Dear everyone here at the London Stock Exchange, and those of you following us on the webcast, welcome to the Capital Markets Day of 2015. We have had a very challenging and exciting year since our previous Capital Markets Day, and there are strong signs that this excitement will continue also in 2016. My presentation will cover the status of the company. We will take a look at the programs that we discussed last year. I will also comment on the market situation for Hydro and our response to the market situation, and finally discuss our financial policies, results, and targets going forward. Let me start with health, safety, environment, corporate social responsibility, and compliance.
We strongly believe that non-financial compliance is also very closely correlated with financial performance, and these are critical factors for us. If you start with safety, we are very close to industry benchmark with a TRI of 3.1 per million work hours, but we strive every day to become even better. Also here we see a very close relationship and close correlation between safety performance and operational performance. We launched our climate ambition, two years ago, where we aim to become carbon- neutral from a life- cycle perspective in 2020. We believe that is the right thing to do, but also in a low-carbon economy, we really think this is the right way to position also the company going forward. Compliance is very important for all companies, and we have been working with compliance for several decades in Hydro.
We asked a third-party company to make an assessment of our compliance system and our compliance performance. They positioned us among the best with regard to tone from the top and also the compliance culture, but also gave us some advice how we could simplify, align our system and become even better on internal control systems. We also talked about our aspiration in the Capital Markets Day last year, how we could become better, bigger, and greener. This is the long-term aspiration for Hydro, and it's built on our strong asset base, our strong commercial capabilities, on our technological leadership, also the strong competence in the company.
If you then take a look at what has happened since last year, first of all, we started with a new corporate management board, the new members, a new head of rolled products, and we lifted also some support functions like people and organization, compliance, corporate social responsibility, stakeholder management, and global framework conditions to the board of corporate management. We have a new team with strong leaders in place. One issue that we worked with quite a lot during the first half of 2015 was to establish the ICMS system in Brazil together with authorities, and that came into place in July this year.
We are very happy that the authorities in Brazil also have the same interest as us to develop a sustainable business in the Pará region where we are operating. In Bauxite & Alumina, we have now delivered the B&A program that we talked about previously, improvement of NOK 1 billion, that Alberto will come back to later. We have also signed a letter of intent with Vale for their 40% share in the MRN bauxite mine, which is one of the biggest bauxite mines in the world. In Primary, Hilde will come back to that, but she is continuing improvements. We delivered the $300 program a couple of years ago, and she continued to deliver improvements.
We have continued to develop our technological leadership, and we will come back to that. We also done acquisitions related to recycling. We acquired the most advanced technological solutions for scrap sourcing, a company in Germany that is now supporting our recycling of post-consumer scrap. In Rolled Products, Kjetil is now in place to continue the improvements, and we deliver now the Climb program ahead of plan, NOK 800 million in improvements. We are expanding in [Bodensee] in Germany with the Automotive Line 3, as you have heard about before, which will take our capacity up to 200,000 tons per year. We have now finished Used Beverage Can recycling line in Germany, where we'll also reduce our metal cost and serve the market with the recycling of post-consumer scrap.
Kjetil recently divested Slim rolling mill in Italy, which was defined as non-core in our system. In Energy, Arvid Moss is working hard to secure power contracts from 2020 and onwards, and we have succeeded. I will come back to that. We have also now finished the upgrade of the Rjukan power station that have been ongoing for some years now, which will ensure stable and good power production in Rjukan, which represent about one-third of the total power production in Norway. If you now take a closer look at our ambitions and targets, I would say that we are on track with regard to improvements. There are volume increases in several areas.
There's one deviation here, which is Alunorte, which is now in red, where we are not reaching the ambition of 6.2 million tons this year. Saying that the last couple of months, Alunorte has been operated above that target. Alunorte's now increasing performance, and we are quite optimistic with regards to what we can achieve next year, and Alberto Fabrini will talk more about that later. It's good to see that we are now running our bauxite mine in Brazil far above nameplate capacity. Also on safety, well, we are not happy that we are not exactly where we should be, although we are among the best in the industry, we have ambitions to become even better.
With regard to our bigger ambition, we are on track with regards to the 200 kilotons ambition on Body- in-W hite for automotive, increasing from 50 to 200,000 tons capacity with the Automotive Line 3. We will ramp up now the UBC recycling line in Germany. Hilde has ambition to increase our capacity in the Årdal smelter with 100,000 tons. She will also talk about later another step for the joint ventures, where we're also going to increase the joint venture with 100,000 tons with pre capacity. I already mentioned the MRN letter of intent. Also, if we move down to greener, we are on track with regard to our target to become carbon- neutral from a life- cycle perspective in 2020.
That includes, of course, the emissions we have in our own production, but we also take into account the benefits in the use of aluminum and also recycling of aluminum that we are increasing, and we aim to double the recycling volume from what we had last year. We're also on track with regard to reforestation and rehabilitation in Brazil. Let us then take a closer look into the market. It has been quite volatile and with also some quite changes since our last Capital Markets Day when we were sitting here together and we had a very tight market, record high premiums, and also a high metal price. Now we see quite a big change, but let us first take a look at the growth in the different markets.
We are expecting now that the global growth in 2016 will be between 4%- 5% with significant regional differences. If we start with Europe, we are expecting 2% small growth rate, very much driven by automotive and transport, and expecting still a weak situation in building and construction. In U.S., the situation is quite different, higher growth rates, also driven by automotive and transport, but also in U.S., we have good support from the building and construction business. Emerging markets, disappointment compared to what we saw some years ago, not least in Brazil, where we are operating, 3% growth expected next year. Then China.
China is playing a very important role as they are now consuming about half of the global aluminum consumption and then also producing about half of the production. 5%-7 % growth is significantly lower what we have seen before, but still it is the strongest growth area among the different regions in the world. The reason for aluminum's high growth rates compared to other metals, and aluminum is still one of the fastest-growing metals in the world, it is due to the inherent properties of our metal. You all know that the aluminum can be alloyed up to many different physical properties, different mechanical properties, but it also have a very good thermal connectivity and electrical conductivity.
The metallic structure of aluminum that Hans Erik Vatne may come back to, cubic structure, which gives a very good formability, means that we can form and produce different shapes in aluminum very cost-efficiently. The thinnest shape we are making is the five-micrometer thin gauge foil for flexible packaging. From that, we are producing different shapes in extrusions, for example, that are very complex and can be used for different purposes. If you look at different market segments, aluminum applications are found in quite a wide variety of applications in different important segments that are growing. When we are comparing that to other metals, we see that there are more limitations in other metals.
Also with regard to China's economy, where we see that China are trying to reduce the dependence on export and investments and driving more towards a consumption-driven economy, we see that aluminum will prosper very well in a consumption-driven economy. With the next 10 years, we expect 3%-4% growth rate, which is long term and with also of course a higher uncertainty. But next year, 4%-5%. Automotive is, of course, the deriving force here, and we see that there are more and more car models coming with bodies or parts of the body shell in aluminum. Body-in-White is now introduced for the Ford F-150, and that resulted in a 75% growth of Body-in-White market last year.
When we talked about the 20% growth in the previous Capital Markets Day of aluminum to automotive, we now have experienced 75% growth in 2015, and that's why we have taken down the growth rate going forward to about 13% per year. That is based on the car models that we are now expecting will turn from steel body to aluminum Body-in-White. we all know the story about Audi. Ford F-150 is well known. Ford is now also planning aluminum for the Ford F-250. We have the Tesla aluminum car, the electric car, and then we have the Peugeot 308 which is also a high volume car, which also now will use aluminum for several parts in the auto shell.
This is a very interesting business for us, and that is also why we are investing with a new capacity in Germany that will come on stream in the end of next year. It's not only replacement of steel, it is also about replacement of copper. For example, with regard to cabling of cars, there are traditionally 25 kg of copper in our cars. Now, some of the OEMs is changing from copper to aluminum, shaving away 13, 12, 13 kg, which means that there will be about 12 kg of aluminum in each car. That development is very promising, and it's another area of growth for us.
Also due to the fact that, it's not only electrical connectivity, but also a good heat conductivity in aluminum and that's what we see in heat exchanger applications. Like in the heating, ventilation, air conditioning and refrigeration area, the so-called non-automotive heat exchanger market, very interesting growth market. The customers that are changing from copper to aluminum in this market becomes very competitive, not only because of low price for aluminum, but also the fact that they discover that aluminum has even better properties than copper in many instances. Lightweight is one issue. It's also about formability and the cost of the heat exchanger, of course. And finally, on in emerging markets, well, transmission lines are built extensively. We see that also there, aluminum is replacing copper.
This is an example from India with 8% growth rate. We see that in several other emerging markets where there is a good demand for aluminum for transmission of electrical energy. Even further with the new legislation of buildings European Union legislation of 2012 Energy Efficiency Directive is stating that all buildings from the end of 2020, and public buildings from 2018, has to be built close to zero energy consumption. Buildings represent 40% of the global energy consumption and 40% of the global CO2 emissions, so of course, that is a very important area. We have developed previously technology for energy neutral buildings. It consists of double skins facade with integrated ventilation which requires very complex shapes of aluminum.
We see the benefit of metal due to the formability. We can produce these shapes in very cost-efficient ways. This is also a quite interesting area going forward within building and construction. If you then take a look at the situation with regard to pricing of aluminum, and look at the cost curve, and the price development. We have here the blue line is the 90th percentile on the cost curve, and the green is the LME going forward. There are some correlation here, at least lately, and we see that the LME price is normally above the 90th percentile on cost curve, but we see now that is significantly below.
There is a deficit of aluminum as the bars are showing on this, on the slide on the left side. Of course, this is the situation in the West. If you take into account the situation in total and China, there's a surplus of metal in China. Also there we see close correlation between LME, at least during last years, and the cost curve, the 90th percentile on the cost curve. But now the prices are significantly below the 90th percentile. Of course, this is quite a challenge for the global aluminum industry. There are a lot of capacity that are now below water. We expect that 25% of the capacity outside China is now losing money on the current prices, and 65% of the capacity in China is now losing money.
You can ask, "Is this sustainable? What is going to happen here?" Let us then take a look at the export of metal from China, which has been also somewhat correlated, and at least lately, fairly well correlated with the incentives of Chinese producers, where they find higher value of the products outside China than in China. We have seen that since December last year, where we had the highest premiums on standard ingots, and then also highest export. It is coming down somewhat, both with regard to incentives, but also on volumes. We saw around 250,000 tons and lower than that during last months. Now the incentive is a bit higher again because there is a tremendous pressure on prices in China.
Prices outside China and premiums are still attractive, attracting some export. We are following this carefully. There are still exports of metal out of China. It is very much related to sheet & strip, and extrusions and other semis, but less so on standard products like foil, for example, that has been a steady, fairly steady increase during last years. If you then take a look at the balance. Outside China, again, we see that there will be a potential addition of capacity of 1 million tons. There are also plans to curtail 500,000 tons capacity. There are, according to CRU, also expected additional 500,000 tons curtailment of capacity outside China. All in all, 0%-2% supply growth.
If you then take a look at the situation in China, quite different. We are expecting 3-3.4 million tons capacity to be added. There are already announced 1 million tons capacity to be curtailed. CRU are expecting 0.8 million tons capacity to be curtailed. If you then take a look at the total picture, we are expecting an undersupply outside China of about 1.5-2 million tons. In China, oversupply of 2-2.5. All in all, if you look at the total global balance, we are expecting between 0 and 1 million tons surplus into next year.
Again, as I said, 25% of the capacity outside China is below water, and 65% of the Chinese capacity is losing money at the current price levels. This is quite a dynamic picture. If you go back to 2012 November, we made an update of the situation where we saw that there would be oversupply in the global market until 2019. This changed quite a lot, and what we showed last year was this situation where we expected a balanced situation in 2015, and starting a slight undersupply in 2016, which was growing in the coming years. If you take a look at the current situation, we have experienced a significant oversupply this year. Next year, better balance, but still potential for a slight oversupply.
Then in 2017 and onwards, we are expecting undersupply, a deficit of metal. There are a lot of question marks we should raise to this. Of course, one is the question if the announced curtailments is going to happen. That is already baked in these numbers. But it's a question mark if we will see that going forward. But again, we are expecting at least a better balance in 2016 than what we have this year. That is what we have got as a result from our analysis. Let us then take a look at how we are responding to this situation. Of course, starting with our position, where we have very strong raw material assets in Brazil that are now operating better and better.
We have a global reach with our smelter system, well positioned in the main markets, and also access to the main markets. In Norway, supported by the hydropower production. We have our rolled products business, which is also a global business, but with a backbone in Central Europe. We have also the 50% ownership in Sapa, the joint venture with Orkla, which is the largest extrusion company in the world with strong positions in the U.S., Europe, and also in other regions. We have a strong asset base, and that is what we are going to build on going forward. We are, in this industry, one of the few companies with an integrated business model.
We are continuing to focus on here at Hydro as an integrated company, very much due to the benefits that we see from this business model, which is related to the fact that we are exposed to multi-cyclical market segments. We have a long range of strategic opportunities with regard to growing our business with a much lower wider value chain. With regard to improvement programs, business systems, we are utilizing the competence from the different business areas and are then taking advantages of experiences, of cost-cutting, of improvement programs in one area over to another. Whether it is statistical process control, application of data, it is the way we are developing our leaders, there are strong synergies between the business areas in that respect with regard to improvements.
Also in technology, we have quite a unique technological competence in our company. We are supporting our customers with the new innovations. We are in fact working closely with customers to develop new products. We also have the competence to produce the metal all the way back to the raw material in the right way. The competence we have in Hydro, we are definitely using commercially, but we are also using it towards our improvement programs to become even better and more efficient.
We also have a unique opportunity and also a possibility to utilize the information we have in the different markets where we're operating and get a more holistic view on the aluminum market than companies that are only focusing on small parts of the value chain. We have a market insight and also feedback from the market that we are utilizing in a strategic way. We also see that our customers are really happy that we have control of the whole value chain back to the raw material. Also with regard to corporate responsibility and a very important part of our steering system, there are also strong benefits.
Also with regard to the brand of the company, we are well-known in the aluminum industry, among our customers, but also among the employees, and we are attracting some of the best employees in this industry, which is also very important going forward. If we then take a closer look at what we have done with regard to improvements, we have already now delivered the B&A program in Bauxite & Alumina. We are now operating the bauxite mine in Paragominas, significantly above nameplate capacity. We have now stabilized Alunorte production at higher levels, and we will come back to that. We are also now selling more and more of the alumina on index pricing.
You know that we have to honor the old contracts that Vale entered into, but gradually they are being rolled out, and now we are selling 35% of alumina on PAX on index this year. In Primary Metal, Hilde finalized the $300 program in 2013, but she has even improved further with another $100 per ton. Also on the joint venture program, the improvement has now been delivered up to $240 this year. We have continuous focus on developing our technology. With the technological competence, we are increasing the capacity creep capacity increases in the fully owned smelters and also now in the joint ventures.
In total, 200,000 tons creep in our smelters during the next years. In Rolled Products, the Climb program is finished one year ahead of plan. We are high-grading the products with higher margins, increasing the Body-in-White capacity and also the UBC, Used Beverage Can capacity, which is now coming on stream. Of course, the Slim plant I already mentioned. Energy, also there, good drive to secure power for the future. The average hydropower production now is lifted to 10 TWh per year. If you count up what we have delivered so far, we showed you this number last year, NOK 3.7 billion in improvements from 2011 to 2014.
We talked about the NOK 1.5 billion additional improvements in 2015 and 2016. Now we have delivered 0.8 billion of this. That is already finalized. What is typical in Hydro is that when we are on our way to finalize a program, we are now planning the next program. We have already now defined the next better program in Hydro, which then comes to up to NOK 2.9 billion. That is for the years from 2016 to 2019. That is including cost-cutting improvements, but also involves some investments. In this period from 2015 to 2019, we will invest NOK 3.2 billion, which is related to these improvements, but most of the improvements is without capital expenditures.
This is the new program that we are launching today, and where we have programs in all different business areas. If you go into more details here, Bauxite & Alumina will contribute with NOK 1 billion. Primary will contribute with NOK 1 billion, and Rolled Products with NOK 0.9 billion on top of what has already been delivered. This is the NOK 2.9 billion improvement program that we are working with now in Hydro. Technology is, of course, one of the reasons why we are able to lift our performance continuously. It is about competence, but also a lot about developing technology in different parts of the value chain. We are already, as I said, above nameplate capacity in Paragominas, but we also have plans to produce more alumina.
Alberto will talk more about that, but we are now seeing that with debottlenecking in Alunorte, we can produce 6.6 million tons of alumina. We also see that we could utilize residual bauxite even better, and we also see that we can improve the yield in our processes to increase the output from Alunorte. In Primary Metal, we are going to test out, we are planning to test out the world's most energy efficient and climate friendly aluminum technology. This is a very important part of our cost reduction program, but also a very important part of our ambition to become greener. With the ongoing discussions in Paris, the COP21, I would say that we are supporting a global CO2 cost in Hydro.
We also know that we have to do our improvements in that respect. Our contribution in electrolysis in the primary production is to reduce the energy consumption significantly. This is definitely the lowest energy consumption in the world. We have several technological elements that we are going to utilize to achieve that. Of course, the reason why we are doing it, and now you come back to the pilot that we are planning to build at the west coast of Norway in Karmøy, is that several of the technology elements in this pilot can be utilized in the existing production system. We have invested in Adjustable Flexible Molds for 6000 alloys, which goes into automotive. We have invested in automatic ultrasonic testing for extrusion ingots, which goes to automotive.
It's clear that we are adapting to the fastest growing market segment, and recycling is also high on the agenda for us going forward. In the Rolled Products, I already talked about Automotive Line 3. There are a lot of customers knocking on the door to secure volumes from this new line. We have now the state-of-the-art Used Beverage Can recycling line in operation that is going to be ramped up. We continue to develop new products together with the customers like for example in foil and other areas. They also debottlenecking in the world's largest rolling mill in Alunorf in Germany. The approach we have in technology is to stabilize the production to reduce variations and then take a step change.
That is typically what we do in electrolysis, for example, where we have a certain amperage. When we have stabilized this amperage, and it got a good current efficiency, low anode consumption, good cathode lifetime, and other important parameters, then we increase the current to higher levels. We will increase the variations, and then we are working with stabilization again. Until the process is so stabilized that we get another step and increase the current density. With that, we are continuously increasing productivity and reducing the cost and get more asset productivity in our system. That is just one example of what we are doing there. We will continue with our technological development and with the Karmøy pilot, where it was taken an investment decision earlier this year.
