Welcome everyone to Hydro's presentation of fourth quarter results. They will, as usual be presented by our CEO, Svein Brandtzæg, and CFO, Eivind Kallevik. After the presentation we will have time for a Q&A, as always. Let's start, Brandtzæg?
Thank you, Inger. 2016 was a year of proven operational excellence. Firstly, we had the safest year in Hydro's history, and safety is a top priority for Hydro and for me, so I'm very happy about the safety performance in 2016. Secondly, we also delivered significantly better than the plan on our improvement programs. If you take a look at the result, ended up at NOK 1.8 billion EBIT level, NOK 1.6 billion in the fourth quarter 2015, so it's better, and also better than the third quarter of NOK 1.5 billion. The result was impacted by higher aluminum and alumina prices, but also impacted by weaker result in Rolled Products, where we saw seasonally weaker volumes, but also lower margins and higher costs.
In Brazil, I'm very happy for record production, both in Paragominas and Alunorte with significantly better performance on bauxite production. In the quarter, we had 12.2 million tons speed of bauxite production in Paragominas, and we had another quarter in Alunorte with speed of 6.5 million tons annually of alumina production. Our Brazilian assets are delivering significantly good results and also improved performance. The BETTER program is now at NOK 1.4 billion improvements since we started, so we are well on the way to deliver the full NOK 2.9 billion program in 2019. The Karmøy technology pilot is being constructed at Karmøy, and this is moving according to plan and budget on time.
Also the Automotive Line 3 in Germany is now ramping up according to plan. The board of directors are proposing a dividend of 1.25 NOK per share, which shows the commitment to deliver predictable cash return to shareholders. We maintain the demand for 2017 as we communicated in the capital markets day last year of 3%-5%, and we also expect a largely balanced market this year. In a world with a lot of uncertainty, one thing is sure, and that is that the world will need much more aluminum in the future. If you then take a look at supply/demand balance in 2016, we saw a growth of, in total, of 5.3% in the world and in the demand, and 3.1% growth in supply.
If you look at supply/demand balance, we saw an undersupply in the world outside China of about 1.2 million tons, and an oversupply in China of about 0.5 million tons. We ended up the year with about 0.7 million tons undersupply. We had 4.3% better demand in the fourth quarter this year compared to fourth quarter 2015. About 5.5% growth in China compared to the fourth quarter of 2015. About 3% better in Europe, and 1% better in U.S. market. If you then take a look at the quarterly demand, it was about 1.5% lower than the third quarter demand, 1.3% lower in China, and 1.7% lower in the world outside China. The global inventories are still at high level.
We see that the registered inventories went down due to the undersupply and a slightly higher expected level of the unreported inventories. We expect that there are around 12 million tons aluminum in the global inventories. If you then take a look at the 2017 supply/demand balance, as I said, we maintain the expectation of 3%-5% global growth, 2%-4% in the world outside China, and 4%-6% growth in China. When we add up the expected additions of supply of 2%-3% outside China and 7%-9% in China, we end up with an undersupply outside China of about 1.5 million tons, and similar oversupply in China. Again, largely balanced market in 2017.
We have also then included the expected additional pollution closures in China in the next winter, in 2017/2018 winter. With regard to aluminium prices, the average market price was $1,709 per ton. It was about 5% higher than the previous quarter. We saw the Shanghai price, after peaking in November, weakening after this peak in November, and coming somewhat back again. The market price varied between approximately $1,620 and up to $1,700 and something. It was again a volatile situation in the marketplace also this quarter. But again, average $1,709 per ton. The achieved or realized price was $1,647 excluded Qatalum, and $1,644 including Qatalum.
If you then take a look at the all-in metal price, we saw higher all-in metal price in the quarter and the previous quarter, very much due to higher LME, of course, but also supported by increased premiums. In Europe, the ingot premiums increased from $119-$131 per ton. Now trading at approximately $147. In the US market, their premiums increased from $142-$168 per ton, now trading around $220. Again, higher all-in metal price in the quarter. In Norwegian krone, of course, the price development has been even more positive due to strengthening of the U.S. dollar.
If you take a look at the export of semi-fabricated products from China, it is about 8% lower than the previous quarter. All in all, 2016 export level was very similar to the 2015 export level. In 2015 and the beginning of 2016, there were arbitrage incentives to export, which has been reduced during the year in 2016. In a situation where there is excess primary supply of aluminum outside China and also supply in China, we should expect that there will be still export of semi-fabricated products out of China. We have also seen the correlation with the differential between LME and the Shanghai price. When there are incentives, there are also higher export levels.
