower than what we were planning.
With regard to contracted volumes and margins, this is what we expect and which is according to the plan that we decided on the CapEx. There are some compensation on volumes from Automotive Line 1 and 2, the customers are getting mainly what they need. We still have to solve some operational issues in the Automotive Line 3 that will take some time. Some problems has already been solved. There were some dimension problems that is already solved and some other issues. Again, this line will not be in full speed according to the plan still for some time into the future. Of course, originally, we also planned with a ramp up level that will take some time.
We expect that in 2019 we will be then back on full speed on this line. Meaning that we will be during the end of 2018 at least, I expect to be on track. On track for us will mean that there will be still qualification ongoing to get the full capacity utilization, which will then happen in around 2019. We are working hard on this now, and this is a top priority for us to fix the issues in Rolled Products going forward. Day one for the Sapa acquisition was the second of October this year. It was a great pleasure for me to visit some of the biggest extrusion plants during the first period after the day one.
It's very good to see the compass and the drive for innovation and application development in aluminum in Extruded Solutions business area, which is now the fifth business area in Hydro. We have a very strong market position. We have very strong position towards the customers. As I said, more than 30,000 customers. Some of them are global, we are supporting them globally with the fact that we are now in all the important markets in the world. It's good to see also that there are good progress going forward.
I think it will be difficult to promise the same improvement development that has happened in South during the last years, because there we have done the restructuring and the synergies, and we are now finished with that. We still have ambitions to lift the performance in Extruded Solutions going forward. Looking at the third quarter results, it is quite impressive. If you go and compare the third quarter result this year, the third quarter result previous year, the improvement is about 33%, so on the operational net, underlying net income. Very strong progress.
Our target is of course to continue the improvement in Extruded Solutions business area going forward. If you go to the market situation exclusion, also here there are quite some seasonal variations in third quarter compared to the second quarter. In U.S., 1% down, which is not dramatic. In Europe 7%, which is not normal, so to say. If you compare then the growth in the third quarter this year- over-y ear, we see 4% higher demand in the U.S. market, very much driven by automotive, building and construction. We also see now positive development in commercial transportation. In Europe, 3% growth compared to the previous year. Also here in Europe, we see automotive as a driver and transport.
We also see again that there are continued positive development in building and construction, but coming from a low level. Just to prepare you for next quarter, there is a quite seasonal effect in the fourth quarter with lower activity level in when we are now approaching the end of the year. On energy, prices went up in the beginning of the quarter. There was some maintenance in the Swedish nuclear plant. After that, the prices have been stabilizing. I will say the prices has also been supported by the hydrological balance. In the end of the second quarter, it was about 3 TWh below normal. Now it's about 9 TWh below normal in Nordic energy market.
Again, we have seen quite stable prices during the quarter. We did not have any significant area cost this quarter, which is very different from the third quarter last year when the area cost was quite high. On the Karmøy Technology Pilot, this is moving according to plan and on budget. We are now preparing the startup of the first electrolysis cells this quarter. We have now spent NOK 3.7 billion in CapEx. So far, Enova support has been NOK 1.2. Total CapEx budget is NOK 4.3, and we expect that Enova will support, as promised, NOK 1.6 billion. Our own share is NOK 2.7 in total, and this is finished.
We look very much forward to start the electrolysis cells which will produce aluminum with the lowest energy consumption that we have ever seen and also the lowest emissions. Eivind, please.
Thank you, Svein Richard. Good morning, everyone, welcome also from me. I will then take you through the financial results for this quarter. This quarter we delivered an online result before financial items and tax of NOK 2.4 billion, roughly NOK 500 million lower than the second quarter, but significantly up compared to the same quarter last year. We've seen quite a bit of depreciation of the U.S. dollar, both versus NOK and BRL, resulting to negative currency effects of roughly NOK 300 million between the quarters. In general, both Hydro and the industry have experienced higher input costs and raw material costs in this period.