Build decision for this may be taken in the first half of 2016. The pilot will be positioned close to the existing smelter. It will have a capacity of about 70,000-75,000 tons. A cost of NOK 3.9 billion, but we have been granted NOK 1.5 billion from the Norwegian government through Enova. We are looking forward to test out the future technology of aluminum production in the west coast of Norway in some years' time. It's not only about the production. We also have very strong commercial positions. We are a leading aluminum company along the value chain, and we have different commercial opportunities that we are, of course, developing further.
If you start upstream with the bauxite, we all have excess bauxite of 2.5-3.5 million tons that we are selling to different customers, also to China, by the way. We have excess alumina, 2-3 million tons that we are selling more and more now to index pricing. In energy, we are participating in the very liberated or very much market-oriented Nordic energy market, where there are different tools that we can utilize to create value in addition to optimize our own production in energy. In primary metal, we are producing 85%-90% value-added products. We don't produce very much standard ingots in our system.
We produce extrusion ingots, foundry alloys, sheet ingots for specific customers, and we are targeting the most demanding customers in the market that are requiring special shapes or specific alloys, which can also give us higher margins. In downstream, we are also differentiating with the lead time quality. We are close to the market, close to the customers, and continuously develop new products together with the customers. We have recycling, which is a quite important part of the aluminum value chain and will also going forward be important part of the way we can increase our share in this market. I mentioned already that we have been sourcing power for our smelters. We have a big contract that expires in 2020.
We have now sourced 4.1 TWh from 20 20 and onwards for the Norwegian smelters. We also sourced almost 1 TWh for Germany, for smelter in Germany, and also a new contract for the Alouette smelter in Canada. These contracts are in fact taking down the cash cost and make our smelters more competitive going forward. The government now has sent out the proposal to allow for industrial ownership of power after reversion, and Arvid will revert to that in his presentation later. Sapa, the joint venture, we have together with Orkla. I would say, first of all, that we are very disappointed with the laboratory quality control system that was in non-compliant situation earlier this year.
We discovered that in August, September. Sapa is taking that very seriously and have now investigated and introduced audits along the whole North American system, but also in the European system. They are taking that non-compliant situation seriously and are now correcting that situation. With regard to the synergies and the improvements in Sapa, we are quite impressed. They are ahead of plan with regard to the target of NOK 1 billion. Continuing successful restructuring in Europe and also in other places, in Asia, for example. We see that these were two companies, the Hydro Extrusions and Orkla Sapa Extrusion, was two companies that was to some extent admiring each other. It was very good companies. Now we have combined the forces, and they are doing a very good job in the different markets.
We see that extrusion market in Europe is quite challenging in general. Automotive is of course helping, but the building and construction, which is an important part of extrusion, is fairly soft. In U.S., we see that Sapa is benefiting not only from automotive and transport, but also the fact that their building and construction is in fact growing healthy. Sapa is developing positively as we see it also going forward. Let us then take a look at the financial policy and the results and ambitions. If we then start with the targets we have, first of all, it is very important for us to continue our efforts in improvements and maintain our investment grade rating.
We have very clear targets on funds from operations, divided by net adjusted debt, should be more than 40%. We also have a target on net adjusted debt to equity that should be less than 55%. With regard to capital allocation and CapEx going forward, we see due to inflation and other factors that the sustaining CapEx will be at the level between NOK 3.5 billion and NOK 4 billion going forward. 2015 was a year with high CapEx due to specific projects like the tailing dam in Brazil and the red mud deposit in Brazil. That will continue also in 2016. Then we have also the Automotive Line in Germany, the UBC recycling line. There were some growth projects. 2015, NOK 5.8 billion.
Next year some of these projects will continue, and we see that all in all NOK 8.6 billion Norwegian kroner in investment for 2016. With regard to shareholder return and shareholder policy, this is of highest importance for us to make sure that we are able to deliver competitive total shareholder return. If we are going to make a benchmark, we see that we are doing quite well on a relative level, but not on absolute level. We have maintained our dividend at NOK 1. That should be regarded as a floor for dividend in Hydro. The board of directors changed the policy of dividend from 30% over the cycle to 40% over the cycle last year.
Of course, with regard to risk management, and market situation we see, we think it's important for us to maintain a strong balance sheet going forward in this situation. If you take a look at our position, with our smelters, we are now positioned in the first quartile, as you see on top of the curve here. The green dot is the position in the smelter cost curve, in the global cost curve. And in alumina, Bauxite & Alumina, we also now very low in the first quartile. This is of course, partly supported by the currency developments in the different, regions where we're operating, but, also very much supported by the fact that we have succeeded in our improvement programs.
This is encouraging for us to continue because we see the medicine is working. If you then take a look at the balance sheet, we have a strong balance sheet, and among the peers, we have the strongest balance sheet in the industry. If you take the payout ratio and dividend yield, we also there at the top of the list among our peers in Hydro. Of course that is a benchmark where we're also following carefully because we have ambition to be best in class also there. Last year, we showed the profitability development of the company with the price we had last year as we saw it and the improvements going forward. We ended up with a ROACE profitability somewhat above 9%.
This year, like, this shows a profitability somewhat below 9%. This is based on a much lower aluminum price. It's based on the aluminum price of $1,500 here. We have then included what we have delivered on improvement programs, NOK 4.5 billion, but also then the remaining efforts on improvements, which is NOK 2.9 billion altogether. We think it's quite encouraging that we are at least close to 9%. That is also based on the fact that we have to deliver the NOK 2.9 billion in improvements. If you then end of my presentation with the specific targets going forward. We have a target then, as you have heard, of NOK 2.9 billion in improvements going forward up to 2019.
We are going to source more energy up to before 2020, because then we need the contracts in place. We are going to lift Paragominas production up to 11 million tons. In fact, we clearly see that is definitely possible. We are going to lift Alunorte production up to 6.6 by debottlenecking. We will increase gradually as the old Vale contracts is then finished. We are entering into new contracts based on index pricing, and in 2020, 85% of the alumina pricing will be on index. We are expecting that there could be a build decision for the Karmøy pilot in 2016. We have also done an ambition target on safety to have less than two accidents per million work hours in 2020.
As I showed you, we are now at 3.1. Then on the bigger side, we are going to increase the capacity in the fully owned smelters, increase capacity of 100,000 tons, and then the joint ventures with another 100,000 tons, also increase capacity to implementing different technological elements. We are going to lift bauxite production to 19 million tons. That includes the MRN. We have not concluded the MRN process yet. It's a due diligence, and we'll see. But if there is a deal with Vale, then we are talking about 19 million tons capacity.
We are going to ramp up now when we have been finalizing the Body-in-White production, Body-in-White project next year, ramping up to 200,000 tons capacity, and then also ramping up the Used Beverage Can recycling line in Germany to 40,000 tons. We are working towards our carbon- neutral ambition become carbon- neutral from a life- cycle perspective in 2020, and increase recycling of post-consumer scrap above 250,000 tons, and then also deliver on the recycling ambitions. As with the benefits of the integrated model, we believe that realizing these ambitions will give us something more than each individual target, and that will also make Hydro better, bigger and greener. Thank you very much for your attention. I would like to introduce Eivind Kallevik, my CFO. Please, Eivind.
Thank you very much, Svein Richard. In my financial update today, I will give an overview of the key financial developments since our last Capital Markets Day. I will then go through our discuss our financial framework, as well as how we think about capital management and capital allocation in Hydro. Lastly, we will also look at Hydro's earnings and returns in several pricing scenarios. Now, if we start with the financial highlights for the last four quarters. Overall, this has been a fairly strong year from a result perspective compared to a number of weak years following the financial crisis. We've delivered some NOK 11 billion in underlying EBIT since the third quarter of 2014, which is more than 3x the NOK 3.3 billion we delivered in the preceding four quarters.
The underlying EBIT for the first two quarters this year was driven by improving market fundamentals reflected in higher LME prices and record high product premiums. While in the second half of the period, the results came down with the falling all-in prices, which remained at fairly strong levels in a historical context given the development in the currency and the currency tailwinds we achieved through that. If we then look at the main earnings drivers for Hydro, the all-in prices and currency, the realized all-in price was up some 30% compared to the previous period and averaged 17,700 NOK per metric ton. In dollar terms, however, the realized all-in price was only up 4%, but was then compensated by 23% weakening of the NOK against the dollar in the same period.
We also seen positive developments in operating costs, which is another key driver for Hydro earnings. The implied all-in primary cost was reduced by 6% to just above $1,750 per metric ton if you include Qatalum. At the same time, the implied alumina cost was down some 12%, down to $225 per ton, both driven by operational as well as technological improvements in addition to some currency tailwinds. These developments in operating cash flow combined with an ongoing focus on CapEx optimization, resulted in a positive consolidated free cash flow from operations or free cash flow of some NOK 10 billion for the period or 10 x higher compared to the NOK 1 billion that we talked about last year.
The total shareholder return, however, was negative 18% or 7 NOK per share, reflecting deteriorating market fundamentals and not at least the market sentiment in our industry since the last Capital Markets Day. If we move on to the cash side of the yearly financial developments, we ended the period with a net cash position of NOK 3.3 billion, compared to a net debt position at Q3 last year of NOK 2.1 billion. We walk through the main elements of these cash developments. We have realized an underlying EBITDA of NOK 15.9 billion, more than double the NOK 7.8 billion delivered at the same period last year.
We had a buildup of net operating capital of NOK 0.7 billion, partly driven by the higher realized prices we saw in the beginning of the year, and partly the above average stock levels at the beginning of 2015. Taxes and adjustments for non-cash items was negative NOK 0.8 billion. Now please note that in this period, we have paid NOK 1.4 billion in tax, while at the same time, we received tax reimbursements in Brazil relating to previous periods, indirect taxes of NOK 1.5 billion. We've invested NOK 4.1 billion. This is lower than what we expected and guided on at Capital Markets Days last year, mainly due to CapEx optimization, in this period. We paid NOK 2 billion to our shareholders as you know.
Lastly, we also paid dividends to our minorities of NOK half a billion and had translation effects related to our net debt in U.S. dollar of about $2.5 billion, thus leaving us with NOK 3.3 billion in net cash at the end of the period. Now, as I highlighted on the previous slide, we have generated NOK 10.3 billion in consolidated free cash flow for the period. If you adjust for the minority dividend of NOK 500 million, this results in a free cash flow yield of approximately 13% for the last four quarters. Let me now get into some more details on the financial framework. This has already been mentioned by Svein Richard Brandtzæg, as our stronghold to manage commodity cyclicality and honor our commitments to shareholders.
Now we strive to lift the potential for generating cash flow from operations through continuously optimizing our costs, improving our efficiency and productivity, leveraging the synergies that we have between the business areas, in addition to high grading our portfolio, thus strengthening our margins. In addition, we are continuously working on optimizing the working capital in order to reduce the cash tied up within our operations. We are adamant about maintaining an investment-grade credit rating. To do that, we need to take care of a strong balance sheet as well as a strong liquidity base. We believe this is the best way to respond to the volatility that we have in our industry. We strive for disciplined and return-driven capital allocation at all times.
This involves ensuring that our assets run optimally and safely, for the next decades, and this is not something that we compromise on. In lower parts of the cycle, our strong financial position does also allow us to act on attractive opportunities. For the better times, we do have some of the best growth projects, organic growth projects in the industry. On dividends, our philosophy is clearly to offer competitive and reliable dividends to investors, which we are committed to maintain throughout the cycle, even or while still remaining the credit rating of BBB flat. Finally, we also believe in being exposed to the market fluctuations, allowing us to benefit and pull from the upside while protecting the downside with a strong financial position and competitive position that our asset has.
Aside from operational hedging and a policy to keep long-term debt in our revenue currency dollar, we do very limited financial hedging in our industry or in our company. Let me then proceed to look into each of these elements in somewhat more detail. I will start with our efforts to lift cash flow from operations. Now, as Svein Richard Brandtzæg said, the improvement culture really has become, we believe, a huge trademark. It's a tool to strengthen our potential on the things that we control ourselves. It's operational and commercial excellence, it's efficiency and productivity. This we need to do in order to manage the things that we can't control ourselves, inflation, currency, raw material prices, and so on. Over the past few years, our improvements have had significant contribution to the underlying EBIT.
Now we started with NOK 6 billion back in 2011, which already includes NOK 1 billion from the early parts of the $300 program, which has been run in Primary Metal. Since then, we have seen significant currency tailwinds as our revenue currency, the dollar, has strengthened against our main cost currency, the NOK, as well as the Brazilian reais. Now this is a net currency effect as the increase in dollar-denominated costs partly offsets the currency tailwinds that we've had on the revenue side. At the same time, prices for aluminum and alumina have declined. We've also seen some pressure on fixed costs. We've had high inflation in Brazil, in addition to the fact that we have had the implementation of ICMS tax on fuel oil in Brazil.
You see, if we did not run any improvement programs, we would basically have a flat EBIT development between 2011 and 2015. If you add the NOK 4.5 billion in improvement efforts that we've done, we have lifted underlying EBIT by close to 80% to NOK 10 billion annualized for 2015. As Svein Richard Brandtzæg said, we do not stop here. We have another NOK 2.9 billion of improvements to deliver through 2019, taking our performance even further. Now do remember that the NOK 2.9 billion is expressed in real 2015 terms, meaning that there will be various market factors impacting that final number, such as inflations, for instance. The improvement efforts also clearly helps us strengthening our margins.
Now, if we first look at the employed primary cost, the margin for the last four quarters compared to the same period three years ago, we see a 20% reduction in all-in costs and a doubling in margins. Meanwhile, LME prices have declined by some 15%, and all-in prices have declined roughly 5%. At the same time, the implied alumina cost has also been reduced by 15%, which has more than doubled the margin, while alumina prices have remained flat in dollar terms. These improvement margins has been driven by many factors. On the positive side, these were supported by a material strengthening of the dollar by some 30% against the Norwegian kroner, and not least 60% against the BRL between the two periods.
In addition, we've also seen a reduction in LME-linked raw material costs, in addition to energy costs. However, do remember again that rising inflation, in particular in Brazil, as well as the reintroduction and introduction of the ICMS tax on fuel oil work in the other direction. Now this underpins the value of the operational excellence and commercial success, including higher share of value-added products in primary metal, the de-linking of the LME-based pricing for alumina and Bauxite & Alumina, as just some examples of the efforts taken in this period. The bottom line of these improvement efforts is that we are in a much stronger position today compared to where we were three years ago, and in a much better position to tackle the downturn in the cycle.
Running the business within the optimal working capital level, capital level, has also clearly been a priority over the last years. If you look back to 2011, we have managed to reduce Net Operating Capital days, expressed in days of production, by some 10 days, representing more than NOK 2 billion in freed-up cash. This, of course, is partly due to lower prices in the period, but certainly also due to lower stock levels and optimized trade terms across the value chain. However, if you do look at the development in the last four quarters, we see that working capital has increased by five days. This was due to somewhat higher prices at the end of Q4, as well as an above-average inventory build-up between the business areas in the beginning of 2015.
In the third quarter, we were able to turn this, and we released NOK 2 billion of net operating capital. Today, we do see still a further potential to reduce working capital, partly on the back of lower prices, but also as we expect normal destocking activities as we get towards the end of the year. As we have then been through some of the efforts to lift operating cash flow, let me then share with you some of our thoughts on how we manage and not least allocate cash to create the most value for shareholders. I cannot emphasize it enough that in our volatile industry, having a financial muscle and flexibility is crucial for being able to navigate through the cycles.
As such, one of our top priorities is to maintain a strong balance sheet. As we see in today's challenging market, a strong balance sheet protects us against the actions of last resort, such as fire sales or dividend cuts, and allows us to concentrate on performance and pursue attractive opportunities which may appear as other companies are struggling. As we operate in a very capital-intensive business, there are essential investments that are necessary in order to maintain and to improve our position in a fast-paced and very competitive environment. These, of course, include sustaining investments in existing assets as a prerequisite for lean and safe operations, as well as in projects which will allow us to keep our market share, strengthen our margins, and improve our cost base.
Another top priority is, of course, to deliver reliable and predictable dividends to our shareholders. As the commodity cycle improves, so will our funds from operations, more options for capital allocation will become viable. Now, over the longer term, we do aim to create shareholder value through growth by reinvesting cash flow in organic growth projects that we have or pursuing attractive M&A opportunities that satisfy our over-the-cycle return requirements. Now, in the absence of attractive and profitable growth opportunities, returning excess cash to shareholders is, of course, also a good alternative. Now we then go through these alternatives one by one. Now the reason for the non-negotiable balance sheet strength is really Hydro's aim to stay investment-grade credit rated.
It doesn't only allow us access to the bond markets at attractive terms when it's needed, but it also allows us different business opportunities that otherwise wouldn't be possible in cases where you need to be seen as a reliable and very creditworthy counterparty. Since the start of 2011, we've had a BB B credit rating despite the downward trending alumina prices. Our aim is still to remain at least BB B-rated, giving us a one-notch headroom downwards. To make sure that we satisfy some of the key criteria from the rating agencies, we follow at least two key financial ratio targets, both over the cycle. These ranges then provide a financial or a frame for capital allocations. First one being net adjusted debt to equity has to be below 55%.
Funds from operations to net adjusted debt needs to be above 40%. Now as you can see, net adjusted debt to equity has never really been a problem and has always been comfortably below the targeted 55%. On the other hand, funds from operations to net adjusted debt has been more challenging, reflecting the weak pricing and earnings environment that we've been in. As such, it's really the funds from operations that has been a major restricting factor when determining Hydro's balance sheet structure over the last couple of years. This is also why, despite the fact that we have an almost debt-free balance sheet, that we only maintain a BBB rating.
If we look at this, in the last four quarters, the ratio has been approximately 80%, 86%, as a result of the strong prices in the first half, and then supported by the strong dollar in the second half. Now if we look into 2016, and then use the all-in prices that we realized in Q3, this ratio would come down to 62%. If we would do the same calculation based on spot prices as we see them today, it would be closer to 44%. Illustrating just how sensitive this ratio is to price volatility. Indicating even though we have some flexibility within the targeted level, there is only limited headroom for additional capital allocation. We then have a look at the net adjusted debt, which is also used for the two ratios that we just discussed.
During the last four quarters, we've reduced net adjusted debt by some 16% or just about NOK 3 billion as a result of having now a cash position of NOK 3.3 billion at the end of the quarter, compared to a net debt position of NOK 2.1 billion at the end of Q3 2014. Now in addition to net cash and debt, the net adjusted debt consists of operating lease commitments and other adjustments. This is typically asset retirement obligations and the payment to Vale for the remaining program managers due in 2016. This has been relatively stable between the two years. There's also the net debt and equity accounted investments, Q atalum and Sapa. This has increased by roughly NOK 1.6 billion between the years.