If you then go over to alumina, and look at the price development, we saw 30% higher alumina price in the quarter, $74 higher than the previous quarter. Average quarterly price was $309 per ton, and the price in the end of the quarter was $349. It's now trading at around $337. Very much due to stronger demand in China, but also closures of alumina capacity outside China in the U.S. If you then take a look at the bauxite market, it is still a quite interesting development, where Guinea is now coming up as a very important source for China. Just a few million tons in 2015 and 12 million tons from Guinea to China in 2016.
Now if you look at the Atlantic and include Brazil, Atlantic is now representing about 35% of the volumes that goes to China of bauxite altogether. From Brazil, it's now about 4.4 million tons that are exported to China's alumina producers. If you then look at the export-import balance in total, we saw about 20% lower import of aluminum equivalents in 2016 compared to 2015. Very much due to lower import of bauxite and alumina. We also saw an increase in import of bauxite and alumina in the fourth quarter compared to the third quarter. Very little development or no development in primary metal exports. Import of scrap, very similar as previous quarters.
Also, when we take a look at this, semi-fabricated products and semis from China, it's quite stable compared to previous quarters. As I said, we delivered better than the target on our improvement program, which is called BETTER. It is contribution from all business areas, but the strongest contribution in 2016 came from Bauxite & Alumina business area. Strong development in Brazil, also contribution from Primary Metal, but we are behind target. We deliver NOK 350 million compared to a target of NOK 400 million in Primary Metal, very much due to the outage in Odda. The power outage. We came somewhat behind target in Primary.
In Rolled Products, also behind, but that is due to some delays in delivering automotive sheets to customers, but also the fact that we are now ramping up the used beverage can, also delayed compared to the original plan. The used beverage can recycling line in Germany is delayed, but now ramping up and increasing speed. The new automotive line is already functioning, of course. We are now sending metal to the customers according to plan, and they are now qualifying the metal, and we will have official opening in May this year. The target for 2017 is to continue the improvements with about half a billion Norwegian krone, again, with contribution from all business areas.
We are well ahead with regard to reaching the full target of NOK 2.9 billion improvements in 2019. This is showing the development in Brazil with record production in Paragominas and also very good development in Alunorte. 12.2 million tons speed in the fourth quarter, 6.5 million tons alumina production in the fourth quarter. These are good numbers. It is again a result of strong performance based on the Hydro Business System or what is called Bauxite & Alumina business system in Brazil, but very similar basics as we do in Primary Metal and also in Rolled Products. I'm happy with the development in Brazil.
This year we are focusing more on stabilizing the production on high levels and of course also focusing on continued improvements in Brazil with regard to cost development. Again, the alumina prices increased 30% in the market. There are some delays in the contracts, so the realized price was $257 compared to market price of $309. If you look at the cost level, it shows here $7 down compared to the previous quarter. We, if we correct for the effect of taking over the shares of Vale in Paragominas, which was the last 20% that we took over this quarter, if we then correct for the effect of that, the cost is very similar as the previous quarter.
Of course, the margins are up due to higher prices. In Primary Metal, also here, 5% higher prices in the quarter, but only 2% realized higher prices, $1,884. All in realized prices $1,644, which includes Qatalum of LME prices. Margins higher due to total higher price of LME and cost very similar as the previous quarter. Also here, I'm very happy to see that even after finalizing the $300 program and also now have delivered a $180 program for the joint ventures, the improvements continues also in Primary Metal. In Rolled Products, I'm not so happy with the result.
The cost has been higher, margins are lower, volumes are seasonally lower. That is not a big surprise, 7% compared to the third quarter. In the fourth quarter of 2016 compared to the similar quarter in the year before, it was very similar volumes. If you look at the yearly development, 3% higher sales with strong contribution from general engineering and building and construction, and also automotive sheet for body-in-white customers in Europe. In Extruded Products, also there we have a seasonally weaker result, which is normal for the fourth quarter, 8.2% lower in North America and 7.3% lower in Europe. Year-on-year, 1.9% growth in North America and 1.3% growth in Europe.
