Good morning, ladies and gentlemen, and welcome to Hydro's Capital Markets Day. Welcome to those who joined us here in Oslo and those following us on webcast. Let's first start with safety. In case of an emergency where we need to evacuate the room, please exit the room calmly, turn left, and then emergency exits will be on both your left and right-hand side. I would like to draw your attention to the cautionary notes in relation to forward-looking statement. It has been provided in the presentation material, and is shown on the screen. Let's go to the agenda. 2012 has been an exciting year for Hydro, and I think we have put together an interesting agenda. We will start first with the overall Hydro perspectives by President and CEO, Svein Richard Brandtzæg.
He's followed by CFO, Jørgen Rostrup, who will give a financial update. The second session is started off by Head of Energy and Corporate Business Development, Arvid Moss, who together with Erik Fossum, Head of Commercial in Primary Metal, will go through the market, our expectations, and a deep dive on inventory premium and financing deals. Market is followed by Primary Metal, where Hilde Merete Aasheim, Head of Primary, will take you through the status of the $300 program and how we bring those learnings into our joint venture portfolio. The third session is started by Head of Bauxite & Alumina, Johnny Undeli, who will tell you what's going on in Bauxite & Alumina and focus on the improvement efforts going on. After each session, we will have the opportunity to ask questions to the ones that have presented.
At 1:00, we'll end the day with lunch. Enough about the agenda. Before I turn the stage to President and CEO Svein Richard Brandtzæg, let's have a look at this. Sound? Let's see if we have to look at this without sound this time. Maybe we can come back to it later.
Yeah.
Okay. I turn over the stage to you, Svein Richard.
Thank you very much. It's very good to see you all here in Oslo today. Also, welcome to those that are following this through the webcam. We have a long day with several important topics, and we will give you a deep dive into the world of aluminum and the world of Hydro. We will go to the market update. We will give you a status on the Bauxite & Alumina, on the $300 program, Qatalum, and our financial situation, and much more. Of course, also give an update on the new joint venture deal we did on extrusion. We will also try to answer some of the fundamental questions that I'm sure that some of you have today. What are the main building blocks of Hydro going forward?
How are we meeting the discrepancy between the current challenges in the market and the future opportunities in aluminum? How do we move towards being a performance benchmark in the aluminum industry? Not least also the direction and the strategy of the company. Let's first take a look at what has happened during the last years with Hydro as a streamlined, focused, integrated aluminum company. We introduced the $300 program in 2010. That has been developed further. We have started the Qatalum after the construction was finished in 2010. Not least we acquired Vale aluminum assets in Brazil. Just a few weeks ago, we announced the joint venture in extrusion with Orkla, the new software company. For us, it has been an exciting journey.
The aim for Hydro and for me as a CEO is to create Hydro as an industry leader in aluminum with opportunities and also as a resource-rich company. I visited Qatalum last week, and I'm very happy to confirm that Qatalum is running at full speed, above nameplate capacity, and at very good performance parameters. We have a very good relationship with QatarEnergy. We have a very strong organization with more than 30 nationalities, strong leadership. We continue to drive Qatalum in the direction where it should be. One of the few best aluminum smelters in the world. It is already today operating in the lowest first quartile on the cost scale.
Some of you have been visiting our assets in Brazil, and just a couple of weeks before you were there, I also went to Brazil to have a look at it, to prepare the ground for you. It was also for me interesting to see the development there. Since we closed the deal in end of February 2011, we have improved the bauxite production with more than 40%. Johnny Undeli will come back to that later today. It's also good to see that the huge alumina refinery, Alunorte, which is the biggest in the world, is also operating at continuous higher level after we closed the deal, and we see further potentials in that direction.
The Sapa joint venture is another strategic move for Hydro where we, after closing, which hopefully will happen in the first half of next year, subject to approval among the authorities, competition authorities. It's a very good industrial solution, but first of all, it will be the biggest and the most competitive extrusion company in the world. It will have strong foothold in the North America market, in addition to the European market, and also a good position in emerging markets. The synergies is about NOK 1 billion per year, and we will have 50% ownership. There will be 25,000 employees, and the turnover in this company will be almost NOK 50 billion.
With regard to the transaction, which is important, it is at least, and even more important, to run our operations better and better every day. That's why we have, in addition to the $3 00 program, introduced improvement programs in all parts of the value chain of Hydro. We introduced this year, the B2A program in Bauxite & Alumina, which Johnny Undeli will come back to. Hilde Aasheim will talk further on the $ 300 program, which is moving according to plan. Rolled Products is continuing with the AIM10 program. Oliver Bell is here, he's responsible for Rolled Products. This is also moving according to plan. We continue the Mission Thousand, which is the improvement program in extrusion. Even the Sapa joint venture deal has been signed.
We continue with improvements every day in Hydro along the whole value chain. I know that you appreciate the companies that are setting high goals, but even more companies that are delivering on what we talk about. Just to make a recap of what we said last year, we can confirm that we have been improving our relative position with our improvement programs. We continue every day to focus on operational excellence. With regard to commercial opportunities, there are several examples, but I think one of the best examples is again what we do in Bauxite & Alumina with supporting the index pricing, commercializing that in a new direction. We are also selling bauxite to China as it is today, but I will come back to that.
Not least, I think with regard to the management of the portfolio, there are many smaller examples, but I think the joint venture Sapa example is the best one in the last year. If you take then a total look at Hydro, we are now an integrated aluminum company with very strong positions along the value chain. We have, in terms of, the balance sheet, a tilting upstream, but we should not forget that we also have leading positions downstream, in both Rolled Products and not least in Extrusion, also in connection with the joint venture. We know that there are several stakeholders that appreciate this setup of the company.
Some of the most demanding aluminum customers in the world, the global companies, they're really appreciating that, they have a supplier that have this integrated value chain. We have a company now that can see the customer all the way through the value chain. Customers, where we are sitting together and developing the next generation products, where we have, direct feedback into the, upstream path, where we can also react very fast according to the moves in the downstream market. Geographically, we have a global position. We are participating in the global industry. The metal is priced globally, so it is important for us to have this global position. We have of course, strong foothold in Norway, but we have more employees today in Brazil than in Norway.
We have a similar number of employees in Brazil and in Germany as we have in Norway. We have a world-class asset base that we can develop to capturing more value. In the further development, as we see in the market, the answer will be more and more aluminum. We will also make sure that the answer will also be Hydro going forward. Let's then take a look at the market, which is challenging, but I remain positive with regard to the future outlook and the future opportunities in our business. The dilemma in this industry is, first of all, that the growth of aluminum is faster and higher than any other base metals.
At the same time, on the right side, you see the red curve, which is the price development of aluminum, which is lagging behind the price development in other metals. All in all, the price level as it has been lately is not adequate to give returns according to the shareholder needs and also according to our ambitions. Looking at the growth curve, which will continue, it is clear that this is very much a question about supply-demand balance. It has been a strong appetite for investments in capacity. For many years, there has been higher appetite for investments in capacity than even the growth curve has been able to follow.
For us, it is very clear that we have to influence on what we can do, and that is operational excellence and improvements of the assets we have today. Looking at the world economy and the situation in the different regions like North America, Europe, and China, we see today that there is a momentum of growth in the American market, in North America market. We expect, in fact, next year to be fairly strong growth in the U.S. market. In Europe, we see, obviously, a low level. It will be, we expect, status quo on a low level. In Europe, of course, very weak situation in the south, better in Germany and in the north. China has shown lower growth rates lately, but still at a very high level compared to other regions.
China is changing the economy from being very much dependent on export and on investments to be more consumption-driven economy. That is not necessarily a disadvantage for aluminum because there are several aluminum applications that is also driven by consumption, and in a consumption-driven economy, we are not negative to that development on behalf of aluminum. We're not concerned about that. All in all, it's a volatile situation. There are uncertainties in the markets, but we see emerging markets as a positive drive and also North America moving now in the right direction. Europe is really the weak part as we see it going forward. With regard to aluminum prices, it is low level, below the level where we can give adequate returns to shareholders.
It is volatile also with regard to the signals in the macroeconomic environment. What we saw in September, the peak that we saw, the LME went up almost $400 per ton as a result of the quantitative easing in the U.S. and European market, a signal that something could happen. We all know that the central banks can only sell time. They are not solving the underlying issues. What we saw was the effect faded away after some weeks and month, and we are now still at a, I would say, painful level for the aluminum industry between $1,900-$2,000 per ton. If you then take a couple of examples, Europe, U.S., and two market segments that are the most important one in aluminum, automotive and transport, and building and construction.
On the left side, you see, the indicators for automotive showing that, the U.S., automotive production and demand is back to pre-crisis level. While in Europe, the situation is much weaker. Germany has been supported by export to Asia, especially, high or exclusive cars to China. On the other side, if you take the construction indicators, there is improvement since beginning of 2009 going forward, especially in the U.S. market, and especially lately in the U.S. market. Europe also in that respect is weaker than what we see in the U.S. market. We see that, North America and Europe is developing differently. Longer term, I'm convinced that the world will need more and more aluminum as millions of people will continue to climb out of poverty into the middle class.