If you look to Qatalum, the net debt, if you look at it in dollar, which is the carrying currency, this has been reduced in dollar terms. Due to the strengthening of the dollar, this has increased when you translate it into NOK by roughly NOK 1.3 billion to NOK 6.8 billion. The net debt in Sapa has also increased by approximately NOK 400 million, also partly driven by a weaker NOK. The final element on the net adjusted debt is the net pension liability. This has increased by half a billion, 500 million to NOK 7.1 billion. This has been driven by the lower discount rates in Norway and Germany, in addition to the stronger euro against the NOK impacting the German liabilities when converted into Norwegian kroner.
Now just for your information then, in the Capital Markets Days booklets, you will also find a sensitivity table on the benefit obligations measured on different discount rates. We turn to CapEx. If we move on to the essential CapEx that we need to spend to maintain our existing assets in a good shape. Mentioned before, we do not save on the integrity of the assets in the operations. Due to the capital intensity of our business, sustaining CapEx is something that we have fairly limited flexibility on. This year, as Svein Richard Brandtzæg indicated, we have lifted the longer-term sustaining CapEx guidance from NOK 3.5 billion-NOK 4 billion. This decision is driven by a combination of factors.
First of all, we've done a new general portfolio walkthrough of the assets, an update, which revealed some pressure on the previous sustaining guidance. Husnes acquisition added to the portfolio last year is of course part of such calculation. Secondly, there is also some pressure from macroeconomic factors, such as inflation across the business, and the weakening NOK. The Brazilian economy, certainly with the high inflation, has so far been offset by the weakening currency. Whether this will continue in the future remains to be seen, but that also gives some pressure on the underlying sustaining CapEx.
If we then look at the historical figures for 2009 to 2014, you see that we have been quite able to maintain the sustaining CapEx at reasonably low levels and within the previous guidance of NOK 3.5 billion per year. This was critical in this period to ensure free cash flow generation in an environment with very low earnings yet without jeopardizing the operational excellence and safety. If we then turn our expectations to the sustaining CapEx for 2015, you may remember that in Q3 we adjusted the last year's guidance down by NOK 1 billion to NOK 4.7 billion.
This is primarily a result of 0.8 billion CapEx optimization, as from a pure present value perspective, if we can move capital out in time, we will always do that, as long as it doesn't jeopardize either the project nor the integrity of our assets and business. We also had some deflationary pressure, primarily from a weaker realized BRL against the NOK, affecting CapEx in Alunorte Alumina and Primary. This was partly offset by the strengthening of the euro, impacting the capital that we use within Rolled Products. The NOK 4.7 billion is somewhat higher sustaining than the CapEx what we expect on average, and is primarily a result of the two large sustaining projects that we do in Bauxite & Alumina, but both have a very long lifetime, between 10 and 20 years.
Now, without these two projects, marked in light green on this slide, we would be below the NOK 3.5 billion for the year. Now part of the CapEx optimization of the NOK 0.8 billion is project spend in B&A, and has been then postponed to 2016, lifting the expected sustaining CapEx in 2016 to NOK 5.7 billion. If you remember, last year we said that we expected maintenance CapEx in 2016 to be around the same level as 2015, at that time, roughly NOK 5.7 billion, before calming down towards a lower level guidance in 2017. Which means that we're still very much in line with the previous guidance for the next two years. In 2017, 2018, sustaining capital is expected around NOK 4 billion if you exclude the B&A projects.
It's closer to NOK 4 billion, which is a result of a relatively high realignment activity within Primary Metal, as well as being close to the peak of the rehabilitation cycle in the Energy business area. Therefore, we believe that NOK 3.5 billion-NOK 4 billion longer term better reflects the CapEx expectations as we see them today. Also just like to point out that this guidance is still well below our depreciation of roughly NOK 5 billion a year. As such, it is still seen as fairly capital tight. Let's complete the CapEx picture with the ongoing growth projects. Now in the current market environment, we do not really see the room for building large greenfield upstream projects.
There are some good projects in terms of high grading and improving our downstream activities, and improving our existing assets. A number of such projects do affect the capital expenditure expectation for 2015 to 2016-2017, before we expect them to come back down in 2018. These are investments in the automotive growth through the Body-in-White line in Germany, the adjustable flexible molds technology that we implement in smelters in Norway. We have a number of investments to upgrade our recycling position. We have a Used Beverage Can recycling facility opening up this year. We've upgraded the Clervaux Remelter, as well as the acquisition of the WMR advanced sorting technology plant in Germany. There are some minor growth projects in energy, as well as the Alunorf debottlenecking project within Rolled Products.
On top of this, there is also a larger R&D project in our Karmøy technology plant, provided that we do make the build decision in the first half of 2016. The total gross investment for the technology pilot is NOK 3.9 billion, mainly impacting 2016 and 2017. Do remember though, that 1.5 of the NOK 3.9 billion is support from Enova, and that leaves us with a net amount of NOK 2.4 billion. Although on this slide, it is the gross figure that's been included. One of our top priorities is to continue to run Hydro as a company with a strong and sustainable long-term value creation, and then also reflected in shareholder returns.
The aim is clearly to offer a competitive cash return to shareholders, and the philosophy is really to have a stable and reliable dividend level that we can sustain throughout the cycle. As such, you can pretty much view the dividend level of 1 NOK as a floor for the company. The dividend policy reflects this policy, and remember that last year, we raised the dividend level from 75 øre to 1 NOK per share. We've also revised the payout ratio from 30%-40% of net income over the cycle. However, in the low earnings environment that we've experienced in the last five years, the payout ratio has actually been close to 100%, indicating that in some years, we have paid out somewhat less, and in some years, we paid out much more than the ratio should indicate.
Remember that, according to normal procedures, Hydro's board of directors does review the dividend in connection with the Q4 results, and the board's proposal will be announced together with the Q4 result release in February next year. Let me then also spend a few minutes on Hydro's price and currency exposure, which clearly shows why risk management is so important for us. We start with LME in dollars, as they have the largest impact on our earnings. A 10% increase in LME has a net effect of positive NOK 3.1 billion on Hydro's underlying EBIT, with the majority of this NOK 2.4 billion coming from Primary Metal. Net income would increase by roughly NOK 2.4 billion in such a case, reflecting approximately 1 NOK per share higher underlying EPS. Changes in dollar against all other Hydro currencies also have significant effects.
EBIT improves with NOK 2.8 billion on a 10% strengthening of the dollar. Now as many of you are aware of, the NOK as well as the BRL have depreciated significantly against the dollar in the last year. That's a positive thing for Hydro. Almost 30% strengthening of the dollar against the NOK since the last time we met at Capital Markets Day should lift the full year EBIT by close to NOK 8 billion based on these sensitivity. Lately, we have also seen significant changes in BRL having positive effects on our earnings. It has weakened some 45% against the dollar and 13% against the NOK, adding NOK 1.2 billion to EBIT.
Now bear in mind that the BRL sensitivities is calculated on a long-term basis, assuming that the fuel oil in Brazil is quoted in U.S. dollars as the price tends to reflect the changes in the U.S. dollar and BRL over time. However, in the short term, as the fuel oil is priced in BRL, this implies an even higher EBIT sensitivity than we do show here in the short term. Sensitivities on financial items are mainly related to either debt, intercompany positions or embedded derivatives in power contracts. The effects here are mainly unrealized revaluation effects given that the currency rates remain stable or until the positions are realized. Our biggest exposure here is the euro due to the intercompany balances in addition to the embedded derivative in power contracts.
Now with these sensitivities in mind, let's look at a few scenarios, starting with EBITDA. Now keep in mind that these scenarios are not estimates for the coming years, but they are rather indicative ranges using earnings for the last four quarters as a basis and applying our sensitivities. This is an illustration of our relative changes in our earnings with and without the improvement efforts on the different LME assumptions. Secondly, please also remember that these scenarios are very simplified and there are several positive and negative additional factors that can influence our earnings that are not taken into account here, such as currency, inflation premiums, production volumes, alumina sales on PAX, just to name a few examples. We suggest to look at three examples.
We have a middle scenario with an LME of $1,500, a USD/NOK of 8.7, and a USD/BRL of 3.7. These are prices close to the spot price as they are today. We've also assumed Hydro's realized alumina premium of $275 per ton, which is close to our expectations for the fourth quarter of 2015. By keeping the currencies and realized premiums constant, we then create the low price scenario with $1,300, which is the level that we saw during the financial crisis, and the high price scenario with $1,800, which is the average of what we've seen as LME for this year over the last four quarters.
Just again, these are not price forecasts, but only reference points indicating a downside and an upside where we are today. With those important disclosures, let's have a look at the three different EBITDA ranges. First in red, we have an EBITDA scenario where we exclude the contribution of the improvement programs. As you can see, that will be roughly NOK 3 billion in the lower price case, NOK 7 billion at the spot price case, and finally around NOK 12 billion at the higher price case. The blue case, where we include the NOK 4.5 billion in realized improvements since 2009, our EBITDA would be approximately NOK 8 billion in the lower price case, NOK 11 billion in the spot price case, and NOK 16 billion in the higher price case.
Finally, with the fully new ambitions of NOK 3 billion EBITDA improvement efforts for the next four years, the EBITDA potential would then be roughly NOK 11 billion, NOK 14 billion, and NOK 19 billion in the low, medium, and high price ranges, respectively. Again, clearly demonstrating the value of Hydro's improvement culture. Also for your information in the capital markets, the booklets, you will also find free cash flow scenarios taking into account taxes, changes in net operating capital, as well as new long-term CapEx assumptions. If we then look at the also quickly on some ROACE scenarios, we have used the same price ranges and under the same assumptions on the previous slide. Also, the same disclosures I made on the previous slide also apply on this one.
Now, Svein Richard Brandtzæg has already shown you the impact of our realized and potential improvement ambitions at spot or in the middle price scenario here, but let me also comment on the down and upside cases. Again, if we start with the red scenarios, the ROACE excluding the contribution of the improvement efforts, they would have been negative in the low price case, positive 2% at spot, and around 6% in the upside price case. If we include all realized improvements as shown here in blue, the ROACE would be around 2% in the low price case, around 6% in spot, and approximately 10% at the higher prices.
Finally, if we do realize the full potential of the improvement ambitions, NOK 2.9 billion, which is the EBIT figure, ROACE in green, would then be around 6%, 9% and 13% respectively in the low, medium and high price scenarios. Finally, let me summarize our key financial targets and ambitions and update you on the results so far. We do have to deliver NOK 2.9 billion in improvements over the next four years, with NOK 4.5 billion already delivered year to date. We see it prudent to widen the range for long-term sustaining CapEx to NOK 3.5 billion-NOK 4 billion from the NOK 3.5 billion per year as inflationary pressures and a portfolio update indicate elevated sustaining CapEx levels in the years to come.
Our expectation for 2015 is NOK 4.7 billion, which is above the average level, but below the expectations we gave a year ago. The total CapEx, including growth on average for 2016-2018, is expected to be around NOK 6.6 billion per year, including the gross investment in the Karmøy Technology pilot. With the Enova support, that average figure is NOK 6.1 billion OK. In 2015, we do expect NOK 5.8 billion in total CapEx, which is NOK 1 billion below what we guided on last year due to the lower sustaining CapEx. In 2016, we guide for a peak CapEx of NOK 8.6 billion. Our payout policy is 40% of net income over the cycle. Over the last five years, that has been closer to 100%.
We have two financial targets that determine the strength of our balance sheets and provide a framework for capital allocation. Funds from operations to net adjusted debt above 40%. Over the last four quarters, this has been 86%. The second target, net adjusted debt to equity below 55%, was 22% in the last four quarters. Finally, if we look at ROACE as a measure of sustainable profitability and value creation, our ambition is to deliver ROACE sufficiently above the cost of capital over the cycle and a competitive ROACE compared to a relevant peer group. I'm happy to say that in the last four quarters we've shown relatively good performance delivering a ROACE of 10.3%, which is almost double of the 5.3% delivered in 2014.
To conclude, in challenging markets, my task as the CFO is clearly to maintain and ensure that we maintain our financial strength and flexibility. To create shareholder value in today's environment, we are focusing on strengthening our relative industry position and investing in our own balance sheets. We strive to further optimize our working capital and for disciplined and return-driven capital allocation over time. With our effective risk management policies, that allows us to navigate through the stormy waters and act on attractive opportunities if those arise, aiming to increase the potential for long-term shareholder value creation. Thank you.
Thank you, Eivind. Could Svein Richard please join us on stage and we'll open up for Q&As.
Yes. Good.
We have two microphones going around in the room. If you could start your question by stating your name and the company you work for, that would be much appreciated.
Hello. Dominic O'Kane from JP Morgan. A quick question on the capital allocation framework. You say that the balance sheet is non-negotiable in terms of maintaining strength and the key constraints that you have on the credit rating is your FFO to the net debt and the threshold that you reference is 40%. I think you said if we use current spot prices for aluminum, you'd be running an FFO to net debt next year of about 44%. Could you just confirm, firstly, does that include the Karmøy CapEx guidance? Then secondly, how do you think about that 40% headroom against the MRN potential transaction? Do you have capacity to do both Karmøy and MRN and maintain that credit rating headroom?
Yeah. The 44% is calculated on the basis where we stand today. But that still gives us some headroom. Remember that the 40% is an across the cycle perspective, so you can still be above and below somewhat each year. When we run our cash flows and our expectations for 2016, we do still think there's good room both for MRN as well as for the Karmøy Technology pilot.
Handelsbanken Capital Markets. I have a question related to MRN first. Why is that important as you already have an evergreen agreement? Secondly, the way the aluminum and alumina market is developing, challenging, with the significant impact from China, what is your strategy when it comes to upstream versus downstream, seen in a bit longer perspective?
Okay. With maybe I can start with regard to MRN. Of course, this will give us a strong voice among the shareholders in one of the biggest bauxite mines in the world. We see that there are important potentials. We see that we will get also access to the cash flow above cost of production and also the price of bauxite. Also the long-term development of the MRN mine is very important for us. We feel that we will benefit from taking a stronger position there.
The second question on it was related to capital allocation between upstream and downstream, right? I think, again, as Svein Richard Brandtzæg indicated, one of the benefits of having a full value chain is that you get different opportunities at different points in time in the cycle. What we work continuously on is really to upgrade the assets that we have. We do that within primary metals even though the market is weak at the moment. We do that through technology upgrades like Karmøy, like the adjustable flexible molds, like the recycling positions that we do.
We do investments in downstream in terms of upgrading the portfolio that we do have to increase the margins, increase or improve our competitive positions through the Body-in-White line, through other breakthroughs or one step changes that, Kjetil will come back to. We will continuously invest in those activities or upgrades, if you like. In terms of organic growth, and I think we've been quite clear on this for quite some time, we have two of the best organic growth projects in the upstream industry with the CAP project for alumina refining in Brazil and the Qatalum two project in Qatar. There is no need for new investments in that market or new capacities in that market in the coming years. Those we will keep in the back pocket, so to speak.
Morning, it's Menno at Morgan Stanley. First one may be a little bit antagonistic, and then maybe some more nicer ones. The first one is, why bother with aluminum smelting in the rest of the world at all? China can do it cheaper. They can build cheaper. They can build faster. They have a much lower cost of capital. They don't care so much. So I'd like to hear your perspective on why you think that's not a good way of thinking about things over the next 10, 15 years. Secondly, coming back on the balance sheet, clearly you said 2015 was eventful, but if I look at what you're planning for 2016, it looks even a lot more eventful. You're going to pay for Paragominas NOK 8.6 billion CapEx or NOK 7.9 net plus MRN.
If you look at your EBIT annualized in the third quarter, it's only NOK 10 billion. I'm a bit. Can you maybe help us understand how we should think about that, especially in relation to your balance sheet comment, which I totally agree with? Lastly, I'm a bit surprised by your demand outlook. Truck volumes in the U.S. are literally collapsing at the moment. Things don't seem great in Europe. The company's talking about 4%-5% demand growth next year with only 4% this year. Where do you get this enthusiasm from for growth?
Okay. With regard to the first start with the smelting part, Eivind already mentioned that we are not going to build new capacity as such. We have the Qatalum two project, but time is not right now as we see the balance is not looking very nice. With regard to Chinese production, even if Chinese production is not the most efficient in the world, or it is higher on the cost curve than what we see in our own smelters, we still expect that China will continue to develop their asset base and will continue to produce aluminum. So far, for the last decade, they have been able to produce as much as they consume.
Now the consumption is going down, so there's overcapacity in China, so we'll see if this is temporary situation or if they really are aiming to be a huge exporter of aluminum, which doesn't make sense, but you cannot guarantee what can happen in the future. For us, it's very much about strengthening our existing asset base. We see that we have gained a lot from our efforts during last year to bring down our assets, our existing assets down the cost curve. We see that we can continue to do that by developing the next generation technology.
The pilot is not in a way the technological effort to only produce the lowest energy consumption in the world, aluminum with the lowest energy consumption in the world at Karmøy, but it's to develop the different technology elements that can be used for existing assets, so they can go further down. Because we see now with the performance in operations that we have achieved, we can take it to the next level with the different technology elements. That is what we are doing. We are not going to build new capacities as such. That is what we are waiting with.
Yeah, on the capital side, Menno, I think, I mean, there are different kinds of investments in there, of course, right? One thing being the Karmøy technology pilot, which is really also building a platform for the future in terms of taking a technology step forward and then reaping the 200,000 tons of additional spin-off effects, if you like, which has a longer term effect. The Vale acquisition is a little bit of a different ballgame, in the sense that, yes, we will have to pay cash next year, but that will also then generate its own cash flow to support that acquisition when it happens. From a balance sheet strength perspective, we feel and I feel relatively comfortable that we can carry the NOK 8.6 billion in good shape during the year and for the years to come.
Demand?
Yeah. Just to comment on that, it is not only about the number of cars that are being produced. It is in fact the case that the cars that are being produced contain more and more aluminum. That is the driving force for us. We see that in Europe, there's a great demand for aluminum Body-in-White in Europe, but I will say that that is driven by the higher number of cars that are being produced. It's the substitution that is ongoing that we are benefiting from here. That is the main point related to your question.
Hi, it's [Eivind Ling] from DNB Markets. Three questions if I may. First, you mentioned the cost savings potential from new energy contracts. How much will this impact the cash cost in Norway, and how much potential lies for the rest of the portfolio? You also mentioned short-term prices for fuel oil is priced in BRL. How would the sensitivities look like, if you adjust for that? Lastly, more longer term, what's your thoughts on further increasing recycling capacity, as this only takes 5% of the energy compared to producing primary? Thank you.
If I start with the BRL sensitivity, because the ongoing situation is so that when we buy and procure fuel oil in Brazil that is priced in BRL. It takes time until they do the adjustments for the currency developments. I think with the sensitivity that you see in the booklet today, that will probably add a few hundred million NOK on top of that sensitivity in the short run.
