Welcome to Hydro's Capital Markets Day 2013. It's a pleasure to see you all here in Oslo. I would also like to welcome those following us on webcast. As always, in Hydro, let's start with safety. In case of an emergency, an alarm will go off. Please leave the room, calmly through the doors, either on the left-hand side or the right-hand side. If you then turn to the left, you will find emergency exits both on your left and right-hand side. I would also like to draw your attention to the cautionary notes in relation to forward-looking statements that we've provided on the screen and also in the printed material. Just a brief look at the agenda. We'll start with a Hydro overall presentation by President and CEO, followed by a presentation on finance.
We'll stop for a short Q&A session, and then a break. After the first break, we'll start with the market outlook presentation with a deep dive on product premiums, standard ingot premiums, and inventories. Market session is followed by a presentation on Rolled Products. We'll again stop for a short Q&A session and a break. After the final break, we'll first have a presentation on Primary Metal, and then finish off with the last presentation on Bauxite & Alumina, where we will have a deep dive on operations and in particular Alunorte. We'll have the final Q&A and a short summary. We'll also serve lunch at 1:00 P.M.
For those of you following us on webcast, you will be able to ask questions by sending an email to Rikard.Lindqvist@hydro.com, and then I'll make sure that we also raise those questions during the Q&A sessions. I'll leave the stage to the man who needs no introduction, President and CEO, Svein Richard Brandtzæg. First, let's have a look at this.
Dear all, welcome to Hydro Capital Markets Day 2013, Lifting the Bar. Our main aspiration is, of course, to lift the bar in every sense and with everything we do. Our operational performance, innovation, improvement efforts, technology, HSE, and CSR. We aim to be the best company operationally, strategically, and financially. Aiming to be the best for our company, for our employees, in the societies where we operate, and also, of course, for the shareholders.
This is the overall team today, and we have put together an interesting program for you, and we will look at how we work to lift the bar across the company in these presentations. First, let me highlight our strong focus on HSE and CSR and compliance. We aim to be a responsible company in all aspects, in all operations. We have experienced that there is a very close link between operation performance and good performance in HSE and CSR and compliance. We are already at the benchmark level on safety, but we are still not satisfied, and we aim for significant improvements also here. A strong safety culture is good for business, is good for the employees, and is also a very cost-effective risk mitigation measure. In Hydro, these issues are integrated parts of operations within all business areas.
We aim to be the industry benchmark in all these three areas. Thanks to our safety culture, we have made significant improvements since 2002 when we acquired VAW, but we have now leveled off at the TRI level around 3.5, after hitting our best score in 2009, and we aim to improve that level. Behind these figures, however, is considerable improvement in serious accidents. Still, we are not satisfied, and we are going for another step change down on the TRI in the time to come. Today, this is the business at hand. Hydro's main priorities is to become even stronger, more robust, more innovative, and more effective, and of course, more profitable.
We all know that it has been five challenging years in our industry with weak markets, power supply, buildup of inventories, and low returns. Hydro has been able to show progress throughout the period, thanks to a clear agenda, giving us a higher improvement momentum. We have had the necessary competence and dedication to follow it through despite the headwinds facing our industry. Our response was to set a clear course and stick to it over time, realizing our ambitions brick by brick, step by step. 2013 was another year illustrating our strategic direction with the Sapa Joint Venture as the strongest example, creating a global leader in extrusion. Nevertheless, the overall strategy for each business area remains unchanged. It's all about delivering on our overall agenda. In Bauxite & Alumina, it's about lifting the volumes and also delivering on the improvement program.
In Energy, we are working to maximize the potential of our captive assets and also further strengthening Energy global support to the business areas, thereby getting full potential out of the very competent organization we have in Energy. In Primary, it's about extending the very strong improvement track record and getting full benefit from the technological edge we have. In Rolled, it's continuing the high grading of the product portfolio and strengthening our innovative muscle, aiming to deliver service to our customers that is over and above expectations and also on reliability, quality, and technological solutions. You will, of course, find and get all the details over the course of the day with separate presentation from business and from Bauxite & Alumina, from Primary and Rolled, as well as from the market and from the financial perspective.
Summed up, our agenda looks very much the same as we presented to you last year, a clear agenda with clear results. Now we have, of course, added the Sapa Joint Venture transaction with a new global extrusion champion standing also on its own feet. We have also added the joint venture program in Primary, which we touched upon on our last capital markets day, and which has now been developed into a fully-fledged improvement program for the portfolio of part-owned smelters. I'm sure this is one of the key issues for you to discuss today, and the head of Primary, Hilde Merete Aasheim, will give you a thorough presentation later today.
Now I want to draw your attention to the overall agenda for the stronger Hydro, which is what we have maintained since we became a streamlined aluminum company. We have been able to develop this agenda step by step throughout the period and will continue to do so going forward. We have dedicated improvement programs for each business area throughout the company, combined with transforming transactions that we have now seen has clearly been the right move for us, strategically and financially. In summary, we are aiming to continuously lift the company operationally while maintaining our ability, competence, and capability to develop the strategic agenda and be a leading force within the aluminum industry.
Of course, the all-important backdrop, when we discuss the way forward in aluminum is, in general, the fact that the world economy has been especially hard on Hydro and the aluminum industry over the last few years. Europe, and especially Southern Europe was very hard hit, by the financial crisis and the subsequent debt crisis, and is still characterized by weak markets, although we see some signs that the downward trend is starting to bottom out. Of course, high unemployment combined with low productivity levels in some countries in Europe, continues to weigh on Europe. At least the recent uncertainty, the existential question about the euro is now largely passed. In South America, we have experienced softening demand amid, structural issues, and we see transport and, canned stock in aluminum, as key growth segments.
In North America, automotive and transport, we see these segments where demand is picking up, although from a low level. Building and construction is also improving as private debt has been substantially reduced, 40% reduction since the maximum in U.S. In China, we see continuous and balanced situation in aluminum. They want to be balanced, obviously. It's increasing problem for China that they don't have enough raw materials, so they are short upstream, and they need to cover their shortage with import of bauxite. Aluminum is a key building block in modern society. When China is moving from economy based on investments and exports more towards consumption-driven economy, aluminum is very well-placed.
In Asia outside China, the fast-growing middle class has led to growth picking up, even as the overall global economy has been weak and moved sideways. Emerging markets, although in other areas in general, are seeing a softening. Asia outside China has been a very interesting market for Hydro and aluminum. For Hydro, this multi-speed economy has several implications. For our fully owned smelters in Norway and the rest of the global smelter portfolio, we now have, broadly speaking, a balanced market, although LME is remaining at low levels. Still our considerable improvement efforts, we have managed to improve our cash cost position in a better level in the industry and are now at competitive levels seen from a cost curve perspective. For our Bauxite & Alumina business in Brazil, we experience stable markets even as LME is drifting downwards.
We are working hard to position our self in the best possible way on the commercial side. There is a commercial upside as we see from a stronger commercialization of bauxite and alumina with index pricing and a gradual move towards pricing these products on their own fundamentals. Operationally, you know that we have experienced some challenges, and but I want to assure you that at this stage we nevertheless maintain our 2015 target on our improvement targets. With the center of gravity for our Rolled Products business in Europe, we have of course been exposed to the downturn there. Europe, and especially Southern Europe, was hurt by the financial crisis and the subsequent debt crisis, and still characterized by weak markets and margin pressure, challenging our Rolled Products business area.
Still, the downturn has been most acute in the building and construction sector, while packaging and cans has developed sideways, as has lithographic plate and the car industry, where the drive for lighter and more fuel-efficient vehicles, we have seen that amount of aluminum per car has been rising considerably. In Rolled, we have managed to maintain our market share while continuing to high-grade our portfolio towards more attractive segments, largely upholding the profitability in our Rolled Products business area. With the demand picking up in North America, we are now well positioned, thanks to our share in the Sapa joint venture, gaining bigger market share and being well positioned for further growth. The US is also an important market for Qatalum, and we have remelters in the U.S. serving our downstream customers.
Our Qatalum smelter, the joint venture in Qatar, ranks among the 10% best smelters from a cost curve perspective, as it's all about cost position and value-added products. All the metal we produce in Qatar is going to metal products as primary foundry alloys to dedicated customers and also extrusion ingots to customers in Asia, but also in U.S. and Europe. We have said throughout the phase of the build-up and the ramp-up that this is a world-class smelter. It is now generating considerable cash flow and also paying dividends even at these low LME levels as we see today. In Asia outside China, we have a strong market for Hydro.
We see a positive demand growth, even in this difficult period of the world economy, and we have seen Hydro establish itself as the biggest supplier in the primary foundry alloy market, which is an exciting development for also further growth with further potential. If you take a closer look at the developments in China, we see a reconfirmation that China is a net importer of aluminum from a full value chain perspective due to the import of raw materials. Arvid Moss will go through it later today with the developments in China in his market presentation. But in terms of headlines, I can say that we expect the raw material shortage in China to increase in the years ahead.
We expect this shortfall be mainly covered through bauxite imports, for which they currently rely on Indonesia, where there has been much discussions about possible restrictions which could open up for import of alumina later. This uncertainty will also be discussed by Arvid later. Overall, it would seem that China's strategy remains unchanged. The primary is balanced. They are producing as much primary metal as the consumption, controlled by trade barriers with the rest of the world, and the downstream export of fabricated products continues from China. From this macroeconomic consideration, let us move and take a look at the key markets, alumina and aluminum, as seen through the fast developing Platts index in alumina and aluminum to the LME price development, including premiums.
The first thing to notice from both curves here is that both alumina and aluminum are at low levels, which of course constitute the main challenge for the industry and our ability to generate shareholder returns. The picture is, of course, more complicated than that. In alumina and the alumina price as a percentage of LME has been in positive trend since hitting a low early mid- to mid-2012. In aluminum we have seen premiums rise considerably since 2012, although it was a small dip in connection with the discussion of changing the warehousing rules earlier this year. Alumina in percentage measured against LME plus premium has seen a more moderate development over the period.
Still, the overall takeaway is that prices are at unsatisfactory level, leaving a considerable part of the industry total capacity with a limited ability to generate sustainable returns. For our part, this picture only reinforces our overall ambition to create a global leader by becoming even stronger, more robust, more innovative, and more cost-effective, which is our key focus in all parts of the value chain, in every region we operate, in every plant. If aluminum prices are low, demand has now returned to pre-crisis levels and continues to grow. We expect a growth of 2% this year. In 2014, the growth will be 2%-4%. That is what we estimate today. For the period, 2012 to 2022, we expect annual growth of 3%-4%. That is outside China.
If we include China, we expect 4%-6% globally. The reason is, of course, aluminum's many qualities, a highly versatile, lightweight material that is a key building block of modern society. If the current macroeconomic situation is challenging, the long-term prospects remain bright. With our steady improvement in our relative position, we will be ideally placed to realize our full potential once the downturn swings to upturn. We do that by improving step by step, lifting the bar inch by inch throughout our value chain. As we said in the Capital Markets Day last year, we will focus on improving our relative position, capitalize on our raw material position, maintain our financial strength and flexibility, and ensure competitive shareholder returns.
Even if 2013 has turned out as another challenging year, we have moved in the right direction on all these aspects, although we did experience some setbacks in our Bauxite & Alumina business in the first half of this year. Our ambition is to ensure that Hydro is the most attractive alternative within our industry from a shareholder perspective, and we have kept that ambition on top of our list of priorities throughout the year that has passed since our last Capital Markets Day. That brings me to my three-part agenda for today. Hydro has attractive positions along the value chain, and we have developed a strong improvement culture and a leading position in technology innovation that can take us to the next level.
Hydro has maintained our financial strength throughout the downturn, giving us flexibility and continued room to navigate. All in all, when you see these strengths together as a whole, Hydro should have every opportunity to continue to lift the bar, creating a global winner. First, let us take a look at our positions within the aluminum value chain. We maintain a full value chain focus, even though it's clear that the main investments and the main asset base and capital employed is within the upstream segments. We do not regard the Hydro value chain as separate businesses, but as an integrated system from bauxite to finished products.
It may be a more complex model than the alternative, but with the right competence, experience, technology, commercial instinct, and dedicated business model for each business area, we are in a position that allows us to create value from bauxite in Paragominas in Brazil to body-in-white and sheet rolled products to automotive customers in Germany. This gives us an understanding of our material that is both deep and broad, from the atomic and nano level to the global trade flows of all input factors and the macroeconomic developments. To us, this represent a competitive advantage, and we aim to make the most out of that advantage to serve our customers in the best possible way, creating added value for them as well as for ourselves. We have a global reach, and we have a high-quality asset base. In Alunorte, we have the world's biggest alumina refinery.
Some of the best alumina in the world from our considerable resources of gibbsite bauxite in Paragominas. If you add up the mining licenses, we have an area altogether as big as the country of Belgium. In Norway, we have a solid portfolio of high-performing captive power assets, among the cleanest and the most competitive power sources available. We have a global smelter portfolio, some fully owned, some part-owned, as the world-class smelter, Qatalum, which is a joint venture, of course, which is highly competitive. Now altogether, we have a solid story of performance improvements. We are Europe's largest in the rolled products. In the rolled products, we are 50% owner of the world's biggest hot rolling mill in Alunorf, and 100% owner of the world's biggest cold rolling and finishing mill, Grevenbroich in Germany.
That makes us possible to deliver the fulfilled products to the most demanding customers in rolled products. Through our Sapa joint venture, we created a world champion in extrusion. With this, controlling 50% while maintaining our optionality for the future. These are all attractive assets from their own merits, but together, they represent a highly attractive platform within aluminum, covering the entire value chain and providing Hydro with a flexibility that is hard to match. Throughout our 2011 transaction with Vale, we went from short to long in bauxite and alumina, a strategic move to complete our value chain and gain a foothold in an area within our industry where many expect to see considerable developments in the years to come as the fight for raw material continues.
That said, the period up to date has been characterized by weak markets and weak returns due to the economic downturn, which has weighed on all players within bauxite and alumina. For our part, we have also been working hard to lift and stabilize the production in Alunorte with incidents such as the two power outages in the first half, setting us back temporarily. We see the effect of the problem on the graph on the right, illustrating the recent setbacks among other factors. Nevertheless, these are really first-class assets, and we do have a fully-fledged dedicated improvement program in place to lift the bar within our newest business area. As I said at the start, the 2015 ambitions from B to A program remains unchanged, which will help us to realize our goal in improving our relative industry position.
Thanks to its improvement program, dedication, hard work, and process optimization, the primary business area has made a steady climb down the cost curve and up in terms of industry position. By now, we are very close to the top and aim to take that title by continuing our strong momentum. Each step is, of course, harder than the previous one. In primary, with a holistic approach to improvements and efficiency measures combined with the aluminum metal production system and the world-class asset in Qatar, we are in the best possible position to both identify and realize even stronger results.
