Q1 results, 2017. They will, as usual, be presented by our CEO, Svein Richard Brandtzæg, and CFO, Eivind Kallevik. After that, we will have time for Q&A, and one-on-ones, and everything you need. Let's start. Svein Richard?
Thank you very much, Ingolf. Before moving over to the quarterly presentation, just let me just say a few words about the tragic accident we had at Karmøy last week. Operational performance, financial performance, and safety performance goes hand-in-hand, and we have improved a lot. Still, we experienced a fatality of one of our subcontractors at Karmøy last week. Safety is a phenomenon for all of our operations, and we continue to make sure that everyone comes home safely every day. If we then move over to the quarterly result, we had an underlying EBIT of NOK 2.3 billion, up from NOK 1.8 billion in the previous quarter. The result is supported by higher aluminum and alumina prices. We also experienced higher raw material input costs, and also some operational issues in Rolled Products.
The improvement program, the Better program, is moving according to plan with regard to NOK 2.9 billion in 2019, and also the yearly target of NOK 500 million is also on track. The Karmøy Technology Pilot is also moving according to plan, and ready for start-up in the Q4 of this year. We are on time and on budget for this project. Our automotive line three in Germany, the body-in-white line, is also now ramping up according to plan. There are qualifications ongoing among several customers. We are going to deliver to BMW, Mercedes, Audi, Citroën, and several other customers are waiting for metal from this production line.
This will be inaugurated next week with participation from Chancellor Angela Merkel and also Prime Minister Erna Solberg next Thursday. We have adjusted the demand outlook for this year based on the higher consumption in China, especially. We said previously expected 3%-5% growth. We are now expecting 4%-6% growth globally. We also see higher production in China, so we still expect that the supply-demand balance will be largely balanced this year. I will come back to that in my next slides. If you take a closer look at the demand side for the quarter, we experienced 3% lower demand than the previous quarter resulting in an oversupply of about 700,000 tons.
This is a normal seasonal variation due to the Chinese New Year. Although the world outside China has a seasonal positive variation, China is now impacting the global market with a negative of 3% compared to the previous quarter. This is now what we see more or less every year. We experienced more than 8% higher demand in China this quarter compared to the previous quarter, and almost close to 6% growth compared to the Q1 last year. More than 8% higher demand in China Q1 compared to Q1 2016. In the world outside China, we see around 3% higher demand compared to the Q1 2016. Positive developments in several market segments, and we also.
market areas, and also see that Central and South America is also moving on a positive side now with close to 5% growth. If you take a look at the slide on the right, on the curve on the right side of the slide, we see that the 12-month rolling average supply-demand balance is still negative but less negative now. This is due to higher supply from China especially. We can take a closer look at this picture here, where we see the supply and demand balance in the world outside China, where we still see 2%-4% growth in demand outside China. That is what we also said in the previous quarter, and 2%-3% growth in supply outside China.
We have adjusted the demand in China from 4%-6% to 6%-8% this year. We also have adjusted the supply side from 7%-9% to 10%-12% supply additions in China this year. When we add this all together, we see that there will be oversupply in China and a deficit outside China, and the world will end up with a slightly oversupply, but largely balanced for this year. If you then move over to the metal price development, where we have experienced strong development on the positive side. The market average developed from $1,709 per ton in the Q4 to $1,856 as average in the Q1 this year.
The realized price developed positively from $1,647 per ton to $1,757 per ton in the Q1. There were some variations between $1,689-$1,960 per ton in the quarter. If you take a look at the all-in metal price, also there we had a positive development, of course due to LME but also improved ingot premiums. Ingot premiums in Europe improved from $131 per ton in the previous quarter to $147 this quarter, and now trading around $153.
In U.S. market, we saw ingot premium from $168 coming up to $230 per ton this quarter, and now trading around $214 per ton. We see also prices in the Norwegian krone is even better development this quarter, also due to the fact that there are some weakening of the Norwegian currency compared to dollar. If you then move over to China again and look at export of semi-fabricated products, we see that there are still exports. The preliminary figure from March shows that there could be higher export in March than in February because February was lower than January.