This quarter costs, both in bauxite and alumina, mainly in Alunorte with the caustic costs, energy costs, as well as bauxite costs, and in Primary Metal with carbon costs reduced results with some NOK 200 million. Remember that Q3 is typically a seasonally weaker quarter, reducing the results with NOK 200 million, and that's primarily driven by results in the downstream areas. Partly offsetting these negative developments are the other line, which in this period is a positive NOK 200 million, mainly comprised with positive developments, or positive effects from the aluminations line, as well as continued and good improvements within the commercial area of energy. We will take a quick look at the key financials.
We see revenues are down by roughly NOK 1.8 billion compared to the previous quarter, and this is mainly a result of the currency developments and then seasonally lower volumes. This quarter we excluded from the reported EBIT of around NOK 2.3 billion, NOK 123 million in timing effects not related to this quarter's performance. This quarter it is mainly related to the metal effects in Rolled Products, where cost of goods sold reflect a higher aluminum price in euro compared to the revenues that we realized. Financial items for the quarter amounted to roughly NOK 500 million . This is due to the weakening of the dollar versus the BRL, affecting the mark to market effects we have on the dollar debt that we carry in Brazil.
Also the weakening of the euro forward rates versus Norwegian kroner had a positive impact on the embedded derivatives that we carry on the energy contracts in Norway. As a result of this, the income before tax for the third quarter was NOK 2.8 billion compared to NOK 2 billion in the second quarter. The income tax amounted to some NOK 624 million this quarter, which is roughly 22%, and again, lower than the 30% that we guide on on a continuous basis.
The primary driver behind this quarter is a positive conclusion from the Norwegian Tax Appeal Board that came into the third quarter of NOK 108 million, both in then and the Federal of Hydro. This gives us a net income of NOK 2.2 billion positive, up from NOK 1.6 billion positive in the second quarter. The underlying net income on the other hand, was NOK 1.8 billion, down from NOK 2.2 billion in the previous quarter, consequently there was a reduction in EPS down to NOK 0.82 a share. We turn to bauxite and alumina. You see that the underlying EBIT for B&A declined from NOK 662 million in the second quarter to NOK 413 million in the third quarter.
As guided for in the second quarter, raw material costs in Alunorte are up, primarily driven by higher caustic costs, but also higher bauxite as well as energy costs or electricity costs. We'd also experienced some higher fixed costs this quarter in Alunorte. This is primarily driven from the fact that we've started the DRS2, the new tailing dam systems or residue area that we had built for some years in Brazil, and we're running this in parallel with the old dam filter system, and that gives us some additional costs. As guided last quarter, we do have some increased depreciation. This is primarily coming from Paragominas, where we opened up the new tailing dam in the middle of the third quarter, giving us higher depreciations. Operationally, we had a very good quarter in B&A in the third quarter.
Alunorte and Paragominas are producing well above nameplate capacity at 6.4 million tons and 12.1 million tons respectively. As previously mentioned, the depreciating dollar versus BRL also had a negative impact on the results. We look into the next quarter, from a production perspective, we expect both Alunorte and Paragominas to remain around the same level as we had in the third quarter. We will continue to see a cost increase on the raw material side going into fourth quarter, and again, primarily driven from a roughly 10% increase, we see this on the caustic side between the quarters. We also expect to see somewhat higher bauxite costs in the fourth quarter. Remember that the bauxite that we buy from MRN is priced on a formula which partly contains LME links.
This is typically priced on the LME price that we saw in the three first quarters of the preceding quarter. Meaning that the bauxite price for the fourth quarter will be priced on second quarter and first quarter of this year, as well as the LME base in the fourth quarter of 2016. I mentioned the tailing dam in Paragominas. That became operational in the middle of third quarter, meaning that when we operate that for a full fourth quarter, there will again be somewhat higher depreciation that we should report. When it comes to pots, we continue in 2017 to sell roughly 65% on index. That will lift when we get into 2018, up to some 75%.
It is also worth mentioning when we look into the fourth quarter, that a lot of the, or most of the increase that we see in B&A slightly odd when you look at the price development. Here you have to remember that we have about a 2-3 month lag on how we realize alumina prices compared to the observed market prices. Slightly lower sales volumes driven by seasonal effects in this quarter. On Qatar and the Qatar blockade, there are limited new use to comment. Operations are going as expected. Plant is operating well, and we are successfully shipping out all our goods through Oman ports. We look into the third quarter. We've sold roughly 55% of our production for fourth quarter at a price level of around 275, $3,075 per ton.