Yeah, we'll go to recycling. We see already today that the demand of aluminum is in fact 1% higher than what I'm talking about here, because this is the primary aluminum demand. If you include include the the recycling, then the demand is in fact 1% higher. Recycling will be an important factor in the aluminum industry going forward. More and more post-consumer scrap will be brought back to the value chain. So today, about a bit more than 30% of the end user products is coming from post-consumer scrap, and we want to take part of that business. It's an interesting business. It requires, of course, the distributed collection system and also a distributed system of recycling facilities that we already can benefit from in the markets where we operating.
This is a strategy for us to, in fact, to double the recycling capacity compared to what it was last year towards 2020.
I think, your first question was related to energy prices on the new contracts in Norway. Is that correct? I think when you obviously part of the reason is obviously to secure the Norwegian operations with good and sustainable long-term power contracts at globally competitive prices. I think we haven't indicated, I believe, sort of a very precise number of what we have, but it is not that far off the prices that we see in today's energy prices that primary currently is paying.
Hans-Erik Jacobsen, Swedbank. You're gaining a quite strong position within Body-in-White in Europe. Do you have any aspirations for the U.S. market, either on your own or in cooperation with others?
That's a good question, and we are definitely looking into that. We are not looking into building a hot mill facility in North America just to be able to sell Body-in-White there. We are looking at different light versions of how we could enter the U.S. market. That is something we may come back to later.
Danielle Chigumira from UBS. Firstly, a question on the dividend. You've spoken about the dividend policy in terms of 40% payout, but also referred to the NOK as a floor. I just wanted your view on how wise it is to commit to what's essentially a progressive dividend policy in such a cyclical industry, especially in the context of what's happening with some of your peers. Secondly, on the sustaining CapEx, you guided through the inflation to NOK 3.5 billion-NOK 4 billion. Could you give us an idea where sustaining CapEx would be post the acquisition of the share in MRN and the current expansion plans?
Sure. When it comes to the dividend policy, I think we've talked about this before. We don't have a progressive dividend policy as some of our peers have announced that they have. But we do think it's very important that we have a dividend basis that we can maintain also in the lower parts of the cycle. We believe it's important for our investors to understand and know that at least that there is going to be a fair cash distribution in terms of dividend levels. At the same time, we said that if there are times that we believe that we can lift that to a new and sustainable long-term dividend level, we will do that.
At periods where we have excess cash, we have low debt, and there are no growth opportunities, either from an organic perspective or from an M&A perspective, we can return excess cash as special dividends or share buybacks. It is important for us to have a solid foundation underneath. The NOK won in such a case. The question of sustaining CapEx on MRN, I think is something that we will have to come back to, assuming that the transaction is concluded. We are currently running a due diligence process, and that, of course, is one of the things that we're looking carefully into.
Okay, thanks. Christian Kopfer, Handelsbanken. Just to follow up on the market prospects, you mentioned, Svein Richard Brandtzæg, about a lot of capacity being underwater, also in the rest of the world. We hear comments from the U.S., a lot of smelters are deeply underwater talking about the anti-dumping actions versus the Chinese production. How do you see that kind of trends also moving into, possibly into the European Union, regarding this kind of actions versus the Chinese exports?
This is an issue that is followed up by specific associations. Of course, the requirement for establishing a dumping situation is that there are operations that are selling into our markets below cost of production. And the other one is that it's hurting the industry in Europe, for example. I think you could argue that both elements is in place. It could be. That is something we will follow the development of going forward. Seems that it's more trade issues are ongoing in the U.S. market for the time being.
Morning. Jatinder Goel from Citigroup. Two questions. Given you are committed to Paragominas, but you still have more flexibility and other options, what's your order of preference for MRN, Karmøy, Sapa, and potentially an unknown acquisition if something comes through? Secondly, are you able to give the building blocks of NOK 3.2 billion CapEx to achieve NOK 2.9 billion improvement programs you have allocated? Thank you.
We haven't made a decision on the technology pilot at Karmøy, so that is something we will come back to in the first half next year. With regard to MRN, we have signed a letter of intent, and we may end up agreeing with Vale on MRN. Then we take 40% share. This obviously two independent investment decisions.
Paragominas, of course, we signed a put call agreement when we acquired the Vale assets. I think it's a fair assumption either they put or we call, so I think that's a given for 2016. Sapa JV. It is as we still, as we've said before, we are quite comfortable with sitting with 50%. aluminum is part of what we do. It's the core business of Hydro. If our partner decides to do anything, you know, we would be potentially looking at buying up or we could potentially participate in an IPO and sit with a lower share. That would very much be a value discussion at that point in time, how we would see it. That's the way we would look at it.
In terms of the NOK 3.2 billion to get to the NOK 2.9 billion improvements, it is a, it's a mix of investments. It's partly related to the Automotive Line 3 in Germany. It's partly related to getting some of the 200,000 tons of increased capacity of metal out of primary. There is some debottlenecking investments in Bauxite & Alumina. We haven't split it up by business area, but there are smaller debottlenecking also in the different business area to get to the NOK 2.9 billion.
Eirik Melle, Danske Bank Markets. I have two questions. One is regarding the global balance. We can see a minor worse balance for 2016 and then an improved balance for 2017, as presented here on slide 20. I was just wondering if you could just briefly comment on the basic assumptions of that improvement in 2017. Is it curtailments, or is it the demand improving? The second question regards the aluminum market. We're seeing aluminum prices falling quite dramatically. Do you think this is due to the demand supply balance and sustainable? Or could it also be an indication of slower demand from the aluminum production, then resulting in lower aluminum production, which would be a good thing?
Yes. With regard to the first part of your question there, I would say that the balance we see in 2016 is the risk from oversupply. The deficit in 2017, that is based on the curtailments that I've talked about there. If these curtailments is not happening, then the situation could be worse. Or if there are more curtailments that could happen, it could be even better. This is based on the analysis and the external views that we have collected together with then also adding the continuous demand of aluminum globally that we have also talked about here. There are several numbers that have been put together, and all of them contain some uncertainty, of course.
On the aluminum side, you're precisely correct. I mean, the price has fallen quite sharply in the last quarter. Probably several reasons behind it. One is you have the curtailments in China, and you probably have had more ramp-up of new alumina capacity in China than what was necessary to meet the net increase in consumption. That's one thing. That has led to an oversupply situation. The good thing with alumina, so to speak, compared to aluminum, because aluminum of course you can store in a garage and you can take it out three years later and it's equally good. You cannot do that with alumina. You have to bag it, and the quality deteriorates. By natural properties, the alumina market needs to rebalance much quicker than what the aluminum market does.
Though whether that happens X amounts of months into the future or a little bit more, it remains to be seen, but it has to balance out quicker than the aluminum market.
We have time for one more question before break.
Good morning. Ai Ling Ong from Bloomberg Intelligence.
There you are.
Thank you for your presentation. I have two questions on bauxite. The first question is regarding your bauxite target production. It seems quite modest compared to what you can potentially do a lot more. Also given the very strong Chinese bauxite imports that you have mentioned quarter-on-quarter. That's my first question. The second is regarding the Chinese bauxite imports. I remember at the start of the year, you've mentioned that the Chinese have inventories of around 12-15 months. At this current time, I'm just wondering whether you have an estimate of how much inventories that they have at the moment. Thank you very much.
Okay. Thank you for good question. We are now operating Paragominas, for example, above nameplate capacity already. Alberto Fabrini will come back to more details, but the Paragominas nameplate capacity was 9.9, and we are now operating significantly above that and benefiting from, of course, the need for bauxite in China. With regard to the Chinese inventories, of course, they built up inventories ahead of the period. I think it was the twelfth of February last year then that Indonesia stopped export of bauxite. So they had a buffer.
We still expect that they are eating gradually into this buffer, but we also have seen that Malaysia has come up as a big source of bauxite to China. Also now there are investments in Australia that will also increase capacity for bauxite that should be shipped out to China. We also know that China has been in Guinea and already shipped the first cargo from Guinea to China. China is searching actively around the world to get hold of bauxite for their aluminum production as they don't have enough themselves. We are in a good position in Brazil exporting bauxite, and we will continue to do that also to China.
Thank you. That's all we have time for now. We will break for a quick break. If you all could be back at 10:05. Thank you.
Okay, ladies and gentlemen, it's now time to start the second session of today, and it is my pleasure to introduce Senior Vice President and Head of Corporate Strategy and Analysis, Kathrine Fog.
Good morning. I have the pleasure of taking us through the market presentation today. We will start with the macroeconomic and downstream outlook, looking then at the primary metal market, bauxite and aluminum market, and then sharing some view on our long-term outlook. On the macroeconomics, we see macro outlook affected by emerging markets slow down. We see maturing markets remaining somewhat stable, U.S. growth continuing at fairly good levels with the Eurozone slow or steady at a low level. Now we also see this confirmed at the purchasing manager indices at the right-hand side of this slide, with the Eurozone looking somewhat more positive. The Chinese also showing some upward signals. Brazil being the outlier.
Now we also see that in the U.S. industry is now being impacted by the strong dollar. However, as already mentioned, both by the CEO and CFO, there is continued uncertainty on the macro outlook. Now going from macro to aluminum. We see that your aluminum demand is holding firm despite the macroeconomic volatility. This is because aluminum demand is driven by two strong forces. It's the general GDP outlook, but it's also the substitution into aluminum away from other materials. On the left-hand side of the slide, we see this effect as an economy such as China moves from being an investment-heavy economy with aluminum going into construction and infrastructure, and then moving more to a consumption society with aluminum then going into transportation, into packaging and consumer goods.
We see aluminum being fairly well insulated as the economy moves through different phases of the economy. On the right-hand side, we see that the North American semi demand is continuing its strong growth, driven both by construction and transportation segments. Also interestingly, we see how the fourth quarter last year delivered even more strongly than what we expected at this time last year. At the end of last year, and throughout the first half of 2015, we saw increased Chinese semis exports driven by the arbitrage, the very high all-in price outside China, higher than the Shanghai price. Throughout the second half of this year, this arbitrage has largely disappeared, and we also see that semis exports have decreased more towards historic levels, as we see here in the gray area on the left-hand side.
Specifically, we've seen the so-called semis for expected for remelt outside China having largely disappeared recently. There is a reopening of the arbitrage that was already was mentioned by Svein Richard, and we'll see how that plays out. In the middle graph, we see the semis exports as a share of total Chinese semis production, so the blue area being the semis exports. We see that for 2015, Chinese semis exports will deliver around the historic range of some 8%-10%. Year-to-date annualized, semis exports is some 3-6, 3.6 million tons. However, with production surplus in China and potentially liquidity freezes for Chinese producers, we may see periods of increased exports, even though mostly temporarily, even though there are low or no margins on this.
Now, the semis exports from China do go primarily to the Asian region. We see in the pie chart here that approximately or close to 50% of the semis do end up in Asia. This share has actually increased from last year, so this is the 2014 numbers. Exports to Europe and North America are in the range of 11%-13% and quite stable from 2013 to 2014. We also see from the chart here that the import duties for aluminum or for semis are generally lower in Asia than what we see in Europe and North America. There are some global effects also of these trade flows.
Primarily, the increased semis from China do capture the growth in Asia, but to a certain extent, also displaces some of the original exports that now are finding new homes. Turning briefly to the rolled segment, we see a healthy demand outlook for main industrialized regions. Now, the main driver in the rolled market is increased material overall going into transportation, substituting, as was already mentioned, for other materials. But it's fair to note also that packaging is contributing to this favorable outlook. Also, the main change from our 2014 forecast is the stronger than expected increase into transportation in 2015. Going to the extrusions. We see a solid uptake in the U.S. extrusion market. Now the extrusion is mostly driven by the construction sector, as we see here, around two-thirds going to the construction.
Here, of course, we see a difference between the North American market and the European market in levels of activity. With construction and housing in North America staying good, we see continued attractive levels for extrusion demand. In Europe, we do see extrusions picking up from a quite low level seen historically. Now we also see growth of aluminum into transportation on the extrusion side, but it's a smaller contributor than what we see for the rolled segment. Turning now to the primary metal market. Now first, let me recap just shortly what we said at Capital Markets Day last year. We had a growth projection for the world outside China of some 3%-4% demand growth, and an ex-China supply deficit of around 1 million tons.
With 2015 drawing to a close, we see that the market balance in itself is progressing quite in line with our expectations. However, demand growth came in short of our forecast, so at some 1%-2% rather than our forecast. We also see supply growth being below expectation. We also see that the key drivers identified last year have played into a large extent. Let's look now towards 2016. For 2016, we expect the global surplus to moderate, and we've now moved from the partial view of the world to a global totality. For 2016, we expect a demand growth of some 4%-5% with supply growing below that at some 2%-4%.
Now this should moderate the global surplus to somewhere between 0 - 1 million tons for 2016. The main drivers to follow on the supply side are capacity additions in China, as well as curtailment in China and potential curtailments elsewhere. We've heard just recently also about possible delays in Indian smelter projects. On the demand side, a main driver is the macroeconomics, so U.S. growth as well as China growing at forecast, although growing less than what we've seen historically. We expect other major emerging markets to remain weak, and we do expect continued strong growth in the transportation segment, substituting from other materials. Now let me take you briefly to energy and currencies, and how in their role as main cost drivers for the aluminum value chain.
Now we see here on the upper left chart the oil price movements, oil having come down further throughout 2015 and staying at low levels, driven both by increased supply but also by lower global demand growth. On the lower left-hand side, we see how coal prices have moved down with oil, down in mining costs, as well as the currency effect. Also lower than expected demand growth for energy. Now when we look at the right-hand side of the graph, we see how both lower energy prices as well as lower commodity prices across most commodities have led to typical commodity currencies depreciating against the U.S. dollar. We see this for the Brazilian reais as well as the ruble, but also Canadian, Australian dollars and the NOK.
We see it has had a lesser effect on the Chinese RMB. Now currency movements and energy costs do influence the relative positions on the global cost curve. We see that the cost curve with these changes is affected in different ways. Both a downward shift, as we see here from the green to the blue curve, so moving down from 2014 to 2015 due to lower costs and currency effects. We also see that this is the Business Operating Cost, so then also taking into account the premiums and cost to market. We see how lower premiums have actually lifted the ex-China part of the curve.
Translated into smelter costs, we see how lower energy costs benefit really all producers across the cost curve. Whereas the currency movements benefit producers in Brazil, in Russia, as well as in Norway, where depreciating currencies have taken down costs compared with the U.S. dollar-based competitors. Now in local currency, this also provides a certain insulation for margins against the LME and U.S. dollars. In China, lower global coal costs as well as lower coal costs in China have also affected the Chinese power costs, so taking the power costs down.
We also throughout 2015 seen power sector reform taking place in several regions in China, taking down both, transmission costs, as well as, making it possible to negotiate directly between the power purchaser and the power producer, all affecting power costs coming down. We've also seen some instances of regional government intervention, both on the power costs, on the power costs and affecting then, expected curtailment decisions, actually having turned some of these decisions around. Now looking at the smelter cost and competitiveness in some more detail, and this is the latest BOC curve from CRU for 2015. There are both similarities and changes compared to this curve from last year.
Looking at the dark blue areas representing here the Chinese smelters, we see that most of the Chinese smelters are in the third and fourth quartile of the cost curve. This is even taking into account the lower coal prices in China, taking down power prices. Now this may not have played into the full effect, but we see some of that already in these curves. I think most importantly, at current LME levels, we do see that about half of global smelters are cash negative. We also see that most of those are located in China. The current low prices and large share of cash negative smelters affects profitability and affects the outlook for the smelters and potential new investments.
Now let me attempt to summarize a little bit our outlook for China for 2016. The market balance in China remains uncertain. On the supply side, it's already been mentioned, we do expect more increases in capacities taking place throughout 2016. Our takeaway from recent visits to China is that we do not expect the large increases seen over the last years to be repeated. Some capacity additions, but not the same order of magnitude. We also sense a larger concern about profitability and more focus on profitability rather than on size alone and on top line growth alone. However, on the other side, we do have political concerns maintaining employment that will affect also how non-profitable capacity in China will continue or will not continue.
On the demand side, we do see demand moderating. Construction activity is still weak, although housing sales as well as housing prices have kept up quite well throughout 2015. We have seen government stimuli to affect both investments in housing side, and we also see quite strong sales in automotive. On the upstream side, we have two opposing effects. We have on the one side, decreasing domestic bauxite availability and higher costs. On the other hand, we do have the power reform and local subsidies that tend to reduce power costs. On the right-hand side, we see that the Shanghai price has recently moved below 10,000 RMB, taking the Chinese producers into uncharted territory. Now this does affect profitability and will impact Chinese players.
On the other hand, there are the possible political measures, lower power prices that I've already mentioned, potentially also rumored increased VAT rebates, which will add to the stickiness of curtailment decisions. Moving to the stock situation. Now throughout 2015, we see that global reported stocks have decreased, and decreasing to below some 7 million tons. This has also taken the reported inventory days down with it. However, this is not the full story. We do see high levels of unreported stocks remaining, even though unreported, the exact level is uncertain, meaning that the total level for global stocks is somewhat uncertain. Now our estimate is that total inventory levels have increased by around 1 million tons throughout 2015, reflecting global oversupply. Now high inventories also influence on prices and premiums.
Trend-wise, we see decreasing financial attractiveness in holding inventory, and especially the recent changes in the LME warehouse rules disincentivizing financial deals. Moving to premiums and prices. We've seen regional standard ingot premiums falling back to historical levels, while the all-in price has fallen as well, but moderated by the NOK version. Looking first at the left-hand side, we see how premiums entered 2015 at record high levels. The premiums have fallen throughout most of 2015 from around $500 on the higher note, touching $100 at the bottom. We've seen over the last couple of weeks, some recent upticks taking premiums for Northwest Europe to a range of $150-$200.
Now the decline was driven by lower incentives for financial deals, as well as eased access to metal in most markets. While the uptick seems to reflect recent curtailment announcements in key regions. On the right-hand side, we see the LME price development. Also how, and following then on the left-hand axis and the blue purplish curve. We see also LME decreasing throughout 2015, and since the start of 2015, the Europe all-in price is down some $650. This reflects lower costs with reference then to our discussion on the cost curve just some minutes ago, but it also reflects the market surplus.
If we add the currency effect, so the right-hand side of the right-hand axis as well as the red curve, we see that the effect in NOK is less severe. Now that takes me to the Bauxite & Alumina market. Even more than in for aluminum, the Bauxite & Alumina market center around China and the fact that China has an upstream resource deficit. I'd like to start with a simplified illustration to set the scene. In 2014, the Chinese aluminum production was some 30 million tons. The alumina required to produce this comes around 90% from domestic refineries, while approximately 10% is imported. Now, to feed the domestic refineries, China needs bauxite. Two-thirds of this is mined in China. The remaining one-third is imported.