At the very center of the rolling business stands the customer, often demanding and always focused on cost, delivery, performance, quality, and technology. In Hydro, we very much like that kind of customer because they are seeking innovative solutions, high quality, and service to win their battles in the car industry, in road construction, packaging, litho, and so on. In Rolled Products, we have already been rated very high on quality and service, and we aim each day to be even better than we were the day before. We have a clear strategy of high grading our product portfolio to focus on the these areas with highest margins and potentials for returns. We work hard to create a step change innovations to find new, better, and efficient solutions for our customers based on the philosophy that if we help them to win, we will also be a winner.
We are expanding our recycling capacity to bring more metal back to the loop and further improve our cost position and reduce the metal cost. In energy, we are already at the benchmark in terms of operational performance, and we have one of the Nordic power market's most professional commercial organizations in place in Hydro. Over the last few years, we have lifted our equity position in a normal year of precipitation from 9.5 TWh to 10 TWh, representing a significant contribution to the cash flow. We have also successfully delivered on the three bigger projects and well on track with the fourth, the Rjukan upgrade, which is on cost and schedule in 2015. Part of the lift up to 10 TWh is due to better understanding and mathematical modeling and commercial optimization, leading to less water loss.
We also added 180 GWh when we acquired Vigelands Brug earlier this year. For energy going forward, this will mean to maintain a steady course, keep momentum, and ensure we maintain our top position, while at the same time utilize its global competence to support our other businesses on their energy agendas. In summary, Hydro is a resource-rich company in terms of competencies, experience, technological and commercial know-how, as well as in assets. This represent a solid platform which we can further develop for Hydro in the coming years. Perhaps one of the most exciting topics for Hydro over the last years has been our result when it comes to improvements.
We say we live by a philosophy of continuous improvements, but I think we can say now, and we have enough data showing that it has gone from a philosophy to a culture in Hydro. Based on our long value chain and the fact that we aim for sustainable improvements as well as cost reductions, it is clear that there could never be a one size fits all program in Hydro. Instead, we have a full menu of dedicated programs, tailor-made programs for each business area or in the value chain, even including dedicated program for staff and support functions in our corporate center.
We have now reduced the corporate center cost once in 2010 with 30%, and we are on the way to do another 30% cut in corporate center for the second time in just three years now. In terms of size and significance, it's of course the $300 in Primary and the Bauxite & Alumina program from B to A that are the most important. But key to success is nevertheless that improvements becomes an all-Hydro agenda so deeply embedded in each business area, plant, and team that we can talk about it as a culture, more of a culture than a spreadsheet exercise. We have several important businesses organized as joint ventures.
Therefore, it's important that we can capitalize on our experiences from our fully owned plants also for our jointly owned assets, as Hilde Aasheim will talk more about in Primary Metal. The ability to foster a culture means, in many ways, the ability to write our own history and also write our own future, something Primary Metal has done so successfully with the $300 program that is now being concluded. By now, Primary's $300 program to save the equivalent of $300 per ton produced aluminum almost needs no introduction. We have been reporting on track, on schedule for 16 consecutive quarters, which surely must be some kind of improvement record as the result of the great work by Hilde Aasheim and her 4,500 team members in Primary Metal.
Everybody from top management to shop floor assistant has been fully on board. As we have also been able to report for some time, this is a program that has been paying off. Without it, we would be in a very challenging situation. Instead, it has lifted ourselves considerably relative to our competitors, and we are now running a competitive smelter portfolio. The $300 program has been a great story, and Hilde will come back later today and explain the new program for our part-owned smelters, where we aim to save $180 per ton aluminum produced by end 2016, showing how Hydro is truly living by the philosophy of continuous improvements.
To achieve that, we don't need not only to identify new opportunities, but also make sure that those achievements already made become permanent, avoiding a cost-based yo-yo effect that in a longer perspective could end up doing more harm than good. In the Bauxite & Alumina, the from B to A program with the total improvements of NOK 1 billion by end 2015 and a 20% reduction in manning is ongoing. The ambition is maintained despite the setbacks the first half of the year, including two power outages and the business area expect to have the improvement momentum back on track during the next year. Head of Bauxite & Alumina, Johnny Undeli, will provide us with more details later.
While the programs in Bauxite & Alumina and Primary have the biggest impact, it is important to note that also Rolled Products and Energy are following the same structured approach with their own dedicated improvement programs. Both areas complement their programs with fully dedicated production systems, as improvements in Hydro are equally about the way of working as they are about results. The one followed, the other are really two sides of the same coin if you are to create results that can be sustained over time and give you the stability necessary to aim to the next level, the next lifting of the bar. In the world, the program is called Climb, and aims to raise the bar in the business area to fully sustainable levels.
In energy, the aspiration, the goal is both to maximize the potential of the assets and to utilize its competence to support other business areas with their energy agendas. In Bauxite & Alumina in Brazil, sourcing for primary and involved products. Extrusion was an area that was hit especially hard by the financial crisis due to its exposure to the building and construction market in Europe. Adding to the challenges we saw already present in a fragmented area with many different players, varying business models and varying incentives. We therefore came to realize that this was a business in Hydro in need for restructuring over and above what Hydro could do alone. Orkla, the owner of Sapa, was in the same situation. Together we formed Sapa, a true global champion in extrusion that aims to maximize value creation, lifting it into a sustainable, profitable industry.
Today, Sapa is number one in Europe, number one in the U.S. It's one of the biggest player in South America, also very strong in Asia, making it a clear global leader in extrusion. Our main priorities for Sapa going forward is of course to ensure that we have a successful integration, but also to realize the synergies of NOK 1 billion, which should, according to plan, be delivered end 2015. Turning over to our focus on technology and innovation, we have for some time maintained an holistic approach resting on three pillars. First, we aim to reduce our own energy consumption in our primary production and reducing our cost base and raising our competitiveness.
Second, we are aiming to support our customers to help them to reduce their energy bill and emissions, a stronger and stronger driver for many of our customers and a clear competitive advantage for those that have the ability to provide the right solutions. Third, we aim to take more metal back to the loop, which is good both for the climate and our own bottom line. For the first pillar, we can show a strong history with incremental improvements in terms of energy efficiency improvements, gradually moving down the scale towards global leadership. With the competitiveness in aluminum so closely linked to energy costs, it is quite clear that running the most cost-efficient smelter technology is a key success factor. Overall average in 2012, 13.8 kWh per kg aluminum, against a world average of 14.1.
My best guess for this year is that Hydro will be about 13.7. We do have test cells in Årdal running at 12.3 and even below 12 kWh per kg aluminum. We are utilizing spinoffs from our research cells to the existing smelter portfolio to bring our current average down as we prepare for next generation technology. The potential financial impact is considerable. If we reduce energy consumption within our Norwegian portfolio of about 1,000,000 tons capacity a year with 1 kWh per kg aluminum, we are talking about energy saving close to 1 TWh per year. Our ambition to be the world leader in smelter technology is illustrated by our recent announcement that we are looking into building a possible pilot plant at Karmøy.
If established, this plant will contain the next-generation electrolysis technology, and our goal will be to have the world's most energy efficient plant with the lowest CO2 footprint in the world. Realization will depend on several factors like competitive power sourcing, full financial support from the public Enova fund, grid reinforcements that can allow for later expansions to a full-scale plant, and of course, also the overall financials and market situation has to be in place. We aim to continue to ensure that even as we develop tomorrow's smelter technology, we also are able to capture significant here and now benefits with technology spin-offs to our existing smelters.
Similarly, when we work together with our customers to ensure that they get the full potential out of aluminum's many qualities, it is because we firmly believe that is a clear business case in doing so. If we are able to prove them that they are value added in partnership with Hydro because that would make them better meeting their demands of their customers, then they could indeed be a very strong business case also for Hydro. In this sense, our most difficult customers are our best customers, those that are innovators with their respective fields and are highly technology-dependent to maintain their edge over their competitors.
We have talked much about buildings and construction, where energy-efficient buildings are totally dependent on a complex combination of technologies and materials for great design and functionality, as well as considerable energy savings, where aluminum plays an important role. In cars, we have seen a considerable shift towards aluminum as producers rush to develop lighter, more fuel-efficient cars to save emissions while maintaining, and even sometimes dramatically raising, the user experience. Aluminum's qualities and the versatile properties as a material is the enabler in many of these developments. For example, in offshore, aluminum has a significant potential for material substitution. In short, we aim to use our competence, technology and innovation to provide new solutions that can make our customer lift the bar and thereby lifting our own competitiveness.
Lastly, we aim to bring more metal back to the loop, which is as good for the business as it is good for climate. With only 5% of the energy needed to recycle aluminum as it originally took to produce it the first time around, and with no loss of aluminum's many qualities, recycling of aluminum makes perfect sense, especially as more and more customers are seeking greener end user products from a life cycle perspective. Currently, we recycle around 160,000 tons of aluminum post-consumer scrap, and our target is to double that by 2020. Some key steps towards these ambitions are already underway. First, we plan to increase our recycling capacity of used beverage can segment and install a UBC line in Neuss in Germany with 50,000 tons annual capacity.
If we make a positive decision on that project, the UBC line could be ready during 2050. Secondly, we plan to upgrade our remelter in Clervaux in Luxembourg, strengthening its ability and versatility for post-consumer scrap. If the project gets the final go, the upgrade could be also finished during 2050. Finally, we have recently made an agreement with the Norwegian Association for Beverage Packaging, Norsk Resirk, ensuring that cans used in Norway are recycled in Norway. Today, these cans are sent to France for recycling. In total, these steps will give us a strong start on our renewed recycling focus, increasing our ability to deliver a greener product to our customer.
In summary, our holistic three-pillar approach to making technology a strong competitive advantage for Hydro is closely correlated with our climate strategy, focusing on our own emissions, the considerable climate benefits of aluminum end use, and recycling. Our ambition is to make Hydro climate neutral from a life cycle perspective in 2020. Our goal to become carbon neutral rests on three aspects. A considerable share of our production is based on renewable energy here in Norway, but also in Canada and Brazil, which makes important contribution. We also have targets to improve our energy efficiency in existing plants, and it's also the main element of our technology development going forward. Recycling is also reducing our footprint, and we see only 5% of the energy necessary to recycle aluminum, bring it back to the value chain.
Because recycling does not affect the properties of the metal, the use of benefits remains the same. The use of benefit benefits are most prominent in the transport sector. Tighter requirements on fuel efficiency in cars in Europe and the U.S. leads to lightweighting of cars and increased use of aluminum, thereby saving emissions, of course. That would give us a leading position on climate within our industry that is again, strongly underpinned by a clear business case for ambitious ambitions within each of the three legs of our climate strategy. As I mentioned, several of our customers are now more and more focused on their footprint of their material because end users, the consumers, are being more educated, more informed. This customer pressure is generating a pull in this market.
If our technology focus gives us the opportunity to meet our customers' expectations also on the climate, we are creating a double advantage. Going into the financial crisis with a strong financial position was of course very important, maintaining that robustness throughout the period, even more so. During a highly challenging period, we have a number of transforming moves, of which the most important are completing the Qatalum and acquiring the Vale bauxite and alumina assets in Brazil. Of course, this would not have been possible without our financial strength and the support from the shareholders, but we also have managed to maintain that strength even after completing these transactions, meaning our room for maneuver is still in place, safeguarding our financial and operational flexibility. We first start with the longer view of our industry, and this is the LME development during the last 13 years.
Aluminum missed the commodity boom, but we did see a significant rise in the LME in 2007, 2008, just prior to the financial crisis. The crisis hit aluminum, especially hard, with a long and steep fall in aluminum prices. After a modest rebound in 2010, 2011, LME has again been caught in a negative trend to today's level below $1,800 per ton. If you then add the curve representing the 90% or 90 percentile on the cost curve, we get an interesting picture. In broad terms, aluminum price is very much following the 90 percentile throughout the period, apart from the high cycle period leading up to the financial crisis.
After the short rebound, we even saw a short period where the 90th percentile was above LME, indicating that a substantial part of the production was cash negative globally. Finally, if you then add the supply-demand balance in this period, we see a confirmation that the economic theory does indeed mirror the reality when it comes to aluminum. As the financial crisis hit and the metal balance shifted from being more or less balanced or even short to a significant oversupply situation, the aluminum prices fall dramatically. While the metal imbalance has been dramatically reduced from 2009, there has still been overproduction in the years 2010 to 2012, continuing to weigh on aluminum prices.
That said, overproduction has gone down gradually over the last couple of years, and 2013 looks, in fact, to come in as a balanced market or even with a modest production deficit, and this is outside China. There's no discussion that aluminum has a persistent supply problem, leading to inadequate returns for our industry, even as demand is showing a solid, continuous growth. From a bird's-eye perspective, the last decade has been characterized by formidable capacity buildups in China and Middle East. The net capacity change outside China and Middle East in this period has been very modest, as the reduction in North America has been offset by some increases in Russia and India. To see the fuller picture, we need to add other drivers besides the traditional shareholder return focus.
With its high petroleum exposure and dependency, the focus in Middle East has been equally about diversification from oil and gas and building the industry base. In China, decision-makers has often been centered on building the country, with aluminum has been seen as a strategic building block for building their own country rather than rely on imports that has likely saved China probably $200 billion, which would be the extra cost if China should import that metal. Going forward, we see a more limited growth activity in Middle East. The gas surplus is concentrated to a few countries, and the lack of raw materials is also a risk and a challenge in Middle East. In China, we see also some soft spots, and there are some signs that growth of new capacity is slowing down.
Higher power cost, raw material deficit, and the financial pain may have some impact. Arvid will revert to this later. Turning to a more detailed view on the supply and demand balance, we immediately notice that after a significant big gap between supply and demand during the financial crisis, the two come back in line again and have been broadly in balance the last 1.five years. Looking ahead, we expect this balance also to continue in 2014. Some new capacity may come in, mainly in Middle East, but we do not expect a lot of new capacity going forward. It's more ramp-up of existing capacity that are on the way to be built up. With demand growth estimated 2%-4% outside China next year, we might even see a small reduction of the inventory levels.
In conclusion, our best estimate is nevertheless that we will see a broadly balanced market in 2014, making us somewhat more optimistic that we may start to see some consumption of inventories going forward. We find these developments also reflected in the supply side developments, where the standout event came with overproduction as it came as a result of the financial crisis in 2008, 2009. As demand fell, supply did not follow, resulting in a significant buildup of inventories that are still with us today. However, we have had a situation over the last 12-18 months with broadly balanced markets and thereby also stable inventory levels over the last quarters. Within this complex industry landscape, with its current market challenges and uncertain outlook, it is critical for Hydro to maintain a financial robustness.
On the top level, we maintain a balanced position with similar amounts of cash as we have debt. We went into the financial crisis with a robust financial position, and we have maintained that position throughout the period. We have now shown over the time that even this period of weak markets, we have not only been able to gradually improving our relative position within the industry but also made several industry-shaping moves. In 2010, we started up Qatalum, a strategically positioned first recycled smelter that has already started to generate dividends. In 2011, we closed the deal with Vale, backed by our shareholders, and this gives us a long upstream position for several decades to come. In 2013, we established Sapa, creating a new global leader in extrusion.