In North America, the growth is coming very much from automotive, building and construction. In North America, the truck and trailer market was very weak. In Europe, we have a contribution from automotive transport and some contribution for building and construction. Fourth quarter is the weakest quarter normally in extrusion, and the first quarter should be better seasonally from the volume point of view. Sapa delivered improved results, NOK 800 million better than the year before. Contribution from extrusion Europe, from building system, from precision tubing, and a quite stable result compared to the previous year in North America, very much due to some operational challenges and also the weak truck and trailer market in the U.S. That's stable compared to the year before. This joint venture has been very successful.
We have delivered more than the targets ahead of plan, and the improvements continues. The board of directors in Sapa has now proposed to pay a dividend to the owners, NOK 3 billion altogether, so NOK 1.5 billion to Hydro in this connection. The company has a very strong financial position. If you then look at energy, the hydrological balance was weakening in the beginning of the quarter and prices went up. But in the second part of the quarter, we saw stronger hydrological balance and prices went down. We had again price differential between NO2 and NO3, the Mid Norway and the South Norway price.
This South Norway price was lower due to export restrictions on cables, and Mid Norway had higher power prices, which implied an area cost of energy in the quarter. Again, we ended the quarter with some stronger hydrological balance. The Karmøy technology pilot is on track, on budget, on time, and we are planning now the startup in the fourth quarter of this year. This pilot is of course a very important strategic part to test out future technology for aluminum production. We have already test cells in Årdal on very small scale that are showing very promising results.
We are targeting to start this pilot successfully and then also after some time of testing, take some of the technology elements from this pilot to the existing smelters to further reduce energy consumption and further reduce cost of production. Total cost so far is NOK 2.2 billion, with NOK 0.6 billion support from Enova. Altogether, the budget for this project is NOK 4.3 billion, and NOK 1.6 billion will be total support from Enova when this is finished.
We announced earlier in this year that we are developing and supporting a implementation of a gas, natural gas to power. We have now signed a letter of intent with the power state to support the development of infrastructure and gas to power where we targeting transferring fuel oil with the gas in Alunorte. This will reduce cost and also reduce emissions in Alunorte. We have also signed a letter of a memorandum of understanding with Shell in Brazil to support us with this development. There will be a feasibility study this year again for us to convert fuel oil with natural gas.
This is again a part of our strategy to become carbon neutral from a life cycle perspective in 2020 and after 2020. As I said, the board has proposed a dividend of 1.25 NOK per share in 2016. This reflects the financial strength of the company, the performance of the company, and also the commitment to deliver competitive cash returns to shareholders. The average payout ratio for the last five years will be then 133%. Hydro's board of directors has also revised the dividend policy to reflect the ambition to pay stable and increasing dividend. With that, I leave the word to my CFO, Eivind Kallevik.
Thank you, Svein Richard. We'll get into more of the financial results for the quarter. This quarter, we delivered an underlying EBIT of NOK 1.8 billion, an improvement compared both to the third quarter as well as to the fourth quarter in 2015. This improvement is mainly driven by an improvement in the prices for our products, primarily a 7% increase in the realized alumina price, but also a 2% increase in the LME price. Both together contributing roughly NOK half a billion in improvements. On the other hand, we did have some offsetting effects, primarily coming from seasonality at the end of the year. We had higher costs in Primary Metal and Rolled Products as a result of increased maintenance activities, as is usual at the end of the fourth quarter, reducing the results with some NOK 100 million.
At the same time, metal sales were lower throughout the company, as a result of the seasonality, partly offset by higher sales volumes out of Bauxite & Alumina, altogether having a result effect of roughly NOK 200 million. Finally, a combination of other effects, including the positive effect related to the settlement and purchase of the outstanding Paragominas shares, and some minor positive currency effects led to a NOK 100 million positive effect between the quarters. I will give some more details on the different result drivers for the business areas as we go through the presentation. If we then look at the key financials for the quarter, the revenues increased by some NOK 1.1 billion compared to the previous quarter as the result of higher realized prices, partly offset by the lower sales volumes.
This quarter, we have excluded from a reported EBIT of roughly NOK 2 billion, a gain of NOK 135 million in timing and other material effects, not reflecting Hydro's underlying performance for this period. I will comment more on these effects on the next slide. Financial items for this quarter amounted to -NOK 140 million including a small unrealized net currency loss of roughly NOK 30 million. As a result of this, the income before tax was NOK 1.8 billion, compared to NOK 1.7 billion in the third quarter. The income tax amounted to NOK 845 million, representing a tax rate of roughly 45%, reflecting several smaller adjustments that we've done in connection with the fourth quarter close.