With an increasing demand for bauxite, this will also require increased imports of bauxite. The main driver in the global Bauxite & Alumina market, to a large extent, is the Chinese bauxite deficit. The Chinese bauxite total demand will continue to increase from some 140 million tons in 2015 to some 160-170 million tons towards 2020. Again, this is mostly domestic bauxite, but we also see that Chinese domestic bauxite is depleting in quantity, but primarily in quality, also increasing costs of domestic bauxite. We also see Chinese sources being insufficient to meet demand. This raises the need for bauxite imports from some 50 million tons in 2015 towards 70 million tons towards 2020.
Now we've also seen this trend evidenced by new refinery announcements in China also taking place at the coastal areas, typically in Shandong, where it's well located to receive imported bauxite and less inland close to domestic bauxite sources. China needs more bauxite suppliers, and we've seen over the last year and a half, Malaysia emerging as the largest bauxite exporter to China. Historically, as you see here on the left-hand side, the main three suppliers to China were Indonesia, represented by the green bubble, and the largest, as you see the size of the bubble, by Australia in blue and India, the purplish one. At the beginning of 2014, Indonesia imposed its minerals export ban, including also a ban on exports of bauxite. Now this has required China to replace, as you see, important volumes of bauxite.
We see some small players on the scene being Ghana, Fiji, Dominican Republic, as well as Brazil. The most important new source is Malaysia. Now bauxite volumes from Malaysia started at relatively low levels in 2014, but have increased rapidly throughout 2015. Now towards the end of 2015, we see that this supply is stabilizing upwards of some 20 million tons annualized. Our view is that these volumes are not sustainable long term, but we do believe Malaysia being an important source for bauxite for China for the next years. On the right-hand side, we see that the entry of Malaysia has also impacted on the bauxite price. We see how the price increased sharply with the export ban from Indonesia and maintaining quite high throughout 2014.
However, as Malaysia came into the market with a substantiated high volumes, we've seen the prices drop. Now we have to remember that the prices have also dropped due to lower freight costs during the same period, all contributing to a lower price for bauxite, CIF China. Now let me take you back briefly to the left-hand side again, because with bauxite prices, we also need to look at bauxite quality. We see in the span in the graph here that different bauxites receive different prices. Bauxite differs in alumina content, the desired output, but also in reactive silica, representing a cost in the refining process. We see in the chart here that Brazilian bauxite attracts a higher price, a premium, which is based on the quality. Also adjusted for the higher freight.
Now, this is because gibbsite bauxite from Brazil used in the refinery actually increases the efficiency in the refinery. Going to alumina. It's already been mentioned through the Q&As, so no surprise. We see currently the alumina market being characterized by oversupply, lower cost, and this is leading to decreasing prices. Also, we see that Chinese imports are key to balancing the global market. On the left-hand side, we see China annual imports at historically having been at the level of 4-5 million tons. Currently, we're seeing lower primary growth outside China. We are seeing high alumina capacities in China and therefore also lower Chinese imports of alumina, all this creating oversupply of alumina outside China. In the middle graph, we see that the alumina cost ex-China has shifted down in 2015.
Now this is due to lower energy costs that I've already mentioned. It's lower freight, and it's depreciating currencies vis-à-vis the U.S. dollar. On the right-hand side, we see how lower costs, currencies, and overcapacities have actually have led to a drop in alumina prices from the more historic range trading that we've seen in previous years. However, the currency also affects on the income side, and when we look at alumina prices in Brazilian reais, this shows a less dramatic picture. Going forward, we see few new alumina projects in the world ex-China for the coming years. We see the alumina market dynamics being driven by production needing to adapt quite rapidly to demand, which again was already touched upon in the Q&A session.
Because alumina cannot be stored to the same extent as aluminum on the one side and bauxite on the other hand. We see this also historically that we've seen curtailments to adapt to overcapacity on the alumina side. With low prices, there is an increased probability of further curtailments, and we see that this has actually been confirmed in recent announcements in the world ex-China of taking down some potentially 2.3 million tons over Point Comfort in the U.S., Suriname, as well as in India, taking effect then probably throughout the first quarter of 2016. Now longer term, we expect limited new refinery capacity outside of China. We have projects in the Shaheen project in the Middle East.
We have some projects in India, and we also have projects in Southeast Asia, Indonesia, potentially Vietnam, but to supply alumina to China. With regard to China, we do expect further capacity additions in 2016 and also the next couple of years. Now this will be more based on imported bauxite, which will favor the coastal locations. We see here on the right-hand side, which is more a current picture, how refineries based on imported bauxite, so typically in Shandong, are being challenged by emerging space as the bauxite price is increasing relative to the alumina price. Now this affects or may affect the alumina sector, both in China as well as outside China, and may increase the probability of overrestructuring.
The main drivers in the alumina market is overcapacity, disappearing margins, and for China, depleting domestic bauxite sources. Let's spend then a couple of minutes looking at our long-term outlook. We see strong growth drivers across all segments providing a solid demand outlook. Now even despite somewhat volatile macros, we do expect long-term demand to remain strong. This is based on fundamental growth, so following GDP across all segments, but it's also driven by substitution, both in the strongest, maybe in the transportation sector, but we also see substitution of the sectors. As Svein Richard mentioned, the electrical sector, where aluminum is substituting copper, where we also see expected growth of some 5%-6% in the longer term.
Our long-term forecast for global semis demand is 4-5.5% as an annual average for the period 2015-2025. Now this growth in global semis demand is also creates opportunity both for increased growth or contained growth in primary as well as growth in recycled metal. Growth in recycling is another important trend across aluminum, securing the end of life material back to the supply stream. We see on the left-hand side of the graph how the blue areas, the recycled area, relatively increasing as a share of total supply. However, a word of caution, because in recycling here, we have included post-consumer scrap, products coming back from end of life. But we've also included process scrap, which fluctuates together with primary.
On the right-hand side, again, we see that global SEMIs demand growth allows for both recycling and primary demand growth. While primary demand growth is expected at some 3%-4%, so largely following GDP, we see SEMIs being forecasted above this also taking into effect the substitution part. With more post-consumer scrap, we expect recycling to grow at some 5%-6% on average. Now to summarize, let me highlight the following key points. We are seeing demand in mature regions boosted by the transportation segment. We are also seeing short-term softness in emerging markets for this 2015 and 2016. We have seen lower aluminum prices based or due to lower energy costs, other input costs and currency movements, as well as the market surplus.
Currently, about half of global smelters are cash negative, and these are mostly located in China. We expect Chinese bauxite import dependency to continue to increase. Long term, we expect solid demand outlook being supported by strong growth drivers across all segments. Thank you. I would, I'm happy to invite Alberto Fabrini to the stage, EVP and Head of Bauxite & Alumina.
Thank you. Thank you, Kathrine. Good morning. It is a pleasure to be here and to speak about Bauxite & Alumina. We'll be talking about some of our operational accomplishments, the One Billion OC Program, safety, and our way forward with our challenges and how we expect to address the challenges. We started with safety. We are very proud about our safety numbers. We're able to reduce 60% from 2012 on the total recordable injuries. This is per 1 million hours worked. We'll continue to strive to improve safety. We strong believe that safety is goes hand-in-hand with operational stability. That's why we pay a lot of attention. We're sure that as we improve our operations, as you'll see in the next slides, safety will come together. That's very important.
We are operating and not injuring people. When we go to our strategy, our better, bigger, and greener strategy. Better, we will strive for injury-free environment, workplace. We will continue with our operational excellence, and we will continue to price our alumina and bauxite on their own fundamentals, thus increasing the exposure to index price. The bigger we'll secure and develop bauxite resources for future decades, and we further mature CAP project. We are underway to have some technology review on the CAP project, and the CAP is a very attractive project when time is right, when you have market and some other conditions. On the greener, we will further improve our organizational capability and environmental performance.
We aim to deliver in our goal in terms of the reforestation one-to-one, one hectare mining and one hectare rehabilitated through 2017. Coupled with also aggressive biodiversity program that we will speak about that soon. This is the way we went through 2015. Since the capital market in 2014, in March and April, we had some quarterly results. We had the ball mill issue, which was a serious issue of premature failure, and we were able to overcome that without any material losses for both Paragominas or Alunorte. Very happy to accomplish in July this year, the ICMS defined the framework tax with the State of Pará government.
That was a very important accomplishment for State of Pará and for us. We had record bauxite production in October. We signed the LOI with MRN, and we continue to contribute to local communities in Pará. Our CSR work projects are very important for the people in Pará. It's our license to operate. Therefore we place this in a high priority for us, and we're being very successful on that. We also had a very good cost, as you see in our cost curve, and an all-time low implied alumina cost in October. Finally, we delivered in our B&A program, and we are ready to move ahead with another NOK 1 billion.
Okay, if we look at how we're positioning ourselves on the cost curve, it has been discussed here about our position is in the low first quartile reflect by a series of things that we discussed. One thing I would like to show is how the bauxite, both the very high operational efficiency in Alunorte and the bauxite quality impact in our result. You can see some comparisons in our bauxite quality by region with some other countries. You see that by almost all aspects, our bauxite quality is very well positioning in the global market. We have challenges with reactive silica. That implies directly on the caustic usage, a direct relation between high reactive silica and the caustic usage.
We'll talk further, but then we have some projects to see if we can overcome. This is in a technology stage. We are working on that, but this is the only characteristic that our bauxite is not the best in the world. Of course, this is very important for us, but also when you go to the market. Talking about the B&A program, improvement program, we can see how this developed. If we haven't had the program, where we would be and by having the program. First, when we talk about the price effect, this is mainly the ICMS on fuel oil effect. It's driven mainly by the ICMS fuel oil. We have the inflation in Brazil. The inflation now is around 10%.
It's high inflation and had some impact. Raw material price, we had some benefit out of it. The other is some slippage we had in the fixed cost in Alunorte, and we are recovering. The very positive impact in the currency, and then the actions take on the B&A program that gave us this additional EBITDA result, going close to NOK 2.8 billion. So, you can see clearly the actual effect of the B&A program for the whole improvement in the result, financial result for B&A. Okay, when we talk about Paragominas and how Paragominas is delivering on the B&A, production is well above nameplate capacity.
Productivity improved and was driven mainly by the debottlenecking of the beneficiation plant and optimization of mining operation. This, in the beneficiation plant, is related to equipment efficiency and great improvement in uptime. On the mining, we optimize the fleet utilization through a very modern control room dispatch system that we have in place. Also, we improved significantly our surface mining equipment uptime. Both gave us a very strong position to improve our production. We had a fixed cost reduction. We reduced in Paragominas 25% due to all this optimization of our workforce. We improve our process control. Here is something interesting because normally business systems are mainly designed for manufacturing plants.
In our case, we applied successfully the business system in the mining through the various applications that we know and we're able to implement. This is the benefit we have. We use that from Primary to Bauxite & Alumina to alumina and to Bauxite. Totally different process, but we use the same system. Of course, being customized to what we do. This can be used in my view can be used in any operational situation with proved improvements in efficiency. As I mentioned, the short-term ball mill issue was resolved in a satisfactory way. Just going back, you can see the production, what we achieved, in the third quarter, 10.9. Yeah.
If you take October and November, we are at 11.3. This is the sum up of all these improvements that we have done. We're able to achieve a very high production in comparison to the nominal capacity. When we go to Alunorte, the story is a little bit different. In Alunorte, we have a strong recovery from 2014. During 2014, better saying, from 2013. We keep more or less the production in the range of 5.9. Although, in the last two months, we were able to achieve 6.2 million tons as an annualized basis.
Mainly, this is I would like to show you, is this box plot for hydrate production, which then if we stabilize in that in. Although the median continued to be the same. For us to improve this stability. Increase also raw material efficiency, consumption factors. We have an ambitious plan to reduce. Very good job in optimizing the contracted services. We reduced about 530. But still in our way to improve, and that improvement will be achieved in the following year, we are sure. We did a very important job in automating our powerhouse and substations and powerhouse, so that in case we have a power outage. Power outage was the major problem we had in terms of big losses, big crashes.
It's a very big refinery, and if this refinery crashes because of a power failure, to recover. The crash is difficult, but to recover is even more difficult. We improved significantly that. For 2015 and part of 2014, we had almost zero losses due to power outage. Although we had challenges in this scenario, we were able to overcome. From B&A program pricing alumina. It was being said that we want the price for alumina and bauxite to reflect the market situation, the fundamentals of bauxite. We have the underlying price improvement from moving to the portfolio to the index price.
As has been said, we have this Vale contract that is due to some extent curb the advancement, but you see that we are going improving on that too. The alumina price trend capturing larger part of aluminum value chain profit, you can see on the actual and the targets that. The increased logistical flexibility and optimizing scheduling. I'd just like to give one number how we've been optimizing that. For the entire 2015, for all months, we had less than one day ship waiting time. Less than one day. We never had a ship waiting more than one day to berth and start the operation. For us, this was quite important.
I will not spend much time on that chart since Kathrine Fog did an excellent job to explain it. Just to say that we are taking advantage of our improved production in Paragominas to ship the MRN bauxite to different markets, including China. We're taking advantage of that. We are exploring these possibilities. Quality and freight logistics has helped a lot our bauxite situation. Okay. This is two major projects we have. A tailings dam in Paragominas and also a disposal residue area on the left-hand side, my left-hand side, and on the Alunorte. The common characteristics these two areas have, first of all, is NOK 1 billion for Alunorte and NOK 600 million for Paragominas.
The major characteristic, the common characteristic is that these are dry stack disposal areas. Why this makes a lot of difference? Well, if you're disposing in a dry stack area, first of all, you're improving the residual life of the areas. Secondly, we make it safer because in not carrying water, if there is a breakup or any other incident, the flowability of the material is much lower. Therefore, the impact will be much more restricted if you stack in a wet disposal technology. That's why we choose to dispose in a dry stack. In Alunorte, we have one of the most advanced technology. We use the drum filters, which is also very good. We got a ratio of 40%, 45% solids after the processing.
Now we're going to the press filter for the DRS2, and this will give us between 65%-70% solids in the material. You basically have a cake, and this cake will be transported to the area through a conveyor, a belt conveyor, and then disposed. The remaining water runs off and then is collected and pumped back to the refinery. You can see on the background the pond. This is the water. On the background you have the existing residue area. Here, on the aerial photo, you have the area that's being built, about 140 hectares. This is all lined with geomembrane, so there is no contact with the disposal material and the groundwater and the earth and the groundwater.
It's very safe, very secure. As far as we know, it's the best technology that we know in the world right now. Same for Paragominas. Little bit different process. We thicken the material and dispose the remaining area. Our main is water is also pumped back to the refinery. I think we have one of the safest material disposal areas for this type of material that we can have. Moving to Paragominas, we wanted to apply some technologies and debottleneck to 11 million tons per year by 2018, and this will be done through minor CapEx. We use the residue bauxite. What we call residue bauxite.
The residue of bauxite, some other companies would like to love it, because it's just a little bit decrease in some of the characteristics like available alumina. But it's not so dramatic. It's something that we can handle. It's not gonna put in jeopardy the efficiency of the refinery, but give us four-five years prolonged life, much better utilization. Our operation is to some extent expensive because we have overburden of 12 meters. So if you can go a little bit further on the layer of bauxite without jeopardizing the quality, this is an important improvement. You only can do that if you are very precise. Using laser and other equipment.
That's why we say development of technology, so that we can utilize that in a better way, still, keeping the quality of the bauxite and not jeopardizing the efficiency in the refinery. In Alunorte, new production technologies and advanced process control to lift the production. This is taking advantage of our existing design. We have a calciner seven that produces alumina that has the capability to go up to 7 million. We have a powerhouse system with four high-pressure boilers and three turbines that can handle almost up to 7 million in terms of steam availability. Then we also have the precipitation with the tank capability to that.
It's about optimizing, it's about the debottlenecking some other areas, creating some flexibility so that we don't have big crashes, big losses in production, and then lift this to 6.6 million. It's not very intensive in capital, but will be very important for the benefits and financial benefits we estimate. We have now a new ambition program, NOK 1 billion. Here there is no secret ? Because we cannot invent the wheel. This is about doing the same and continues to improve. We're always gonna be working cost in efficiency in terms of consumption factors and volume. The point is how we use our business systems to further improve the competence of our team.
We work together so that we can achieve this number. It's possible to achieve this number. We're very confident on the achievement. This goes for both Paragominas and Alunorte. Spoke about alumina based on index price. The goal is to reach in 2020 85% index, and this counts for about 5.8 million metric tons of alumina. This is the development we expect both from external, internal, and our exposure. The LOI, it was talked about the M-LOI with the MRN. I think it offers a good competitive advantage for us, better control in a very important asset, a well-run asset, state-of-the-art asset. That's important that we have a better control.
This will further improve our cluster in Pará, which we have been working very close to the government, and we're very happy to see all the result of this very professional and interesting relationship that we have. We have all the projects there. We will have also, if the deal is completed, a participation in MRN, 80 million tons. This is one of the largest mine in Brazil and among the top three bauxite in the world. When you talk about the progress on the plans for the reforestation, you see on the chart that we are now...
We are catching up from the difference from the gap, but we are now mining and reforesting what we mine. We have some additions to make up for the difference. We're pretty confident that we'll reach the 2017 target. On the biodiversity, we have four projects you can see there. We have more than 45 researchers, and this is excellent development for Pará, and we expect this to be a benchmarking because this can be used in other sectors like agriculture and some other sectors, and we will be willing to share these achievements and this work with others. We have University of Oslo, Federal University of Pará, Museu Paraense Emílio Goeldi, and also Federal Rural University of Amazonia, all included.
We have a very good workshop there, and the Crown Prince assisted part of it. I think everybody was very happy to see the seriousness of this project and the result we are obtaining. It's very interesting to see some of these, like the big mammals, we saw the video, and we have very interesting footage from these developments. It's very interesting. To summarize our ambitions for the medium term. First, safety. As we said, we want to continue below two, even further improve. Leverage production Paragominas. Leverage production in Alunorte. Deliver in our ambitious program from B&A. Accelerate as much as we can to go for index price for alumina, respecting, of course, the contracts we have. Work in our reforestation and biodiversity program. This is our contribution to Hydro. Thank you very much.
That's the end of my presentation, and I would like to invite to the stage Executive Vice President Arvid Moss.