We have done this and kept our robustness, ensuring that we also have kept our financial flexibility. The downturn has, of course, led to our total shareholder return for the period being unsatisfactory, and that is as it has been for all players within our industry. We do, of course, aim to give the best possible returns for our shareholders over the cycle, so these challenging years are a cause of high concern for us. That said, we have been able to perform better than our competitors, and we have been able to gradually increase our competitiveness. With the long-term outlook for aluminum being positive thanks to continued growth and materials substitution, combined with a steady stream of new products, solutions, and innovation, we believe Hydro is very well placed within the aluminum industry.
We aim to maintain the absolute dividend level also for 2013, which represents a higher dividend than our full policy would suggest, illustrating our commitment to shareholder return. In summary, our value proposition in this period of high uncertainty and a challenging market is to stay loyal to our long-term agenda, lifting the bar step by step with gradually implemented improvements across the value chain. We build on a highly attractive asset base, and we ensure that the improvements we make are sustainable while also maintaining our financial strength.
For the rest of the day, we'll aim to discuss this with you from a wide variety of angles and perspectives, and it's therefore my pleasure to introduce our CFO, Eivind Kallevik, who will now give you his own presentation dedicated to financial aspects and guide you through the other presentation over the course of the Capital Markets Day 2013. Thank you for your attention.
Thank you, Svein Richard Brandtzæg. It's also a pleasure for me to see so many of you taking the time this morning, to spend at least half a day with us, on these important topics. In my financial update today, I would like to start by looking at our financial policy, and also some important items for our reporting going forward. I would then like to continue with looking at what measures we are taking internally and throughout the company, which in turn results in the next agenda item, which is our financial results, as well as our position. I would like to end my presentation by presenting Hydro Group, our sensitivities, as well as some EBITDA scenarios looking forward, and also how these relate to last year's scenarios. We have three main priorities within the area for capital allocation.
Firstly, it is very important for us to deliver competitive return to our shareholders. As my predecessor, I'm sure, also mentioned last year, we have, of course, not delivered satisfactory returns in the last few years, largely driven by the limited profitability within our industry. However, as I will show you later on, through clear bottom line examples, we are working hard to influence the factors that we control ourselves through the improvement programs that we have throughout the corporation. This, of course, will continue also going forward and through that, improving our relative industry position. Secondly, it is very important for us to maintain a solid balance sheet, particularly due to the cyclical nature of our aluminum industry.
The last couple of years, I believe, has been a good example of this, where the challenging markets has proved that this has been an important part for us, enabling us to take strategic moves such as the Vale acquisition, as Svein Richard Brandtzæg mentioned. Thirdly, we do have a broad portfolio of growth opportunities, but as we've mentioned many times before, we will employ also in the future a very disciplined capital spend strategy. Given today's market situation, we will continue to focus on the internal improvement efforts, keeping it quite disciplined also for the future. Having financial flexibility, as you know, has been very, very important for us in weathering through the tough markets as we've seen.
Our strong balance sheet has been and continues to be one of the most important tools for us to be resilient in this tough and cyclical industry. A strong financial position is very important for Hydro, and we have also, as a follow-up, a strong focus on liquidity. Our cash position at the end of third quarter was NOK 8.4 billion. As you may have seen, in the press release, we have also replaced our credit facility. The $1.7 billion facility that we did have, which will mature in 2014, has now been replaced with a new facility, same amount maturing in 2018, with two one-year extension options.
The terms that we have concluded for this agreement is very competitive from our perspective, but it also reflects the very strong relationship we have with our core banks, which has been developed for many, many years. Thirdly here, we also have a NOK 1.5 billion bond, which was issued last year and matures in 2019. The current credit rating we have is stable at BBB, and I will revert to some comments as why this is very important for us to maintain also going forward. On hedging policy, I'll be relatively brief. The reason why I include this slide here in today's presentation is just to remind you about the BRL US dollar hedge that we have in place also for 2014.
This was of course done to secure the cost position that we have in Brazil, which in a low LME environment creates stability and ensures that we have management focus on improving operational performance, which is in particular important for Alunorte, given the measures taken to increase both production and robustness of the plant. For 2014, the hedged amount is $870 million and is done at roughly BRL 241 to the dollar. As a Hydro shareholder, one should expect competitive returns, not only for the industry, but also for the company over time. Our top priority, also for me as the CFO, is to contribute to running Hydro as a company that delivers strong and sustainable long-term value creation. We do remain committed to the dividend target of paying out 30% over the cycle.
However, in the low earnings environment that we've had, this ratio, of course, becomes quite large, and it's about 172% of net income over the last five years. This is what you should expect in periods of weak earnings. According to normal procedures, Hydro's board of directors reviews the dividend proposal in connection with the Q4 results, and the board's proposal will then be announced together with our Q4 release in February 2014. However, based on the current situation that we see in the current earnings, Hydro's ambition is to maintain the absolute dividend level for 2013. This, of course, is important in particular in a situation where the share price development is challenging, and we see it's as very important to continue to deliver a stable and competitive cash return to our shareholders.
Now let's take a look at some of the items that will affect our financial reporting going forward. As you will know, on first of September, we did close the Sapa transaction, thus creating the world's leading extrusion company. As many of you will remember from the third quarter reporting, Sapa is reported as an equity-accounted investment, meaning that 50% of Sapa's net income will then be reflected in our results. Going forward, you will find this 50% of Sapa's net income under the line item called Other Eliminations. We also announced, actually in second quarter that Sapa had got their own stand-alone financing in place. Subsequent to closing, Sapa has now paid Orkla what was due according to the shareholder agreement, leading to the fact that.
That's all they've used this credit facility for, meaning that Hydro's share of the net adjusted debt in Sapa is roughly NOK 900 million at the end of third quarter. Now if we turn to an IFRS change. In accordance with the implementation of IFRS 11, we will consolidate the world's largest rolling mill, Alunorf, as a joint operations from January 1, 2014. This is more or less the same methodology as we would do for proportional accounting. Since this has historically been reported as an equity accounted investment, then this will have some noteworthy effects on our Hydro's reported figures. If you look at EBITDA first, there will actually be very little effect, as Alunorf has been operated as a tolling arrangement where production goes through Alunorf at a break-even level.
However, the consolidation will have an effect on EBITDA, as our annual share of depreciation is roughly NOK 200 million-NOK 250 million per year. Secondly, it will also have an effect on sustaining CapEx, increasing it approximately by NOK 150 million on an annual level from an accounting perspective. There are really not big differences, compared to what we guided on, from the Q3 reporting and what we're seeing so far into fourth. However, I will remind you just of a couple of the issues that we said, as well as provide some additional commentary, where appropriate. The LME still trading around 1,750 level- 1,800 level, and the one-year contango is still steep at $150 per ton.
Now since Q3, standard ingot premiums have remained relatively flat, and we have not seen any significant market reactions to the updated LME rules, as they have been disclosed. I'm sure Erik Fossum will come back and discuss that in more detail in his presentation. We're still somewhat down from the high levels that we saw prior to July 1st, but we should also note that the value-added premiums that we are mostly exposed to remain at very solid levels, compared also to history. For alumina, we see that the flat alumina price remains relatively stable around $320-$325 per ton, hovering around 18% of LME. At Q3 reporting, we also guided for gradually increasing production at Alunorte.
I have to say that I'm very happy to see that this is taking place. Alberto Fabrini will take you through in more detail as to the speed we have and the measures that we've taken at Alunorte, but Q4 is off to a good start. We talked a lot about seasonal effects in the Metal business areas in Q3. For Primary and Rolled Products, you should still expect to see a higher maintenance activity compared to third quarter, which is normal, seasonal normal. For metal markets, we should expect to stay, as we said, stable volumes and higher margins. Remember, for this segment, these results may be volatile due to its currency and hedging effects.
For Energy, due to the high power production we had in Q3, we did guide on somewhat lower production. While prices in the NO2 area, where we have about two-thirds of our production, have so far delivered about NOK 300 per megawatt hour , roughly 10% higher than what we saw as average in Q3. I would then like to move to an area, where I believe we actually have achieved great results over the last years, which is the internal measures. This includes the improvement programs that Svein Richard Brandtzæg mentioned, includes net operating capital, and it also includes the tight capital discipline across the whole value chain.
I would like to start with the improvements that we have seen taking place in the Primary Metals area, and then primarily the $300 program, that we've talked so much about, which has been a great achievement for the area as such. If we start looking at the LME price, and if you look at the development between the third quarter of 2011 until today, it is quite a painful development as we all know. Hydro's realized price in LME fell from 2,440 in Q3 2011 to 1,822 in Q3 2013, which is basically a 25% decline. If you just apply the sensitivities that we've given, then this should have a negative effect of roughly NOK 1 billion between these periods.
However, the underlying EBITDA as reported has fallen from NOK 650 million in the third quarter of 2011 to NOK 337 million in the third quarter of 2013, a change of only NOK 300 million. Of course, there are many factors apart from the improvement programs affecting this. However, the results we can say surely would have been significantly lower if we had not been able to deliver on the program. If we look at this in a little bit more detail, we can see that LME is clearly the biggest negative explanation factor, amounting to about NOK 1.8 billion between those two quarters. We also see some negative effects from reduced sales volumes, which is partly due to reduction we've done on cost-plus re-melting. On the positive side, we do see some positive effects from premium development.
It's maybe slightly lower than what you expect, but this is also because we've taken down the VML volumes in the period. We have some positive contributions from the weakening NOK, as well as some of lower alumina costs, combined amounting to approximately half or NOK 800 million. The final NOK 800 million includes a noteworthy share of the $300 program. The estimate that we have is that this is roughly $100 per ton, amounting to some NOK 500 million in improvements between this period. Again, like I said before, it has been a very important program for Hydro, a very important program for Primary Metal. Without this program, the results would have looked quite differently. Also, in the other business areas, we do see very impressive effects.
In the Rolled business area, we have been facing cost inflation for some time, which has been weighing on the underlying results. If you look at the margin development for Rolled Products so far in 2013, and exclude currency effects, the Climb program has helped to improve the results in Rolled by approximately NOK 100 million. The currency effects that we incur, it's mainly through our sales in dollars while we do our purchasing of metal in Europe. The assumption is that over time, these currency effects will be neutralized, and therefore we do not externally hedge these contracts. In 2013, these currency effects were significantly negative, but if you had looked at the same period between 2012 and 2011, you will see quite the opposite effect.
If you look at the results for Rolled Products, excluding the currency effects, 2013 versus 2012, then we actually see an operational improvement year-on-year, largely driven by the Climb program. On net operating capital, we have a strong focus, and we have for quite some time. And over the years, last years, we've seen quite a good development, both in number of operating capital days, but also in absolute amounts. Reductions in net operating capital is a key focus area for us, and also an area which we will work quite hard on going forward. Here we have had particularly positive developments within the Primary Metal area as well as in Rolled Products.
If we look at capital, which is the final topic on internal efforts and measures, we are here just showing what we call sustaining CapEx, and I'll revert to the growth CapEx a bit later. As you can see, over the last five years, we have been more or less in the range of NOK 3 billion-NOK 3.5 billion, and we've been working quite hard in the last few years to bringing this down for a sustainable level. This year's sustaining CapEx comes out at roughly NOK 2.9 billion, which is very much in line with what we have guided on at the last Capital Markets Day and also throughout the year.
However, it is also so that we have indicated, as I said, that the CapEx range is between NOK 3 and NOK 3.5 over time. For 2014, there will be a number of effects which will impact sustaining CapEx. Some of those are constant, and some of those will occur at intervals. If we start with the effect that we mentioned before, this is basically sustaining CapEx related to the proportional accounting consolidation of Alunorte. Therefore, it's much more of a technical accounting technicality than anything else. The next effect is relining, where you typically see some swings at new smelters, and then it stabilizes as time passes. The effect we will see next year is the relining wave that we will see at our newest line at Sunndal.
Finally, there are some effects also at the Bauxite & Alumina area. There are two factors here. First and foremost, it's the fact that our current red mud disposal area is being filled up and getting closer to end of life, and then you have to build a new one. This project will continue in 2015 as well. The next time we will have to do this effort is probably 15-20 years into the future. We also have a similar effect at Paragominas, where we have a tailings dam for bauxite mining. This is also getting close to the end of the life, so we're starting to build a new tailings dam, and this typically happens every 5-10 years, depending on the size of the dam.
All these factors combined result in a CapEx estimate for next year, sustaining CapEx estimate for next year of NOK 3.9 billion. Long-term guidance though still remains around NOK 3.5 billion, including the accounting effect at Alunorte. This is fairly aligned with previous guidance that we've given on this topic. If we sum all of this up, then we still see that the majority of the investment are directed towards the upstream business. If you look at sustaining capital, then approximately 85% relates to the upstream part. For 2014, we do have a couple of growth projects that we would like to continue to work on. We have the used beverage can facility in the Rolled Products business area. We also have the upgrading of the recycling facility in Klæbu.
Also here, I'd like just to remind you that, the put call options for the outstanding shares for Paragominas, the first tranche of that is due in 2014, second part of that is due in 2016. Also remember then at the time of the purchase, we did reflect 100% of that acquisition in CapEx through our books, due to the full financial exposure and consolidation. I would also like just to note that, depreciation for Hydro is still significantly higher than our long-term sustaining CapEx. As Svein Richard mentioned, we do believe we have a fairly robust financial position. It's something that we comment on, I believe, quite often.
At the end of third quarter, we had about NOK 0.5 billion in net debt, so basically more or less balanced. We've had this for a long period of time, both through challenging markets, and it's a clear result of all the internal efforts that we have done and have mentioned so far. The adjusted debt position consists of, in addition to cash and debts, also net pension liabilities of NOK 4.7 billion, as well as some other adjustments of approximately NOK 5.5 billion. These consist primarily of operating lease commitments, but also some smaller effects. Now, with regards to pensions, we do estimate an increase for the year end following the implementation of the new mortality table called K2013.
However, the negative effect of this will be partly offset by the estimated increase in discount rates and somewhat higher expected return on pension assets. We are in the process of finalizing the calculations, and final figures will of course depend on currency and interest rates at the end of the year. In total, we estimate that this will have an after-tax effect of roughly NOK 1 billion-NOK 1.5 billion. Also just like to mention that debt- and equity-accounted investees is not included here, as we do not include their shares of revenues either or their shares of EBITDA in our results. For Qatalum, the net debt at the moment is standing at approximately NOK 5.5 billion, while in Sapa it is close to or is NOK 0.9 billion as I mentioned before.
The fact that we are more or less cash neutral, excluding operating capital and others, but including a full year dividend at an LME price of roughly $1,900 is also a clear result of the improvement efforts that has been done, in the company, and would certainly not be the case if you had done this exercise three years ago. We started the year with a net cash position of NOK 1.7 billion. We have delivered an underlying EBITDA of NOK 5.5 billion so far this year, which is up NOK 600 million from the NOK 4.9 billion delivered in same period in 2012. We have other adjustments of a negative NOK 2 billion.