This will require more resources, more energy. We know that growth is a very important part of the solution, but this growth has to be sustainable. To meet the climate challenge, aluminum will be an increasingly important part of the solution. We see in emerging markets the drive for aluminum in infrastructure. We see in mature market drive of aluminum solutions to reduce energy consumption. There are several products where we are actively participating in market segments where we see growth in, again, in electrical cables, packaging, construction, building in emerging markets. In mature markets in the Western world, we are focusing very much on energy-efficient solutions.
Of course, we are also looking at ourselves and have a strong development in our energy efficiency targets and projects in smelting, for example, where we are working to reduce the energy consumption. We are also a driving force to develop energy-efficient building solutions. We are supporting more and more aluminum to automotive in order to reduce fuel consumption and CO2 emissions. We see very interesting opportunities in several other areas, and I will come back to some of them. In general, we expect 4%-6% growth going forward from 2012 to 2022, the next ten years. It will be slower growth outside China and higher growth in China. In general, both in China and outside China, we expect a significant growth going forward and for the next ten years.
You can ask, "Why is aluminum growing faster than any other base metals?" The answer is, of course, the inherent properties of our metal. It is not only the fact that aluminum has a lower density than steel, copper, and other metals. It is about one-third of the density compared to steel and copper. It is corrosion-resistant metal. As you see on our cans outside, in fact, there is a thin oxide layer that protects aluminum for further corrosion. It's a nanometer-thick layer, and if you think about what is one nanometer, I can tell you that it's the length your fingernail is growing in one second. That is one nanometer. This is the protective layer that is outside aluminum that prevents corrosion.
It is a metal with free electrons, which means that it has good electrical conductivity and better electrical conductivity than most other metals. Materials with good electrical conductivity have also very good thermal conductivity, which is the case with aluminum. It's also used in heat transfer application in addition to electrical applications. There is a wide range of capabilities of the metal, and if you go down to the atomic level, it's a face-centered cubic structure, which means that aluminum can be formed into very complex shapes in a very cost-efficient way. It can be rolled down to very thin layers, like the thin gauge foil for flexible packaging, which is six micrometers thick. Only our Alunorf is producing that at the speed of almost 2 km per minute.
It's an oxygen barrier, and it's delivered to Tetra Pak 2 m wide and 300 km length in one piece. It is also production technologies that we have in our company that makes us very competitive in the aluminum industry. If you take a look at some of the segments, like automotive transport, we see body in white as a very interesting segment. We have invested in that recently, and we have a leading technology. We have also received a technology award in Rolled Products recently in that segment. The reason for the growth there is, of course, that the automotive producers have ambitions to reduce CO2 emissions. As you see, for each kilo, aluminum is substituting steel, the CO2 emissions is going down, and of course, the fuel consumption is going down.
This is one of the driving forces. This was mainly a product for the high cost exclusive cars, but we see now increasingly that there are also high volume cars that are using more and more body in white components going forward. This is a very important market for us. Another interesting segment is the heat exchanger segment. 15, 20 years ago, you will find copper radiators and copper air conditioning systems in cars. Today you have to search very hard to find copper because aluminum has taken over most of it. Now we are looking also in the so-called non-automotive heat exchanger segment, which is heat, ventilation, air conditioning, and refrigeration applications. Aluminum has a big advantage in that segment, good thermal conductivity, but also very cost efficient.
We are producing several products in this segment, both with regard to extrusion products, but also in the Rolled Products, cladded materials, which is consisting of different layers of alloys which is rolled together. The one layer is for heat transfer, and two layers can, for example, be used for solidifying the metal in a heat exchanger production. This is also advanced production technologies and advanced products with interesting margins for us. This is an important substitution market going forward. Not least construction and building. Of course, in Europe, weak market, in U.S., growing, and also in emerging markets growing fast. The underlying driving factor that we will support there is the energy efficiency in buildings.
We see that buildings are consuming almost 40% of the global energy consumption, 40% of the CO2 emissions coming from buildings. This is an area where we can contribute, and we have already developed the next-generation building solutions in aluminum and glass. The reason for aluminum in that respect is again the need for very complex shapes, which is difficult to make in other materials than aluminum, because the formability of aluminum is so good that we can make these form complex shapes in a very cost efficient way. We have also now not only developed energy neutral building solution, but also energy positive building solutions. We have today the technology for the future.
If you then take a look at the total view, the market has developed during the last years into a situation where we have a tremendous inventory that was built up after the financial crisis, 2008, 2009, due to oversupply. It was higher supply than demand for quite a long period. The volatility continues, but we also see a change in the market where the LME price is continuing at low level, but we have had increasing premium on P1020 standard ingot. You can say this is artificial. It helps the smelters, so to say that we have LME and a very high standard ingot margin. But it put pressures on some of our metal products that we are selling into the market.
What is positive in this sense is the development where we see now during the last months that we are moving into a situation where it is much better balance between supply and demand. That is also what we expect going forward. It is of course due to the growth, but also the fact that there's been some curtailments in the industry lately. If you then take a look at Bauxite & Alumina, it is very important to focus on the development in China because China is now depleting their bauxite resources. They are very much dependent on imports, and they have been very much dependent on import from Indonesia. There has been a significant reduction in the export of bauxite from Indonesia in May, June. We have seen that the alumina import is increasing.
As I mentioned, we are selling now bauxite from some loads from Brazil to China. China is now looking also in the Atlantic region for bauxite. We see that the pricing of alumina is changing from being very dependent on LME. It has been a fixed percentage of LME previously, and now moving into an index pricing. In spite of the volatility where we have seen on the LME, that's been quite stable, alumina prices during the last year. If you take the alumina price today and convert it into the old method, in percentage of LME, it is now around 17% of LME, which is a fairly high level, and which gives us quite interesting prospects with regard to the commercialization of alumina going forward.
How are we meeting the current challenges where we have long-term opportunities, but short-term challenges with low prices, and a level of LME where we are not able to deliver adequate returns to the shareholders? As I mentioned, for us, it is about influencing what we can do, and that is of course, to look at the performance level. I will show you now a couple of slides where we show our position compared to our competitors in bauxite, alumina and smelting. This is taken from official reports. There are of course some uncertainties in these figures, but still, it gives us an indication where we are positioned in bauxite, alumina and in the smelting industry. Let's start with bauxite alumina, which it shows here.
First of all, this is based on EBITDA margin per ton, and we see that the EBITDA margin per ton is going down since first half 2011 to first half 2012, very much due to the market situation in general. As you also see is that our position is among the best. It is the best, as is shown here. This is just confirming what we also said when we acquired the Vale assets in Brazil, that we felt that these assets are among the best in the industry. This figure shows that we have the highest EBITDA margin per ton in this industry. If you then go take a look at the smelting side, also there the EBITDA margin per ton is going down over time in this period. Here, though, is strengthening our position.
We have been close to the middle, but we have ambitions, of course, also have to be among the best. This is reflecting again the result of the $300 program in Primary Metal that, Hilde also will come back to later. There's another dilemma, of course, and another reason for the low returns in aluminum, and that is related to the raw materials. Whether we are talking about raw materials for Bauxite & Alumina or for aluminum production, the raw materials has increased, the market price is going up significantly at the same time as the LME has been weakening. This is putting an even stronger pressure on the margins and gives us even stronger incentives to work on what we can influence on, which is the operational performance of our current assets. Let's take a look at that.
First of all, Bauxite & Alumina introduced this year the B to A program, which is very much about improving the cost position in our upstream business, in our raw material business, improving the performance, both in the Paragominas bauxite mine and the Alunorte refinery. This is about productivity increases, stabilizing production at higher levels, better maintenance systems that we have improved significantly since we closed the deal, but we still potentials, and there are several other factors on the production side. In addition, it is the commercial area where there will also be contributions in Bauxite & Alumina going forward. The ambition is to deliver half of the target, which is NOK 1 billion in 2013, and the rest in 2014, 2015. There is ambitious program also in the Bauxite & Alumina business area.
The $300 program that Hilde also will come back to continues according to plan. We are now at $235 per ton that we promised one year ago. This last $65 per ton is to be delivered in 2013. This is also, of course, about operational excellence, which is easy to say, but it consists of hundreds of different improvements. It's a new way of working in our fully owned smelters, and we are definitely seeing that the operations are going better day- by- day, and status quo has been established as no alternative. There's ambition level in each smelter to do the work better tomorrow than what it was done today.
We continue with our extrusion program, the Mission Thousand, in spite of the signing of the joint venture with Alcoa. This will continue into the closing and also beyond closing. This is about also adapting the capacity to the market, productivity improvements. It's about rightsizing the organization. We have closed on several units. Of course, this is a process that will be very important to bring the profitability in this area back to where it should be. It has been over several years, business that have delivered returns above cost of capital, and of course, that is our ambition going forward. In Rolled Products, there's also interesting developments. We have done optimization of the portfolio some time ago, where we divested in USA.
We have streamlined Malaysia, our rolling mill there, and we are continuing to high grade the portfolio in the plants. This is about moving the capacity over to products that gives us higher margins that, for example, automotive body sheet. It is definitely also optimization between the different plants that also has been ongoing for a while and continues. It is about cost reduction programs and capital discipline. The picture on your, on the left side there is a picture of a battery with aluminum foil. This is the next generation battery for automotive and electric cars. Interesting products, but there are also many other interesting products. Foil, litho, cladding materials. I talked about foil. I talked about cladding materials. Litho is a quite interesting material also.