Thank you, Alberto. Good morning to all of you. Today I'm going to share with you some perspectives on the energy business area. It's a small business area in people, around 200, but we play an important role in the aluminum value chain, and we have over the last decade represented a solid, positive, and rather stable cash flow for Hydro. Let me start with safety. We strive for zero accidents. We have been there several years, as you can see on the green line. This year we have had one accident, so our rate is now at 3.5. We see also that, compared to our peers in Norway, we do well, but we are not satisfied unless we are at zero. We contribute to the better, bigger, greener in many aspects.
I hope that through this presentation you will see that it's not only about the deliveries in the business area Energy, it's also about how we contribute to the other business areas' results. We have two roles in Hydro. One is really to run the energy business area in a safe way, in a good way, and delivering good results. The second is to be a competence center for the rest of Hydro, a center of excellence, delivering services, doing procurements, and giving good support for decision-making. Remember that energy costs, oil, gas, coal, power, stands for 50% of the cash cost from the bauxite mine to primary metal, 50%. That is why it is so important for us to have good competence and being able to take the right decisions, when it comes to energy sourcing.
We have had a year where we have closed several contracts, four in Norway and two outside Norway, in a what I will call a modest price climate. Below the line, you see the things we have done when it comes to the business area itself. Svein Richard Brandtzæg had mentioned some of them already. Just want to mention that we have established now a branch in Brazil to support more effectively bauxite, alumina and the primary there, and also doing own business. Also another thing that I will revert to is the hearing from the government on the industrial ownership to power in Norway. Let me first turn to the power markets. It's been a quite dramatic change over the last years.
This is the spot power price in the Nordic markets, the spot price in Europe per MWh . We see that in the really top years in 2007, 2008, 2009, 2010, then we had prices up to EUR 50, and the forward price at that time pointed to a level between EUR 45-EUR 50. Since then, we have seen prices coming quite dramatically down now to EUR 20. We see that only since last year, the forward curve, the purple curve in 2014, were then at EUR 30, increasing to EUR 35 in the next eight years. Now it has actually dropped by 10 EUR in one year. It's a dramatic change. Let me share with you why this has happened.
Here you see the price in the Nordic system falling from around EUR 50 in 2008 to what we expect to be a little bit above 22 now in 2015. It's really about three main explanation factors. It's about the CO2 price, it's about the coal price, and it's about demand. If you see the table to the right there, you see that the CO2 price has fallen some EUR 17 per ton. The coal price has fallen some 100. That's the two main drivers for the change, each of them contributing with EUR 10 of reduction. The reason for that is that the Nordic price system is very much hinged on the short-term marginal cost for producing coal-based power. It's the marginal cost of that.
We see that the reduced demand in the Nordic with some 10 TWh also had contributed to a reduction in price. Those three are more fundamental drivers. Of course, when you get a wet year or a dry year in the Nordic, it also has some influence. Right this year, as some of you have been aware of, it's been pretty rainy and wet, so we also had a downward pressure on the price in that. That's the main reasons for this big change. It can be explained when you run it through the model. These are the results. If you go to Germany, the drop is even more dramatic. It's about a 60% drop. The drivers are more or less the same.
When you look at CO2 and coal, of course, it's the same numbers. The effect on the price in Germany is larger. Here you have some 15%-20% per parameter for the two first ones. Then you have the result of the Energiewende, and that is quite interesting. We have a decrease in nuclear production of 60 TWh, and we have an increase in renewables of 70 TWh. If you look at it on the price effect, it's almost zero. Is it magic? No. This is a system price. This is paid for by the consumers as fees on top of the system price. It has a huge price, but on the system price, it's really neutralized. On the four other factors is more or less going in balance.
That reduced the price in Germany from 75 to this year 30 EUR, which is probably. It's more than a 10-year low, I think in Germany. If you look at the sensitivities, and you can have this in the back of your head when you look forward, 1 EUR on the CO2 price represent roughly 0.7 EUR per MWh. $10 on the coal price is roughly 2.2 EUR per MWh in the Nordic, and it's 2.8 EUR per MWh in Germany as we go forward. We think that the framework now for the CO2 price in Europe has been clearer over the last year. Of course, it will be exciting to see what comes out of Paris.
I think that the clear base case is that the ETS system will continue going forward. Let's then turn to the Brazilian market, which is more and more important for us, of course, in light of the large operations we have and the prospects going forward. We are located here in the Pará region. Just as a start, this is a system that has a lot of similarities with the Nordic system. It's a lot of hydro-based power, and its variability then, of course, based on rain and reservoir situation, et cetera. If you look at the total supply, demand side, this is the black line here is the demand side over the last years. The green area here is then power produced by hydropower.
We see that that's peaked here, and then since then we have had a reduction, and that was due to very dry year in 2013, 2014, so the reservoirs were very low. They had to increase the use of thermal power. Really to pay for that, the clearance price had to go up. This is the clearance price, the PLD. That from a level of that was here some from 30-100 BRL, it peaked at 650 BRL some time back. That is $150-$200 per MWh if you want to translate it with some kind of currency exchange rate. Then you see that it has come down to now 350 BRL.
The cap on PLD was also reduced from 800 to 300-400, so it cannot go higher than that. The result here is, of course, that we have now also an effect on demand side. The high price took down demand growth, but of course also the GDP development in Brazil now has taken down the demand side. This is really, let's say, the tight situation. It's of course you cannot control the rain, but of course it has something to do with the capacity development of hydropower capacity over the last years in Brazil. They have not really built out sufficient capacity.
Now in a few years' time, there will be the large Belo Monte coming in in operation here in Pará, and we also have large operations coming in here. The transmission capacity from north to south is not really built out to cater for this. We may have a situation now for some years where there will be some more than sufficient power up in the north. That is interesting for us, of course. Let me turn to the energy business area in Hydro. We have some main value drivers, and I shared this with you also on a webinar this spring.
Today I will concentrate on those three that are in blue here, the commercial and operational competence, the OpEx and the taxes, and what we have delivered when it comes to new capacity. If we start with operating cost, cash operating cost, and you look at the graph to the right there, this is a benchmark done by a Norwegian consulting company among all the power producers in Norway. You see that we are one of the lowest. I think this is due to that we are part of an industrial group with a performance culture that has been described by many here today. Second, we are in a position where we have larger assets, larger sized assets than the average in Norway. That are two positive things.
If you then translate this into the total cash cost, including taxes and fees, we see that what we do over here represents a very small portion of the total of OpEx, sustaining CapEx, and taxes. This is the pure OpEx part of it, but it shows how important sustaining CapEx is. Again, to have good control of the assets, quality assets, and do the sustaining CapEx when needed, not earlier than needed, but when needed, and also that we have a good project management culture in Hydro, is important for us to deliver on that at an optimal level. Then you see that 66% of this pie is taxes and fees, et cetera.
Of course, that also means that it's important for us to have a continuous dialogue with local municipalities and also with the government when we see that there are asymmetric development here or there are things that should be improved. To the commercial side. When you have a hydropower-based system, it creates opportunities. It also, of course, has risk, but there are opportunities. In the Nordic, the production is optimized day ahead and intraday on the spot markets, and that are the products that we see here, the Nord Pool Spot and Elbas. But on top of that, the final adjustments are made on the balancing market, which are then products from the TSO, the grid operator, and that's all the green products that you see here that they buy from the producers.
It's very much a market-based system in Norway, not as you see in many other countries where they go in and regulate without using the market mechanism. We are operating in all these markets, and we try to optimize the value of the water based on what we can play on in among these six-seven products. We believe that it's as simple as this. You have to produce when it's the highest prices in the market, but you also can offer the TSO reserve capacity that he can utilize when there's a need for that. In the end, it's really the bottom line by the end of the year that we optimize.
We believe that we have a system with quite a good flexibility, and we believe that as more and more power capacity is now built out based on solar and wind capacity, the value of this competence to be able to optimize and have the best capability in the commercial team is a value creation element. Then to growth CapEx and what we have achieved over the last years. We had a normal production back in 2008 or 2009, 4 TWh. The orange bar there is this acquisition of the Vigeland plant and two minor power plants that we built. That's. Then we have the green bar there that is called upgrades and operation improvements.
Yes, upgrades are part of it, but it's really also that we have utilized the competence in our organization to predict better the inflow, the reservoir situation, and predict the market development. This is what my colleague Hilde always calls turning competence to cash, because quite a lot of that green one is really without any CapEx. It's just about utilizing competence better and getting almost 0.2 TWh more out based on competence. It's the cheapest TWh that you can get. We look at some further potential, but I will say that it is now within the 2020 timeframe on green certificates. It's minor things that is possible. To the other role we have in Hydro as an energy provider.
I mentioned that we are working now across Hydro, across all the business areas, and you see here on the green lines what kind of tasks we have. This year, we have, as in the middle there, delivered the power contracts in Norway and outside Norway. In Brazil, we work quite a lot now with B&A on fuel switch opportunities and energy metrics, but we also do more now on the commercial side to secure the short-term, medium-term contracts for B&A on the power side. With the market situation now, it has loosened up a little bit and we are working actively to secure the power contracts there.
With Rolled Products, we work closely to establish a new power contract and gas contracts. The balance for the supply side of power to the smelters, this is the demand for the smelters in Norway. This is including the pilot, some 17 TWh. This is our captive power. Here it's eight, and the difference between eight and 10 is one is concession power, and one is what we call the dry year reserve. This is secure power to primary. Contracts end in the last two years, and then we have the large Statkraft contract expiring here. We're working to close this gap gradually. Outside Norway is also a quite comfortable situation, and we work on a few of them to prolong them.
To an item that we have worked quite a lot on over the last years is of course the RSK, Røldal-Suldal reversion and the solution for that. Let me just start with sharing the facts here. We have 10 TWh in Norway, and what is blue here is up for reversion at some time, and the earliest is Røldal-Suldal end 2022. You will clearly see where that is located is here, and you have a number of medium or large-sized regional companies in the area. The reversion in Norway, it dates back to 1906, but in 2008, the legislation was changed, so that according to that, the new concessions could no longer be granted to private entities like Hydro, and we couldn't own more than one-third going forward after reversion.
It also, the new law, provided us with different options to maintain the economic value of the assets. That was the most important thing for Hydro at that time. There's also a last thing there that after reversion, we could only continue to own one-third within a limited liability company, an AS, as we call it in Norway, and we would have no direct access to production. The three alternatives that we have, if you take the full 10 and then you have the three in Røldal-Suldal, one is to sell one-third and keep the one. One is to sell all. Of course, in both these alternatives, we would have then to enter power contracts to secure that we could serve the smelters.
The third alternative is to put this into a new co where a public company or companies within total 6 TWh or more would merge with our activity, and then we could continue to own the same assets or the same volumes as today. What is important is that there are many companies that are eager to participate in a discussion with us when it comes to a consortium or as buyers or part buyers. It's also a fact that in the model to the right, you can addition create synergies and values on top of a pure transaction. We also consider this in light of our smelter assets in Norway.
Because the improved cost position we have, beyond the Røldal program, the proximity to the European deficit market, and the outlook for the power balance in Norway means that we think that Norway is a good location for primary production over the next decades. Therefore, we have to consider also the options for RSK in that respect. But we have argued though that to be limited to own a limited liability company is a restriction that we should avoid. We should be able to own this in a way that could give us physical access to the water. That is actually what the government now has proposed. They come out with a hearing, a paper, ninth of November. The hearing is in a way opening up for what we are after.
It will still have the limit of one-third ownership, but it will allow the private owners access to physical power, and we can take the pro rata power offtake in line with ownership share. This new law would allow Hydro to maintain access to physical power through a restructuring of RSK into a one-third ownership position in a company with limited liability. This proposal is expected to go now to the parliament during spring. It opens up for us, in a way, new options where we can get now access to physical power indefinitely. We have the options to create this larger company, as I mentioned.
If we now merge this into a company with more than 6 TWh, we have the access to the power for the primary or other options. There are many interested parties that will be participating now, and we believe that during springtime, this law will pass the government. Let me, as a last chapter, just share with you an update on the climate agenda, and that is on behalf of Hydro. As mentioned from Svein Richard Brandtzæg, we have an ambition to be carbon- neutral by 2020. It's about improving the energy efficiency in the smelters in Alunorte and in other operations. It's also to reduce the emissions, climate emissions from each of them and to utilize more renewables.
It's also to work with customers like Tesla, using rolled products that are utilizing aluminum where you have a positive footprint in use. Cars is the best example, but there are many others as well. The last one is really to increase in recycling when you utilize only 5% of the energy. Where are we now after we decided upon this target two years ago with the ambition to go to zero in 2020? It is a net emission based on this, all these three elements of some 2 million tons in 2014. It is very positive that Alberto and others really push production further, but it also has one side effect, and that is increased emissions of CO2. That is part of the equation here.
You also see that the effect now of the Karmøy pilot and the use of that metal into the transport sector, a lot of that will go into transport sector, will actually have a net annual benefit on our CO2 accounts. The third here is the effect of Kjetil investing in the automotive body line, so that we will sell more to the automotive markets, and that will also give us a positive footprint here. Also the increased recycling capacities, both in primary and rolled products, will lead to a positive effect. These are now the scenario as we see it after 2020. We stand by the ambition to be climate neutral at that time in a life- cycle perspective.
In the end, we have clear targets to deliver on, both as Energy, but also for the rest of Hydro. When you follow Energy, you're supposed to follow what we deliver as a business area. It's also, from my side, very important to be a strong contributor to the success of the business areas with the large impact that Energy and Energy cost has in their business. Thank you.
Thank you, Arvid. Could Kathrine and Alberto please join us on stage, and we'll open up for our second Q&A.
Hi, it's Rob Clifford, Deutsche Bank. This is a question I think for Kathrine on bauxite or two questions really. One, just a clarification on the chart that you put up with the bubbles and the prices. I think you said there that you got a pricing benefit for quality, but there was also some the freight was in there. Effectively you're suggesting the Chinese are subsidizing the freight like the iron ore market used to be. If you can just clarify that that's the case. The second question is a more strategic question. You know, aluminum is the most or second most abundant metal in the Earth's crust. It's everywhere. If you stand back from the planet, why would you ship bauxite from Brazil all the way to Asia and think that that would be an economic, a long-term economic business or sustainable business decision?
Okay, thank you for kicking me off on the simple questions like that. I did not imply that China subsidizes freight. I was simply showing to the fact that bauxite from Brazil captures a higher price, CIF China, than bauxite from other areas. Of course you do have a bit. The chart I showed was the CIF chart. But even if you do deduct the freight, the price of net back to Brazil is higher than for other qualities, and that comes back to how the bauxite operates or how it is used and its beneficial use in the refineries. I'm sure that Alberto here can give a much more eloquent answer to that and will correct me in a minute.
I'll go for the other one as well. Yes, bauxite is available readily across the globe. That doesn't mean that it is mineable today or transportable today. We do believe that you will see bauxite coming from new areas, new resources going forward. As we speak, again back to the quality effects or the effects in the refinery of Brazilian bauxite, we do see that it's being demanded in China. It is a good part of the bauxite supply mix in China, and that balances out the freight disadvantage.
You did very well, Kathrine.
Thank you.
I add one thing. Our strategy is to have the bauxite for our operations to have that for a very long term. That's our main strategy. The surplus bauxite that is being now there because of the increased production Paragominas, we're taking advantage of that and then selling it out.
Morning, it's [Siri Ekblom] from Bank of America Merrill Lynch. I've got a question on the cost curves that you put up for aluminum. You flagged weakness in currencies this year as a reason why cost curves have flattened, and obviously the Chinese currency stands out dramatically as not having devalued or depreciated like other commodity currencies. When you talk about the potential for supply curtailments in China next year, are you considering potential for further devaluation in the Chinese currency from here? Or is your base case for supply curtailment independent of that?
I think I would say we don't speculate on devaluations or depreciations of currencies. You're right in pointing out that the Chinese currency has remained at a higher level vis-à-vis the dollar compared with many other currencies. Now we do see that, as also the chart showed, that the Chinese smelters are quite high on the costs anyways, even though we've seen the power costs coming down, while also the currency effect has already played in through the global pricing.
Okay. A follow-up question. We've heard in the last few weeks more press out of China about capacity closures in process industries, not just aluminum, but copper smelting, et cetera, et cetera. Do you have any perspectives on that? Do you think that this time may be different in terms of China talking about downstream capacity closures, or should we not be hopeful that capacity rationalization will actually happen in that market?
I think we're maybe in the same boat in trying to understand what is happening across China and really seeing sort of a pattern in decision-making. What I do believe is that, and it was mentioned, I think, previously today on that maybe the Chinese don't care. I think when it comes to profitability and actually lack of profitability, then you're moving to a point where it's hard for anyone not to care, so that over time it's difficult to continue to actually lose cash or not to bring cash in. As an answer to your question, I think that will really be the measure on what will happen further on going forward.
Anne Gjøen, Handelsbanken. I have a question. I think it's for Alberto Fabrini. When it comes to bauxite and the quality, it has been an important source now for China, the import from Malaysia. To my knowledge, to some extent that's a surprise because they're able, the refineries, to utilize this not that good quality bauxite to a significant extent and longer. But to what extent is it a risk that China eventually use more of their own bauxite, since that's also a lot with lower quality?
Well, in the refinery we have technology for almost everything. Almost. The difference is what price you wanted to pay and how much it is gonna cost to process it. You can use bauxite in the refinery as low as 39% available, but you require much more equipment, so it would be much more costly to implement a refinery like that, and it would be much less efficient in several aspects. It's not just about using poor quality. Certainly you cannot use an existing one. You have to build some new designs. Yes, you can use. It will be reflected in increased cost of capital to implement the refinery and a much higher operational cost.
Morning. It's Menno Sanderse at Morgan Stanley. One for Alberto Fabrini first. Could you give us a breakdown of the source of the NOK 1 billion of benefits? How much is cost focused and how much is extra revenues from your efficiency benefits? The second question is, Arvid Moss, in the beginning it was mentioned that the new contracts that were struck, the four and the two, were struck at slightly lower prices than are currently in place. Could you elaborate a little bit on that? And given where power prices sit today, I presume the remaining contracts, if you can lock them in, are gonna be at even lower prices. Is that fair or not. And thirdly, Kathrine Fog, on China or on. Sorry, on inventories.
You mentioned total inventories in Norsk Hydro, you were up 1 million tons, the hidden and the unhidden. One million tons to what level? What is the total amount of inventory you think there is?
Okay. I will start. We have been working in these past years on fixed cost. We also worked on index price and other aspects. Now we are focusing more, and I would say the good chunk of it is on the consumption factors. Because as we improve stability, we expect it to improve some of the consumption factors, especially in our energy matrix. We are upgrading our boilers and we use a better mixing of the fuel to produce the steam. This will give us the good chunk of it. Plus we have the improvement in volume that also will help us to, let's say, to improve our cost position.