We also sold, 55% of our premiums or book those for the fourth quarter, roughly $300 per ton so far. We should expect an average on the premium side between $225 and $275 per ton. On the raw material side, we do expect to see a further cost push coming into also the fourth quarter. Given the timeline that I've explained on alumina, you should expect alumina cost to come up some 10%-15% in the fourth quarter. Carbon costs, we continue to see an increase, and also here you should expect to see a continued 10% increase from Q4 compared to Q3. Some of the energy costs or energy contracts that we do have carry an LME links. Those will also increase into Q4.
In addition, we will also have a new energy contract in both Paragominas and Tomago coming into effect on November 1, also lifting energy costs somewhat. On the fixed costs, remember that Q4 typically carries with it some additional fixed costs compared to the third. Quickly on metal markets, we delivered an online EBIT of $91 million, down from $244 million in the previous quarter. If we exclude the currency and inventory valuation effect, we had a result reduced from $152 million down to $107 million this quarter, very close to the guidance we give of roughly $100 million per quarter. This decrease is primarily driven by seasonally lower volumes and margins in the remelters, as well as seasonally lower product sales out of metal markets.
We look into Q4, again, Q4 is a seasonally weaker quarter than third quarter, and you should expect lower sales volumes in the fourth quarter. In Rolled Products, as somebody I mentioned, these results are obviously very much at the satisfactory level. As normal, we see seasonally lower sales volumes, slightly down compared to the second quarter. This is primarily driven by summer shutdowns at the Norwegian plants. The strengthening of the dollar versus the euro also gave us some negative currency effects on the export sales. At the same time, you should remember that in the second quarter, we had an accrual in terms of employee benefits and rolled amounting to some NOK 50 million, basically neutralizing the currency effect.
The operational issues that we had in the second quarter continues into the third quarter, albeit at slightly lower levels, so slightly improved levels. You should expect them also to continue at certain pace into the fourth quarter. We have some issues that somebody have mentioned on the UBC line as well as the Automotive Line 3. The hot mill issues, I don't know if it's been fixed. We still have some debottlenecking to do at the cold mills, and that, of course, has toll on consequences in Grenå, which takes a lot of its raw material from the Årdal sites. The non-smelter results will of course follow the market, but they will be exposed to the same type of cost pressures as I've mentioned for Primary Metal.
Turning to energy, the underlying EBIT for this business area increased from NOK 284 million in the second quarter, up to NOK 368 million in the third quarter. This is primarily a result of increase in higher production in the third quarter, as well as good commercial results within the operations and managing. Somewhat higher production costs in Q3, driven by the periodization of property taxes. Looking into Q4, again, remember that the production levels and prices in energy are by nature volatile depending on reservoir levels and precipitation. Please also remember that property taxes should come somewhat down in the fourth quarter, again, driven by periodization.
On Sapa, we will call it Sapa when we look back in front of Q3, and then we will call it Extruded Solutions when we look into Q4. I think it's fair to say that we are very satisfied and very encouraged that Sapa continues its improvement trend year-over-year. We see an underlying EBIT compared to the same quarter last year, which is up more than 20%. This is primarily driven by increased value add business and increased value add per kilo that they do produce. We compare this to the second quarter this year, the underlying net income is somewhat down, but that is primarily only driven by seasonality. Extruded Solutions will be fully consolidated as of October 2nd with full effect done for the fourth quarter.
You should also expect to see Sapa continuing to work to shift the product portfolio towards higher margin products and improve its operation performance. As we've said also in the previous quarters, we should not expect to see the same type of improvement speed that we've seen in previous years. Still good hopes for the future. Also worth underlining and reminding you that the fourth quarter is traditionally the weakest quarter in the year for Extruded Solutions, and that is also what you should expect for this year. Other eliminations amounted to NOK 181 million in Q3 compared to NOK 120 in the second quarter, again through the Sapa results. The other line describes the common charges and services and other businesses in Hydro.