The customer there is not caring very much about what metal it is, but they are caring about the surface. They are. What they pay for is the surface. If the surface is not perfect down to the atomic level, they will have a problem with the printing. There are extremely high quality requirements for these products, and these are the kind of products that we like to produce because these are the high, high margin products. We have 50% ownership of Alunorf, which is the biggest and the most cost-efficient rolling mill in the world. We have 100% ownership in the biggest finishing mill in the world, in Grevenbroich. These are, I would say, the backbone, but we also have satellites which is supporting the Rolled Products market.
Some of the products we are producing is global products, so we are exporting, and some of the products are for consumption in Europe, like can, flexible packaging, aluminum for flexible packaging. We see that consumption in Europe is in fact quite stable. We continue to develop new products and applications together with customers, and we see that our customers are appreciating that Rolled Products is still an area where we have technology leadership. We have ambition to strengthen this technological leadership, and we see a big advantage when we are talking with the most demanding customers in the market, also in Rolled Products. In Energy, we continue to optimize the production. We have 9.5 TWh nameplate capacity, that is a capacity on a normal level.
We have been producing more than 11 TWh when the precipitation has been high. We take, of course, around 7 TWh into aluminum production, and the rest we are selling on the, in the market. The market optimization here is quite interesting for us because there is some volatility in the market. Our people in Extrusion, in Energy, working for Arvid Moss that will present also the market later today, is very clever in running and optimizing the production according to the optimization of what is necessary to optimize the market position. We utilize the flexibility in our hydropower stations, where it is possible to take a hydropower station from full speed to zero in 10 minutes.
Opposite, we can start up a hydropower station from zero to full speed in 10 minutes. With regard to the fluctuation on prices over the day, it is good utilization of that flexibility to create even more commercial value. It is a solid cash flow from this business, of course, irrespective of LME, and it's a very strong and good asset for Hydro. I would say that there are two tasks for Arvid Moss and his organization. It's about running the power stations and optimizing these commercial opportunities in the best possible way, but also to make sure that we have cost-efficient sourcing globally in our assets, for our assets, whether it's smelters or Bauxite & Alumina assets or rolling mills.
The competence we have is quite unique in that respect, that we have an organization that is commercially active in the Nordic and European market but also have competence to make sure that we have competitive sourcing for our other assets globally. Of course, we are continuing to developing our power assets. We have an upgrade of the Rjukan system, first stage very successfully. The project was operated by our own project people with Tom Børgo as responsible, and it was done in a very safe way. It was less lost water than planned. It was better than planned in all ways and in all respects. We are continuing with the next stage next year.
We have also expanded our production of hydropower with some minor projects but with significant projects in Holsbru and Vassbrua. The target for us is to lift the normal production from 9.5 TWh- 10 TWh per year. Not least, we're also focusing very much on the important factors like health, safety, environment, corporate social responsibility, and compliance. We see very close relationship between these factors and operational performance. Of course, the most important assets for us is our people that are operating in different environments, that also have to be operating in a safe manner, in compliance with our regulations and also in the local societies and the challenges that is related to the local requirements in the right way. We are measuring this progress in different ways.
One way to measure it is on total recordable injuries, where we have done substantial improvements, and we are down to industry benchmark levels today, but our ambitions is of course to do even better next time. For those of you that visited Brazil lately probably also saw what we are doing in corporate social responsibility, supporting local communities, building competence locally, so we can have competent local people that can operate in remote areas in Brazil. When I was there last time, I felt being in Paragominas in 2012 was like probably similar challenges as Hydro had in Rjukan and Notodden 100 years ago. The society in Paragominas is developing very positively, and we have very good relationship with local communities.
Our growth agenda, going forward, is of course quite interesting in many respects. We have the CAP project in Brazil. Some of you have already visited the site. We have postponed the CAP project due to the supply-demand balance and this market situation. We have a Qatalum 2, where we also are postponing the ramp-up of the Qatalum smelter. We have partnerships and joint ventures where there are also opportunities for expanding capacities. We know that the industry is changing, and the landscape in aluminum will be different in the years to come. We will make sure that we have the freedom to participate if it creates value and also the freedom to sit on the fence and let the changes play out if that makes more sense for the company.
We will also make sure that we keep the financial strength and flexibility going forward, and Jørgen Rostrup will come back to that later today. Finally, the value proposition for Hydro going forward is very much linked to the assets we have, that we have improvement programs in place, and we have a track record also to deliver on what we promise on our improvement programs. We will definitely capitalize on our strong raw material position in Bauxite & Alumina. There is a positive development both with regard to volumes but also on opportunities in commercialization in that area. We will maintain the financial strength and flexibility going forward. Of course, we will work very hard to ensure improved shareholder return.
For those of you that are going to invest in aluminum, I will make sure that I will do everything I can to make sure that Hydro is the best alternative. Thank you very much for your attention.
Thank you, Svein Richard. I will invite you back to the stage in half an hour or so. Before that, we will have a financial update by CFO Jørgen Rostrup.
Thank you, Rikard. Let's then add some financial comments to Svein Richard's comprehensive walkthrough of the status of Hydro and markets. First of all, we will touch on the financial and shareholder policy. We believe we have a robust financial position. When we say it that way, we believe that this provides the best building block for all our decisions and priorities going forward. You will also see here that we have regularly reported to you the adjusted net debt number. We used to call it taking the rating company perspective on our responsibilities and debt positions. This is significantly down, the way we look at it, in Q3 compared to what it was at the beginning of the year.
It's down by more than NOK 6 billion. The reason for this is that it is related to Qatalum, the joint venture smelter we have and what is considered to be our share of the project finance debt in Qatalum. There has been completion guarantees on the two owners of Qatalum related to the project financing as is natural. These are no longer in effect. The Qatalum smelter this summer met all criteria on the operational performance tests related to the project financing. Hence, there are no completion guarantees anymore, and hence, we have taken this out of our view of adjusted debt according to also the perspective of rating companies.
We will, of course, going forward, on an annual basis, report on the debt situation in our joint ventures, but we no longer regard it as relevant in an adjusted net debt context. If you look at cash flow in 2012, we have an underlying EBITDA of NOK 5 billion for three quarters. We have other adjustments which are predominantly the predominant share of this is taxes and also the cash effect of restructuring programs where you had the P&L effect in 2011. These taxes are also coming from a somewhat higher earnings levels than what we see today.
On the investments similar to the net cash flow of NOK 2.4 billion from operations, and then you have dividends, and this is three quarters and not a full year equation. If you look into a more normalized picture, four quarters and maybe with the less cash effects on restructuring, and also a somewhat different tax level or tax payments, we believe that our robustness is so that we around the price level that we see today are able to service our investments. They will also, I will come back to that, be lower next year than what is the estimate for this year, and also the dividend level that we see today. Briefly address three elements of capital allocation for you.
I think you have heard us say this before, and you heard Svein Richard say it. We are very concerned about maintaining a solid balance sheet. We think that is very important for us being in such a cyclical industry as aluminum definitely is. In spite of the challenging markets that we have seen the last few years, we have been able to finance and to support the development of Qatalum. We have been able to do the acquisition in Brazil, and we have been able to embark on creation of what we believe will become the world-leading extrusion company. It's fundamental for us in these markets to keep that flexibility, as Svein Richard talked about. The building stone for that is to maintain a solid balance sheet and a solid liquidity position.
At the same time, it's obviously a key concern for us to create shareholder value. I think it is fair to say that we believe we have not delivered sufficient shareholder return the last few years. Also, as clearly as Svein Richard stated, the earnings in the industry has not been good enough. This is on top of our agenda. We are, as he said, concentrating on what we can do, and we are getting some comfort in the fact that we believe we see that we are improving our relative position. Also, we have exciting investment opportunities. We are interested in growing the company. We will embark on very few, very limited possibilities going forward in order to maintain those two other elements that we've been talking about.
We also think that in these kind of markets opportunities could arise as easily outside our portfolio as within our portfolio. Let us talk a little bit more about this. Balance sheet good balance sheet strong balance sheet and high and good liquidity is the most important tool we have against the volatility and for being able to act out of strength when that is relevant. We have NOK 8.7 billion at Q3 cash in the company. In addition we have the standby facility $1.7 billion. It's not drawn on today. It is maturing in 2014 but it's there. We also this summer raised NOK 1.5 billion in a bond issue.
You should not be surprised to see us looking for more long-term financing going forward. Whether that is to continue and establish a new credit facility or it is to go into the U.S. bond market with longer money, that remains to be seen. Of course we are looking in that direction without any special urgency, as you can understand, due to the solidity that we feel today. We have a stable BBB flat rating as a company. We feel this is at a comfortable level. We sometimes, Pål Kildemo and I discuss, and we say that, well, we actually deserve to have a notch up, we think. We are obviously careful saying that in public. We are comfortable at this level.