This can also be explained by the increased arbitrage that the gap is widening compared to the Q1s of last year. We saw the arbitrage was moving more positive for Chinese producers in the end of the Q4, and we see the same development in the Q1 this year. Preliminary numbers shows that there will be somewhat higher export out of China. We should also remember that China has a SA surplus. There is a surplus production in China, and there is a significant deficit outside China, so it is not a big surprise that Chinese producers will utilize the possibility of exporting into a market in a deficit situation.
If I move over to alumina, we have seen market development moving from $308 per ton in the Q4 to $340 per ton in the Q1 this year. Realized price for us was $309 per ton for alumina. We saw in the beginning of the quarter around $340 quite stable, and then weakening in the end of the quarter. In fact, the price in the end of the Q4 was close to $349 per ton.
The weakening in the end of this quarter was very much related to the fact that there are restart of curtailed alumina capacity in China, so there are more curtailed capacity that is restarted and coming back into the market. If you look into the bauxite side, quite stable bauxite prices, and we see that China continued to import increased volumes. There are high volumes from Australia. We also see Atlantic is now coming up as a very important part of the supply to Chinese alumina producers. Bauxite from Atlantic has now increased from 7% of the total import in 2015 to 35% last year and now represent 40% of the total bauxite that comes into China.
Here, of course, Guinea is playing a very important role, in addition to volumes from Brazil. The moratorium of bauxite export from Malaysia is prolonged another three months. If you then take a look at import-export balance in China and with regard to the aluminum units, we see quite stable development since the previous quarter. Again, high volume imported of bauxite, quite stable on a fairly low level on alumina. We don't see any movements on primary metal. Scrap import quite stable, and we see also that there are somewhat less fabricated products from the numbers here, but we should expect that this can increase somewhat in the next quarter as the arbitrage, as I mentioned, has been widening.
If you move over to the improvement program and the Better ambition of improving Hydro with the NOK 2.9 billion within 2019, all in all, we are on track for all the business areas. Bauxite & Alumina will in fact now have a delivery of about NOK 1 billion in total within 2017, so that is ahead of plan. The Rolled Products is behind plan due to some operational issues in Hamburg. It's related to introduction of a new scalper that took some longer time to ramp up, and also cold mill in Alunorf that also had some operational issues after maintenance stop.
This is on the way to be resolved now, so it's coming up in full production in the Q2. It will be influenced somewhat also into the Q2 number what we experienced in the Q1. With regard to primary, I would say that in general the operations in primary are running very well, but there is one smelter that is behind plan, and that is Albras, where they are backlogged on maintenance of cranes that is now focused on, and we are working with that. All in all, primary metal is somewhat behind the plan on the improvement target.
For the long term, for the 2030 target, we are on track and also on track to deliver NOK 500 million in total improvements this year. If you move over to the business areas and the cost and margin development, we see higher costs in alumina this quarter, very much due to the increased cost of input factors like caustic soda and also fuel oil. There are also some higher alumina sourcing costs, and also there are some strengthening of the BRL that is increasing costs in U.S. dollars. Still the margins are improved, $74 per ton of margin compared to $60 in the previous quarter.
Of course, due to higher prices, we have higher realized prices, and as I mentioned, the realized price was $309 per ton in the quarter, which is then 17.2% of LME. On Primary Metal, also here higher costs, but this is again a result of higher alumina costs. So we see a cost moving up to $1,675 per ton from $1,650 in the previous quarter, realized price $1,757, and a margin of EBITDA margin of $350 per ton, improved from the previous quarter, of course, then supported by higher aluminum prices and higher margins on standard ingots.
Rolled Products, seasonal variation, as we have talked about previously, the Q4 is a weak quarter and Q1 is a much better quarter, so 13% improvement compared to the last quarter and support from all different market segments. If we compare the Q1 this year with the Q1 last year, we have 5% higher sales. Very strong development in packaging and can especially. Also, if you take a look into the different segments, the body-in-white volumes have increased with almost 30% since the Q1 last year. That is where we are now investing in Germany.