This relates in large to tax payments, in addition to backing out unrealized hedge effects from the metal markets business area. We've invested NOK 1.7 billion so far this year, very much in line with our earlier guidance, and this, as I said, mainly relates to Primary Metal and Bauxite & Alumina. We have a dividend payment of NOK 1.7 billion, and that basically brings us to a net cash after dividend of NOK 1.8 billion, pretty much the same starting point as we had in the beginning of the year. We've had a negative change in net operating capital of NOK 0.8 billion. This was very much driven by effects in third quarter and has much to do with timing of shipments between quarters and quarter ends.
There is some currency translation effects of negative NOK 1.6 billion and some other smaller effects, leaving us with a net debt position, as I said, NOK 0.5 billion at the end of Q3. If we then look at Hydro's yield over some of the last years, as we said, it is important for us to maintain a stable and competitive dividend yield to our stakeholders, shareholders. You can always discuss what is a competitive yield level over the last four-year period in the markets that we have experienced. Now, if you compare us to those companies who are exposed in exactly the same markets as we are, then our dedication to providing shareholder return are more visible than if you only look at Hydro on a standalone basis.
It also reflects our strong financial position, which enables us to carry on this dividend payments. Finally, before moving on to what you can expect going forward, based on your market assumptions, just a few words on credit ratings. For us, to maintain investment-grade credit rating is extremely important. It allows us to secure access in the bond market at very competitive terms when we need that. It also helps them in terms of handling counterparty issues in several cases. Since the start of 2011, we've had a BBB flat rating, despite the downward trend in aluminum prices in this period. Finally, given all we've been through so far, let's look at what our sensitivities are to movements in LME and currency on a Hydro level.
I will give you some scenarios going forward, and as well as some comments as to what has changed compared to last year. Now, with respect to Hydro's earnings driver, it is important to remember that the starting point when we do sensitivities is very important. For example, a higher LME would give a larger NOK dollar sensitivity. Higher NOK dollar would give a larger LME sensitivity. Models are very much simplified. Obviously, there is no accurate answer to all price and currency movements, and typically a degree of negative correlations between LME and NOK over time. That's my precautionary notes on all the sensitivities before we move on. This slide gives you the main overview of Hydro's price and currency sensitivities. The largest impact, of course, is the LME price, as well as the development of the NOK dollar.
The total company LME sensitivity is roughly NOK 2.5 billion with a 10% change in LME or a $180 change. Of this, NOK 1.5 billion is related to primary metal business area. NOK 0.9 billion is related to the B&A business area. The largest currency sensitivity is related, of course, to the dollar. As the LME is priced in dollars, and we have very much cost base in other currencies. A 10% move in NOK dollar would give an effect of roughly NOK 1.95 billion effect on our EBITDA. On a longer term basis, we also see a significant BRL sensitivity on EBITDA due to the local cost basis that we have in Brazil, and sensitivity on financial items due to some of the U.S. dollar loans that we also carry in Brazil.
However, it is important that when looking at these sensitivities, you have to remember that for 2014, the BRL US dollar is hedged, and that of course is not reflected in the sensitivity here. If we then try to give some scenarios going forward, and if we use the last four quarters as the baseline for that starting point. Taking Q4 2012, including Q3 2013 as a starting point, we have LME of $1,900. We have a NOK dollar of 5.80, and we have delivered in this period four quarters an EBITDA of roughly NOK 5.8 billion. Now assuming a sensitivity for the starting points, we've tried to give the three scenarios.
One with LME 1,800, one with LME 2,000, and one with LME 2,200. The first two scenarios starting with a USD/NOK of 6, and the last one with a USD/NOK of 5.70. As you notice, we're only assuming differences in LME and NOK to the dollar. There are of course many other moving parts here that will also play a part going forward, which I'm not taking into account. These scenarios gives us an EBITDA range of NOK 5 billion-NOK 7 billion in an LME 1,800 case. NOK 7 billion-NOK 9 billion in an LME 2,000 and USD/NOK 6 scenario. And a NOK 9 billion-NOK 11 billion EBITDA in an LME 2,200 and NOK 5.70 to the dollar scenario.
There are a few things that we need to mention when we show this, just to underline that all scenarios are based on sensitivities and not forward-looking statements or estimates for 2013. We've highlighted some. We have significant improvement programs in place, in particular the ones in Primary Metal and B&A, and Bauxite & Alumina, and we estimate that this will contribute positively in the years to come. We also have the consolidation of Alunorte, as we talked about, which is not included. We have a new power contract in Slovalco. We will have changes in raw material prices, and finally the premiums, and the development of those will also have an effect.
You'll also see, some of you will probably see that the EBITDA scenario with LME 2000 and NOK 6 to the dollar has been shifted upwards compared to last year's Capital Markets Day. Where do these effects come from? Well, if we start with Bauxite & Alumina, we do not have any ICMS taxes again this year as we had last year, so that's a positive. Primary Metal is really the big contributor. Lower raw material costs, there are higher premiums, and finally a large share of lower fixed costs. Again, the effects of the improvement programs that we have done. To summarize, on financial priorities, continued high focus on cash flow generation. Continue the work of continuous improvement throughout the organization, ensuring that this is institutionalized.
Good and strong focus on margin management in the downstream activities that we have, which again, finally should ensure and support a good shareholder return going forward. Thank you. With that, we have some Q&A. Hence, Rikard, if you will join me up here.
Yes.
We have some microphones out here. When you do ask questions, if you can say your name and state the company you work for, that would be great. Rikard, you are also taking questions from the web, I suppose. The floor is open.
We have the microphone on. Hello? Do you hear me? Hello? Is it working? Okay, let's try this one. We have a question from Robert Clifford of Deutsche Bank. He's asking, innovation and full integration has been a strategy for Hydro for some time and other major aluminum producers. This has not been a successful strategy for aluminum producers over the last two decades, with market caps substantially underperforming other basic resource companies. What does Hydro think is changing structurally in the aluminum industry such that the strategy will become more efficient, effective in the years to come? I.e., what will stop the move of aluminum production from developed to developing countries?
Okay, maybe I can start on that one because this is about a question, is it still a future for integrated aluminum companies or is it better to split up the value chain? We see from our side several advantages, but there are also some challenges and I mentioned that in my presentation. It is a more complex business model, because it is impossible to have the same business system, the same business model for each step of the value chain. If you're running extrusion with the same business model as you do in primary metal, you will probably at least destroy the extrusion business.
For us, it has been always important to have dedicated systems along the value chain that fits with the competitive environment, that fits with the market, and of course, also can meet the expectations from the market from the customers. The advantage of having an integrated system, as long as we have a very clear market-driven transfer pricing between the different parts in the value chain, is that we have a very good competence and knowledge and also resources to support the most demanding customers in their developments. We have a lot of examples where customers are coming to us and wants to develop some new products, which requires new alloys, a new way of production.
It's a new way of casting, so we are starting already from a liquid metal state, how we are casting these products. It goes further downstream. For example, like Oliver Bell, that is the head of Rolled Products, have challenges to deliver some special products to automotive, where we through the value chain have the competence that was needed to supply the most demanding customers with solutions that they can use for the next generation automotive. We have many other examples where we with the long value chain have the big advantage of market intelligence, the technological expertise. I must say, I'm a technological optimist, so I really see the drive among our customers in that direction.
We see customers that also have, as I mentioned in my presentation, that have pressure from their customers to make sure that they are dealing with suppliers that have control of the full value chain and also have a value chain that is sustainable. I think it depends very much on the business you are into, but the way we are organized, I'm quite convinced that this is the right business for us to be integrated. Again, be adapted to the different business areas with different business models. If not, it could easily be value destruction. Any other questions?
Westy Hök, Independent Shareholder. Two things. The Slovalco power deal was negative, you pointed out. The other question relates to the CO2 regime that we have in Europe, and which we have seen in Norway has been under discussion again. Do you have any comments to that? Thank you.
Maybe I can comment on the Slovalco power contract.
Yeah.
You can do the CO2. On the Slovalco side, yes, we should expect somewhat higher power prices. The last contract was entered into back in 2002, 2003. There's not been a lot of statistics about Slovak power prices in that period. But if you assume, you know, starting point in Germany in 2002, 2003, you've seen a price increase of about 60% in that period. That should give you also a percentage indication as to where you would see the new Slovalco contract coming in. So it's still competitive in the market.
Exactly. The question about CO2 regime in Europe is, of course, something that we are following very carefully because we are also exposed to that with the smelters in Norway, Germany, and Slovakia.
It is the ambition for the European Union to lift up the contribution from the industry to the GDP from less than 15% today to 20%. In 2020, the industry should contribute with 20% of the GDP in Europe. If they are going to succeed with that, they have to continue with a system to compensate for the CO2 cost as long as there's no global agreement on CO2. Hydro supports a global CO2 cost, but it has to be an agreement where we have a level playing field and not a situation where we have a competitive disadvantage as we easily could have if we are going to pay the full CO2 cost on a long-term basis.
Today, the CO2 cost is very low, but we have seen during the last years that the CO2 cost, even in Norway, has been 30% of the total price of energy, which is a bit contradiction because our smelters is directly connected to hydropower stations. We are paying for an emission that we don't have, so to say, but it's a market effect. We are following that carefully, and we are also pushing together with other representatives from the energy-intensive industry in Europe to make sure that we are maintaining that situation as we have today, that we get the compensation as long as there is not a level playing field and as long as there is not a global agreement.
I must say that I'm not so optimistic that I believe there will be a global agreement short term. We see that several nations are building their own systems, regions that agree on having a CO2 cost, which is positive. When this is built up to a certain degree, then I think also we are more than willing to pay the CO2 cost, with our position in Europe. Today, it creates too much competitive disadvantage.
Thank you, Svein Richard Brandtzæg. With that, I suggest that we take a short break. There will be drinks, coffee, and some refreshments on the outside. Yeah.
Okay, ladies and gentlemen, then it's time to start the next section. To kick this off, I would like to introduce Executive Vice President and Head of Energy and Business Development, Arvid Moss. Erik Fossum, if you can come to stage, Arvid. Arvid, I think we alluded to some of the issues today already, but one of the questions we very often get, I think in all the investor meetings I go to, is this market balance. Is it really going to be a balance in 2014? When are we going to get into a more deficit situation where we can start believing in a more sustained market price uptick, if you like.
To Erik, before you get on stage, also this quagmire and the question around LME warehousing, how does that actually work? Who actually sets the premiums? Hopefully when you go through the presentations, it would be, I think, at least highly appreciated by myself and some of my contacts if you can spend enough time to get some insights into that.
Thank you. Thank you, Eivind, and we will try our best to give answers to those questions as well as several others. What we will walk through today are the topics you see on this list, starting out with the macro outlook and the effect that will have on aluminum demand, the primary balance that you also want me to discuss, Eivind. Eivind will, or Erik will walk through premium development and the LME situation. I will come back to China and bauxite and alumina. Let's start with macro and the correlation. One reason why we look at this picture is because historically the aluminum demand has followed very closely the developments of GDP and industrial production.
If you see the blue line here, that is, aluminum semis demand. It followed GDP very closely up to the financial crisis, then took a bigger hit. We know that it is more volatile than the economy in total. That this had picked up quite well again and is now closing the gap to GDP. As you see, much stronger than industrial production, which means that, you know, the aluminum intensity in the applications that are produced around the world is increasing. Following macro is very important for us, and it's a guideline for the long-term developments. The second message I would like to highlight is the relation between the metals. The blue line here is the same as to the left, aluminum demand.
We see that the only metal that is close to following aluminum from a demand point of view is stainless steel. Up to 2009, it was very close, that's the gray line, very close correlation between aluminum and steel. They both had a very good growth in the boom years. Steel even took a bigger hit than aluminum and has not recovered to the same level. The reason for that is that aluminum is used in a much more diverse area of applications, while steel is more concentrated to construction. Steel construction is lagging quite a lot in several countries in Europe, for example, but also in the U.S.. That is the reason. The robustness of aluminum demand has to do with the application areas.
For all other metals here, you see that they are at some 70%-95% of the pre-crisis level. From a competitive point of view, aluminum is doing well. To take a look more at the sentiment of the key economies this year. I will leave that over to aluminum. The blue line here is the PMI from the U.S., and we see a clear improvement in second half. For us also, the orange line here, the Eurozone, we saw a shift after summer. It's moving into positive terrain, and that is important for the whole sentiments, but it's especially important for, of course, our downstream business and the metal products business we have in Europe.
For the others, China, the fear that many had for a hard landing of China, I think that has replaced with now a rather positive view on China for the coming year, that they will land at a GDP of between 7% and 8%. 2013 has been a disappointing year for India and Brazil, and that also has had an effect of aluminum demand, as I will show. A key takeaway for us is that Europe seem to have bottomed out, that is improving, and U.S. steady, okay. If you then take two of the main application areas for aluminum, that is construction and automotive.
The other main application areas for aluminum is of course packaging and cans and all that kind of stuff. But you know, that is pretty stable through the cycles. People have a tendency to drink and eat whether it's low or high in the economy. Those are really volatile: construction and automotive. Automotive indicators, we see that the blue line here, which is the U.S. car sales, has ticked up year on year since the crisis. The green line, which is export sales of German cars, is also good. As we know, if you go to China, you see a lot of very good German cars.
While the car production in Eurozone, the orange line here, is now flat. The best thing to say about it is that it is now flat. It's been going down for many years now, but now at least it's stable. More important than the absolute production actually is the aluminum content per car. Oliver will revert to that. Of course, that is really where we see also a substantial shift, which is important for us, and it's important now to see that there is a new CAFE regulation in the U.S., and European Commission recently decided upon new rules for CO2 emissions by 2020 in Europe. Both these two decisions will drive light metal into cars because we are there, we are ready.
I think Oliver will cover this more in detail. If you then look at construction, what really sticks out is the German construction survey. It is a good development in Germany also on construction. Europe still weak, still at just slightly above 60% of what it was pre-crisis. While the U.S. since January to 11 have had a positive development all the way. The main takeaways are here is that here also Europe, we see that it is at least it is not going further down, some positive signs, US steady moving the right direction. What does this mean for aluminum demand?
If we start to the left here, and we start with North America, we had a very good 2012. 2013 came in at a 2% growth. We see an improvement to some 4% next year. Europe. Of course, another disappointing year at -3%, but more or less what we expected. Based on what we see now, development since summer and the expectation for 2013 is that we will get into zero or slightly positive terrain. Rest of Asia, as I said, disappointing 2013, also due to India, but we expect it to come back to some 5% in 2014.
That means for the world ex China, at the bottom there, the estimate now is at 2%. That is at the lowest end of the range we estimated last year, and it is a red arrow on that. It has come down to what was our, let's say, average estimate. But that is where we see it. Next year, we see 3%-4%. Then in China, 2013 came in more positive than expected, and we expect also the growth to be strong next year. We translate this into the primary supply and demand balance.
You probably, most of you were here last year, and if you have not looked at what I said last year, I will help you. What I said last year was the following. We expected a demand growth base case to be between 2%-4%, representing the line and going down after a gray-shaded area. Expected supply to go up so that we said it's broadly a balanced market. If it comes down in the high end, it could be giving room for some decline in inventories. Where did we land? We landed like this, or at least, well, there's still one month to go, but this is more or less where we land.