We feel it gives us access to the relevant markets, and we believe it should give us competitive terms in the bond market when that is the situation. This was the pitch to the banks in the room. We are striving to bring shareholder return, and we are very firm on our dividend policy of paying out 30% over the cycle of net income in dividend. We have exceeded this over the last few years in spite of no dividend in 2008. We are happy to have exceeded it, but of course, we should exceed it in a situation where we are in low earning environments, where we are hopefully in the lower part of a longer cycle. We have a clear ambition to maintain this and bring shareholder values going forward.
You will see 75% -- 71% over the last five years in the payout ratio. You will see a somewhat low number in 2011. Please remember that we had a large revaluation gain on our old ownership of Alunorte related to the Brazilian acquisition of NOK 4.4 billion, which is obviously making a significant impact on the earnings for that year. That is part of the reason why the 23% is kind of falling below.
We always do it that the Board of Directors in Hydro are discussing the dividend issue throughout the year and whenever they feel like, but obviously maturing that discussion in relation to the Q4 preparations and then announcing their recommendation to the general assembly at the announcement of the Q4 results. However, we would like to say that based on the situation as we see it today, our ambition is to maintain the absolute dividend level for 2012 compared to last year. When we look at the capital allocation, you would see that we are approaching somewhat above NOK 4 billion in CapEx for 2012.
This is again one notch lower than what we guided on last Capital Markets Day, where we talked about between NOK 4.5 billion and NOK 5 billion. We have decided and been able to bring it further down. This is after several years of focusing very concentrated on the sustaining CapEx level. Obviously, with two absolute ambitions, and that is to maintain the safety and the performance in our operations and not run investments continuous maintenance investment and sustaining CapEx in such a way that you are building up an overhang. We think that the plants are running maybe even better today than ever before, and we have at the same time been able to change some of the philosophy around CapEx investments and thereby getting that number down.
That has been high on the agenda. NOK 3.5 billion of this is what we call sustaining CapEx, and then there are some growth money on top. For 2013, we believe the CapEx number as we see it today will be around NOK 3 billion. At least the sustaining CapEx level will be around NOK 3 billion. We have so far not included any significant growth CapEx in our plans for next year. This is how we see it today. This might change. This is dependent on market development, but also how we prioritize some good opportunities in the company according to also how we develop relationships and contracts with our customers. It might be a little bit adjusted, but basically right now we assume a NOK 3 billion investment level.
This is excluding Extruded Products. That's important. This is also significantly lower than the depreciation level that we have in Hydro, which is for next year, approximately NOK 4.5 billion. We need to move into some technical aspects on the reporting side for a couple of minutes. First of all, we announced a joint venture with Sapa some weeks ago. As Annica said, we believe it's going to close during the next half year. We are from Q4 reclassifying Extruded Products as discontinued operation in our P&L and balance sheet reporting.
This is as of Q4 2012, which means that we will only have one line of reporting an after-tax number without depreciation included in our P&L statement in Q4. This will also give a slight but very minor reduction in net adjusted debt due to the reason that we take out operating leases and pension liabilities related to the change of the criteria. The criteria is that at balance sheet date, it is highly probable that the deal will go through, and the balance sheet date is Q4. We think it is highly probable that the deal will go through.
After closing, we have said that the transaction and the closing could result in a small gain for Hydro, up to NOK 500 million, and we will then report this according to the equity method, which means that we will take in 50% of net income into our EBIT, our operational result, but that is also then including, e.g., depreciation. Pension may be the toughest top topic that exists for many of us, but obviously a very important topic. You can hardly open a pink paper these days without reading about pension in one way or the other. We address this every Capital Markets Day and give guidance on it, and we will do that also this year.
We will start it from a discount rate perspective. We have used for the estimates that we are discussing with you here today a 2% discount rate for our Norwegian pension plans. This is similar to the government bonds, the risk-free interest rate level. We believe this is a conservative approach. First of all, it's conservative because 2 percentage points in itself is a very, very low discount rate. Second, we also believe it's conservative because we believe there are other liquid interest rate references in the Norwegian market available that could and perhaps should be used. As you know, that is a discussion ongoing right now, and no conclusions have yet been made.
For this discussion with you here today, we use the government bond rate of 2%. Based on this 2% discount rate, which is a notch down from last year, we assume that our pension net pension liability will increase with NOK 1 billion, going from NOK 8.5 billion to NOK 9.5 billion. With a corresponding effect on net adjusted debt, as you are used to. If we were to use a different discount rate, and it could be in the range of up to 4%, using a covered bonds reference, you could see a decrease in our pension liability of more than NOK 4 billion. Discount rates are important.
This shows something about the volatility, and it also shows how rough it is to get a real feel for what is the pension liability at each point. There are a couple of changes. I have to take you a notch more. There are a couple of changes on the IFRS side that is important. There has been a corridor approach earlier where we have taken the unrealized gains and losses on pension from period to period off balance sheet. You haven't had to include that in the balance sheet. That has been named as the corridor approach. That one is with new IFRS rules to be implemented 1st January 2013, no longer the option. Which means that all effects need to be taken over the balance sheet.
This change we also will of course do. It will not change our net pension liability after tax the way we have reported it, and it will therefore not change our net interest, adjusted net interest-bearing debt. Because we have always included this off-balance sheet item in the way we have presented net adjusted debt for the market and the way we have discussed it. The effect here, there is a corridor number of NOK 1 billion. So on the balance sheet, you will have to add that billion, but on our adjusted debt, it will have no influence due to the way we have reported adjusted debt since several years. Lastly, our net periodic pension costs. Last Capital Markets Day, we said for 2012 approximately NOK 750 million.
This includes between NOK 50 million and NOK 100 million on Extruded Products, so let's say NOK 650 million, excluding Extruded Products. There is again an IFRS change that will influence this. The rule going forward is that you can not use a return on your plan assets higher than the discount rate you are applying. When we are applying 2% discount rate on the liability side, we cannot use more than 2% return on our plan assets in the Norwegian portfolio, for example. This is going to take down our assumed return on the plan assets, and the effect of that on the periodic cost is approximately NOK 150 million.
We are then talking about 800 back to a little bit above where we have been, but now excluding extrusion. It's going to be split 2/3 on the EBIT, on the operating result, and due to IFRS, sorry, three quarters on the EBIT result and one quarter on financial items. This is the pension lecture for today. We are changing the pricing formula for metal sales next year. We have today a three-month forward pricing formula of our metal sales. This means that we are realizing the three months LME price with a lag, and that lag is a little bit more than three months. It's actually closer between three and a half to four months due to inventory effects in this picture.
This has been done to match our customer pricing. They have historically mostly priced their metal on the three-month forward basis, and that has been the key reason for doing this. By doing this pricing formula, we have matched the customer pricing and still been exposed to the LME, but then with a time lag, as you know. We have often heard from you and faced the questions about this timing-wise. Obviously, it is a noise element when you look at us versus peers that might have a different exposure to the LME in particular in timing. It has also to a certain degree created unrealized derivative effects, which we will not get rid of, but we will probably reduce them somewhat.
Since 2009, customer pricing has gradually changed. The customer has preferred shorter durations in order to reduce their risk exposure. We have encouraged that, I think is a fair word, in order to also decrease our counterparty risk. There has been, it's been easy to meet on that ambition. Therefore, we are now changing our pricing formula to one month prior to production, bringing again our realized prices close to spot market, more aligned with current customer pricing patterns, and it should be very comparable to peers. We believe we then will have the LME with a 1.5-2 months lag in realized prices. Second quarter 2013 will be the full quarter for this. First quarter will be a quarter of implementation.
We also every Capital Markets Day talk about the updates and the guidance for the quarter we are in. Since we meet so many people, it feels natural to do that. This time it's fairly simple. It's very much aligned and in balance with what we said in Q3, the way we see it today. The LME prices are about the same level, maybe a little bit pushed downwards, but more or less at the same level that we commented on. The Platts alumina index is showing the same picture. We guided on the fact that we had sold 85% of our metal production at $1,925 a ton in the third quarter.
We guided that for fourth quarter, and that is obviously still the case. We did comment on seasonal decline downstream as a normal development throughout the year. We put a special comment on it in third quarter, which is still valid, and that was that Rolled showed a fairly robust result in Q3, meaning less seasonal downtick from Q2 to Q3 than what you normally would see. Therefore, we said in Q3 that you could expect that Q4 will be with a higher relative shift in the seasonal decline from Q3 than given the fairly good earnings that we saw in Q3. That is still valid. We said energy production up. Svein Richard commented on the Rjukan. He's very happy to see that in full production again.
Demand is good, and the prices is about twice the level that we saw on average for Q3 now in Q4. Uncertain macro picture, the detailed guidance is about the same level as we talk about. Svein Richard and both Johnny and Hilde will take you through the improvement programs in a forward-looking picture. I would just give a status of the absolute effects very briefly now. As you can see, this picture shouldn't be any surprise to you. It's not to us. We have seen the results coming down the last few quarters. We believe it's mainly due to reduced prices and the raw material squeeze that we have been in. We have seen a negative trend in results, which hopefully is flattening out soon.