Moving over to Extrusion, also here significant seasonal effects, which is not a big surprise, in U.S., close to 11% increase in volumes, similar increase in Europe of demand in the Q1 compared to the Q4. If you take year-on-year, 1.7% in North America, supported by automotive and light truck market, and also positive development in building and construction. In Europe, it is automotive transport support, 1.8% higher sales in this quarter compared to the previous quarter, but also here we see positive development in building and construction.
If you look at the improvements in Sapa, quite significant positive development over the years and our share of the net income this quarter was NOK 281 million, which is a 54% improvement since the Q1 last year. Sapa has delivered consistent improvements also after finalizing the synergy and the restructuring program. Now Sapa will continue to work with improvements, but we should be careful to expect that we can extrapolate the development from previous years into the future here. Sapa is again moving forward with more sales in value-added products. It has a strong cost focus and in general a good progress on improvements. On Energy, there are two main factors that are responsible for the development in the quarter.
One factor is related to higher energy prices on the continent and export of energy to the continent from Norway. The other factor is the improved hydrological balance, which works in the opposite direction. The hydrological balance has been improved from 6 terawatt hours below normal to 3 terawatt hours below normal. The hydrological balance has then put the pressure on prices. On the production side, we had more or less full production in January and February, and price signals in March has then taken down the production somewhat. If you look into the investments and start with the Karmøy Technology Pilot, I have already mentioned that we are moving on track and planning to start up in the Q4 this year. It's 80% finished.
We have now spent about NOK 2.8 billion, 1.9 on the Hydro share and 0.9 billion on Enova support. The total budget is NOK 4.3 billion, and here we have support from Enova of in total NOK 1.6 billion. Here we are going to test out the next generation technology for aluminum production, which will give us the lowest energy consumption in the world and also with the lowest emissions. In Germany, we are still ramping up the used beverage can line. As we have communicated previously, we have had some technical issues in the beginning of the ramp-up period, which is now on the way to be solved. We are expecting full production of this line in the end of this year.
With full production of this line, Hydro in total will have a capacity of 20% of all aluminum cans in Europe to be recycled in our system. That will be brought back to the value chain at full value and back as sheet ingots for can production in our world product system. Here we will have a capacity of about 40,000 tons altogether. The automotive line three in Germany is taking those body-in-white capacity from 50,000 tons to 200,000 tons. I already mentioned some of the important customers that are now qualifying material from this line. We will have an inauguration of this line on Thursday, as I mentioned. We are very happy to see that the ramp up is moving forward according to plan.
This has been on time, on budget, and we are now excited to see the result of the qualification, because this is quite impressive line and delivering very high quality materials to the most advanced automotive customers in the world. With that, I leave the word to CFO Eivind, please.
Thank you, Svein Richard. Good morning, everyone. I suggest that we dive straight into the quarterly figures. This quarter, we have delivered an underlying EBIT of some NOK 2.3 billion, which is half a billion off compared to what we delivered in Q4, or roughly NOK 800 million off compared to what we had delivered in the same quarter last year. The improvement is primarily driven by higher realized prices, in particular a 20% improvement in the alumina price, but also a 7% improvement in realized LME prices supported results. Altogether, this contributed roughly NOK 1.3 billion results. Raw material costs also higher in Q1, primarily driven by higher alumina costs in Primary Metal, as well as higher fuel costs and caustic costs within B&A.
Combined, a negative effect of about NOK 800 million. We saw some positive volume effects in this quarter, seasonally higher volumes in Rolled Products as well as in Primary Metal, but then, negative volume adjustments in Bauxite & Alumina on the back of the plant, as well as announced maintenance stuff we had in Paragominas and Alunorte. Finally, combination of other items gave a negative effect of roughly NOK 100 million. Main reason is that the positive contributions from energy as well as in the Sapa joint venture was more than offset by somewhat higher fixed costs, negative currency effects. I will give a little bit more color on each of the business areas later on in the presentation.