The demand, the blue line, came in at approximately 2%, while the supply side actually came in lower than expected. You see it here. It is more or less flat production of primary metal outside China from 2012 to 2013. Demand influences I mentioned already, it came in weaker than expected in Europe, but we see some positive. The soft growth in Brazil and India has taken us down to the 2%. On the supply side, we have seen more curtailments and more project delays than we expected last year.
I said last year that given, let's say, what we now expect of curtailments, we can see that there is a balance and there may even be room for some decrease in inventories, and it came in slightly below. Why has this happened? It is due to the fact that LME has been very low and demand has not come out higher than we see here. There's a cash drain in some of the smelters. On the project side, of course, we see companies like Rusal who have a pretty challenging debt situation. They are building new smelters in Siberia.
At the same time, they have also now decided to take down capacity in the western part of Russia to really see to that they have a better balance. There are, let's say, there have been more proactive measures from some companies than others. Also other companies have announced curtailments and project delays this year. India also has come in at a lower growth than expected when it comes to new projects. For next year, we expect 2%-4% growth in demand. We believe there will be a positive momentum in the U.S.. As I showed on the previous page, moderate growth in Europe, and that we see some improvement in emerging economies compared to 2012, 2013.
I think the most important thing to watch for the coming year, of course, you have to watch the macro sentiments and the macro developments, but the most important thing to watch is the supply side. Let me share this perspective with you. If we look at the base estimate behind here, as you see, a slightly growing supply side, some 100,000 tons. If you look at the two years, 2014 to 2015, what we have put in here is a total growth of new capacity around 1.7 million tons. That is the EMAL smelter coming into full production.
They have started production this autumn, and then we expect that in this period they will come up to full speed of 500,000 tons. EMAL and also the Ma'aden project in Saudi Arabia, which is in total 700,000 tons, will by the end of 2015 come up to full speed. They have had some problems with the production now, but we expect that to be solved and that it will be ramped up. Other than that, we have Kitimat in Canada, which we expect will come in with some 200,000 tons in 2015. We have then two more uncertain countries. It is India and Russia, where we have included several hundred million tons of new capacity into the balance here.
We indicate with the light blue area that these are the most uncertain ones. We have seen that projects in India are delayed due to lack of bauxite and alumina resources, lack of power, or other bureaucratic items hindering them in building new capacity or starting up new capacity. There's actually new capacity standing there which is not operating. In Russia, we really, let's say, expect that the speed of development will very much depend on how the market develops. It's really in the hands of Rusal how they will whether they will pursue now the projects and finalize those within 2015 or whether they will be further delayed. That is to watch what happens here.
On the current production, approximately 4 million tons of capacity is today in a loss-making situation from a cash point of view. Of that, decisions or announcements have been made representing approximately 1 million ton reduction for next year. We have included this reduction here in the balance, the light green area. Of course, it is a question whether even more curtailments will come in if the prices continues at these low levels. I think that the focus what we watch very carefully and what you should watch very carefully is really what happens on the supply side in this industry.
As Svein Richard Brandtzæg mentions, we do not see no new projects in the Middle East that will have any effect on the balance over the next years. We see also other places around outside China that there is very, very limited activity for good reasons not to build new capacity. There is approximately, there's a lot of what you call idle capacity. But of course, a lot of that is mothballed and has been now standing still for many years. If everything kicks in, prices go up to a very solid level, in the end, you could see that 1.5 million ton could come in. We don't believe that is a realistic figure.
We expect that less than half of that actually will be restarted under what you could see as a realistic price for the medium-term period. Also of course, we are, as many others, disappointed about the price of aluminum. I explained the reasons why it is the macro sentiment is not good and has been too much supply, and Svein Richard Brandtzæg also explained that. Of course, what has happened in the same period over the last 10 years is that the cost base has increased. If you look at, in 2002, the average power price to smelters outside China was at $17 per megawatt hour. Now it's at $32.
This, if you convert this into cost per ton aluminum, it's an increase in average of $200 per ton. Alumina has increased from $170 to $320. Converted into alumina aluminum cost, that is $300 per ton. Carbon cost has increased by $100 per ton aluminum. In total, these three elements represent $600 more production cost for smelters outside China. If you then look at the cost for the 10% highest cost operating smelters, we have had this development here. It's here in 2002, at the low point here, it was around 1,500. Then it came up and down, and now it is around a little bit less than 2,000. Why hasn't it increased with $600?
It is partly because the business operating cost, you have a deduction for net margin on the products. To the extent you have now a very high premium on ingots or extrusion ingot, that comes as a reduction to the cash cost. That is, let's say $600 minus this delta improved product premium, and there are also smaller other items. You see that the LME, let's say, as Svein Richard Brandtzæg also pointed, that here it was close to the same level. Here it was slightly lower, and now we are also more or less at the same level. I think that we should also remember now that the cushion from alumina is reduced because earlier, all contracts were made as a percentage of LME.
When LME went down, you had a reduction in your alumina cost. Now as alumina is priced more and more as a, on its own merits and, as a dollar per ton price, you don't get this automatic, let's say, reduction in your cost. It's a harder support in a way due to the way now the alumina cost is priced. I do not predict prices. That is not our job. You should just be aware of that this cost support is what it is, and it has increased like I show you on this page. With that, I leave the floor to you, Erik.
Thank you, Arvid. I will talk a little bit about the premium development and the impact on Hydro. Before I try to answer your question, Eivind, I would like to spend a little bit of time discussing our value-added products in Europe. Keep in mind that half of our global metal sales is taking place in Europe, and all our production in Europe is in the shape of value-added products. Here we see a chart going back to 2003 with the indexed premiums. We have yearly observations for extrusion ingot, foundry alloys, and sheet ingot in green, blue, and red. We see that we, even in 2013, are observing declining standard ingot premiums, have seen a steady increase in our value-added products.
As you maybe have been guided before, there is a time lag before the change happens in the standard ingot premium, until we see it in the product premiums, but we are continuing to see strength in the value-added product market. Normally we are extremely careful in giving guidance forward, but I asked very nicely to give some guidance forward. As we have good visibility now, having concluded most of our sales into first quarter 2014, the premiums for extrusion ingot and foundry alloys are continuing to increase into first quarter 2014 in a modest fashion. While the premium for sheet ingot is priced as a markup above standard ingot and, of course, will follow the standard ingot, the premium development.
Of course, no guarantee that this will continue going forward, but we are very confident that we will see solid value-added product markets going forward. Moving on to discussing the development in the standard ingot inventories globally, excluding China, and also the development in the standard ingot premium. Different from what Svein Richard showed you, and different from what we have shown previous years, I have added the CRU estimate of the unreported inventories on top of the reported inventories. As Arvid showed you, we have had the metal deficit in 2013, indicating lower inventories, and we can recognize this in the total inventory figure going down, although the reported inventories have been moving upwards, basically reflecting a move, shift of inventories from unreported to reported inventories.
Looking at the inventory days, also excluding China, we're seeing this on a declining path, a little bit steeper than for the inventories themselves, of course, reflecting a continued demand increase for aluminum. Moving to the regional standard ingot premiums. We saw that the standard ingot premiums for Europe peaked in first quarter 2013. In the gray line. The blue line showing the U.S. standard ingot premium peaking beginning of third quarter 2013, just in line with the LME having the process of evaluating the load-out rates from LME warehouses. In the green, we see the Asian premiums represented by the main Japanese port premium, where we're seeing it's basically been moving sideways at all-time high levels.
A little bit on the background for the LME rule change in introducing new mandatory load-out rates for warehouses with large aluminum stock. On the left-hand side, we see the total aluminum price split up between the LME part and the standard ingot part. We see that the standard ingot part have moved from being on average 1%-4% of the total aluminum price to 2013, where it moved to be 11% of the total aluminum price. When this happened in the context of increasing aluminum inventories at LME warehouses, the LME basically felt that it was a good thing to change this so that aluminum could be more accessible to customers.
However, if you look at the warehouses around the world, it's only 2 warehouses that now exceeds the limit that the LME have set of 50 calendar days that they have to deliver out the warehouse queue. That is in Vlissingen in Europe and in Detroit in the U.S.. At all other warehouses around the world, customers or consumers, sorry, have been able to take out metal on much shorter notice than the 50-day limit. Trying to answer your question, Eivind, and coming to what sort of effect will this have on standard ingot premium, and on the aluminum market.
The new LME rules on load-out rates give a very precise formula, making us able to approximately estimate how much aluminum that will exit LME warehouses in 2014 and also 2015, in order for the two big warehouses with the 3.5 million tons of aluminum being Detroit and Vlissingen to get within the 50-day calendar rule. This calculation tells us that in 2014, approximately 550,000 tons, little bit depending what's gonna happen until April when the load-out starts to happen, will be delivered out of LME warehouses in 2014 and a little bit more in 2015. This equates to approximately 2% of global demand will come in addition, will come as additional supply will come out from the LME warehouses.
However, there's no reason to believe that all of this will go into consumption or go to consumers. We still have, at least in the short term, the U.S. interest rate staying at very low levels. We still have a very healthy contango, steep contango curve, making it still profitable to finance aluminum stocks. It's reason to believe that some of this aluminum coming out of LME warehouses actually will go into contango financing, not inside LME warehouses, but outside LME warehouses. As Arvid showed you, the metal balance for next year look to be balanced to a deficit. It doesn't take too much of a deficit to soak up a couple of hundred thousand tons if some of the stocks coming out of LME warehouses should go into contango financing.
The effect on the aluminum premiums, of course could be negative when the rules start to come into effect in April 2014. However, it will happen over time, and we believe the market balance and also the fact that some of the metal probably will go into storage contango financing outside the LME, will lead the premiums to go downwards, but in a very muted and gradual fashion. To finalize what I intend to say, a few words on our product portfolio improvements, and backtracking a little bit to what we said last year. We have had a strong focus on increasing the product premium margin versus market share, especially in Europe, where we have adjusted our remelting and focused a lot more on achieving strong product premiums.
We have been shifting our product mix towards higher premium alloys. This especially for extrusion ingot, where we're moving towards harder alloys, giving a better markup and a higher premium for us. Also in terms of the optimization of Qatalum, we have had very good results in 2013. If we include the standard ingot premium, which of course also has increased significantly, we have more than doubled the cost base margin for Qatalum in 2013 compared to 2012. We will continue to do all this in 2014, but in addition, like Svein Richard mentioned, we will go deeper into the post-consumer scrap pile, lowering our metal cost to our remelters around.
We will do full-scale testing of our adjustable flexible mold technology for sheet ingot, and this will give us much better capabilities to deliver towards the automotive sector and harvesting better premiums. We'll also continue the work on optimizing the primary foundry alloy product portfolio. This concludes what I have to say, and I hand back over to Arvid. Oh, yeah, go down.
Okay.
We exercise this.
Okay, China. In my next life, I would like to lead the statistics bureau in China and make prognosis on supply and demand of primary metal. Then my prognosis will be that next year it will also be balanced. Primary supply will follow primary demands. That's the short story of China. More is happening behind the scene. You have heard me telling about China over the last years, and I think that in my hypothesis, shown on the previous page, that China will rebalance primary metal demand versus supply stays. There are big changes within China. You know that the aluminum industry is now being built up in this province here, and there is a full standstill, if not a reduction, in some of the production in this area.
Just to make a scale here, it's 5,000 kilometers from here to the coastal area where the aluminum is used, and they truck alumina from this area here, and they truck metal back. Just imagine you start with a truck in Hammerfest, and you drive it on bad roads down to Rome, and you take metal back again. You talk about 5-6 million tons of capacity being traveling that way now, and they want to increase it. Is this a sustainable solution? It depends on the eyes you look at it with, huh? Of course, this province here is a province with a low GDP per capita, so they want to increase the GDP there.
There's a lot of coal, of course, that is the basis for the new capacity. The alternative is to transport the coal as coal to the coastal area. If you look at the transport cost for alumina in and metal out per ton aluminum compared to transporting coal, the best way to utilize these coal resources is to convert it to aluminum. The alternative is, of course, to build high voltage lines, and that is under construction. Of course, that is the cheapest way to transport this energy. We expect that to happen. Of course, then you have the conflict between local value addeds or export of a raw material through the cable, but let them solve that. It's a large need for energy in this area.
We also see signs now of decline of growth, to call it that, for new capacity coming on stream in this province. The reason is that the power construction is somewhat slower than expected. Second, there's lack of skilled workers, or you have to pay them a very high salary. Thirdly, the local province is not supporting so much cash-wise as before. Fourth, also the aluminum price in China is now lower than before. So cash is actually starting to burn for some of those who are building that. It's really the financial strain now start also to come in here. It's also worth noting. I was in two or three weeks ago.
We have had delegations in here and to visit suppliers and alumina plants and so on. It is again a very clear signal from the central government that they want to stop the growth of new capacity in smelting. We have seen these directives before. Now they are clearer than before. In addition to the general, let's say, that they are very clear on that provinces are not allowed to give subsidies, this is also now introducing environmental legislation to some of these provinces. They are not here and not allowed to build new smelters, and there are environmental standards prohibiting that. We see now as the first province actually in Inner Mongolia is introducing this. Of course, this is what we have seen over the last years is really the local provinces doing what the central government want to do.
We will see. It's one to watch. I think what is really in the end will make a change is the money in the pockets of the private owners. They want to be rich, and if it's less money in the evening than in the morning, they will stop to invest in this industry. At least there are reasons, good reasons to watch this closely, and we'll sure do that. I'm not saying that we will see a fast change, but at least there are signs here.
In addition, you know that the new president and the prime minister and the party gathering some weeks ago also introduced now that they want to have price reforms both within the capital markets, the power markets, and for the lands. Of course, that is one problem that we have that actually capital has been too cheap. On China in summary, we see no big change this year except for the large bauxite import, and I will revert to that. To bauxite and alumina markets. First, just a factual thing on the size of the traded bauxites.
Rio Tinto Alcan is by far the largest one, and we are number two when it comes to traded bauxites. When it comes to alumina, it's Alcoa who has the lead position, while Rio Tinto used to be number one, number two. Now after they decided to close the Gove alumina refinery, they will be more or less balanced. Then it's BHP Billiton and Hydro that are number two and three. To China. To the left there, you see the large increase in import of bauxite to China. This year so far, end of October, it was up to actually 60 million tons, and it's a large increase here from Indonesia. That is due to the expected ban, which I will discuss a little bit later.
We see also that import prices to China have steadily increased over the last years. The upper here is from Australia, and this one is from Indonesia. A steady increase, meaning that the cost of producing alumina in China has increased. The other important factor is what is happening inside China. There has been a recent study that we participated in by a group called CRU. They made a similar study in 2009, and they have a new study now. We see that the reserves in China is going down in size, it's going down in alumina content, and it's going down in quality on the silica ratio. Less resources, less reserves, and not the same quality as before.
That is of course also important for the long-term outlook. The cost increase to convert it to alumina when you have a worse quality. The third thing, it's the import price, it's the quality, and the third thing is the free market for bauxite in China. This is also a new trend. We see now that around 50% of domestic bauxite is sourced from third-party players. That means that there are local traders who are actually traveling around in China buying bauxite from small miners and selling it to refineries. They want to make money. Everyone wants to be rich in China. Of course, they want to price the bauxite at the same level as import prices, the parity pricing.