This is in spite we have seen significant improvements in our portfolio and in our performance programs. Primary Metal is well on the way to deliver the $300 that was set out for the 100% owned smelters. We would say they are 75% done and have the remaining 25% set out for next year. The effect of this is that in the 2012 numbers, when you compare that program to 2009, it's NOK 1 billion in improvement, all other things equal, on the Primary Metal side.
Next, at the end of next year, assuming that Hilde and her group have concluded the program around $300, the difference will be $1.4 billion in improvement from this program, 2009 versus 2013. It's a significant program. Likewise, on the extrusion side, which started one year later, we are here saying EUR 55 million at the end of this year. We are very confident that we will reach that number or even somewhat more this year. It's more than EUR 400 million in improvement. Then, as you saw on previous slide, we don't see it in the numbers.
It is for the reasons of the very tough price picture that we are facing in on LME and the weakening, significant weakening in the European markets on the downstream side, in particular on extrusion. At least internally, our comfort is that it would have been much worse if we hadn't done this in the right time and with the force that we have done it. Capital discipline in all aspect is a focus. We have, as we said, reduced sustaining CapEx levels but are still very comfortable at those levels that we are spending. Net operating capital is obviously also a key focus area for us. It's difficult. It is really influencing the whole value chain and the way we do business.
We have been able to gradually move this number down over the last few years, and we will constantly work to try to continue to do that. It's important, it's freeing up cash, and then there is a constant balance with how we do business and being able to serve our customers in a very, very good way. It's important work. Let me touch on some sensitivities and then an EBIT scenario. We will present some numbers on sensitivities for you to build your understanding of Hydro and our earning capabilities. I need again to repeat a few disclaimers. Remember, on sensitivities, the starting point is crucial.
If you are thinking about the metal LME price sensitivity of Hydro, it's very important what dollar Norwegian krone, for example, assumption you have, and vice versa. The starting point you need to be sensitive to. Models are highly simplified. It's not an accurate answer of all price movements, of all currency movements. It's one-dimensional adjustments, which also means that the negative correlations that we historically have seen between dollar level and the LME metal price has not been taken into consideration in these models. The dilemma of course around the complexity versus making something that is useful. Most of these will be in the handout for your reference. I just show you a couple very briefly.
The largest impact of our earnings is of course the LME price, and on the currency side, the relationship between the Norwegian krone and U.S. dollar. The LME total group sensitivity is on 10% around the existing price environment that we see. A 10% change in LME will have an annual effect of in the order of NOK 2.7 billion on our earnings. If you look at the 10% change in the relationship between Norwegian krone and dollar, it is more in the range of NOK 2.1 billion for a 10% move in that number.
BRL is important, as you know, since we are incurring a substantial cost base in Brazilian reais, and the sensitivities are here as well. We have some U.S. dollar-nominated loans, predominantly associated with our Brazilian assets that are obviously giving an effect on the financial income side. We are not very much exposed to euro in relative terms on the operating income side. On financial items, several loans and intercompany transactions are giving us an exposure. Bauxite & Alumina sensitivities, it's NOK 1 billion for 10% move on the LME, annual effect. This is obviously due to the fact that still most of our alumina sales is related to contracts which has a reference to the LME development.
We believe we will be realizing prices for the broader part of our portfolio in 2013 in the range of around 14% of LME. If you assume the one percentage point higher price, so not 14% but 15%, the effect of that would be NOK 800 million on an annual basis for Bauxite & Alumina. You would have a negative effect for approximately half that volume in the Primary Metal side. Talking about Primary Metal, obviously the key here is the LME affecting the income side on the metal and the cost side on the alumina. The net of that is a 10% change in LME gives an order of 1.6 effect on the earnings on the operating earnings.
Bringing all this together, we have just illustrated a couple of scenarios for you. This is a flavor of the EBITDA potential in three different scenarios. It's not an estimate. It is scenarios using the sensitivities that you have seen. We have used the last four quarters as a baseline, which mean Q4 2011 till Q3 2012. In this period, we saw prices around $2,200 on the LME. We saw a Norwegian krone to the dollar of 5.8. We saw an EBITDA level of approximately NOK 7.5 billion.
Then we have these three scenarios of $2,000, $2,250, and $2,500 with a U.S.D, with a Norwegian krone of 6 going down to 5.7. The way we look at it, still using the last four quarters as a baseline, is that this will generate EBITDA levels of ±6 billion to ±11 billion, so in that range. There are important factors that will influence our earnings but not included in the scenarios. A very obvious one is Extruded Products accounting. The joint venture with Sapa coming through will obviously change the EBITDA.
It was included N OK 500 million in EBITDA, and now we will include in these numbers 50% of net income, including depreciation. That will obviously have an influence. Improvement programs should have a positive influence going forward, based on the fact that we assumed continued strong development in those programs. Raw material cost is always a question. We have seen them going up and lately some relief. We would give the direction of maybe some more relief for 2013 on this element. Then we have all other elements. We have the EBITDA generation in the other businesses, Metal Markets, Energy, Rolled Products. We have the fact that Alunorte and Paragominas still have a notch to grow on production. Jon will talk about that.
All in all, these scenarios combined with the sustaining CapEx level that we have indicated of NOK 3 billion, and also including that working capital will maybe free up some cash on low price environments from today's position. On the other hand, tie up some cash if you assume the higher pricing environment. All in all, this should give you an indication of free cash flow potential going forward. With this being said, Svein Richard, maybe you will join me, and Rikard, join me on the stage.
Okay, we will open up for questions to both Jørgen and Svein Richard. We have a question here. Please wait for the microphone and state your name and company.
Hans-Erik Jacobsen, Swedbank. A number of your competitors has announced that they want to sell capacity or even get out of the business due to the poor economics. So far, we haven't seen much happening. In your view, is it likely that this restructuring process going on in some of your competitors is likely to end up with a higher rate of capacity closures going forward than what we have seen over the past couple of years?
That is of course a very important question these days as we see that there is ongoing restructuring, and still, it remains to be seen how this is ending up. We know that Rio Tinto is establishing a separate company in Australia and New Zealand with Pacific Aluminium. We see that BHP Billiton is on the way to sell their assets. Of course there are other companies out there that are struggling. It
I'm not going to speculate how this will end up, but there are certain challenges related to some of these assets. In the end, it depends very much on which kind of power contracts the new owners could get. Again, the cost position of these assets and the reason for, of course, the ongoing restructuring is that the return from these assets is already as it is today below water. Again, it is a big challenge to find or at least to see who is going to take over these assets. We are following carefully, of course, the change in the landscape, but I cannot give you any conclusion how this will spell out.
Thanks.
Okay. Do we have any more questions? Yes. One from here.
Anne-Helen Holtsmark from Capital Markets. I have a couple of questions, if I may. First one, in relation to pricing of the alumina that you're selling, my understanding is that approximately 15% of what you're selling today is sold without a link to aluminum. Is that the correct assumption also for 2013, 2014, and 2015? Because my understanding is that contract is up for renegotiations in 2015, and then we gradually will see a higher amount selling into the spot market. The second question is related to the scenarios, because one of the scenario this year is built on aluminum price $2,000. I understand why, because of downstream and because of energy. The EBIT level in that scenario is lower this year compared to last year.
The highest scenario this year is $2,500, and that was not the highest scenario last year, but $2,500 was also mentioned that time. That isn't so much changed, so I find that a bit strange that why isn't that so much impacted because of the four latest quarters?
Mm-hmm.
Yes.
Yeah. First of all, on the alumina side, I think for all practical purposes to use 15% and whether that is 17%, 18% for next year, it's a fair number. We have said it's somewhere between 10%-20%, and we have guided towards the higher part of that. It will gradually increase, but with small numbers until what you are saying on 2015, 2016 when it really change in our portfolio. You can also test Johnny on it later on today. I think that is what he will confirm. Then on the scenarios, I'm not able spot on to take the change on 2,500. Maybe Richard have a comment for you on that. You're right.
They are dampened somewhat, and in particular the case that you refer to simply because of development on all those other elements that you will have for every scenario on this basis. We have tested it on the low scenario. We saw that by adding up some of the well-known factors that we have had this year, for example, the ICMS tax and a few other things that we have had in the results, we were actually quite pleased with last year's scenario. But why it is then maybe a mismatch, a parallel mismatch in the 2,500 scenario, maybe you can-
I believe it relates then to the assumptions used on the currency. We can have a look at that afterwards in the break.
Okay, good.
Any more questions? Yes, we have one over there.
Yes. Hello. Bengt Jonassen, Carnegie. Two questions. The first one, in the different scenarios, what kind of tax rate can we assume in the different scenarios? On the second question, Jørgen, you said about the net debt to Qatalum, you will provide that on an annual basis. Could I ask what the net debt to Qatalum is today?
Well, first of all, we are using around 30% tax rate. Second, on Qatalum, our share of net debt has been in the range of somewhat more than NOK 6 billion, which adds up to a financing, project financing debt of twice that magnitude. There hasn't been much change. As you have seen, it's cash positive. With low net income earnings due to the high interest rate at a low price we've ever seen. It's a solid basis, and it will start paying off the loans now, and it will also hopefully very soon start paying dividend to the owners.
Okay, any more questions? Yes, we have one question next to you there.