If we turn to the key financials for the quarter, we see that the revenues increased by roughly NOK 2 billion compared to the Q4, again, primarily driven. This quarter, we excluded from the reported EBIT of about NOK 2.4 billion some NOK 126 million in gain to better reflect the underlying performance of the company. Again, I will come back to these items in more detail on the next slide. Financial items for this quarter amounted to NOK 140 million positive.
Now, this includes an unrealized positive currency gain of NOK 220 million, partly reflecting the strengthening of the BRL versus the dollar having an impact on the dollar debt that we carry in Brazil, but also the development of the euro NOK forward rate having an impact on the embedded derivative in the currency contracts that we carry on the power contracts we carry in Europe. As a result, the income before tax was NOK 2.5 billion up from NOK 1.8 billion in Q4. The income tax amounts to NOK 707 million, which is very close to 30%, and as such in line with the guided level we give on tax on an annual basis.
This gives us a net income of NOK 1.8 billion, up from NOK 1 billion in the Q4. If you look at this from an underlying perspective, it gives us a net income in this quarter of NOK 1.6 billion, a strong improvement compared to the underlying income of NOK 1 billion in the Q4. As a consequence, the EPS, earnings per share, also improved to 0.75 NOK per share. If we then quickly look at the items excluded, we will see that there's really two main items this quarter, being mostly impacted by the change in the LME price. First, increasing LME normally gives us an unrealized loss on the embedded derivatives in our power contracts, as well as the LME positions that we carry. That is also the case this quarter.
Secondly, we see the opposite effect when it comes to the metal effect that we calculate for Rolled Products, where we see, again this quarter, as cost of goods sold typically carries then a lower LME price compared to what is recognized in the revenues. We then turn to the business areas. We see an improvement in the underlying EBIT for Bauxite & Alumina from NOK 711 million in Q4 up to NOK 756 million in this quarter. We have a 20% improvement in the realized alumina price. It's a combination of a 27% improvement in the alumina PAX index and a 7% increase in the LME-related contracts. Also in this quarter, as we indicated in Q4, we're starting to see more PAX-related sales.
Roughly 65% of the volumes in this quarter is related to PAX, and that is what we will also plan to see, expect to see for the rest of the year. On the other hand, as announced, we did have lower production both in Paragominas as well as in Alunorte on the back of the plant maintenance stops we had in the quarter. Altogether, Paragominas was out of production some 11 days according to plan. On the back of this, we had lower sales due to lower production, but we also lifted less volumes from third-party sourcing contracts. As many of you know, some of those are very favorable, favorably priced, which had an impact on external sales in the Q3 .
The lifting patterns on these external contracts do vary from quarter to quarter due to shipping patterns and lifting patterns. If we look at this on an annual basis, year-over-year, it should be relatively stable. Raw material costs increased in accordance with global markets in Q1. We saw a price increase both when it comes to fuel oil that we consume in Brazil, as well as caustic soda. Both cost increased roughly 15% compared to the Q4. Please also keep in mind that Q4 last year we did have a positive one-time effect of roughly NOK 150 million relating to the acquisition of the outstanding shares in Paragominas from Vale.
If you look into next quarter, we do expect production volumes in Alunorte and Paragominas to pick up, as we have no planned maintenance stops for this period. As mentioned before, we do also expect for next quarter to see roughly 65% of our sales being related to the PAX index price. In Primary Metal, we saw a strong increase in EBIT from roughly NOK 600 million in Q4 up to NOK 900 million in the Q1. Higher realized prices, higher LME, higher premiums had a positive contribution of roughly NOK 600 million between the quarters. All-in metal prices was up 7% versus Q4, and if you measure it in NOK, it was up roughly 8%.
We increased sales volumes with approximately 10%, which has, of course, also a very strong contribution to the results between the quarters. Partly offsetting this, as I mentioned, were raw material costs. For Primary Metal, it is primarily alumina, which is more expensive as we guided, taking down the results with roughly half a billion Norwegian kroner. Looking into Q2, we have at the end of Q1 sold roughly 55% of our metal forward at the price level of $1,875 per ton, including Qatalum. On the premium side, we have booked roughly 60%, again, around $300 per ton, including Qatalum. Overall, we expect the realized premium in Q1 to be in the range of $250-$300 per ton.