Of course we also work on the fixed costs, mainly on manning. A big chunk is on the energy matrix and consumption factors such as caustic, energy, and other consumption factors. We have volume. In the third we have in this proportion, we have the fixed cost.
500,000.
Yes. Yes. It's not about being out of the business. It's about optimizing and to run better. At the end of the day, they'll be out of business.
Okay. I will not give you much more insight into the power contracts that was already given by Eivind. He referred to the level of the current contracts and that we are. That's a good reference, but we are not on the wrong side of those, to put it that way. Going forward, I think that it is important to recognize that it is a very special situation now in the Nordic with the low prices. It takes two to tango. We just wait and see.
With regard to the total stocks, I think I tried to hint that when I went through that in the presentation, that being unreported, it's more difficult to count. Adding in a known number and a less certain one makes it a bit difficult. If I point to a range in the 13-15 million tons, I think we're potentially in the ballpark.
Hi, K.C. Parker, Beutel Goodman. I had one energy question and one market outlook question up here. Just on the energy, obviously there's a lot of stakeholders involved, but, from a shareholder perspective, I'm just wondering if there's any way to, sort of unlock value with the transaction you were talking about, with the reversion. On the market outlook, pardon me, I was gonna ask about the Russia-China talks on sort of agreed capacity closures, just if you had any comment on that.
Okay. I can start. I think that it is important for us to have the value focus when we do this restructuring. I think it's important for us to have the value perspective in an integrated value chain as we have in Norway, because that is really what we talk about, is the strong integrated value chain based on the green power and the strong smelters. We think that as we go now over the next decades, there will be an, let's say the value of the CO2 pricing that will eventually kick in many places will increase the value of this hydropower, and it will also increase the value of the value chain in Norway.
We have many factors in our heads when we now work on the solutions. I think also when it comes to pure value of a transaction, that, as I said, that can be in synergies and that can be other ways. I can assure you that the mindset is right, and you just have to wait and see what comes out in the end. That's it.
No, I do not comment on those rumors.
We have time for one more question.
Hans-Erik Jacobsen, Swedbank. Question for Kathrine. In terms of the Chinese exports, both governments in Russia, United States, Europe, and other places are, you know, talking about increasing anti-dumping regulations against the Chinese. Can you tell us a little bit where the political wind is blowing? And in your opinion, are the Chinese government taking any attention to this? Or will they attempt just to continue to increase export through Asian countries and then re-export to Western countries?
I think you're giving me a lot of credit here, my mole in the Chinese government. This of course is a good question, as it's an extremely difficult one to answer, since we do not know exactly what the Chinese government will do. I think what we've heard from our talks and our discussions also in China, that there is an awareness from the Chinese authorities towards reactions that they do meet in other countries with or trade reactions, trade retaliation. Our takeaway is that this is something that they actually do pay attention to. I think that's as far as I can go. I don't know if there are any. No? Okay.
We will now have a second break. Still no time for lunch. If you all could be back here at around 12:00 for the last session. Thank you.
Ladies and gentlemen, it's now time to start the final session of today. We will now introduce Executive Vice President and Head of Primary Metal, Hilde Merete Aasheim, who will also be joined on stage by Head of Technology, Hans Erik Vatne.
Thank you, Paul, and good afternoon to all of you. In this session, we will talk about Primary Metal's continuous effort to improve the cost position of our smelters. We will also talk about technology and innovation, which is a very important lever for our improvement work. Then, at the end, I will talk about how we work in the marketplace to position us further with more advanced products and also recycled material. Before I continue, I will just state that there are no changes to the smelter portfolio since last Capital Markets Day. You will find the description of the plant, the locations, and the capacities in the booklet that you have in front of you. Let me then start with what is most important in Hydro and in Primary Metal, and that is safety.
We are striving every day for an injury-free environment, and we have come a long way in Primary Metal to reduce the total recordable incidents. In fact, we are among the best in the smelter industry. We cannot be happy as long as we have still incidents where our employees get hurt. That is why safety is always on the top of our agenda. When it comes to Primary Metal's strategic priorities, it stays more or less the same as last year, and it's based on the overall Hydro strategy to become better, bigger, and greener. In Primary Metal, better is about HSE, it's about cost, and it's about quality and products. Bigger is about getting more out of existing assets, and it's about developing the pilot and mature growth options when time is right.
Greener is about growing the recycling business, as well as working on our own emissions and working close with the customers in order to reduce their CO2 footprint. 2015 has been an exciting year for Primary. We have continued to extend the technology lead, as well as having a very active improvement agenda. Let me give a few examples. In the beginning of the year, we took the investment decision to start to plan for a technology pilot at Karmøy. The main ambition is to demonstrate the world's most energy-effective smelter technology. It is as important also to verify in full scale technology elements that we can use on existing assets.
Another example is that we acquired the company WMR, which was sitting on advanced sorting and shredding technology, which we now will enable us to use more low-grade scrap to fill up our recycling units. In terms of high-grading portfolio, we are busy with now installing the new sheet ingot casting technology, the so-called adjustable flexible mold, in Høyanger and in Årdal, which makes us go further into the automotive segment. We have also invested in new equipment at Karmøy to produce advanced extrusion ingot billets for the automotive segment. Together with Arvid and his team in Energy, we have been rather busy during the year to enter into new competitive power contracts for the Norwegian smelters as well as for Alouette, which is extremely important to sustain the robustness of the smelter portfolio going forward.
Last but not least, during 2015, we have matured new improvement ambitions. NOK 1 billion in real terms, up till 2019, on top of the significant improvements that we have been accomplishing over the last years. Let me talk a little bit more about that. We have had a strong improvement focus in the past, strong cost focus, as some of you will know. It has not been a primitive cost-cutting program, but it has been a systematic and structured improvement work engaging the whole organization. The philosophy in the aluminum metal business system is about being in control and capable, understanding the critical processes in order to be stable. When we are not stable, we produce waste in terms of financial waste.
What we have been focusing on is to understand our processes in order to be more stable. Now we are much more stable in the smelter portfolio, and now is the time to extend and to accelerate the performance, and I will talk more about the new ambition. It's encouraging to see that the improvements that we have made over the last year sticks, and that it comes through the bottom line. The graph here shows the EBITDA per ton for some of our, the larger players within the aluminum industry, taken from the external financial reports. It's not necessarily 100% accurate, but it shows the relative improvements in the relative performance of our peers and where Hydro compares.
In 2011, we were at number four on this chart in 2011. In 2015, we are among the best. We believe that this is the result of our improvement efforts over the year, in addition to some portfolio changes that we have done throughout these years, and also having some tailwinds from currency. The graph on the right-hand side is seen from another angle, where we have the global CRU business operating cost curve in U.S. dollar from 2015. Here we see that CRU is plotting Hydro in the best quartile.
These are good signs of the importance of our improvement, and it's encouraging also for us as an organization to see that actually our efforts counts and influence the robustness of the smelters. Continuous improvement has been part of our day-to-day activity. It's not an ad hoc project. It's something that we do every day. Some of you will recall that I was standing here in 2013. I was proud to say that we have achieved a $300 program. The curve to the left is the improvements in the fully owned smelters, which is the Norwegian smelters.
We achieved the $300 in 2013, but in the last two years, we have achieved almost another $100 per ton, which is a sign of the continuous improvement efforts. It's like you see new improvements as you go along. That is an encouragement in the way we work. When we have been working with the $300 program for a couple of years, we saw that also our joint venture smelters, the five joint venture smelters that we have, and in particular, Albras, Qatalum and Slovalco, where Hydro is the operating partner, we saw that we could establish more or less the same program that we had in the $300 program.
The methodology was the same in the same areas. It was about operational excellence. It was about fixed cost. Here also in the joint ventures, Hydro bring in our expertise. We bring in our way of working to provide that to the joint ventures. We saw that then we could establish more or less the same program as we had in the $300 program. The target for this year is $140 per ton, and I feel quite confident that we will reach that target. The last part is then next year with the additional $40 per ton, which is the $180, which is also a great achievement.
The achievements that we have been made in the fully owned smelters over the last years is roughly NOK 2 billion. For the joint ventures, when we have reached the target of 180, it's roughly NOK 1.2 billion. To the right, we illustrate the new ambition, which is about continuing the way that we work, have been working in the past with the aluminum metal business system, the engaging the whole organization in continuous improvement. It's also an acceleration of our performance through using new technology elements. I will tell you more about that on the next slide. As I said, we are now much more stable, and we are operating at a much better level than we did in the past.
Now is the time to introduce new, novel technology elements in order to accelerate performance in existing smelters. What do I mean with new technology elements? I hope that my technology director can explain a little bit more. It's really about the cell in the smelter. It's about creating a more robust cathode, which is the lining of the pot, in order to put more power into that pot. It's about larger anodes, which takes the power into the pot, which distribute the power in a better way and makes the cell more efficient. It's also to introduce more advanced process control system in order to control the pot at a much more efficient level.
It's also introducing more novel modeling tools in order to be in control and capable with the pot. Here, our technicians are working close with the plant people, detailing roadmaps for each line, for each plant, in order to implement these new technology elements. I was standing here at the Capital Markets last year, talked about the first 100,000 tons in the fully owned smelter to the left. We see also with the same way of working, with the same technology elements that we can copy also that for the joint ventures. Now we're talking about increasing the capacity of existing assets by roughly 200,000 tons. That is roughly 10% of the total consolidated capacity that we have in the primary area.
The first five years of that plan is rather known technologies. We are working, we have been working on technology development year after year, and it's important to get that know-how competence into cash. That is why we strive to take the R&D and the technology development into existing assets. To actually finance our R&D activities, to finance and to afford to spend so much money into technology, we have to get it back in cash. These first five years is based on known technologies. We are already in Sunndal and in Karmøy now, in the middle of relining the pots with more improved cathodes so that we can increase amperage once the relining is done. These are already into implementation.
We believe that we can get the first 100,000 tons out within the next five years. The next five years, from 2019, 2020 to 2025, when we have several technology elements that we would like to verify and test in the pilot, where we anticipate that we will have good results from the pilot, which we can install in the existing assets once that is verified. They were talking about CapEx in order to reach these targets. We have estimated that we will need roughly NOK 750 million to take out these first 100,000 tons.
That is roughly $1,000 per ton average for this new capacity, which is quite cheap capacity if you think of how costly it is to build new greenfield capacity. As we go along, all these investments have to be justified on their own merits. Given the importance of technology, I would now like to invite Head of Technology, Hans Erik Vatne, to the stage to give you some more insight into this technology development, these technology elements, and also why we feel that the pilot is so important to us to accelerate further. Please, Hans Erik.
Thank you, Hilde. Ladies and gentlemen, in Hydro, we have a clear ambition to be the best aluminum company. We think this is only possible by developing our own smelter technology, which has to be the best in the world, combining a low energy consumption and a high productivity. This slide gives you an overview of the smelter technology platforms in Hydro. The HAL300 that has been developed in-house is implemented in our most modern smelters, Sunndal and Karmøy, performing at competitive levels. This has been developed in-house in a good collaboration between R&D and operations. HAL4e is the next generation technology. This is the technology that we're going to implement at Karmøy. It will have benchmark levels on performance data. As said by Hilde, our way of developing technology is through evolution.
We're building stone by stone, step by step, in a close collaboration between operations and R&D. The great advantage of that is that the new technology elements from the HAL4e technology can also be used in the HAL300 platform. That means back in existing smelters, which is a true advantage. At the same time, we're also looking into the future technologies, where our vision is clear, is 10 kilowatt hours per kilo aluminum produced, tough targets on environmental parameters, and also a much higher degree of automation and autonomous control systems. As said, our ambition is to have the best smelter technology in the world. What does that mean? It means combining a low energy consumption and a high productivity. We think the best parameter expressing productivity, that is the current density. So not the amperage, but the current density.
This means building compact cells, means less steel, less concrete, smaller overhead cranes, so a CapEx-optimized cell. That's what we're aiming for. That's the advantage. The disadvantage of that is that it's scientifically very challenging. We really have to challenge the laws of nature because these two targets, they are competing, they are contradictory. The higher current density you put through your cell, the higher the ohmic resistance, the higher the heat loss, and through that, the higher by nature, the energy consumption. That's why we see relationships like this. In this slide, we have put up all known technologies in the world, and you can see that it follows more or less linear relationship. The higher the productivity, the higher the energy consumption. That follows the natural laws.
The true invention about the HAL4e technology is that we've been able to break this relationship and establish a new level of performance. You can see it has almost the same productivity, but a considerably lower energy consumption. This is something I'm really proud of. There's no one in the world that beats us on this combination of high current density and low energy consumption. Going down further towards the 10 kWh vision, our challenge is to try to deviate from, again, this linear relationship, so not losing too much productivity while we reduce energy consumption. With the HAL4e Ultra, which is the low energy version, where we put in all the latest, newest technology elements, you can see that there's roughly a 2 kWh difference to the standard HAL300 technology platform.
With today's Nord Pool prices, this is about $60 per metric ton produced, so a significant improvement. This technology will be tested and validated in the Karmøy technology pilot. The pilot, as has been said, 75,000 tons annual production. It will have 60 electrolysis cells, 48 with the standard HAL4e technology, and 12 with this low energy version, the HAL4e Ultra. Why do we want to build this pilot now? Really, the purpose of the pilot is to validate, to qualify the new technology elements, not only the physical ones, but also the control system philosophy, so that we faster, cheaper, and with less risk can implement them in existing smelters. That's the true purpose of the pilot. It's only a secondary effect that we will have a bankable technology ready when time is ready for that.
As mentioned by Hilde, as much as 50% of the 200,000 tons creep ambition will come from the new technology elements in the pilot. As you can see, this has a significant financial contribution. It's also more than that. It's not only the creep, it's also improved precision, stability, it's potential for reduced energy consumption and also higher energy efficiency. We clearly have a leading smelter technology, but Hydro is also in the forefront in other technology areas. The AFM, the adjustable flexible mold, has been mentioned several times. Adjustable means that we can cast several sheet ingot dimensions in one mold. Flexible means that we dynamically throughout the cast actually change the shape of the mold so that we get a flatter sheet ingot surface, which is a true benefit for our customers.
This has CapEx improvements, logistics improvements, cost improvements through reduced scrap rate, and maybe most important, we are able with this technology to cast more advanced sheet ingot alloys. For example, the automotive body sheet six thousand series. Also in recycling, there is a fast technology development. With the acquisition of WMR, with the advanced sorting and shredding technology, combined with our own competence within melting and scrap blending, we are now in an excellent position to utilize cheaper post-consumer scrap sources. I will now hand back to Hilde, who will explain then in more detail how we intend to utilize also commercially these technology improvements.
Thank you, Hans Erik Vatne. Just picking up on the new advanced sorting and shredding technology, it's really exciting because we expect, as has been said, several times today, increased amount of post-consumer scrap available coming back after use. Also, Kathrine Fog was using the same graph, showing that recycled metal will take a larger share of the semis demand going forward. We want to take advantage of that, because we want to strengthen our position in the recycling business. We have, as you probably know, we have five remelters in Europe and two in the U.S. We now talk about them more as recycling units rather than remelting, because in the past, they were basing their activity on ingot, now more and more on scrap.
That is why this development is exciting, with a new acquisition which allows us to dig deeper into the scrap pile using lower grade scrap. Our target is to reach 150,000 tons post-consumer scrap into the recycling units by 2020, which will then mean that we will use roughly 25% post-consumer scrap of the total raw material in the recycling unit. The benefit from this low grade scrap is that it is a cheaper source, and it will improve the margins in the recycling units. There is also a trend towards, or a pull from the market in terms of asking for recycled material. That is an exciting development that we would like to pursue.
Currently, we sell more than 250,000 tons of so-called recycled friendly alloys, and we will increase that further in the years to come. Recycling is also a positive contribution to Hydro's overall carbon footprint targets, and contributes to Hydro being greener. Talking about the market, we are continuously looking to see how we can use our capabilities to high-grade the portfolio, working with the most advanced customer. Right now we are targeting the high-growth automotive segment. Several times we have mentioned now the introduction of the new sheet ingot casting technology, the so-called Adjustable Flexible Mold, which is a drastic change in our sheet ingot portfolio to meet changing markets.
In 2013, we were hardly selling any volume to the automotive segment, and with the new technology, we foresee that we will reach 15%-50% of the sales to the automotive segment by 2020. In the extrusion ingot area, we currently sell 20% of the volume to automotive. Also here, we see more and more focus towards the growing auto segment. We are here cooperating with the most advanced customers targeting the automotive sector. For example, we are producing crash elements in the car requiring higher strength, higher ductility, where we can use our capability. Also, in the demanding heat exchanger segment, we have a very strong position.
Finally, the third segment that we are in, foundry alloys, we also see here increasing demand for PFA. Normally, we have produced for the wheel segment, but now more and more also chassis and engine blocks. We have been talking about recycling as an important contributor to Hydro's overall greener strategy. The energy is also an important contributor. Here, Hydro has a favorable position because two-thirds of all the energy we use is based on hydropower. That is a great advantage in terms of environmental perspective. We believe that also financially, when the world start to price CO2, it will also be a financial benefit.
At today's production, we have one-third covered with equity power as Arvid talked about, and the rest is composed of competitive power contracts. Right now we have more than 80% our energy need covers up to 2024. Here we work together with the energy to fill up that power coverage with a good portion of equity power as well as long-term competitive powers, which is perhaps the most important lever for having a robust smelter portfolio going forward. I will end my presentation. To sum it up, we will work hard to and strive for an injury-free environment.
We will now work hard to reach the ambition of another NOK 1 billion in new cost improvements up until 2019. An important part of that is to realize the extra CAP capacity. We will be proud to start building the pilot and verify the world's most energy-effective smelter technology, as well as getting the spin-off effects to existing assets. We will work to increase our post-consumer scrap in order to improve the margins in the recycling units, as well as reducing our environmental footprints. In total, this is Primary Metals' contribution to Hydro's overall strategy of becoming better and bigger and greener. Thank you.
I will invite my good colleague, Executive Vice President, Kjetil Ebbesberg, to the stage to talk about Rolled Products.
Thank you, Hilde. Yes. It's now called good afternoon, I guess. Now we have come to the last part of the Capital Markets Day, and finally from [Mike]. We can talk about customers and the markets, which ultimately in the end is where we have the pool for our fantastic material. By us succeeding in the marketplace, we can also create a lot of good opportunities for the future for the rest of Hydro. Starting with also for our products, safety. Hydro entered really Rolled Products aluminum in 2002 when Hydro acquired VAW. At that time, our performance or the VAW and Hydro combined performance on Rolled Products was not altogether that good.