Good morning. Edwin Gomez from Fidelity. Of the 75% of the $300 you've achieved in cost savings in Primary Metal, how much of that is a function of lower alumina prices versus a reduction in fixed cost?
Yeah. It's no reduction in alumina prices.
So, uh-
This is-
It's not in that direction.
This is purely our own program and the factors that we are focusing on internally. What we might add, Svein Richard, is that we have seen our cash operating costs going down $200 this year accumulated compared to last year. We have said that if you say that's $200, we have said that 1/3 of that is alumina, one-third of that is the inclusion of Qatalum in our numbers, and one-third of that is the effect of the $300 program from last year till this year, roughly.
We can again just repeat that the $300 program is for the fully owned smelters.
Yeah.
Hilde will come back to the efforts now, which will be carried out in the joint ventures.
Okay. Do I see a question over there? Yeah.
Morning. It's Danielle Chigumira from UBS. Just wanted to check on your sustaining CapEx guidance of the reduction from NOK 3.5 billion to NOK 3 billion. How much of that is just to the exclusion of Extruded Products? And of the underlying decrease, what are the drivers there?
A significant part of that reduction is due to taking out extrusion from the numbers. If you go at the total guiding from last year and also the CapEx number this year, we estimated, as I said, NOK 4.5 billion-NOK 5 billion last Capital Markets Day. We now see that coming down to slightly above NOK 4 billion. On top of the NOK 3.5 billion, which we call sustaining CapEx this year, it's obviously some growth CapEx. There is always a sliding definition here, and we have seen that in Bauxite & Alumina because, you know, what is sustaining CapEx, maintenance CapEx, and what we have called internally betterment investments in order to make sure we are reaching those designed capacities that we should.
The good part and the improvement part from a cash preserving perspective next year is the fact that also Bauxite & Alumina has tightened further and are still having strong ambitions on reaching the production ramp-up. That the other areas, and not least Primary Metal, who has done a tremendous job in changing their investment philosophy, are able another year to continue that program steady with a good handle on the operational aspects of the assets. There is a lot of improvement and real business change in the numbers. But you're right, on dollar terms, 3.5-3, the major effect is the extrusion exclusion. Okay. Do we have a final question? Doesn't look like that. We will have a 15-minute break.
Coffee, water, and so on served outside the room. Thank you.
That's good.
Okay. Welcome back. Let's start the second session with a look into the market, presented by Arvid Moss, Head of Energy and Corporate Business Development, and supported by Erik Fossum, Head of Commercial in Primary Metal. Arvid, I leave the stage to you.
Thank you, Rikard, and good morning to all of you. What we will share with you today is our review on the Bauxite & Alumina market and the Metal Markets. There are some few messages that we want to convey today. First of all is that, as we see today, the metal balance will be or the metal market will be pretty much in balance in the year to come. We confirm, as you also heard from Svein Richard , our expectation of a strong growth for aluminum in the ten years perspective. We also discuss further with you today the Chinese situation. As we discussed with you last year, we see an increasing upstream import into China, and we see some encouraging result of that.
The last point here is what Erik will take you through, the physical tightness that drives strong ingot premiums. Let me first start with the macro picture and look back in history first to see the relation between the growth in industrial production, GDP and aluminum. If we first start to the right here, over the last 10 years, GDP globally has grown by 3%, industrial production with 2%, and primary aluminum demand by 6%. If we exclude China in this picture, it is it's 2%, 1%, and 3%. Remember that during these 10 years, it was six years that was in growth mode, and then we have had the 2008, 2009, 2010, 2011, which have been pretty rough years.
Even if you combine these two, it's a strong growth in aluminum, also outside China, compared to industrial production and GDP. Therefore, always when we start to look forward on the market, we look at what are the perspectives on GDP and industrial production. We do not do our own macro analysis of this. We build on external sources. For GDP, we expect and have used in our analysis further here on the Metal Markets that world ex-China GDP will be at approximately the same growth level next year as this year, around 2%, and China will go slightly up from 7% up to some 8%. Industrial production outside China, 1% this year, 2% next year. Europe, from very low figures this year, still negative next year.
China then on industrial production at around 10%. To, let's say, the implications of growth in different regions to aluminum consumption. Svein Richard showed you this picture here, showing that aluminum is used in quite a number of applications and much more balanced application areas than if you look at copper and steel. Copper is 60% electrical wire. Steel is 60% construction and 17% engineering. While aluminum, see 25% transport, 25% construction, and then foil packaging, et cetera. Of course, this here is typical materials that are benefiting quite a lot from early growth in the economic development in a country, in the embryonic phase, like China has been through now with a lot of infrastructure investment, lots of construction, et cetera.
We have also seen that in this period, aluminum has a more than 50% higher growth in China than industrial production. The good thing is that even if we now see a transformation of the Chinese industrial economy, less driven by construction and infrastructure, and more driven by private consumption, we will then see that aluminum will benefit from that due to its strong application, let's say market share in transport, but also here in packaging, and foil, and in consumer durables, and so on. That's why when we look at China now for the next decade, yes, the growth for aluminum will come down, but it will still be at least in line with what we see in industrial production. This is important to understand, let's say, the robustness of the aluminum growth going forward.
If we then move a little bit closer into the application and products in Europe and in North America. In short, in Europe, extrusion will grow only by some 7% in the next four years, and Rolled Products approximately 10%. It's really for both it is transport that is the main driver now for growth in aluminum. Construction, we do not see still that there are substantial change in the market with that way. It's quite the opposite. It's quite low and continues to be low. Aluminum is taking market share in cars, as Svein Richard pointed to. A European car now has 145 kilos of aluminum. 145 kilos.
By 2020, the expectation is that that will grow almost 25%, up to some 180 kilo. Of course, combined with expected growth in car production, this really is behind some of the growth here. In the U.S., the picture is even clearer. Here is also positive that we see more growth from construction, and we see their building permits coming up, construction coming up. Transport, look here on Rolled Products, it's 63% of the growth in this period will come from transport. Again, the expectation there is that today aluminum represent 9% of the weight of the car. In 2025, that is expected to increase to 16%. What drives this?
It is very much the regulation from governments to push down CO2 emissions, so you have to have lighter cars to use less fuel. Also interesting to see that, you know, the absolute level in North America now is 1.4 million tons. It's half of Europe. A decade ago, they were almost similar. There is now 25% growth here over the next four as expected. That is good. It's a little bit about America coming back again, also when it comes to industrialization. When we then put this together into a primary supply demand picture, where do we end then? Well, as Svein Richard also did, let us remember what we said last year.
Last year, we said that we expected demand to grow with 3%-5% from 2011 to 2012, and production to grow also, so that what we indicated, some oversupply or close to balance. This demand growth was based on industrial production growth in the Western world of almost 3%. It was more like the low figure here. I said that Western world or the world outside China ended at 1%, but still we got a little bit higher figure now on demand growth for aluminum. We expect now that the growth in aluminum demand outside China will be around 2% based on industrial production growth of 1%. Actually, it's a small positive signal in that. What is more important is actually what happened to the production side.
We've seen a reduction in production this year through some supply changes. First, there is a market response, and that is most important. The market response represents approximately 1.3 million tons in annual capacity. It is about smelters in Europe being closed down. It is about closures in the U.S., and it's about the closure in Australia, like we did with Kurri Kurri. These are responses to lower LME, higher power contracts, and higher raw material prices. We have had 0.6 million tons in effect of disruptions. That is Hillside in South Africa, which was a technical issue, and it was Alma in Canada, which was a lockout situation. There are also some disruptions in Venezuela, but that is more regular, to call it that.
This is really what has now improved the situation so that this actually looks like a small, or it's a balanced situation, this year. What are we expecting then for 2013? Before we go to that, let me remind you about where is actually now primary aluminum used. This is the global picture, and there are many figures on this pie chart, so I will first say what is it actually showing. The pie chart here shows the share of global primary consumption. The big share here is aluminum. The percentage points here are annual growth in a three-year period to 2010, to 2011, to 2012. Of course, then coming from the low point in 2009. Europe here is now only 15% of global primary consumption, and U.S. is even smaller.
Asia, outside China, and the Middle East is now bigger than these two regions. I think it's important now, yes, the sentiment in Europe is important. Yes, it is important if there is zero growth in Europe. I think from a aluminum consumption point of view, where it's a global traded commodity, and where it's actually the global balance that is important, we should not put too much emphasis when we put on the lenses and look to Europe. It is important for in some aspects, but it's really not driving this total picture, so much anymore. What is the expectation that we see? Our base case is a growth in demand outside China of 2%-4%. 2%-4%.
That is, of course, based on that there is a reasonable solution, to put it that way, to the fiscal cliff in the States and to the European debt situation. Of course, if there is a substantial negative development in one of these, it will have an influence on this, as we have put here on the demand influences. The base case based on the GDP growth and IP growth that I showed earlier is this estimate. On the supply side, of course, there are the same suspects as last year, what to look for, curtailments, restarts, new projects. With the price level we see now, we do not really see restarts as a major contributor on the supply side.