On the raw material cost, we expect to see a continued cost pressure in Primary Metal. We still expect realized alumina cost for Primary Metal to be somewhat higher in Q1. We expect a slight increase in energy costs as we have an annual price adjustments for the energy contract in Albras in the Q2, and we also expect petcoke costs to be somewhat higher in Q2. We turn to Metal Markets. Here we delivered an underlying EBIT of NOK 24 million compared to an underlying EBIT of NOK 152 million in the previous quarter. Now, if we exclude the currency and inventory valuation effects, the result decreased from NOK 149 million to NOK 83 million this quarter, very close to what we guide on as NOK 100 million on a running basis.
The decline this quarter is primarily driven by reduced contribution from metal sourcing and trading activities, and then there's a reduction in results both when it comes to LME as well as ingot trading. The total metal sales increased this quarter as we should expect according to normal seasonality. Looking into next quarter we do expect Metal Markets and remelt metal sales continue to improve in terms of volumes as the Q2 is normally the strongest quarter in the year. At the same time let me again remind you that the trading results and currency effects in Metal Markets by nature are volatile. If we turn to Rolled Products, the results clearly improved from a very weak Q4 results to just about NOK 100 million.
This is primarily driven by seasonally stronger volumes between Q4 and Q1, as one should expect. The result this quarter is below comparable quarter last year, and it is below what we normally should expect based on the volumes that we delivered and produced this quarter. As Svein Richard mentioned, this is very much down to operational issues in Germany. When we started the production following the year-end maintenance, there were several unexpected plant stops leading to additional costs and some loss of production. This will have a resultant impact in Q1 of somewhere between, in the range of NOK 70 million-NOK 80 million altogether.
The operational issues are partly related to Hamburg, where we had issues with the introduction of a new scalper, leading to higher production costs and more loss, also to a bleed out in one of the furnaces that we have in Hamburg. In addition, we had some issues in ramping up the one of the largest cold mills that we have in Alunorte in Q1. If you look into the next quarter, we have resolved most of these issues, but you should expect that there will be some spillover into the Q2 results. If you look to sales volumes, from a seasonal perspective, we do expect higher volumes in Q2, as normal.
Also as normal, the Neuss smelter should continue to follow the normal market prices for alumina as well as for aluminum prices. If we look at energy, we saw an improvement in the underlying EBIT from NOK 359 million in the last quarter, up to NOK 423 million in this quarter. This result is clearly driven by higher spot sales, which was the biggest positive contributor to this quarter's result. In addition to this, the area price differences in Norway narrowed due to better hydrological balances and export capacities and was virtually zero in this quarter, which has a positive contribution of some NOK 19-20 million compared to Q4.
We had somewhat lower average prices of NOK 278 per MWh, which had also a small negative effect on the results compared to last quarter. Production costs somewhat higher in Q1, and then again, as we talked about before, this quarter is primarily due to property taxes, which swings from quarter to quarter, and Q4 is one of the two high quarters in a year. If we look into the next quarter, let me again remind you about the volatility in terms of production and price expectations, and also about the property taxes. Q2 is then normally lower than Q1. If we turn to Sapa, as Svein Richard said, Sapa continues the very strong improvement trend in Q1 this year, improving underlying net income by close to 70% compared to Q4 2016.
This is primarily then driven by normal seasonality improvements between the quarters. This time, we see it both very clearly, both in North America as well as in Europe. When you compare it to the same quarter last year, results continue to improve, and our share of underlying net income on EBIT increased by roughly 50%. The main reason for this is clearly the continuation of the strategy to move more products into value add and higher margin segments. We also see good volume increases, in particular in Europe, where volumes are up some 5% compared to Q1 last year.