If you adjust for these smaller effects, the tax rate would be roughly 30%, very much in line with the guidance that we've given in the past. This gives us a net income of +NOK 1 billion which is fairly stable compared to the NOK 1.1 billion that we showed you last quarter. The underlying net income, when you adjust for the net currency loss for the period, amounted to NOK 968 million, again, very flat compared to the NOK 958 million that we had in the third quarter. Consequently, the underlying EPS was also stable at NOK 0.47 per share.
If you look at it from a full year perspective, we delivered an EPS of NOK 1.83, roughly 40% down from 2015, reflecting the lower earnings from our business operations in this period. Now, if we get back to the items excluded and the net gain of NOK 135 million that we have taken out to better reflect our underlying performance, let me then just draw your attention to some of the major items. First, we have an impairment charge of NOK 285 million relating to our CAP refinery in Brazil. We've done a design review of the engineering done. We found better solutions for the time when we will build CAP, leading to a better and more efficient solution, and as such, we have taken this impairment.
Secondly, we've also excluded the compensation received from Vale of NOK 254 million, $30 million, related to parts of the completion of the outstanding contractual arrangements we've had with Vale since we acquired their assets in Brazil in 2011. In addition, we have excluded a net gain of some NOK 23 million in Sapa, which is really the sum of some smaller rationalization charges as well as net currency and derivative gains on LME. As usual, we also backed out net gain related to unrealized derivative effects on LME-related contracts, other power and raw material contracts, and the metal effect in rolled products. Let's now turn to the individual business areas.
Starting with B&A, we have delivered an EBIT for B&A significantly improved from the NOK 153 million that we saw in Q3 to NOK 711 million now in Q4. This is clearly helped by the 7% increased prices that we've seen in alumina, in particular, the 13% increase that we've seen in the PAX price, but also the 2% increase in LME helping the LME-linked contracts. Alumina sales margins also improved significantly due to the fact that we had better index exposure on the sales side in this period and also an increased volume of LME-related sourcing contracts, as such, widening the margin spread for our sales.
We also had the highest sales volumes out of B&A, ever, this quarter, also taking full benefit of the good market conditions that we saw towards the end of the quarter. Higher production also contributed positively this quarter. Alunorte remained relatively stable at an annualized production level of around 6.5 million tons, the same as we saw in Q2. While Paragominas reached another milestone, surpassing 12 million at 12.3 million tons annualized production for the fourth quarter. Also, very happy to see that annual production now is above 11.1, or is around 11.1 million in Paragominas, well above the nameplate capacity. For the first time, since Alunorte was open and expanded, we also on an annual basis reached nameplate capacity of 6.3 million tons.
The cost level at Alunorte improved somewhat this quarter, basically on the basis of optimized energy mix, reduced fuel oil consumption, lower fixed costs, as well as lower bauxite prices. These positive effects were, however, offset by some other consumption factors, higher caustic consumption, and energy prices in the period. All in all, I think our assessment is that the fourth quarter was a very strong quarter for B&A, both from an operational as well as from a commercial perspective. Finally, the last part impacting Q4 is also a significant positive effect included in the ongoing EBIT relating to the final acquisition of the outstanding shares in Paragominas. This had a positive impact of some $15 million for this period, or around NOK 130 million.
If we look into the next quarter, we have planned a maintenance stop both in Paragominas and in Alunorte, so we should expect somewhat lower production at both sites in the quarter. Then as a consequence, slightly higher maintenance costs at the sites. In addition, we also expect higher raw material costs in Brazil, based primarily as a consequence of higher fuel oil prices in Brazil. Finally, for Q1, during 2015, we sold approximately 50% of our sales on the PAX index. In 2017, on average, we will sell roughly 65%, representing an earnings uplift that we will start to realize in Q1.
Turning to Primary Metal, we saw a small decline in the results from the NOK 637 million that we saw in Q3, down to the NOK 601 million that we saw in Q4. On the positive side, the all-in prices increased slightly, primarily driven by LME up 2%, but which was slightly offset by somewhat lower premiums of around 4%, altogether contributing roughly NOK 150 million positive between the quarters. This was, however, more than offset by higher fixed costs compared to the relatively low level that we had in Q3 on the back of increased maintenance activity, which is normal again from a seasonal perspective. This had an effect of roughly NOK 100 million.