This was NOK 96 million in Q3, slightly below or somewhat below the quarterly guidance we gave of NOK 150 million. Eliminations amounted to NOK 68 million of positive in Q3. This primarily reflects the lower margins we have on internal sales from B&A to Primary Aluminium, that will be realized as we go forward in time. As I mentioned several places in the presentation, both Hydro and the industry in general are experiencing a raw material cost push. This comes from raw materials both needed in the primary alumina production as well as within our alumina production.
Before going into details, it is important to mention this slide is based on market prices. They will differ from Hydro's actual prices or realized prices driven from several factors, among others, time lag between the observed market price and when it comes into production. We've indexed all of these prices back to Q1 2016. Then we've indicated a gray circle where we believe and where we observe the markets are at the current point in time. When we start with the production of primary aluminum, petcoke, it's the main input factor when we produce carbon anodes. We typically see about 0.35 tons of petcoke per ton of aluminum produced. These prices have seen a very strong increase during 2017. We do expect them to stay strong and potentially increase even further in the time to come.
It's given a very tight market. It's also based on the expectations of continued, and potentially even more, winter closures in China during the winter heating season. Pitch is also used in the carbon anode production that we use about 0.08 metric tons per metric ton of aluminum. We also see a strong price increase there or cost increase. Again, it's driven from the same reasons as we see on the carbon side. If you look at Primary Metal and isolation, you will all know that the alumina prices have gone up significantly lately. This of course, is pushing up the cost for all the alumina producers of the world, also for primary in Hydro.
It is, though, important to mention that Hydro as a company, we are very much long alumina, so a higher alumina price is a net benefit for Hydro as such. We move into alumina production, and we start with the input factor that matters the most, which is caustic soda. We use around 0.1 metric tons per metric ton of alumina produced. This price has more than doubled in the last two years. This is driven by a very strong demand from the alumina industry, from the paper and pulp industry, and we see limited new capacities coming on stream in this market. It's also worth mentioning that in particular in Europe from an environmental legislation perspective, some of the producers are using mercury as a factor in the production basis.
They have to close the production, tightening the market for caustic supply. Fuel oil has also gone up, basically in parallel with the international oil price, although not to the same extent. Here we use about 0.11 tons, metric tons of fuel oil per metric ton of alumina produced. Coal has also remained relatively high after the shutdowns we saw in China last year. And again, for alumina production, we use about 0.12 tons of coal per ton of alumina produced. All in all, it is quite evident that there is a significant cost push, but it's also important to remember that this is not only relevant for Hydro, but it lifts the cost curve for the entire industry.
As I said, on the alumina side, it should be a benefit for us since we are net long in this product. We look at the net cash development since the last quarter. Net cash position increased up to NOK 7.7 billion at the end of the quarter. We started the quarter with roughly NOK 6 billion in cash. We generated EBITDA of NOK 3.9 billion, being a net large contributor. We had a small net operating capital build of NOK 400 million in this period, and that's primarily due to production effects and shipping patterns out of one of our plants. As a result, we generated a net cash flow from operations of NOK 3.3 billion. We've invested NOK 1.3 billion. Of this close to NOK 300 million was net CapEx related to the Karmøy Technology Pilot.
Only we have some net other negative items, primarily foreign exchange rates and dividends to minority owners in Alunorte and Albras. As all of you know, we have closed the Sapa transaction on October 2nd, resulting in an equity payment of NOK 11.9 billion to Orkla. Far we financed this acquisition price by tapping into our cash funds as well as drawing on our revolving credit facility. Last week we sent out an announcement that we plan to do a bond issuance in the near future, where we plan to tap into both the Swedish as well as the Norwegian coin market. The durations we're looking for in this market is between two and seven years.
We believe that there's quite a strong interest in this market for Hydro bonds, and we plan to raise north of NOK 5 billion in this period. Here we have appointed three of our core banks, DNB, Nordea, as well as Handelsbanken to be the joint lead managers for this transaction. Final slide before leaving the word back to Sonika. Let me then just quickly turn on capital expenditures. As we do and have a history of doing in Hydro, when and if we can push CapEx forward in time, we will do so. This we also done now in 2017. We will take down CapEx spend, so we take down CapEx spends for 2017 with roughly 1 billion, down to 6 billion for 2017, and then push that into 2018.