We see that the third-party pricing in China is substantially higher than the cost of producing it from the mine. That will also push up cost of producing alumina in China to the extent you are not physically integrated into the chain. To Indonesia, I think this is of course the main uncertainty for this value chain over the next years. It's been up to 40 million tons of export of bauxite over the last years, and the speed this year is even higher. They have announced an export ban from first of January. I think very few believes that they will be able to do that.
It will also have an impact on the economy and the workplaces in Indonesia that we do not think they will accept. We say that a total export restriction is unlikely. We expect that those who commit to do studies on alumina refineries or to build an alumina refinery will be allowed to export a certain amount of bauxite in addition. We just have to wait and see. It's not a long time until January. Of course, China has built an inventory now almost for one year's consumption.
This will not have any immediate effect in the market, but it will be important to watch what is going to happen here. All in all for China, this is what we expect of domestic production still increasing, but we see also a steady increase in import over the next years. Of course, if something dramatic should happen to Indonesia, this will be a very tight situation, but we don't expect it to be a full ban. It will be hopefully at a steady acceptable level for all parties. On alumina, in light of time, I will be very short, but the main message is really that given that China has now built up huge overcapacity in alumina, they actually balance the market for both alumina and bauxite.
If the alumina price in the West goes up, they import more bauxite and use that for in their internal system and vice versa. We see here when the alumina price outside China went up in 2011, the import of alumina to China went down almost to zero. When the price outside China was lower than the parity price, then they imported more. As long as they have this overcapacity in alumina and as long as there is not really what I would call value pricing of bauxite outside China, they will have this advantage. It's really what happens to the bauxite pricing and bauxite supply is really very important also for the development in China or on alumina. I will skip this one. Long-term outlook.
I went back to the estimate in 2010. It's three years ago, and a lot of things have happened since 2010. We have had the euro crisis, and we have had different development in different regions. If you look at the estimate for demand of aluminum, it has not really changed very much from the forecast we have now. In 2013, you see that the current estimate is approximately 1 million ton more demand both outside China and in China. Here also, if you go up to 2017 or 2020, the expected demand is more or less the same as CRU and others saw three years ago.
The properties of this metal and the urbanization and all of the things that's going on, that Oliver also referred to, it really is driving this demand in a very robust way. This is just to confirm that we expect China to be a continued importer of raw materials. To sum up, robust demand, long term and also a good growth next year. We see more curtailments now starting to kick in and delayed projects. Remember, we come from very high inventory level. Erik told about the solid premium developments. Really to watch is really how will the pricing of bauxite and alumina on its own merits, how will that stick going forward. With that, I leave the floor to Oliver. Thank you.
Yeah. Thank you, Arvid. Good morning also from my side. Yeah, we learned a lot about metal supply and demand and the LME premiums. Now I would dive a little bit deeper into the markets and we of course all know this is what is really driving the demand. It is markets, it's customers, it is products which are creating customer value, and I will give you a glance into the drivers for that. Secondly, of course, why we believe in the future world why aluminum will be a solution. Thirdly, I will try to link that a little bit to our direction we would like to move Rolled Products in the next years. It's not all about Rolled Products, but we tie it up with that. First of all, I think you all know the mega trends are still intact.
We will see till 2030 an enormous growth in population to 8 billion. Urbanization will be one of the trends. 60% of the world population in 2030 will live in cities. Of course, we will have increase in welfare in the world. There will be a new middle class. Also 60% will be accounted for in this new middle class, having the buying power to buy aluminum products. Because according to the S-curve, I think the income is an important criteria for the creating demand for aluminum products because aluminum is of course a little bit more expensive compared to alternative products, at least in some applications. Beside that growth, we still will have just one world, one planet Earth. Of course, this will challenge environmental requirements for the solutions of the future.
The world will ask for solutions, and we believe aluminum products will provide these solutions. First of all, when you take a look in food production, people will live in cities. Food will not be around a village. There will be no fields. It needs to be transported. It needs to be stored. 30% of the world's CO2 emissions are accounted for in the food production. An aluminum foil, for example, will ensure that these food which needs to be transported are not rotten during the transport and can save CO2 caused by that. Secondly, transportation. The new middle class will of course ask for transportation, new cars which need to be fuel efficient. Transportation accounts for 25% of the world emissions. Another example is, of course, buildings.
Urbanization is, of course, one of these drivers, and we need to have energy-efficient buildings for that. The conclusion is, yes, megatrends will give us tailwind. I think they will drive aluminum demand, and I think there is good reasons for believing that aluminum will provide these greener products. When you take a look here, this is the semi development on the left side. The semi developments till 2022. Solid growth driven by the elements I have mentioned. Of course, this semi demand needs to be catered for with metal. We need to have a sound primary production. Of course, due to the environmental requirements, we will also have an increase in recycling, which is good.
It goes hand in hand because with all the recycling and with the increasing recycling rates, the volumes you can get back from the market will not be sufficient to cater for this enormous growth in demand for aluminum products. When you look on the right side, you will see why is that. Because in the applications, there's only one segment where you have really a fast return of the metal in the packaging area. A can comes back after 30 days, and then it is remelted, ready for a new life. All the other applications, transport, construction, electrical machinery, all these segments have, of course, much longer lifetime. A car, 10 years. In a building, a aluminum window, 2five years or even longer, in planes. You can imagine it takes a long time.
That is the reason why even with the increased recycling rates, it will not be sufficient to cater for this growth. We need to have both a very efficient recycling system of the end of life material, and secondly, a sound primary production to cater for this growing demand. Looking a little bit more in my business, flat rolled products, and what I see here is a solid growth in consumption, 6%. When you look on the world scale, I think pretty much all the segments are moving into the right direction. Of course, transportation sticks out. As it was mentioned, the rolled product business is of course very much driven also by packaging, which makes it a very solid business, and not so cyclical as, for example, the extrusion business.
When I look a little bit more into Europe, it looks a little bit different. We all know Europe is not really the growth machine in the world, yeah. 3%, I would say, for flat roll products is pretty decent. Here you can clearly say the segment which really sticks out is transportation. That is, of course, what we are looking at. There's one segment in transportation which is really sticking out enormously. It's not because of the car production, because you see the car production in the next years is increasing, but the growth rate is just 4%. In Europe and in North America, it's just 2%. The growth rates for body-in-white applications, aluminum for the outer shell of the car is of course shows a different picture.
It will increase every year by 24%. This is enormous. When you see the different regions, yeah? China, okay, no surprise. Everybody believes in growth in China, yeah? It's starting from a low level. Europe, pretty solid. You might be disappointed when you look at 13%, but 13% growth is quite high. Europe was in the forefront, but what is really amazing, that America is kicking in enormously. Here you see growth rates are 35%. How come? Why is that happening? There is a strong drive in America to make a fundamental shift away from steel and towards aluminum. There is one car you probably not know about that. It's the F-150. It's a Ford lightweight truck. Yeah? Ford has decided to transfer that from a steel construction completely to aluminum.
In only this car counts for an increase of 340,000 tons, just one model per year, 340,000 tons of additional need for aluminum. Yeah. The assumption here, I would consider pretty conservative when I look at the U.S. market. There are other studies which show not an increase here to that level. There is also assumption it will even double. Because if one manufacturer makes a decision to have a lightweight car, to have a fuel efficient car, and Ford is in the forefront, what's gonna happen with the competitors? What are gonna happen with the GMs, with the Dodge? Also the Chinese manufacturer need to offer something there. This is only partially here accounted for. Of course, I believe also if this trend continues, maybe these numbers are a little conservative.
I still feel confident to show these numbers because I believe this is already pretty solid and should trigger some direction. Of course, aluminum in cars is pretty new when you compare to steel. Steel was always there. Yeah. Steel is there for many years. They have developed with R&D this product continuously further, and it's still a competition. Yeah. There is a competition between the materials, and steel is not sleeping. It's not just coming because we have the physics on our side. It is because we have to constantly develop our product further. There is challenges. Forming limits is a challenge for aluminum. Yeah? Aluminum has an advantage when it comes to weight. But when it comes to formability, steel has also some advantages. It depends a little bit on the applications. This is an example.
Here you have all aluminum parts, single aluminum parts. Very nice, but not so attractive for a producer, an OEM, because they have to have joining operations for all these elements. Of course, if it would be one single piece, that would be a strategic advantage. For that, you need to develop an alloy, because the formability of these in one piece, that is a challenge. I think that is a key advantage also for our business, and here I relate to the Hydro Rolled Products business, because we have focused very much with our R&D efforts on this kind of challenges coming from our customers to us. We have 120 people dedicated for R&D in our facility in Bonn, concentrating to develop these products further to a next level.
We have come up with a new alloy here, which we are going to patent by the way, which is providing this solution, and that is a key advantage. Of course, if a material is penetrating an application more and more, it gets more momentum because joining different materials in a production process of a car is a challenge. If you provide these kind of solutions, this makes also selection of the roof material much easier because the roof is connected to this side wall, and if the side wall is aluminum, the roof will be aluminum, or at least it's very likely. That is one of the key drivers here. Of course, we talked about recycling, and it is very important that you design the alloys according to the end of life requirements in the recycling.
The alloy here is a very complex one. It is not just one aluminum slab. It is a combination of different alloys, which are, how to say it? Adhered together, yeah, in a very simple way. Sorry, I'm not a technician, but I know the process, but I can't explain it now here. It would take a little bit too long. I think you're combining different alloys, which is challenging then at the end of the life cycle to recycle it. I think with the combination we have chosen there, the end-of-life recycling is not an issue. Very easy to recycle. Okay, that brings us here to a more fundamental question. Svein Richard has mentioned that in his presentation already. I think you are from the financial side, at least quite a few of you.
I think life cycle analysis is really like an investment. When you take a look here in the production, you heavily invested into a product with a lot of energy. Yeah? That might not be so nice in the long, at least at the first glance. You have an enormous payback in the use phase, constantly dividends are generated, and at the end of the life cycle, you get a nice value back. This needs to be positive, and this is positive. Some of you, two years back, I gave a presentation. I had the example here on sustainable packaging because everybody of you feels, "Okay, packaging, no, I don't want to have too much packaging. It's not good for the environment." Packaging has a function. It protects what's good.
It's a slogan from a packaging company, but I think it's right on the spot because it really protects what's good. Secondly, the CO2 emissions related to the packaging is really minor. We have the example here with a cup of coffee. When you split the CO2 emissions of a cup of coffee you drink every morning into these four segments, production of the coffee, transport, brewing the hot water, and the packaging, and relate the CO2 emissions to these four steps, it looks like that. Production of coffee, transport, brewing of hot water, packaging. Very small. Yeah? For that you get protection. Yeah? The material is not rotten, and you don't have waste. That was one example. Yeah? Foil for packaging. 1 kilogram saves 76 kilogram of CO2 because just of avoided cooling.
You don't need to cool the milk, the juices and these kind of things because it is protected. Every liter in this kind of packaging is protected by 1 gram of aluminum. That is resource efficiency. Yeah? When we talk about aluminum in cars, 1 kilogram of aluminum saves 20 kilogram of CO2 if it's replacing steel because it's much lighter. Lastly, relating to buildings, we have roller shutters, and this is just one example, yeah, because there are plenty. But also there, we save 36 kilogram of CO2 with 1 kilogram of aluminum. That was the use phase. Coming now to the recycling.
Some from the financial side and being from the U.K., you know, there was a famous lady who said, "I want my money back." Margaret Thatcher in Brussels, we can say, we want our metal back for sure. There's good reasons why. Because it's of course important for the climate protection. It is of course also a prerequisite for creating a green image of aluminum because the life cycle analysis without aluminum doesn't look so good. Because in the production phase, very intensive, but when recycling, you get all this energy back because it just takes 5% of the energy from the primary process to recycle the material and get it back into the loop, into a second life. Last but not least, and that's what we are also here for, is of course, because it's an attractive business. If you do recycling right, it can be very attractive.
That is the reason why we also want to do that. How do we do that? Of course, first, we as an industry and as a company, we are supporting recycling streams. We're setting really stretched targets. 75% recycling rate in Europe for cans is our ambition by 2015. We are supporting recycling schemes also in other countries. In Eastern Europe, we are promoting that, yeah. Because we want our metal back. Look at the trend. It's much better than any other explanation. It shows the trend. We are constantly increasing the recycling rates, and we want our metal back, and we want it back in new facilities. Svein Richard Brandtzæg has mentioned that we are looking into a very interesting project right now to recycle used beverage cans. Yeah.
This brings us a little bit to the direction we would like to move as rolled products. Of course, the upstream business and the downstream business are different models, that's for sure. The downstream business is very much about cost position, and also try to differentiate, but the movement for that is of course more limited. When it comes to products, it's of course easier to differentiate. Yeah. It's also about cost. You need to be in a certain window to be considered to be a supplier, but it's of course very much about differentiation, creating customer value, and supplying the needs for their customer's customer. That is also our direction. We would try to create customer value through innovation. We have the ambition of one step change per year for every product we would like to serve.
We have certain markets we have picked, and we have in some of those products, we have an excellent track record, like litho sheet, where we believe we are the benchmark in the world by constantly developing this product further. We still supply the litho sheet, but it's not the litho sheet from last year because we have changed that. That is the reason why we still supply litho sheet also into China, Asia, U.S. from Europe, because we have the competitive edge on the innovation side. On top of course, quality, it's a must. We need to be the quality leader, and we believe that we are very solid in that, and that is the second element. Last but not least, service. Of course, service is increasing. Service, everybody talks about service.
It is about customer relation, getting interconnected with the customer in the planning and having long relations. I think that is the direction we would like to move. When you look at our customer portfolio, we have quite a few long-lasting customer where we have built on trust this interconnection. When you look at the markets, of course, I have mentioned that transportation is the key market. We will move into that. We are currently expanding our existing capacities, and we have another project we are trying to mature, and I believe that is an interesting market. Thirdly, assets. Svein Richard Brandtzæg has mentioned that we have the largest conversion mill in the world. We have potential there for debottlenecking. We have an excellent platform from that, in combination with our 50% share in the largest rolling mill in the world.
Sitting close together with R&D, with a primary production, this cluster is unique, and this we will further develop. On recycling, it's clear. It's both. The recycling is needed first to create customer value. Customers are asking for a green product. If you can't provide the recycling, closing the loop, the customer is not a happy customer. We want happy customers, and we need those. The recycling is for two elements important. First, providing customer value. Secondly, to support the business because there is a business case behind that, and it's a good one. The ambition for us is number one in Europe and benchmark in the world. Sounds a little bit stretched. I think it's the direction we would like to move. In some products, we are there. In some, we need to develop.
The way how we would like to do it, I have shown to you. The automotive business is one of those areas, and with the R&D competence and how we have developed over the last years, we are making good progress towards that direction. I have talked about differentiation, but it's also a little bit of cost of course. For us, it's improving the net cost level because we need to take in consideration what products we are producing. This is of course, we have quite a few different products. You can't say, "What is your cost per ton for a rolled product?" Yeah, this doesn't make sense. You have to look at the different applications. We need to take that in consideration. The message is basically, we have introduced the Climb program some years back.