You should also note that we have increased the disclosure and granularity for Sapa this quarter, also showing results per business area, and you will find more information and historical information in the quarterly presentation as well as the normal investor presentation. When it comes to outlook into Q2, we do expect a demand drop in second following the usual seasonality pattern. Also, Sapa will, in the Q2, continue to work to shift its portfolio towards more value add, higher margin segments. That's, we should not expect the same type of progress into Q2. We should not extrapolate the improvement lines that we've seen. It should be more a normal and gradual improvement of results going forward.
We quickly touch on other eliminations, net at NOK 274 million positive this quarter compared to a very small negative in Q4. We've just been through the Sapa results. The other line, representing common services and other businesses was NOK 140 million negative this quarter, close to what we had in Q4 of negative NOK 130 million, and very close to what we guide on on a quarterly basis of NOK 150 million. Eliminations amounted to NOK 67 million negative this quarter. This reflects the higher B&A margins, which we then eliminate from the inventory that we carry, and this will then be realized in subsequent quarters to come. On the cash side, we started the quarter with NOK 6 billion in cash.
We produced roughly NOK 3.6 billion in underlying EBITDA, being a major positive contributor this quarter. We had an operating capital build of NOK 1.7 billion, and you should always expect an operating capital build in Q1 on the basis of higher sales. This time, it's slightly larger than what you should expect, also driven by the price improvements or the higher prices in this quarter. We paid taxes of approximately NOK 800 million in this quarter. This is partly offset by a dividend from Qatalum of some $25 million received in the quarter. As a result of this, we generated a cash flow from operations of roughly NOK 1.1 billion. On the investment side, we've invested NOK 1.2 billion this quarter.
This includes NOK 300 million investment in carbon technology pilot, net of the Enova grants. That leaves us at the end of the quarter with a relatively stable cash balance compared to where we started the quarter at NOK 5.9 billion. Very quick look at adjusted net debt. We see a slight improvement this quarter coming from NOK 5.6 billion in Q4 to NOK 5.4 billion at the end of the quarter when you exclude the debt in equity accounted investments. Net cash relatively stable over the quarter.
We saw a reduction in net pension liability driven by a small increase in interest rates and discount rates in Germany as well as in Norway. Net debt and equity accounted investments decreased by roughly NOK 200 million. This decrease is primarily explained by Qatalum net debt, driven by foreign exchange effects, as well as an increased cash position. As a result of these developments, the total adjusted net debt in Hydro at the end of Q1 amounted to NOK 12.1 billion, a reduction of some NOK 400 million compared to the end of the year. With that, I'll give the word back to you, Svein Richard.
Thank you, Eivind. Just a summary of priorities going forward. Safety first, that is, of course, the foundation of our production wherever we are operating in the world. This goes very much hand-in-hand with the improvement programs that we have to continuously do the work better today than yesterday. We have improvement programs now that are moving according to plan with regard to the NOK 2.9 billion ambition of 2019. I'm looking forward to start up the technology pilot at Karmøy in the Q4 this year. That is also moving according to plan, very important strategic investment, as well as our investment in the Automotive Line Three in Germany, and also the used beverage can line in Germany, which all are now on the way to be delivered.
We are looking forward to the inauguration of the Automotive Line Three next week, and also the opening of the Karmøy Technology Pilot this autumn. With that, thank you very much for your attention.
Okay. We will open for questions from the audience here in Oslo, and also for all of you following us on the webcast, all the millions and millions of people out there following us on webcast. First, here on the front row here, thank you.
Hans Jacob from Swedbank. Could you comment a little bit on your expectations of higher production in China? Recently, we have seen that production is coming up, but on the other hand, a lot of us are expecting environmental closures later on this year. Could you comment that? Also your expectations to Chinese exports in view of, somewhat more aggressive U.S. administration and the WTO.
which may prevent like China from exporting as much as they have done in the past. Also, given the tighter market balance that we are seeing globally, prices have increased. What, in your view, are the potential for restarts outside China?
Thanks.