We still believe that, you know, the more you can delay CapEx spend, also turning capital at the same time keeping operations good and safe, that is a good value proposition. As we communicated before, you should expect sustaining CapEx in Sapa, to be around NOK one and a half billion on an annual basis. Then we will spend more time, and detail it more out when we get to Capital Markets Day at the end of November. With that, Sonika?
Thank you, Eivind. Just simmering up the priorities for the door going forward. It is not a big surprise that site safety is coming on top of the list. This is always important for us, and it has a close correlation with the stable and good operations. Beside that, of course, we are very happy to welcome the 22,500 experts in the Extruded Solutions to the Hydro family, and integration continues. We have of course implemented strong actions now to improve the situation in Rolled Products. This will be very important for us also to succeed and catch up with the Better program.
Although we are on track on the NOK 2.9 billion in 2019, we are now behind, as I mentioned, for the 2017 target. We also looking forward to the startup of the technology pilot in Karmøy, and we are now into the last period to finalize the project. We have of course, also prepared now for, from startup. In this quarter, we are going to produce metal from the Karmøy technology pilot. That concludes our presentation today. Thank you for your attention.
We open for questions from the audience there and also from our webcast. Once you have this, come please, get the microphone from Hans-Erik first and introduce yourself also in front of us. Thank you all.
Hans-Erik J akobsen, Nordea. On your market balance guidance for 2018, you show a market surplus in China broadly in line with 2017. Given all the winter closures and all the capacity that's been closed in China and the cost push that was seen in China, which is, I guess, higher than what you're seeing in the rest of the world, wouldn't it be logical to see a slightly smaller surplus in China and lower exports, which again, will push up prices in the rest of the world?
I think that this is a good question because we are really looking into that. We have seen that in some areas in China. I think they are already now preparing for the winter shutdowns. I think some of the capacity that has taken out is related to the Blue Sky initiative in China. We of course also have seen shutdowns due to the supply side reform. The fact that some project has been built and also started up aluminum production without the necessary concession. That has also been now taken care of. I would say it remains to be seen now what comes on top of what we already have seen.
As I said, I think some of the capacity that was planned for the winter shutdown already has now been taken out. We'll see what happens now.
If I can add to that, Hans-Erik, and I think a big part of the question will be when the winter shutdown period ends in March. In theory at least, the argument is that these winter shutdowns will come back up and produce again until the next winter shutdown starts November 15th in 2018. That is in many ways included in the base case reports analysts do. Those smelters do not necessarily have the flexibility to start and stop. How this is gonna work in practice and the legal fact of that is going to be quite interesting to know.
In theory, of course, taking out 30% of capacity is not a big problem, but to start up again takes a long time. If you think about the period of the winter shutdowns until the springtime next year, it will then be a long to start up again capacity. It will take several months to restart. Then you have a couple of months you can stabilize, and then you are ending up with a new period of winter shutdowns, and that will be very difficult to operate. Again, it remains to be seen how that will be handled.
Thanks.
Can I ask you to just pass the microphone behind you, please? Thank you.
Thanks. Eirik Vegard Furuseth, Just a follow-up on that. On your estimate, how much has really been taken out of China in terms of capacity? How much do you guys expect the winter closures to affect the markets? Also a similar question on alumina with the current strong pricing we're seeing. What's your estimate on the effect on the winter closures for the alumina market, and where do you see the 2018 market balance for alumina? Thank you.
Good questions. With regard to the winter shutdowns, of course, with some uncertainties in the numbers, we expect that it could have an effect of 600,000 tons this year and 800,000 tons next year if it moves according to what we have seen so far from a metal production. What is then going to happen with alumina production is quite difficult to say because also there, this is a part of the Blue Sky initiative, and capacity has already been taken out. There are different signals from China here because we also hear that the alumina refineries is running at full speed. That is one signal, but another signal is that there are already a lot of capacity that has been taken out.
As, as we can expect is that the capacity that will be taken out now, on alumina could easily be started up again after the finalization of the winter shutdown. It's easier to restart the alumina refinery than the smelter. The capacity is there. They are not, you know, destroying the capacity as such. How this balance will be in the end is difficult to say. It could be a continued tight market during this winter. The capacity is still there, so it could be, that, it will be better balanced out, after we shut down again.