We are well on track, and we deliver. You see these improvement. There is, of course, also some negative trends, like cost inflations, but at the end of the day, we have shown a nice improvement in a difficult market and over a long period. We're making decent results, excellent cash flow, positive cash flow, and we have developed nicely. Of course, we as a or let's say as a unit, we try to protect our margins because we are a margin business. The margins are protected by, we would hedge. We hedge our business internally. This is not accounted for, unfortunately, in the numbers you're getting, unfortunately. Okay, that's the reason why this is shown. The CFO knows it, the CEO knows it. Now you know it. Actually, we are moving in that direction.
Okay, this is accounting things. Okay, anyway. To conclude on that, the megatrends will drive aluminum products. I believe aluminum, for reasons I have explained, are part of the solution. The direction for us, and I believe also some others will closely look into that, of course, transport is the key growth market. I believe with the position we have established over the last years and the platform we are having from the asset side and from the R&D side, we are well positioned to capture that. Thank you.
Thank you, Oliver, Erik, and Arvid. In light of time, I apologize, we're slightly behind schedule, but let's at least do a short Q&A if there are questions in the audience. Any questions from the audience or maybe the webcast, Rikard?
I have one question from Luc Pez. Presentations greatly focus on aluminum demand potential, which nobody disputes, really. Don't you think there is needs for some production discipline? Little has been seen in effect as of today. And a related question, is Qatalum phase two definitely frozen?
Well, I can just give some further comments to that. As I showed in my presentation, it has been announced a number of curtailments this year from different companies. You saw that the production curve actually this year is outside China, is flat compared to what we expected. We see also next year that capacity will be taken out as it looks now. There is limited new projects coming or now being planned. I think that there is a... Every company, of course, has to make its own decisions, but it seems to be the limited interest, of course, with the current market situation and price to launch new projects.
I think that there is a change in mode, so to say, and in outside China. On China, I made some comments on what I think is kicking in there. On Qatalum phase two, I think there is no rush to do anything on that as from our side as it looks now.
Good morning. Ben Jones from Carnegie over here. One question for Oliver. On your improvement program, it seems like almost 60% of the improvement so far has been eaten up by cost inflation. Out of the remaining NOK 700 million, how should we look at that going forward when it comes to cost inflation? Do you look at it at a similar level, or should cost inflation come down?
Of course, the ambition is to add with the Climb program to the bottom line. The cost inflation is part of the game. We need to offset that. That is the whole idea behind that. What I think was the challenge that we don't show the full lever from the Climb program in the bottom line is, of course, that we have sometimes negative market effects. I believe when you look at the track record of Rolled Products, there is a problem with the currency effect, of course, which it makes a little bit difficult for you to follow. We see a positive trend of the Rolled Products business. I think there is also, for the next year, I believe there is more to come. We'll stick to the bottom line.
Okay. Any further questions? Oh, I suggest that we take a quick break, stretch legs, have a drink of coffee, and then we'll reconvene here in a short period of time. Thank you.
Okay, we are into the last part of today's program, although a very important part of the program. I have the pleasure of inviting Hilde Merete Aasheim, Executive Vice President and Head of Primary Metal, to the stage.
Thank you, Eivind. Good afternoon. I hope you are still interested to listen to us. I will talk about our efforts and achievements in Primary Metal in relation to improving the robustness of our portfolio. You have already heard a lot about Primary Metal, but I hope that I can add some comments to how we have worked and how we have achieved our results. Let me do a recap of the portfolio as such. As of today, we have 11 smelters in the portfolio, representing in total 2.2 million tons of consolidated capacity. We have five fully-owned smelters when I include Kurri Kurri, which is mothballed, representing roughly 1 million tons of capacity.
We have six joint venture smelters, which represent 1.2 million tons when we consolidate these smelters into Hydro. We also have recycling and remelting capacity in the seven standalone remelters, where we have five in Europe and two in the U.S., which adds on another 1 million tons of capacity. All in all, this portfolio represents, in terms of capacity, roughly 3 million tons, which we can go to the market with. My presentation will focus on how we have worked in order to increase the robustness of our portfolio. I will talk about the $300 program, which you have heard a lot about already. I will talk about the improvements in the joint ventures, which now starts to give effect.
I will in particular talk about Qatalum and the last year's performance. I will also mention the value creation that we have in terms of working in the market, positioning ourselves in the market. I will briefly mention technology and innovation, which is a really important muscle in terms of positioning us long term, but also using that competence on existing assets. Finally, I will talk about how we work to secure a competitive energy supply to the smelters. Let me start by the $300 program. I've been talking about the $300 program, I think it's the fourth time on Capital Markets Day, and I must say that I'm very happy to say now that we have achieved the $300 program.
Just as a recap, the program was started in 2009. It is about the four Norwegian smelters, Årdal, Sunndal, Høyanger, and Karmøy. It is about focusing on areas where we can influence, the plants can influence. Where we don't take into account simply market effects, neither in the raw material market, neither in the increase in ingot premium, in product premiums, nor changes in currency. All the initiatives has been measured in real terms. Now that we have achieved the $300 program, we're talking about a total annual improvement of NOK 1.4 billion for the four Norwegian smelters. As I said, we have worked in areas where we can influence, which is illustrated on the left-hand side of that graph. I can give some examples of the achievements in this program.
Since 2009, we have reduced fixed costs by roughly NOK 650 million, which represent the 20% reduction on our fixed cost asset base for these smelters. We have worked on improving operation and roughly NOK 200 million is improved in terms of improved operation, which is also about productivity, and the productivity in the same period has improved by 15%. In this program, we have focused a lot on cost discipline, but also on cash discipline. In terms of sustaining CapEx, we have reduced sustaining CapEx by 35% since 2009, without, I would say, not jeopardizing the integrity of the assets, because that is a fine balance. In this program, we also have reduced logistics costs with NOK 250 million.
It's a lot of material going in and out of these smelters, and we are focused on the flow and on capitalizing on a huge effect in the market. We have also worked on the cast house margin, but not accounting for increased ingot premiums and product premiums, but rather how we work in the market, how we have how the mixes and using the capability in each cast house. We have also done some restructuring, closed down partly, but also focusing on getting more out of the cast houses. This way of working has also given us positive improvements in areas like safety statistics, in terms of environmental performance, as well as customer satisfaction. I get a question these days, will there be a new program beyond the $300 program?
The most important now is to sustain what we have achieved, because there are forces working on this cost base every day in terms of salary increases, on inflation, on accelerating this cost base. In order to sustain the $300 program, we need to focus, to continue to improve in order to sustain the $300 program. I would like to give some reflection on the program as such. This has not been a primitive cost-cutting program. This is a way of working. We have introduced what Svein Richard mentioned, the aluminum metal production system.
It is a way of working where we use our competence in a more structured way, in a more systematic way, and where we engage the whole organization in dedicated teams, in anchoring the targets, and making the people have the ownership for the targets. This illustration is really a summary of the philosophy of the production system. Because what we are focusing on is to reduce instability and understanding the processes so well that we can operate stable and that we know what does it take to be in control and capable. Then we reduce instability, we reduce inefficiency, we take out waste in the processes, and ultimately, we reduce cost. When you are stable, you are also in a position that we can think about taking us to the next level.
That is also why we have targeted new areas for improvements by going on to sustaining what we have achieved. We are right now testing out lower-cost raw materials, but the test is that should not jeopardize stable operation. We can simply not just using lower-cost raw materials and risk of jeopardizing good operation. To master both using other types of raw materials, lower-cost raw materials, while at the same time being able to operate stable. We are also now testing technology spin-offs from our technical technology program. We're testing out right now new design of a cathode, the lining of the pot, in order to be able to increase amperage further, reducing volumes, and then improve productivity.
Right now, we're also testing out larger anodes, which will make us come further to increase amp to increase current efficiency more. We are also working with the market people, with our customers in order to target even more value-added products from the cast houses. Yes, to the question of will there be more improvements, yes, we simply have to because the Norwegian smelters are located in a high-cost country like Norway, and we simply have to fight inflation. We have to simply fight salary increases by increased productivity, by increased use of our competence in taking us to the next level, using innovative solutions, using our organization to take us to the next level.
Yes, we will continue to improve also for the fully owned smelters, sustaining the $300 program and hopefully improving also further. Let me talk about the joint ventures. As I said, six joint ventures. Generally large scale. We talk about Qatalum, Albras, Tomago, Alouette, and then Slovalco and Søral. Also in the joint ventures, we have now improvement programs, more or less like the $300 program, embedded in the plant's organization, authorized or worked on from each of these boards and followed up every month by the joint venture boards.
Hydro is in three of these smelters, the industrial partner, Qatalum, Albras, and Slovalco, where we have where we provide our competence, where we now facilitate the introduction of the aluminum metal production system, where we are close to the joint venture organization supporting their improvement efforts. While, when it comes to Alouette, Tomago, and Søral, we work close with the majority owner, Rio Tinto, which also are eager to provide good, their competence and their experience into supporting the the joint venture's improvement programs. When we summarize these programs, these six joint venture programs, we total these targets up to an improvement program of roughly $180 per ton in real terms. We started in beginning of 2012, and I briefly mentioned it on the capital markets last year. Now it's firm improvement programs in each of the joint ventures.
As I said, more or less in the same areas that we have worked on in the $300 program. It's about fixed cost, it's about operational excellence, and it's about the cast houses. At the end of this year, I expect that we will be able to reach $70 per ton of this $180 per ton. Quite some good achievements. 40%, should be within reach this year, and I hope that you will see the improvements coming through for the next year so that we can be able also here to say at some later capital markets day that we did it. I would like to say a little bit more on Qatalum. I go there every month, and I see the development from the very start.
We are happy about the performance of Qatalum now. The production is consistently above nameplate capacity, above 600,000 tons a year. We are also happy that we now can confirm that Qatalum has a cost position in the first decile. Qatalum has quite an aggressive improvement programs now having been in full operation for two years. In particular, we are impressed by how fast they have been able to take down fixed costs, which is coming through in the numbers now we have seen in 2013. Qatalum is also benefiting from high product premiums just also for the fact that Qatalum is delivering very good products to the market. Very well-positioned both in Asia, in the U.S., and now also to the GCC countries with very good products, very well received in the market.
Qatalum produces now 99% value-added products, just 1% standard ingots. You are probably seeing the result from Qatalum as we reported it as of third quarter this year. A strong cash flow despite low LME on Hydro's 50% portion and EBITDA of more than NOK 1 billion for the first three quarters of the year. It was also a milestone to receive the check in terms of dividend for the first time after we have spent a lot of money building the plant, where we had $35 million coming home as of October. Qatalum is coming very well, and we hope to see also more improvements coming from Qatalum going forward.
When we work on improvements programs, we are following up on activities and progress when it comes to doing what we have said we should do. At the end of the day, improvement programs have to come through on the bottom line. That is the case when it comes to the $300 program, and that is also the case now that we see improvements coming in from the joint ventures. It's also good to see that our efforts, it's making a change when we compare ourselves to the peers. This is not a very accurate slide, but it's taken from the external reports from our peers, where we look at the EBITDA per ton.
Where we see the relative improvements, half by half, starting from the left on the first half 2011, where Hydro was at the fourth position, in the middle of the cluster. During 2011 and 2012 and also in 2013, it's encouraging to see that we have improved in terms of our relative position, which means that we have a speed of improvements which are better than the competitors. It's good to see now that we are among the best half. That is encouraging to see that focusing what we can influence give effect. We use that also internally to encourage also improvements going forward.
Let me say a few words. Erik has talked about the market, and other people have been talking about the market. What we have seen in terms of product premiums and the positioning of our metal in the market, and now we work as one team, the primary metal and metal market, which is also good because we bring the customer perspectives all the way back to the cast house in the plants. We see that we are well-positioned. We have a strong position in the extrusion market, in the rolled market, or in the sheet ingot market, in the wire rod market, and also in the foundry alloy markets. Our strategy has been for many years to produce value-added products rather than ingot. That has been a very successful strategy, I must say.
That is also the strategy going forward in continuously working on high-grading the product portfolio. We, as Oliver was talking about, we like to work with the most advanced customers because the most demanding customers is also making a step forward in terms of more difficult product, more advanced products. That fits us very well because we believe that we have the competence, we have the skills in order to listen to the new ideas of the customers and produce the more advanced products. We believe in a high-cost country, like, for example, Norway, but also some of the other places where we have the smelters, that we have to be in the forefront when it comes to capabilities and not competing on the commodities, on the standard ingots.
As a few examples, which already have been mentioned, we see the development towards the automotive sector that Oliver was talking about, and we would like to position ourselves even better in terms of providing metal to the car body. Right now, we are testing our technology, the adjustable flexible mold, which should bring us in a better position to provide this difficult alloy to this segment. We have also seen the trend from customer wanting green metal. That is why we have used quite some time in terms of developing our capabilities when it comes to using post-consumer scrap to bring the post-consumer back to the remelters.
We are about to convert the remelters to focus more on recycling and to get the post-consumer scrap back to the remelters to provide recycle-friendly alloys to the market where there is a need, as well as creating higher margins on utilizing low-grade scrap. Rikard has said it's good to have a PhD as a boss. Rikard has already talked about technology and innovation as one of the most important levers for us wanting to be the best in the industry. Technology and innovation is about continuously developing competence in order to understand the processes better, in order to be able to provide an even more productive or to produce based on an even more productive cell with as low energy consumption as possible, with the lowest footprint as possible.
This is a continuous focus and has been also in the $300 program, focusing on the operating parameters like energy consumption. We would like to have the chance also to demonstrate the technology development that we have had for a number of years in the new possible pilot. We have had some test cells in Årdal the last five years, which is producing on a cell, which is 30% more productive than what we have in Karmøy and in Sunndal at a much lower energy consumption. The Sunndal and Karmøy is roughly at 13.5. The cells in Årdal has come down to a level of 12.3, but that has only been on a few number of cells.
The pilot, the possible pilot at Karmøy, we would like to demonstrate these cells in a more full scale. We hope to be able to do that, but there are some prerequisites. We need a full support from Enova. We need a competitive power source for the pilot, and we need to see that the market comes into balance before we invest in new capacity. This is important to show the muscle that Hydro has in terms of this competence, to show that we are the best in the industry when it comes to the core of the core, which is about the electrolysis in primary. It's also important for the competence development for the existing assets, because we continuously pick elements of these developments into and get that competence into use, into cash, on the existing assets.
I mentioned power as an important lever for realizing the pilot. To have a robust power coverage is obviously important when you are in the smelter business. Currently, we have full power coverage until 2021 for the smelters we have today. Two-thirds of that is based on hydro power, which is good. Already, the Slovalco contract has been mentioned. We have been working on that during 2013. Slovalco is a good plant, good organization, has had a very favorable power contract in the past. We have now sourced power and concluded on a power contract for Slovalco.