In addition, normally, we have lower seasonal sales in Q4 having an impact of NOK 50 million. Currency and raw material costs, otherwise, were relatively stable between Q3 and Q4. When we look into Q1, we should expect to see significantly higher raw material costs in Primary Metal, in particular when it comes to alumina. Remember that they have a two to three month timeline on how the cost for alumina comes into their books, and then we'll start to see the increased prices or cost for alumina that we saw in at the end of Q4. We have booked roughly 55% of roughly 50% of the metal sales at the end of the quarter at $1,725, both if you include Qatalum and exclude Qatalum.
We booked roughly 55% of the premiums for the products that we will sell at around $310 per ton. However, we do expect that the average for the premiums in the first quarter will come down in the range between $225-$275 per ton for the complete portfolio in Primary, including Qatalum. Finally, we also expect higher sales volumes in Q1 as we take out the volumes that we built up in inventory in the fourth quarter based on the lower sales volumes. We turn to metal markets. We saw an improved underlying EBIT of NOK 152 million compared to the NOK 117 million that we saw in the previous quarter.
Now, if we exclude the minor currency and inventory valuation effect, the improvement was from NOK 116 million in Q3 to NOK 149 million in the fourth quarter. Again, somewhat higher than the guidance that we have of around NOK 100 million as a run rate per quarter. The improvement was primarily driven by positive contributions or higher positive contributions from metal sourcing and trading, in particular, both related to the LME as well as the ingot trading activities. Now if we look into the next quarter, we do expect also here Metal Markets as well as remelt sales to come up as market demand normally then picks up in Q1.
Let me again just remind you that the currency and derivative positions and trading results does make Metal Markets results volatile and will vary between the quarters. If we turn to Rolled Products. As Svein Richard mentioned, it is a slightly disappointing result, delivering a weak and basically a break-even EBIT of NOK 6 million in Q4, which is a significant decline from the 211 that we delivered in Q3. The results are clearly affected by seasonality, but also a combination of several other negative items. The main negative effect, by more than NOK 100 million, is clearly the lower sales between the quarters, roughly 8% between Q3 and Q4. We continue also to see margin pressure and margin declines between Q3 and Q4.
In addition, we have higher costs related to increased maintenance activities that we always have in Q4, but there are also several other smaller negative effects coming into this quarter, having a negative effect on the final result. Furthermore, as guided, remember that we started trial production at the Automotive Line 3 in October, meaning that we have a full quarter of depreciation, but we have no revenues or income offsetting that cost. The full depreciation effects for 2017 is estimated to be roughly NOK 60 million-NOK 70 million for the new Automotive Line 3. Also, if you compare this 2016 on a full year basis to 2015, we've seen an almost 40% decline in the results.
Remember that 2015 was a record result for this business area, very much helped by a stronger dollar, but also helped by increased margins in 2015. This has turned around in 2016, where we've seen significant amounts of margin pressures, but also lower all-in metal prices hurting the results in the Neuss smelter. If we look into Q1, we should expect to see continuous margin pressure in our highly competitive markets, as well as cost pressures, partly due to inflation in the markets that we operate. If we look into further into the quarter, we should expect higher sales volumes, picking up again normally as Q1 is stronger than Q4.
The Neuss smelter will then, as always, follow the developments in the LME metal prices, as well as on the cost side, the alumina side. If we go to energy, we saw an improvement in the energy EBIT to NOK 359 million, up from the NOK 285 million that we delivered in Q3. The biggest contributor to this is the higher average price level that we saw of NOK 296/ MWh, giving significant bottom line effect.
In addition, the difference between the price areas in Norway narrowed from around NOK 60/ MWh to less than NOK 40/ MWh in the fourth quarter, due both to better transmission capacities between the pricing areas, but also better hydrology situation in mid Norway, where Hydro is structurally short power. Production costs were somewhat lower in Q4, partly due to the lower property taxes, as they vary between the quarters. While production costs and transmission costs and maintenance costs were somewhat up in Q4.