On new projects, as probably most of you have recognized now or read is that, the Ma'aden project in Saudi Arabia, which was expected to come in with 700,000 tons next year, seems to be delayed for some time. For some, at least 10 months, I saw was the last estimate. There'll be less influence from that. We expect, I've not drawn here a blue line that is visible, but it's somewhere in between there. It looks as if it's going to be roughly a balance next year in the primary metal market. What we want to share with you is a little bit longer perspective on the supply side.
Because if the economy continues to move, this is slowly in the right direction with growth rates of 2% or whatever, we expect that the primary demands will follow in the years to come. If we look at the supply side developments over the next years, up to 2015, what we see is now a growth in new capacity of approximately 2.5 million tons. That is, as I said, Ma'aden with 700,000 tons. It's approximately the same figure in India. Then there are two projects in Russia with approximately the same volume.
I think if you look at the execution rate in India, it is not exactly all of it on time or and as planned. I think that the 2.5 here is, as I said, that's a fair estimate on what we think come on stream, and there is not much new now in the pipeline. You know, since 2009, the price level of LME has not really triggered any new projects in the Primary Metal area. Two and a half coming probably on stream. You also see that there is approximately 3 million tons capacity at risk. Capacity at risk. That means capacity that can be shut down due to that power contracts are expiring or other high cost reasons.
This will be, as we see it, capacity at risk is in Norway. Not Norway. Europe. Philip. Not Norway. In Europe, and in North America, and in Australia. Of course, also in Russia, west of Ural, they should have shut down some capacity because that is announced, but they have not yet closed down the 300,000-400,000 tons that they said they should do. If you combine this, there may not be so much net capacity added over the next years, and that should leave room for now that the inventory starts to be built down. That is our main hypothesis.
China have been able to manage their metal balance in a very good way over the last six years. Our main hypothesis is still that China will be balanced on the primary aluminum area. They regulate this on the border with duties, taxes and whatever. A little bit more about development inside China on the metal side. There, you know, these coastal regions here now, they are becoming more and more expensive.
Over the next four years, what is planned new capacity, most of it, will come or is planned here in the western regions. Of course, one could expect closures in this area, but we now see that there are subsidies given by local authorities in some of these regions to keep these smelters alive. What we see are subsidies in the range $40-$200 per ton. Even with that, we now believe that one third of the smelters in China are underwater, negative cash. I think if you read the financial reports from Chinese aluminum companies these days, you will find pretty red figures. I think also the integrated ones in China have pretty red figures.
It's high raw material cost, high power cost. Of course, if you look at the distance here from this region here to the coast, it's almost 5,000 km, and it represents a substantial logistical challenge. The central government are trying now to avoid a too speedy development because of the pressure on water resources, on the grid, on the transport system, and whatever. I think our experience is that even if the central governments are pointing at that as a risk, the local authorities are encouraging new capacity to build. I think we can expect that China will continue to build its primary capacity to keep a balanced situation and not start to import metal over the next years. That is our main hypothesis.
Just as an illustration here, you know, to this 5,000 km, and if they build 5 million tons here up to 2015, you know, it needs to go a truck every five minutes over the whole year, both ways, because the railroad system is not developed to carry this kind of load. It's a fascinating logistical challenge, but, you know, the Chinese have their own tradition to solve that kind of things. Our base case is that they will continue to build capacity. I'll leave to Erik to talk about the metal ingots and some issues there, and we will revert to Bauxite & Alumina afterwards.
Thank you, Arvid. I will talk a little bit about the aluminum price, about the ingot markets and the stock development, and also a little bit about our product strategy and about our commercial agenda going forward. Let's start first with a walk-through of the aluminum price and what has happened so far this year. We started the year at around $2,000. We started from a fairly subdued situation in end of 2011, where consumers built down their inventories. In the first quarter of 2012, we saw good demand again, and we saw consumers restock in the pipeline, and this brought the price up to a high of $2,346 in the first quarter. The softer economic conditions set in.
As Arvid explained, industrial production has come in below expectations this year, and we start to see softer market condition and a gradual decline, and the price declined all the way down to a low of $1,830 in the third quarter. As Arvid explained, we then saw supply kick in in terms of reduction of supply. This really established a good support in the market, and we built a very strong base for aluminum price. We then had the Q3 positive sentiment kicking in again, hopes for solution of the European Union, and that triggered a short covering rally in the price, taking the price all the way up to $2,200.
As nothing changed on the fundamental side, the price then eased off, and we're now pretty much the same place as when we started the year at $2,000. A few words about the Chinese market and LME. If we keep sort of the sizes in our heads in terms of physical size of the market, production in China on annual basis is for 2012, around above 21 million tons. In the world outside China, production is around 26 million tons, so the two markets are pretty much even in size. Here we see the Shanghai price in blue and the LME price in green. What we have seen is that since 2011, the Shanghai price is significantly more stable and moving sideways than the LME price that has declined.
However, explaining the price differential between those two prices, we have to take into account that the Shanghai price includes a 17% VAT element, hence we cannot directly translate and compare the LME price to the Shanghai price. In addition, the price differential here between the Shanghai price and the LME price currently also includes a premium element of about $100 on top of the 17% VAT, but that is not sufficient to defend imports, as the Asian ingot price is around $250, so we still lag $150 to have imports into China on a significant basis. For those of you concerned about potential exports out of China, and that will only happen when, of course, the Shanghai price is significantly below LME.
To calm you a little bit there is a 15% export tax on export of primary aluminum out of China, so you need the Shanghai price to be significantly below the LME price before you see any significant export. As most of you know, the Chinese authorities have also introduced stockpiling of strategic raw materials and base metals, including aluminum. The projection they have set out in terms of how much aluminum they will purchase is around 400,000 for the coming six months or year. So far they have only bought 100,000 tons of this. Of course, this is also supporting the market, as the market is fairly balanced in terms of supply and demand in China.
What we also have to keep in mind is that the higher Shanghai price also reflects some concern about Chinese access to raw materials going forward, then on the bauxite side. Arvid will come back to this in the next session. Moving on to the ingot stocks. You've all seen this picture before with very high ingot stocks. With a supply/demand balance situation as we see now, that increase has stopped, but still we're at a very high level. This has happened at the same time as ingot premiums have gone to all-time high levels. What's the logic in this? How can we explain this? In order to start to explain it, we have to backtrack a little bit in time.
In the sort of years 2009, 2010, when the significant build-up happened, warehouses basically saw that they had a business model that could turn into a money machine. Warehouses make their money by charging a daily rent on aluminum. Of course, there's physical constraints, how much metal you can deliver out to a warehouse per day. There are also rules on LME on how much you can deliver out. If you manage to fill up the warehouse with significant amounts of aluminum, you basically have a money machine that will take a very long time to empty the warehouse of metal. Basically, what they did was to start to compete with the consumers by paying a premium.
They sort of basically said that I can keep the metal in the warehouse for 150, maybe 200 days. After that, everything is pure profit. They start to bid out premiums in competition with consumers. This basically drove the first phase of the premium increase. We're now coming into a situation where the market is much more balanced in terms of supply and demand. As premium is priced on the marginal consumers, basically have to and cannot get access to the metal being stored in warehouses, and hence have to pay a fairly significant premium on ingot premium. This is basically has a balanced market is supporting premium development going forward.
Coming to the mechanics of a warehousing deal, to say a few words about that. In order to establish a warehousing deal, the owners of the physical metal have to hedge the metal on the LME, meaning they have to sell futures on the LME to create a short position. If you have a short position, you can take advantage of the contango curve with low nearby prices and high forward prices by selling low, buying high on a continuous basis. What we need is that the sum of the warehouse rents paid to the warehouses and the financing cost represented by interest rate need to be smaller than the LME contango. Since 2009, we have seen the LME being at a fairly high contango for a sustained period of time.
This has created an arbitrage for all the owners of physical metal and made the it very profitable to store metal and earn excess above risk-free interest rates on the metal being stored. Of course, the question you will have is, when will this end and how will this end? As Arvid pointed out, we have a small deficit potentially developing going forward. What usually happens then is that we see some response in the LME price with increasing LME prices. What usually also happens then is that we get the contango curves that flattens out a little bit more, making it less attractive to hold metal in warehousing deals. We can assume if that scenario takes place, that we'll see a gradual let-out of metal from warehousing deals going forward.
That's also of course contingent on interest rates staying low for a sustained period of time. We also put up a schematic overview of the different stakeholders in the warehousing game, just for your explanation. The producers in this context usually look to minimize their balance sheet and offload their metal as soon as they can if it's not allocated to consumers. First line buyers is usually traders. They are in the game to make a premium profit and earn on the contango, and usually take the metal that is not allocated customers of the producer's hands. We have the warehouses, and the warehouses earn warehouse rent. We also see a development now that warehouses also are owning metal and also significant amounts of metal. They in addition earn the contango.
The consumers have a double role here. Of course, they are the final consumers of metal, buying ingot for consumption. They are also hedging forward on the LME. By hedging forward, they are basically sustaining the contango and so, and enhancing supporting the warehousing deals that goes on. We have the financial investors and the banks. Of course, financial investors can be many groups. It can be players only going for directional bets on the LME. It can be players looking to earn the risk-free contango at a risk-free interest rate. It can be the banks financing the aluminum stocks. The financial investors also are a group that are mutual funds and pension funds that usually buy aluminum as a part of a portfolio diversification.