What Hydro did, like Hydro always does, is implement its way, the Hydro way. We see that historically in this graph, how significant improvement we managed to have in on the safety side of the operations within only a few years. In fact, down to a level where if you go 10 years back, the Rolled Products part of Hydro was the best performer in Hydro and not to speak about best in class in our industry. We had saturated. In principle, we haven't seen the improvement the last 10 years. In fact, the last few years, it's moving in the opposite direction where we don't want it to move.
That's why, for us, it's extremely important to focus on safety as a part of operational excellence in the rolling part of our operations. We are today a laggard in Hydro, although we may be sort of better than the average in the rolling industry. We are clearly a laggard in Hydro. For me, this is also a good illustration of opportunities. By addressing this through operational improvements, we will have the opportunity not only to improve the situation for our employees, which, well, will not get hurt working for us.
Definitely also improve the situation for the customers who will then see that we will be more precise in our deliveries, improve the quality, improve our on-time delivery, and in the end, also improving our value contribution of our value creation. Lots of opportunities by addressing this, which is on the top of our agenda. When it comes to better, bigger, greener, the operational excellence work to really take further step changes in our operations will be a fundament for our better. It will contribute to also, as I said, succeeding better, even better in the market. Combining our drive for operational excellence with continuous improvement on innovation, on quality, on service and lead time will be the focus in the better part of our strategic platform.
We have a strong foundation, and we have the possibility to lift ourselves quite, significantly also going forward. We will use that performance, and that capability and the innovative power to also create new market positions to, enable us to bring to the market, new products, which will, differentiate more and yield potential for better margins. Enable us to increase our market share and improve our relative industry position. That's what I mean by our responsibility and our role to actually also create demand for more and more use of aluminum, in the end use markets.
Finally, when it comes to our sustainability agenda and the greener part, if you create a SWOT analysis on Rolled Products, I think you will easily see that we have a fantastic opportunity in Rolled Products. Because our position is such that we can utilize, you know, we can take a role in the sustainability agenda, which is really good. It fits well with what the world needs today, and it fits well with what the customers, our customers, require from us. In terms of lightweighting our products, go to market with products which is part of improving quality, energy saving solutions, and also increasing our use of and participation in the recycling part of the business.
Which are all excellent ways of creating a more sustainable business for Hydro and also for the aluminum industry. I think that is sort of the overall picture when it comes to our better, bigger, greener, and I will come back to our specific targets, somewhat later. Looking at what have we delivered in 2015 when it comes to our ambitions. Starting actually the first day of my new assignment as head of Rolled Products, we had the ceremony of putting the shovel in the ground for the building of our new Automotive Line number 3. This Automotive Line will actually lightweight more than two million cars every year. Two million cars will benefit from our metal from this plant by becoming significantly lighter.
This is, of course, something which is giving us a business opportunity, but also something which is driving us strategically to contribute to this. Three months later, we had the ceremony of putting down the foundation stone for our Used Beverage Can recycling center in Neuss, which is part of our so-called Magic Triangle, combining a close proximity of a smelter, our Rheinwerk smelter in Neuss, the world's biggest hot mill plant in Alunorf, also in Neuss, and the world's biggest, outside of China, finishing mill in Grevenbroich. The addition of the UBC center to that triangle is further strengthening what I consider to be one of the strongest clusters in the rolling business globally.
In July, and this has been referred to earlier today, we signed a contract securing competitive power price for our smelter in Rheinwerk, from 2018 to 2025, to the extent of 0.9 TWh, which represent, at today's production level, around 40% of the need. Also in July, we could announce the second quarter result, which was all-time high, from rolled products. And that was a record which, fortunately only lasted for one quarter, because in third quarter we could then top that with another record result from rolled products. In October, we also signed and announced the signing of a contract to divest our non-core asset, the plant in Slim, Italy.
Finally, has been said before, by the end of this year, we will also wrap up and deliver to Saint-Gobain the completion of our Climb program, with the ambition of EUR 100 million, NOK 800 million, delivered one year ahead of time. In parallel with that, launching our new program, where we have put up a target of improvement for the next four years of NOK 900 million, our better rolled products program. That was the headlines for 2015. Looking into the market, basically what we are focusing on is strengthening our positions, relatively, but also absolutely. Basically, we are in market segments where we aim at being number one, number two, and number three.
We have very strong positions in the segments that we are in today. Looking at the strongest growing segment, the automotive segment, we are number 2 today. By the investment in the Automotive Line number 3, we will also be number 2 on Body-in-White in Europe today. We are participating in the very strong growth globally on our can segment with beverage can where we have a global presence. The global demand for beverage cans is quite healthy at the range of 4%-5%. Within the specialty product area, we are number 1 in Europe. That area, that segment, it really contains a lot of different product segments, including general engineering segment.
What we are doing there is to focusing on specific sub-segments, where we are creating strategic advantages and positioning ourself in a way where we are benefiting in terms of better margins, in terms of more stable volume development compared to the more standard business. That is sort of our market strategy further than strengthening our relative positions and build strong portfolio of new products that we will bring to the market. Just as an illustration, looking at our market portfolio, we don't want to be too specific about numbers, but I can tell you then in just the automotive share of our product sales is increasing from 12% in 2010 to 14% this year.
Taking a leap, representing then 20% of our total product offering in 2020. Within the specialty product segment, which is our single largest segment, but as I said, containing a lot of different sub-segments, we are also having significant increase in the amount of sales to what we define as strategic product segments, where there is this extra margin, the extra quality requirements, extra service requirements, and then the extra differentiator compared to our competitors, including then competition from outside of Europe. Which is, I know, high on your agenda as it is on our agenda in terms of creating a further distance between ourselves and, for instance, Chinese producers of flat rolled products.
This is showing what we have delivered or will deliver shortly when it comes to our Climb program. 800 million improvements. So far, somewhat more than 700 as per third quarter. The rest we will deliver then during the last quarter of the year. It is an effect which is counterbalancing negative market effects in the same period from 2011 to 2015. We have a negative market effect of around NOK 300 million. Mainly driven by the general engineering business, which has both negative margin development and volume development in this period. Over-compensated by our internal improvement. On top of that also compensating for all the cost inflation we have in the portfolio.
We also in this period, like, our colleagues in the other business areas seen a positive contribution from improving currency. Principally saying we have a weakening euro against dollar, which helps us on our export in dollar markets. as well as further weakening of the Norwegian kroner against euro, which helps the Norwegian kroner result of our total business. This is what we will deliver, as I said, one year ahead of time by the end of this year. At the same time, in parallel, we're launching our new program, which we call Better Rolled Products. It is containing operational improvements, coming back to what I talked about initially. We'll also expect to see significant improvement in safety as part of that.
Cost improvement, productivity, capacity utilization improvement, and supply chain are the areas that we are really focusing on in those part of the improvement program. Then further high-grading of the product portfolio, and positioning ourselves in the total portfolio, and offering with more advanced products, more higher margin products. Finally, recycling also has a very important part of our new improvement program. Just to give you a few examples, we have a lot of different very interesting projects running now on developing new products, developing new solutions to the market. I could spend the rest of this day and tomorrow talking about that. Just to give you a couple of examples, HEFOIL, and you know where the HE comes from.
Foil is one of our focus products. It's a new product development, or a range of a new product development, that we have now introduced to our customers. It contains improved alloy. It includes also a improved or shortened product routing, basically allowing us to take out the production one step in the production, an intermediate annealing. The quality of this product will improve the mechanical properties in terms of tensile strength, in terms of elongation, which allows the customer to gain direct benefits in their production by their own process speed, by their thickness requirements on the products, and also the properties of the final products.
It also then gives us opportunities because it lowers the cost of producing foil material for conversion into, for instance, dairy lid pharmaceutical products, and so on. Just as an example, we are increasing then the tensile strength by 20% and the elongation by 20%, which is a step change and which will give, as I said, us opportunities and the customer opportunities. It will strengthen our relative position in the foil business. We have this product now tested and under qualification with several customers. Another example, taken from the automotive side. In our last Capital Market Day, one year ago, we introduced our new alloy AA5182, which has a significantly improved formability. Formability is important, as you know, for the designers of new cars.
They would like to have the freedom to design cars with no limitations, huh? Just looking good, feeling good for the customers. Unfortunately, when you see, you know, the cars displayed as prototypes, it looks often much nicer than the final car. Because when it comes to the final assembly, you need to make a lot of sacrifices because of technology and cost. A perfect alloy with the perfect formability would limit those sacrifices. It's not when talking about formability of a body sheet, it's not only about the alloy. It's also about the interface between the metal surface and the press, which is pressing the body part.
That interface to manage that, we use, and the press shop is using, lubricants or dry lubes to enhance that interface and enhance the formability. What we are doing with our new Automotive Line 3, we are installing a different setup for what is called then a skin pass mill to create the EDT surface. EDT surface, and it becomes a little bit technical, electric discharge texture, is a surface that all body parts needs to have, and all suppliers of that needs to have that texture. Because this texture, as you see in the illustration here, it contains small pits. This is of course, magnitude of this picture. But it contains small pits where this lubricant can stay and not peel off.
When the sheet is being pressed, you would have then the perfect distribution of this lubricant during the pressing. What our investment in the Automotive Line 3 does, we have separated this process of creating this surface in a separate mill. Whereas normally this is produced as part of the normal cold mill, you just have a separate step or a separate roll in the cold mill to produce it. You would not have the capability to do this with the precision that is needed to create the optimal surface. Because the cold mill should normally just every time you run the material through it, should reduce the thickness by 50%, and then you bring it down to the desired thickness.
Whereas we are talking about here not the 50% reduction, we're talking about maybe less than 1%, maybe 0.2%, just to create this ideal surface. Our investment, which is unique in the industry, is having this as a separate step, as a separate process. We believe we will have a superior EDT surface out of that, which will ultimately help our customers to have a much more form formable material. Again, enhance their ability to produce the design that they would like to do. Looking at our Automotive Line, this is the picture as of more or less today, how it looks from the top. It is today, I would say close to 50% finished.
We are on time, on budget. We have qualified all the major OEMs on it. By the end of this year, in Q4, end of next year, Q4 2016, we will go with startup production from this new line. What we also can say is that when it comes to contracting, we are ahead of original plan. We are quite confident that we will be able to fill this with the necessary orders to be able to ramp it up then in the full capacity utilization during the years after 2017. The Used Beverage Can facility has also been mentioned earlier today. It is ready for startup any day now. We're counting days.
We have commissioned the cold part of it, which is the sorting and the shredding part. It works well. We have taken material from the sorting and the shredding and remelted it in our existing remelt facility in Rheinwerk, and already cast slabs from that material without any problems. What we are now waiting to do within the next few days is to commission the hot part of this recycling center. Then our schedule and our expectation is to produce liquid metal outside, out of this plant, within the end of this year. We have installed here the most advanced sorting technology existing in the market. We have applied the most advanced process and knowledge also helped by our acquisition of the WMR plant during this year.
We believe we will, by this, have the most advanced and most effective, efficient plant in the UBC area. By having this in place, we are not only strengthening our internal cluster, but we are also closing the loop of UBC recycling for our customers. Very important for our customers that we are able to offer this as part of the business we have with them. I have a small short film just to show the process of recycling of UBC. That is what we have been talking a lot about today, closing the loop and being part of the solution.
Part of this, and this was excellently presented by Arvid earlier also. What we're doing to come into a zero CO2 position is looking through the whole life- cycle of our material. Looking at efficiency improvement in the production stage, and also looking at the recycling at the end of the lifetime. When it comes to the use phase, obviously our job is very much focusing on excelling the use of aluminum and excelling the benefits of using aluminum in the use phase. When it comes to packaging, by reducing food waste, which is reducing the waste by better quality packaging of the food and the drinks. It is about cars, basically lightweighting the cars.
It is about building, which are having very low or zero energy emissions, or when it comes to renewable energy, which is also using a lot of aluminum in its modular solutions. We are definitely a big contributor to Hydro's carbon-neutral ambition in Rolled Products. To round off, when it comes to our specific goals, we have an ambition to meet the level of expectation of Hydro of becoming with a TRI rate, TRI injuries per million work hours below two by 2020. We will deliver on our new bold ambition of further NOK 900 million improvements. We will continue to differentiate through innovation through new step changes.
We have a target of coming out with one step change, minimum one step change, per year. Then a step change, which has a significant contribution to us. Building up the automotive Body-in-White capacity to ramp it up from Q4 2016 to a nominal capacity of 200,000 tons by during 2017. Then fully ramp up the recycling center in Rheinwerk to above 40,000 tons also during 2017. Finally, lift our total recycling of post-consumer scrap to above 100,000 tons. Thank you.
Thank you, Kjetil. I would like to invite Hilde and Hans Erik up to stage for a final Q&A.
Hi, Rob Clifford, Deutsche Bank. Question for Hilde Merete Aasheim and Hans Erik Vatne. I think this is on the technology work that you're doing, which looks really interesting. I think the biggest value add in there is the ability to potentially retrofit down to your other smelters. That's where the real value is. Now, aluminum is tough business. You need to stay down the bottom of the cost curve. What took decades to develop historically, China borrowed very quickly. Given that this is, you can retrofit this technology, how do you stop all of those top-end Chinese smelters from basically copying what you develop?
Well, I think we talked a lot about technology elements, but it's also about having the capability, having the people in the plant working together with the technicians, using the way of working as we do in order to squeeze out the maximum of these older smelters. China is building new smelters almost at a speed that we haven't seen before. I think what our strength is to build on the capabilities of the whole organization, not only the, let's say, the installation themselves, but the combination of the capability that we have, which is difficult to copy.
Anne Gjøen, Handelsbanken. Some small financial questions for Hilde and Kjetil. Hilde first. Of the NOK 1 billion improvement program, it's remaining $40 per ton from the old one. If you realize this fully, where will you be when it comes to reduction of cost per ton compared to the $180? For Kjetil, when it comes to your improvement program, NOK 900 million, taken into account the investments to be done, could you indicate ballpark where you could be when it comes to return on capital employed?
Anne, could you rephrase? I am not sure that I understood your question as to the 40 versus the 180.
Because the way I understand it, you have, you had 180.
Yeah.
It remains 40.
Yeah.
That's in the NOK 1 billion.
Yeah.
When will that be when you have finished the NOK 1 billion? Will you have reduced it by NOK 250, or?
Well, the forty is roughly NOK 280 million, which will be realized next year. That is included in the NOK 1 billion up to 2019. The remaining part of the NOK 1 billion is the acceleration of the volume that I showed, this 100,000 tons, which is between NOK 340 million and NOK 400 million. The rest of the NOK 1 billion is the operational excellence and fixed cost reduction.
Yeah, when it comes to our return on capital, what has been always our ambition and also now is to exceed Norsk Hydro's internal requirements on our business when it comes to return on capital. That is also our ambition in this case. When it comes to the specific, you know, expectations and the movement towards there, of course that will also depend a lot about other elements than what is included in our improvement program. We have exposure to markets, we have exposure to LME, and we have a smelter currency situations and so on. I don't want to commit to a specific number for you. Definitely our ambition is to strengthen our internal performance in a way that we are exceeding cost of capital.
Yeah, morning. It's Menno Sanderse again, Morgan Stanley. Just two questions. One on maintaining market shares with the maintenance CapEx, something that was stated at the beginning of the day. That basically means 3%-4% growth in production of primary metal. Is the Karmøy smelter the 75,000 tons plus the 200,000 tons of creep? Is that enough in your mind to keep your market share up till 2090?
Well, I think what we are working on is to maximize the effect of the existing assets while growing or developing growth options when time is right, and that's not right at the moment to start building a new capacity. It's more to squeeze out more of the existing.
The 100K from the JVs, that's Norsk Hydro's share of the JV production?
Yeah. Right.
The second question is on rolling. Clearly, rolling is opaque, is maybe not a nice word, but it's as you said, there's a very wide variety of products in within your rolling business. Can you give us a bit of a feel for what the difference is in EBITDA per ton between the lowest and the highest? If you wanna index it's fine too, but just to understand how different it is. Why would the Chinese or anybody else in the world, let's say people in India, not go after the higher EBITDA per ton segments and therefore erode things away very quickly? How can you keep pushing your portfolio to keep that small premium?
First of all, you will not get these details from me, unfortunately. I don't trust that you're not going to tell our competitors. I think when it comes to our competition, as I elaborated on, we are always. We want to stay in the forefront. We want to come up with new products, with new solutions, service concept, which is keeping distance to our competition, also the Chinese competition. The distance we have today, both when it comes to technical properties, quality, and not least, service and lead time, is quite significant against the Chinese. That's why you see very little Chinese in our core focus segment in Europe today.
We see that there are pockets of producers in China also excelling quite fast on technology, on quality. We will of course pay attention to always aiming at staying in the lead there and then making sure that we have closeness with our customers, that we are able to differentiate and not lose our position without sort of being unconscious about it. We will not focus on all product segments. We will focus on the ones I elaborated on. There's a wide variety of niche products, which I think you need to be extremely good in serving those products to produce our products and serving those customers to be able to succeed.
It's not just enough to have the capacity to produce a certain amount of raw products, and we see that is the case today also.
I understand lead time, but the users sometimes service and answer the phone and get the. What do clients want?
They want to have a partner that can contribute with optimizing their own equipment in terms of processing our material on their equipment. A partner who can bring challenges back and find solutions, technical solutions with our material that will fit better and work better with the customers. Those kind of services is more valuable to our customers than, you know, $50 down on the metal price. Then obviously relating to also commercial services, being able to respond to customers in a good proximity. These things are also enabling the customer to simplify their business and succeed with a higher efficiency.
Hi, Dominic O'Kane, JP Morgan. Just coming back to Karmøy. You say that the development decision approval will be based on a permanent power solution, market outlook, and market conditions. Just wonder if you'd comment, do the market conditions today meet an acceptable outlook for you? Or do you think that the move that we've seen over the last weeks, months are, you know, a bit more clouded for a development decision approval?
Well, first of all, I think it's important that we talk about the pilot as a technology project, not a project to increase capacity, because if that would be the case, then we will not do it. This we have to see in the context of building our capabilities, building new technology to be used both in existing assets that also have something readily available if and hopefully when time improves. We set out with these criteria to start with, to have the overall evaluation of when we take the decision. I don't think that the last weeks necessarily will tilt this project. We have to look at it as with all input taken into account.
Okay. Thank you, Hilde, Kjetil, and Hans Erik.
Thank you.
I would now like to invite Svein Richard Brandtzæg to the stage, for a final summary.
Okay, thank you very much, and thank you to all of you for participating today. I hope we have brought more clarity to or the direction of the company and also how to get there. We have a strong position today, but we will work even harder to maintain and improve our position to the improvement program of NOK 2.9 billion, as we have talked about today, to improved customer and commercial solutions within a very well-defined financial framework. With that, thank you very much. Thank you to all of you participating, for good questions, and for your attention today. Thank you.