Far in the fourth quarter, in the first quarter, the average January prices in both south Norway and mid Norway has come slightly down to roughly NOK 270/MWh also indicating that the price area difference so far in this quarter has been virtually zero. However, again, let us remind you that the earnings in Q3 in energy are highly volatile and may change on the income side for the rest of the quarter. If we turn to Sapa, if we compare this to third quarter, we should always expect that the fourth quarter is weaker due to seasonality, and this is also what we see in this quarter, in particular both in Europe as well as in North America.
As a result, the underlying EBIT decreased some 30% between the quarters. The underlying net income, on the other hand, improved slightly, reflecting a positive full year tax assessment of the anticipated tax rate for the year. If we compare this to last year, the results continue to improve, with Hydro's share of underlying EBIT more than doubling from NOK 64 million in Q4 2015 to NOK 168 million, reflecting positive developments throughout the company, with the exception of North America, which is more or less stable. When it comes to the outlook, we should expect a normal seasonal pickup in demand in Q1. At the same time, let me just remind you that, you know, Sapa will continue to move its portfolio towards higher value add products, and to improve the operational performance.
We should not expect necessarily the same improvement speed in 2017 as we have seen over the last couple of years. It will be more a gradual improvement than what we've seen in 2015 and 2016. We turn to other eliminations. This netted to a minor negative amount in Q4, compared to the +NOK 75 million in Q3. We've just been through the Sapa results. The other line describes the charges for common services and other businesses in the company, NOK 130 million in Q4, compared to the NOK 66 million in the third quarter, but still, somewhat better than the quarterly guidance that we give of a NOK 150 million.
The eliminations of NOK 38 million compared to the -NOK 17 million we had in Q3 mainly reflects the higher internal margins in B&A, which will then be realized in the coming quarters as this is being sold out of the company. If we quickly look to the net cash developments, cash position continued to improve, and we ended Q4 with NOK 6 billion at the end of the quarter. We started the quarter with NOK 5.4 billion. We have produced an EBITDA of some NOK 3.1 billion being a major positive contributor. Also, very pleased to see that we've had NOK 1 billion in net operating capital release in this period, despite the fact that we have had increasing prices both on the metal as well as on the alumina side in this period.
In Q4, we received dividends from Qatalum of NOK 800 million, basically offsetting taxes paid in the quarter and the adjustments for non-cash effects relating to equity accounted investments in EBITDA. As a result, we've generated net cash flow from operations of positive NOK 4.1 billion in Q4, which is up from the NOK 2.4 billion that we delivered in Q3. We've invested NOK 2.4 billion, of which NOK 400 million is the net CapEx related to the Karmøy technology pilot. Finally, we've had some net other items reducing our net cash position with NOK 1.2 billion. The net effect here is related to the acquisition of the outstanding Paragominas shares that we completed at the end of Q4.
The net payment of around NOK 1 billion, or $113 million, was clearly lower than the anticipated amount of $200 million. Again, it's the result of some outstanding contractual agreements between us and Vale going back to 2011. If we take a quick look at the CapEx for 2016, as well as some of the expectations for the coming years. The actual CapEx for 2016 ended up at NOK 7.4 billion, which is roughly NOK 400 million lower than what we guided on at the capital markets day in December. This reduction is basically due to two of the sustaining projects that we run at Bauxite & Alumina, which has been postponed into 2017. Now, as a result of that, the 2017 CapEx has been increased almost by the same amount.
The average for the two years remains the same, and the CapEx expectations for 2018 and 2019 remains unchanged. If we then end with the adjusted net debt, this decreased a further NOK 2.5 billion- NOK 5.6 billion in Q4, excluding debt and equity accounted investments. This was driven by several effects. First, it is the NOK 600 million higher cash position in Q4 that we've just been through. Secondly, we've had a reduction in net pension liability of more than NOK 1 billion, reflecting the higher interest rates that we see both in Germany as well as in Norway, reflecting the defined benefit plans or impacting the defined benefit plans we have in these two countries.
Finally, the other adjustments also declined by NOK 700 million, again, mainly as a result of the exercise that we exercised the put call on the Paragominas shares, which was partly offset by an increase in the asset and net asset retirement obligations that we have. Net debt and equity accounted investments increased by NOK 800 million. This is primarily driven by an increase in Qatalum of NOK 900 million, partly reflecting a stronger dollar, but of course also the fact that they've paid us NOK 800 million in dividends. On the other hand, the net debt in Sapa at the end of the year is basically zero, also a very strong position.