With regard to the capacity development in China, we see restarts of curtailed capacity. There are less new projects coming up. We have even seen that some new projects has been stopped by the local governments. Still, we have taken up the expectation for the supply situation in China this year from 7%-9% to 11%-12% growth. With regard to the winter environmental requirements to stop capacity, obviously it remains to be seen what will happen. We have seen in other areas that they have been quite firm on this, but we will await to comment on this before we really see what happens.
On the WTO and China, we know that the case is ongoing investigations, but the only comment I can give is that we are following that carefully. We are positive to free and fair trade, and we are looking into this and following this development carefully. With regard to the export from China, that can also be impacted by the WTO, what can happen there. Obviously, there is a deficit outside China, and I would not be surprised that the Chinese players will take the opportunity to fill up their capacity and export where they see opportunities outside China, as long as there is a significant deficit outside their own country. The Chinese players will utilize that.
Thanks.
Okay. Any other questions? Do you have questions? Yeah.
We have a question from Fraser Jamieson from JP Morgan. In B&A, what was the cost impact of maintenance in Q1? To what extent can we expect to see an improvement in cost in Q2 as maintenance activities reduce?
Fraser, I think the biggest cost changes that we saw in B&A is not necessarily related to maintenance. A lot of that cost is actually capitalized and depreciated over time. The biggest change we saw on the cost side was literally related to raw material costs, where we saw an increase in both the caustic soda market as well as on the fuel oil market, both up by some 15%.
What was the percentage of alumina price on index in Q1, and how will that develop throughout the year?
The percentage that we saw in Q1 was roughly 65%, which would be approximately the same level that you will see for the year as a whole as well. There may be smaller swings between the quarters, but on average, it will be around 65.
Question from Renaud Guissens in Morgan Stanley. In terms of the Rolled Products EBIT margin is just below 2% this quarter. What is needed to lift this going forward? If you exclude the operational issues, what is sort of a sustainable run rate?
I can comment on the first part. First of all, this is, I would say, disappointing result in the Q1 from Rolled Products. Normally Rolled Products have a maintenance stop during the Christmas holidays, where there are normally planned maintenance that is executed, and also sometimes, as we also did there, add new equipment, upgrade the equipment. When the equipment was started up in the beginning of the year, Rolled Products experienced problems that took a longer time than normal to solve. I would say that now we have solved several of these issues, but as we both said earlier, it will be partly impacted also in the Q2 because we are not up to full speed in all areas.
We have control of the situation, and this is again a result of new modern equipment that is put in place, and then some surprises that we have seen when this equipment should be utilized. Did you go through the numbers, Eivind?
I think when we look and evaluate the downstream figures, I think it is important to decide what metric to look on. When we look at EBIT margins, that of course has a lot of influence with what LME has been in that quarter. LME is of course a pass-through to the customer. So really what we have to look at is the value creation above the LME and the premium cost. I think quite clearly in Q1, given the operational cost and in Q4 when we talked about the margin pressure in our business, the returns are not satisfactory. That also underpins the importance of the upgrades that we do, both when it comes to the automotive investments that we do in Germany, going into high margin, going into higher growth segments.
Also, the importance of the UBC recycling line, lowering the metal cost, taking the valuable metal back into the loop.
few more questions here, from Bengt Jonassen in ABG. The Qatalum expansion, is that something that is being evaluated currently?
We are not planning to expand the Qatalum as it is now. We see that, again, looking at the global supply-demand balance, we see a largely balanced market, and we are not planning to invest in new capacity in Middle East. We are running Qatalum now full speed. Utilization of the assets there are at maximum level, running above nameplate capacity. Good operations, but we are not planning to expand.
Last question from me or from Bengt Jonassen. Sapa, what's your thought on today's ownership structure and your ownership of 50%?
Sapa is still an option for Hydro. This joint venture has been quite successful, and when the time is ripe, there will be a decision on whether we will join the other owner on an IPO, or if we may take over the 50% ownership, or if we even will have a minority share as a combination with an IPO. This is something that is still an option, as we have said earlier.
Okay, thank you very much. If there aren't any more questions from the audience, then I will finish it off, and thank you very much for coming and have a wonderful day. Thank you.