As I think Eivind said, there are no official price of power in the Slovak market, but if you refer to the German market, we have seen substantial increase in power costs in the German market, which is also reflected in the new power contract for Slovalco. We have also started to work on power supply for especially the Norwegian smelters after 2020. That is seven years. It's a short time, and we need to make sure that we have a good competitive power source going forward when we plan for the smelters going forward.
I think it's fair to say, Eivind, that based on expectations that we have for the energy balance in the Nordic market, we believe that there are a good chance that we could be able to get a competitive power source for the Norwegian smelters also by 2020 in Norway. That is an important focus area for us going forward in order to sustain the robustness of the smelter portfolio. That concludes my presentation, and my final comment would be, yes, we have improved the robustness of the smelter portfolio throughout the last years, but we will continue to focus on cash cost improvements further.
We will use our commercial expertise in the market to create even more values, in the market, and we will use our technology expertise to prove that we are best in the world when it comes to smelter operation. Thank you.
Thank you, Hilde. It is the last business area that I would like to invite to the stage. It will be presented by Johnny Undeli, who's Executive Vice President and Head of Bauxite & Alumina. He will also be joined by Alberto Fabrini, the new Head of Operations in Bauxite & Alumina during his presentation. Johnny, the stage is yours.
Thank you, Eivind, and good afternoon to all of you. The whole organization in Bauxite & Alumina is engaged and striving for operational improvements, with the ambition to lift the performance in our world-class asset base. Of course, in the end, it's all about us building trust and delivering on our overall improvement program from B to A, and again, relying on the turnaround program that we have now established in Alunorte. In third quarter, we guided on gradual improvement of production in Alunorte. So far in fourth quarter, we are in principle at the production levels we had ahead of the power outages. Operational improvements is of course very much about cost reductions, minimizing CapEx, reducing net operating capital and really focusing on cash flow as well. We do have ambitions on lifting the production levels in all our assets going forward.
It's about stabilizing at improved levels and then reach from there. All our energy now is on internal measures where we can make a difference. As you have heard earlier today, for external factors, it's also very important for us now that we have hedged the currency at a roughly BRL 2.4 to the USD, reducing risk and vulnerability in the period 2014. Alunorte, we will have the opportunity to make a deep dive with Alberto Fabrini later on. We are now focusing very much on process improvements, and let me give a couple of examples. Availability of the plant, focusing on operational equipment efficiency and in particular on the yield in the precipitation area. We're now running around 89-90 grams per liter. We know there is potential to improve.
For you as a reference, 1 gram per liter difference improvement means around 70,000 tons production on annual basis. Some very key areas to focus on and follow up on a continuous basis. Mitigating actions, gradual improvements, improving the robustness around us in Alunorte. I would like to share with you one example. When we had the power outages on May 18 and June 2, we had response times around 1 hour from the emergency until back in production. The threshold for solidification in the precipitation tanks is around 15 minutes. What we have done since we, in a detailed definition, set up the turnaround program, is not only to improve equipment and the robustness around Alunorte, but we are very much focused on our own organization as well.
Strong implementation of more maintenance and overhauls of main equipment, but in addition, training and drilling our operators and the organization in full. Meaning that when an emergency happens, it's our duty and responsibility to be back on stream within 15 minutes. The combination of the robustness around us and with our internal measures, we are now running very frequent drills, and we are able to deliver on that ambition to avoid setbacks going forward. As I said, we are gradually improving. We are now at the production level we had before the outages. Let me share with you a couple of words on how to operate in this emerging market and country, Brazil. The Hydro way, we put a lot of emphasis on dialogue, transparent, open, and listen to all stakeholders.
This is about building trust over time, and we already start to see ways of harvesting from that. On the environmental and climate side, we have clear ambitions. When we open new mining areas, and we reforest as we move along the area, by 2017, we will be balanced on that issue, meaning that we reforest as much area as we open for new mining. Then over time, we will improve the overall situation. As another example, last week, we signed a very important biodiversity agreement between the University in Oslo and some universities in Belém. This is about bringing mined areas and the reforestation back as close as possible to the original rainforest. Not only the situation before we started mining, but the situation some decades ago before mankind started deforesting the area.
A very interesting and inspiring program, getting a lot of attention from a lot of stakeholders around us. Let me look a little bit into Paragominas. We had a good year 2012, 9.2 million tons production. Of course, 2013 suffering from a low production in Alunorte as the only sole customer. But we have taken the opportunity to improve efficiency and, for example, a 15% reduction in permanent manning. In addition, we have installed what we call our pumping station number two in the middle of the pipeline, making the whole logistics and transportation system more reliable and sustainable for the long term. We have spent the time, 2013, well to improve the competitive and reliability of the bauxite transportation system.
If you look at the commercial side, it's of great interest to see that the fight for scarce natural resources is intensifying. We have seen this year sizable contracts to China, where we have entered on very attractive commercial terms with clear premiums based on our bauxite quality. In addition to Paragominas, we also have top-quality bauxite out of MRN. For the next several decades to come, we are well-positioned top-quality bauxite, meaning the gibbsite type, high alumina content, low reactive silica content. Let us look a little bit into commercial aspects of alumina. The commercial change process over the last couple of years, I think you agree with me, is going smoother and faster than most expected. What do we mean by that? We came from a pricing regime of medium long-term contracts for alumina linked to LME.
We started changing that more into an index-priced, spot-oriented price of alumina on its own fundamentals, on its own merits. We see that the alumina index is trending in a positive upward direction. Today, fluctuating around 18% -18.5% of LME. I can share with you, if the whole portfolio, the sales portfolio of Bauxite & Alumina, had followed the index pricing of alumina during this year, our bottom line would have improved by approximately NOK 2 billion. For Hydro's net, NOK 1 billion. It is significant. In that respect, for us as Hydro, we are strong believers in pricing our attractive products in bauxite and alumina on own merits and own fundamentals going forward. It's an interesting, attractive potential. We will pursue a strategy of transforming our sales portfolio.
You see here back in 2010, the combination of the existing Hydro sales portfolio and the Vale portfolio, very much trader commodity-oriented. We are now shifting this portfolio into more strategic customers' end user consumption, which is of course index-priced and more oriented in the commercial direction. We also take the obligation of delivering CIF terms. This optimization is ongoing. I would like to share with you here that if we look at our external part of our customer base, we see that by around 2017, we will be, and we expect to be around 50% impacted on the index as such for the external portfolio. This developing more towards 85% of the total external portfolio around 2020. These are interesting dimensions and will have impact also performance-wise going forward.
Internally, we operate at arm's length, meaning that internally over time, the mix should mirror what we achieve in the external market. I have the pleasure of inviting my colleague, Alberto Fabrini. You are all aware that we have not only changed top management in the plant Alunorte, but we have also brought on board a new head of operations, who is then Alberto Fabrini. Welcome, Alberto.
Thank you, Johnny. We will talk about some of the situations we have in Alunorte, and what we're doing to overcome that situation. As you know, the temporary production setback was basically triggered by the power outages that we have. Not only that, but the fact that the power outages were in a sequence, May and June, what even gets the situation worse. Why it does? Well, we moved in this refinery around 750,000 cu m of mass, 10,000 cu m per hour of liquor. When you have a power outage, things go bang. Everything blacked out, and everything stops. Pump stops, and everything stops. It's a very serious situation for a refinery that size. The problems for us is not linear, they are exponential. What are we doing?
I'm gonna jump to this. One of the key things is to improve the robustness against the external power outages. That's very important for us. What we have here, this is a matrix, I'll explain briefly. We have these backup power generators for all lines, for line one to line seven. They only goes to the precipitators. As Johnny said, to go to all these precipitators in a huge refinery is very difficult. Remember, we are blacked out. To take this in 10-15 minutes, as it is the time required to turn the impellers on the precipitators, a key component of the plant running, is quite difficult. What we're doing, we're using what we have, the cogeneration here. We have 85 MW cogeneration capacity.
This is given by 3 high-pressure boilers and 3 turbines. What we just recently did, we only had this covering lines 4 and 5. Through an electrical installation and an automation, we also extended to lines 6 and 7. What we wanna do is operate in these lines, as we call in the refinery, in island mode, so they will be self-sufficient whenever a power outage happens. As you can see, we are two-thirds protected now. Then we concentrate our effort and get lines 1, 2, 3 back in operation whenever we have a power outage. This makes us much more robust in case we have new power outages. However, we are not completely out of the woods on that.
We still have things to do in our turbines, in our boilers, but the situation is much better now than it was before, and that's very important for us. We also have ongoing studies to install new equipments, boiler, and another turbine. We are studying the case. When we do that, then all lines will be operating in an island mode. Which means we'll be practically self-sufficient from the grid in this situation. All this is ongoing. We are accelerating all the studies and the projects so that we can have our refinery protected against the power failures. Going back, as I said, one of the main issues when we have a power outage is the settled hydrates. After 10-15 minutes, the hydrate settles on the bottom and the impeller stuck on the settled hydrates.
In that situation, it's very difficult, the recovery. We are focusing heavily and put all the precipitations, precipitators back in operation fully and, we are working. The way we do it is through caustic cleaning, mechanic removal, and also we are doing full maintenance overhauls. I think we have been successful in doing so. This is the total height of solids in tanks. This is how we measure it. It's one of the way we measure it. As you can see, we came from this one to this one. Here is the target. We still have some work to do, but we're getting there. The efforts that's being put by the people working there, the techniques we're using, is proving to be successful. When we do that, you can see the effect of the production levels.
Combine it with other enablers that I'll be talking in a moment. You can see clearly there is a pickup in the level we were before and we believe that is a fruit of what we're doing, the enablers and the measures we are taking. What are they? Basically what we have here is our main, in a macro way, enablers to improve what? The precipitation yield, the precipitation productivity that is comparable to current efficiency for a smelter. This is how we measure our efficiency. Our flow availability, which is comparable to the amperage for a smelter. These two combined give us the production we want to have. What are the enablers? First, aligned organization.
These enablers, I would like to say that, they are completely aligned with the implementation of our Bauxite & Alumina business system, which is the foundation of what we want to do. Align organization is the dedicated teams, one of the processes and tools of this system. We are aligning organization by process. We are aligning organization from digestion, precipitation, calcination, powerhouse, and electrical system. Why? Because we want to improve the expertise on these systems. We wanted to make people trained, developed to understand the principle, to understand the fundamental of this. That's why we're aligning the organization. We have done it. We even anticipated that. It's concluded. Power stability and process control. Well, if you don't have power stability, you don't have process control. Forget it. You first have to have power stability, and then you go to process control.
We are working heavily on that in both. Develop competence further. We're bringing experienced people. These experienced people with the people that are there are a very good combination, a diverse combination, that we bring outsiders, we bring people with different eyes, with a different experience to operate a refinery. Together with the people that are there, we're making a very good, a very robust team. This is also very important. Then continuously improve maintenance and reliability. In a refinery of this size, we have to split this maintenance in three basically areas. One, the overhauls, the major overhauls for calciner, digester, and some other big equipments that we have. The second is to improve the predictive maintenance for our rotative equipments. That's also being implemented. The third is the routine maintenance.
Having mechanics, electricians capable of acting in a routine basis so that we can keep and improve the stability. By doing that, those are the enablers and those are the foundations. By doing that, we're sure that we will achieve the yield and the flow. We achieve the production we want to have. I believe that's basically it. I would like to invite back to the stage, Johnny.
Thank you, Alberto.
Thank you.
Thank you, Alberto Fabrini. Let me basically sum up by saying that, Bauxite & Alumina, we are clearly now dedicated to operational excellence and focused on the improvement programs. Taking that in combination with the ongoing commercial change process, that together will harvest and bring further value. In the end, it's all about building trust and delivering on the commitments that we have already done, and that is by 2015, compared to 2011, improve the performance of Bauxite & Alumina by NOK 1 billion. We have set out the target for next year, NOK 600 million. It engages the full organization and a lot of cost reduction measures, lifting the assets in combination with commercial improvements. Thank you very much.
Thank you, Johnny. We're getting to the last Q&A, and Alberto and Hilde, if you can join me on stage. Is there any questions to the B&A and the primary side?
Ben Jones at Carnegie again. On the cost-cutting B&A, the NOK 1 billion program, do you have an estimate of how much of that was realized during 2013, if any? The second question on the production ramp-up again, do you have an estimate of when you expect to be at nameplate capacity?
As I said, the overall improvement program, first of all, includes the whole parts of the organization. We had a very good start in 2012. Due to the production setbacks in Alunorte, basically 2013, from that perspective, is a lost year. Now we have committed and gone back to the original schedule for 2014, maintaining the original ambitions. We see by the turnaround program and the lifting of the assets that we will be able and to deliver on those ambitions. That is basically for the improvement enablers as such. When it comes to the outlook for Alunorte, I would basically say that what it's now all about is to stabilize and improve the situation. Firstly, to return and stabilize at the levels we have seen before, and then secondly, to reach beyond there.
Of course, we have the ultimate goal of the nameplate capacity. It's more important now to build robustness, stability, avoiding new setbacks. That is our priority going forward.
Hans Jacobsen, Swedbank. Given the rather strong prices we are seeing in open market now for alumina and given the strong demand that we expect in the years ahead, does the CAP project move further ahead now?
I think, yeah, we can be quite direct on that. We made a decision 18 months ago postponing the CAP project. I think everything we have heard today about capacity in the value chain, and that goes for alumina as well, there is no reason to pursue short-term the CAP project.
Any further questions?
Thanks. It's James Gurry from Credit Suisse. Just got a quick question on MRN. How do you see the joint venture partners and everyone playing out there? Would you be interested in acquiring more of MRN if it was available from not only Vale but the other partners that are involved there?
Yeah. First of all, of course, we have been already historical-wise in MRN, and we know it pretty well from that perspective. There is, of course, a lot to read in the media from time to time on the topic as well, and there are discussions in the JV about, let's say, future mining plans and development long terms, and we are pursuing that agenda, and we are on top of the agenda. So let's see how what that develops into. There's no doubt that we put priority on MRN long term.
Any further questions? If not, we'll say thank you for your presentations and answers. I would like to leave the floor to Svein Richard to sum up this day. Thank you.
Thank you very much, Eivind Kallevik. Today we have discussed Hydro from different angles and perspectives. We hope that you now had the opportunity to get good insight into our drivers and priorities, assisting your understanding of the company. Our overall agenda for 2014 is reflected in our key priorities as is listed here. We will continue our improvements as you have heard today, especially, we will make sure that the B to A program in Bauxite & Alumina comes back on track. Johnny Undeli and Alberto Fabrini is on the top of that. Hilde Merete Aasheim is now working on the joint venture program, $180 per ton potential, and that is the target for us.
That is a very important part of our focus for 2014, and we will make sure that we continue our technological development and innovation together with the most demanding customers where we can also create more value from our products, whether it's metal products or Rolled Products. Due to the weak market situation, it is very important for us to maintain the financial strength and flexibility going forward. All in all, we continue to lifting the performance across Hydro in all business areas, in all units, in all plants. We have a solid platform and a strong track record, and we start every day with the goal that we should do better today than what we did yesterday, lifting the bar. Thank you very much for your attention and enjoy the lunch. Thank you.