As a result of these developments, the total net adjusted debt in Hydro at the end of 2016 amounted to NOK 12.5 billion, a reduction of almost NOK 2 billion compared to Q3, and almost NOK 4 billion compared to the end of Q4 last year. On this note, Svein Brandtzæg, I'll leave the word back to you.
Thank you, Eivind. Just to summarize the year, I'm very happy that it was the safest year in Hydro history. We aim to break that record as soon as possible because we always work on improving our safety performance. I'm very happy also with the performance in Brazil. Record production in Alunorte and Paragominas is very important. Also the fact that we delivered significantly above the target on improvement shows that we have a good speed out of 2016 into 2017. We are on track with the Karmøy technology pilot, which is one of the biggest investments we have done for quite a while, and also on track with regard to the automotive line. The trial production are ongoing with our customers in Europe.
We will continue to improve the performance in Hydro. This is a part of the culture, and we have the program in place, and we are now moving towards the NOK 2.9 billion program that should be finished in 2019. We are strengthening our competitive position through the technology pilot, but also that we are utilizing the technological capability and competence in the company to deliver more advanced products to the customers like, for example, the body-in-white products to the leading automotive customers in Europe. Finally, we will maintain the financial strength and flexibility in a volatile aluminum industry in the end market. Thank you very much for your attention.
Thank you, Svein Richard and Eivind. We open for questions, from the audience and also from webcast. Any questions here from the audience? I think I will move over to webcast, Stian.
Question from Jason Fairclough, Bank of America Merrill Lynch. Please comment on your thoughts on the Sapa investment, as Orkla has made it clear it wants to. It's not a core asset. Would you like to own more of it if the price was right?
Well, Jason, this is a question we have answered before, and the answer is very much the same, that this is an option for Hydro. Sapa has delivered positively. We are committed to improve the performance in Sapa. We have the option to join Orkla with an IPO. We could also have the option to take over if that makes also good business for the shareholders, or we could also remain with the 50% position in Sapa. This is the options we have had, and we maintain these options also going forward.
A question from Daniel Lurch in Exane BNP Paribas. In terms of the market outlook, could you please comment on the filed WTO complaint against China, and also the speculation that they will implement environmental closures? What is your view on that impact for the market?
Well, Hydro is supporting free trade. We know that this case is ongoing, and we will just follow what is the development there.
A question on the Rolled Products in particular. How do you foresee the margin pressure there into 2017? Also, what is the main driver for the result in Q4, the low result in Q4?
There are several drivers here. With regard to the margins, we have seen the margin pressure developing in the Rolled Products gradually, and we saw it definitely in the fourth quarter. This is also the reason why we have the strategy to high grade the product portfolio and also the reason why we have invested in Automotive Line 3, which takes the capacity up to 200,000 tons for body-in-white, which is a significant big part of the production in Rolled Products. Maybe even you could give some additional comments to Rolled Products.
Yeah, I think it's obviously right what you say, Svein Richard. We've seen significant margin pressure and downward pressure during all of 2016. That will partly continue into 2017. Now, results in Q1 should come up based on increased seasonal volumes, as normally expected. Then I think it's also fair to say that we did have additional costs in Q4, as I mentioned, both related to maintenance, but also some more specific and smaller one-off items, which adds up, at the end of the day, impacting the results.
Okay, one more question here. Menno Sanderse from Morgan Stanley. Q4 Paragominas and Alunorte production are well above nameplate capacity. One, what drove that? And secondly, how sustainable do you think that is for 2017?
Okay, thank you, Menno, for a good question again. This is very much a performance development that is part of our result of of course very strong leadership, strong competence in Brazil. A lot of efforts to take and lift the production towards and beyond nameplate capacity from the whole organization. It's also very much a result of the systematic way, which is a part of the Hydro Business System or Hydro business system, which is included now in Brazil and introduced and implemented. It's both statistical process control. It's hundreds of details that are followed up very carefully and optimized and lifted to higher levels.
I would say this is a combination of strong and systematic efforts and good work in Brazil. With regard to, as I said also in my comments, with regard to further development, we are not going to extrapolate the development during the last years and lift it further. We are now trying to stabilize the production at the good levels. Of course it's cost per ton that will be one of the most important targets for us to reduce. Also, of course, that is again a function of operational excellence on operational performance.
Okay. Any other questions from the audience? No? We have a lot of media questions afterwards, I know. I would like to say thank you very much for joining us this morning and have a wonderful day. Thank you.