We will turn to some questions from the webcast, yeah.
This one from Jason Fairclough from Bank of America Merrill Lynch. again, on the alumina prices. What's your view on the current alumina prices and what can we expect going forward?
Jason, this is a good question. Of course, something we are concerned about. Of course, we are very happy that we see high alumina prices for the moment. The alumina prices, as you see it now, is significant above the global cost curve of aluminum. In contrary to the situation on metal, where we see that the metal price is close to the 95 percentile on the global cost curve. I think there's a stronger fundament for the metal price situation than alumina, which is price far above the global cost curve. Again, it's a result of very tight market situation.
As I mentioned in my presentation, there are no restocking among smelters because there are some smelters that are concerned that they will not get enough aluminum. Again, we also know that from some traders that is sitting on some volumes, expecting prices to continue to increase. Again, difficult to say how this will be balanced out, but we should expect even tighter market during the winter. Again, the capacity is there and can be restarted after the winter shutdown. Again, we look forward to see the development there.
[audio distortion] in Goldman Sachs. What's your view on the cost inflation and how this will likely affect the global cost curve? More specifically, how has it affected the players that are not integrated and what's the likelihood of the cost for the aluminum price?
I think if I indicated on my cost slide, we will continue to see cost push up across the industries in all aspects. I think I'll take on some of these topics, the cost is probably going to be even higher in China, as you indicated, compared to some of the Western players. I think one of the big differentiating factors for Hydro is that we have a net long position on aluminum. The higher the aluminum go, yes, it is a challenge for the primary side on the cost side, but the net benefit will be quite good on the Hydro earnings scoreboard.
One from Menno Sanderse, Morgan Stanley. Rolling has started to show some underlying improvement. Can this business be brought back to the same EBITDA levels that we achieved in 2014 and 2015? Have something fundamentally changed either within the assets or the existing business during this investment?
Thank you, Menno, for a good question. We are very concerned about performance in Rolled Products, which we of course are not happy about. There has been several issues during this year that has happened simultaneously. We mentioned the Hamburg issue, the Alunorf issue, which is the biggest hot mill in the world, where we have the upgrade on the hot mill during this winter, where we get problems afterwards, but that has been solved. The cold mill issues in Alunorf is still there, we are gradually improving that. We have a lot of efforts and people as experts that are working with that now.
We had the UBC line that comes on top of it, where we had problems with the cooling chamber. The dimension of the cooling capacity was not as it should be. That is now, of course, the main part of the modification that is now going to be finalized this month. We have the automotive entry, where we had some issues related to dimensioning. That has been solved in the automotive entry, but there are still some issues that again, is limiting the speed of the ramp-up. These investments are really to lift the performance in Rolled Products, and they're of course very complicated projects.
When they are back on track and coming up to full speed, we expect that Rolled Products performance should improve significantly from the level we are today. Beside that, of course, we are working continuously with high-grading the product portfolio. The automotive entry is a good example of moving towards more complicated products from more commodity products that we had before. This is again the long-term strategy for us to continue to high-grade the product portfolio, produce more higher margin products, and of course, improving the performance in Rolled Products in total.
Another question from Menno. When is Karmøy starting? Most startups at Hydro of an asset in the last 18 months have failed to meet budget. Will Karmøy be different?
Yes, that's also a good question. Of course, we are very concerned about following up now the last weeks of the project and then the startup of the plant. We are on track, as I mentioned. That's now kicking out because we are talking about brand new smelters that has been done shut down. The capacity is there. What is going to happen with that capacity going forward is very difficult to say. That is a risk that this capacity can be brought back again. The ownership, we can only speculate on here, but I think we should remember that this capacity has not disappeared from China. It is still waiting for restart and that should happen going forward.
We will come back to that later, but it's clear that this is alternative for us to take Husnes to full speed. This is now operating at half speed. If we take Husnes at full speed, we will add about 95,000 tons to the market. The decision has not been taken yet.
Okay. Any more questions? No. Next time we meet, will be in London for the Capital Markets Day. That will include this time a more thorough run through of the new Extruded Solutions business area. Hope to see many of you there. Thank you everyone for joining us this morning. Have a great day.