They usually also move aluminum quite far out on the curve. They are also upholding the current contango situation in the market. A little bit to our Hydro's product strategy. If you look at global casthouse production, around 42% is ingot production. For a consumer, an ingot has less value than a product because it has to be remelted to get into shape so that it can be consumed by the consumer. However, our Hydro strategy is to focus on products being extrusion ingot, foundry, sheet ingot, and wire rod, which we believe over a long time period gives us significantly additional premium compared to being a pure ingot player and a pure commodity player.
Extrusion ingots having 21% market share in terms of cast house production and sheet ingot, the second biggest of products with 17% market share. Looking at the long-term picture for extrusion ingot premiums above standard ingot premiums. In time periods where demand is really driven by actual demand and not by financial deals for metal or whatever, we see that producing extrusion ingot gives significant earnings above standard ingots over a long period of time. Currently, we are in a very special situation where ingot premiums are at an artificial level. This will, of course, not last forever, and then our strategy about with producing extrusion ingot, for instance here, will be a more profitable strategy.
In terms of our commercial agenda, going forward, as the premium now is a higher portion of the sales price than previously, we are focusing on maximizing the premium we are getting for our products out to customers. Hence, we are running a fairly short-term pricing strategy on our premiums. We are basically running a quarterly pricing negotiation with our customers for a significant part of our portfolio. We are committing annual contracts to customers, but are keeping premium fixing on a short-term basis. We have also increased focus on product premium versus market share.
As you know, we have reduced our remelt activity at Norwegian primary plants significantly this year, taking it down by approximately 300,000 tons, and this have significantly increased our pricing power on premium. We are also in the process of a long-term shift towards a higher premium alloy mix. This is basically going into harder alloys, a lot towards the automotive industry. That also gives us a higher earning over time. In terms of Qatalum , this is being optimized towards Asia, U.S., Turkey, and the Gulf region, which are paying the highest premium and is the best place to optimize the Qatalum in terms of logistics. Okay, I will hand back to Arvid Moss.
Thank you, Erik. I will turn to the alumina and bauxite market. As I will show you through this presentation, this is very much about China, very much about how China will develop going forward, and the influence from China has been very strong over the last years. Let me start with the bauxite market pricing and then alumina pricing. First on bauxite price, alumina is a commodity with a pretty similar quality. You can talk about a few dollars in spread on quality. While on bauxite, the difference could be up to ±30% based on different silica and alumina content in the bauxite. This is pricing to China from Indonesia and from Australia.
Since 2009, we've seen the price from Australia delivered China at some $55. Then from Indonesia, we have seen coming up from $30 up now to $40. After the ban, it is up to above $50 delivered China. It was mentioned here that there are cargoes now being shipped from Australia, not many. We have seen delivered prices China at a level around $80. Of course, then you have some inland freight. You can multiply that with 2.5 to get the bauxite cost into alumina. We're talking about above $200 per alumina ton just in bauxite cost.
That's where the trade-off starts to come in. What should they really import? On alumina, I will just give a few comments to what has happened after August 2010, because that was when the index was established and more and more used. What is good to see is that in, let's say, the nominal, or in the relative to LME, the price level has been, let's say, in the band between 15%-16%, which is clearly higher than historically and also more robust than historically. At a nominal price level, even if it had a weak period now for the last year, it has been stable at, about $300.
It is an improved, seems to be improved fundamentals-based pricing when it comes to reflecting the fundamentals in this part of the value chain. Approximately one third of the alumina is traded to third parties, and the same goes for bauxite. Before China, that market was very small, but after China start to import, the bauxite market has expanded. Hydro is a long player now, both in the bauxite markets and in the alumina markets. Rio Tinto is by far the largest company exporting to others. In alumina, it is Alcoa that has the most substantial long position. Then you see here on the other scale, we see the Chinese import of alumina at around 35 million tons. Indonesia that has been, we estimate now around 20.
It was or about 20, it was 40, more than 40 last year. I will give some more comments to that. When you then take the global picture of Bauxite & Alumina, where is it produced? Later I will show you where are the resources. It's really a, you have an Atlantic market and you have a Pacific market. You can see here that if you look to China as really the driver here, 40 million tons of alumina production. In alumina equivalents, they produce 22 million tons of bauxite. What is on top here needs to be imported to feed the alumina production on top here, and that comes from Indonesia, and it comes from Australia. This has been a market that has functioned over the last years.
Demand from China, supply from Indonesia and Australia. If you look at the resource base globally, just a few comments on this one, because what is one country that really sticks out when it comes to total resources, estimated resources, but this is also including undeveloped resources. Although these may not be economically feasible, it's really by far the largest is Guinea. The black columns here are reserves plus resources likely to be converted to reserves associated with operating mines. So those are more secure that they will be utilized and taken into production. Again, let us look at the picture over here in the Pacific. You can see that China, compared to some of the other countries, is not really having so much bauxite resources.
Quite a lot of it is already within, let's say, the scope of what has been done today. We have said earlier also that there is a limit to how far they can go in this direction at the current speed of production of bauxite. At a certain time, the quality will be so bad that it's not economically feasible to continue to develop. Of course, if the price of bauxite goes further up, more resources will be feasible, and there can also be technological changes that we do not see today. The point is that it's hard to see that China will expand its bauxite production substantially and keep that for decades going forward.
We have Indonesia, where we have had an export of almost between 30 million up to 35 million to 40 million tons last year. As you know, they introduced a temporary export ban in May this year, and it has been very efficient, and they have a permanent ban for bauxite export after 2014. Many question whether this will really stick. It's been challenged. The temporary ban has been challenged by High Court. Of course, if they want to export, they have to pay a high export tax, 20% this year if they get the license, 50% next year. At least they try to get more money out of it from a governmental point of view.
I think that even if they, let's say, have to let go of the export ban, there is a limited time period that Indonesia really can serve as the supplier of bauxite at the same level as they have done over the last years. Then Australia can expand, and they will expand to serve this, but it leaves us with some shortages in the bauxite market as we see it today that needs to be solved on a more global basis and not only within the Pacific. Just a reminder of what has happened in China, first, they imported alumina to cover their net needs. Then, of course, alumina prices went through the roof in these years, and they built a lot of alumina capacity and started to import bauxite.
Here, last year, they had the maximum import of of bauxite and had taken down alumina import. Now they are increasing alumina import again as it's harder to get hold of the bauxite at reasonable prices. Here we see a more detailed picture on the import of bauxite per source. The green line here is monthly import from Indonesia, growing then up to a level here we had in during 2011 of around 3 million-4 million tons per month. Here in the first months of 2012, they shipped even more because of the ban that should come. Then the ban was very effective, so it dropped almost to zero during summertime, and now the last month is up to 1 million ton again. 12 million ton on an annual basis.
Australia is here rather flat at this level, and there are no export mines in Australia that is ready to take on this challenge. Rio Tinto is planning to expand the Weipa mine in some years, and that will add some million tons. As of today, it's hard to see where this will come from. It means that what has traditionally been, that means over the last three years, has been a local market here, to call it local, will have to move into a more global market. Whether the flow from Jamaica, Brazil, Guinea, whether that will be bauxite or alumina or in what kind of mix that will be remains to be seen. Of course, from a transport cost point of view, you should ship alumina.
Of course, they have built a lot of alumina capacity that they also would like to use. Here in Guinea now, we expect that more capacity will come on stream, but also Guinea has actually said that the bauxite should be converted to alumina in the country. In Brazil, we know the mining system pretty well. There is no export mine on 10 million-20 million tons standing there ready. To develop mine takes five to 10 years. For us being long in Bauxite & Alumina, we are really, let's say, following this closely and see what kind of commercial opportunities comes out of this.
To try to summarize this and see where the uncertainty, to summarize the picture as it is now, alumina in China import produced on domestic, alumina produced by import bauxite and the import here from Australia, Indonesia, Australia and some small other. How will this look like in 2025? If China continues to be balanced in metal production versus metal consumption, if we are right approximately on the growth rate, they will need more than double alumina into the country. Yes, they may import more alumina. Yes, there may be also some increase in alumina based on domestic resources. As I said, you never know. There may be more resources than we see today. There may be more feasible due to that the bauxite price in general goes up.
How much will they produce based on imported bauxite? Our main estimate is that Indonesia will go down, Australia will come up. In the middle here, there is a big gap, where new mines, new export mines will have to come somewhere in the world or, there have to be more import of alumina. This is very important to follow, and we follow this very closely. Of course, the commercial organization of you and me is hands on this every day. What it means for China, I shared this graph with you last time we met one year ago. If we start here below the line is the export of semis and fabricated from China. We see that over the last six, seven years, there is an increase.
I think this, compared to some of the most dramatic scenarios that we could see some years ago, the export has not really taken off in a totally new speed than before. On the import side, they import scrap, a little bit increase every year. They import bauxite and they import alumina. I think actually that this figure here is the wrong one. So I think we need to send out the right one here. I'm sorry for that. I think the trend line that we're showing is the right one, that they will be more and more dependent on import of raw materials. Net metal units, China is going to be a larger and larger importer.
We have to send out the correction, or is it correct in the.
Handle.
In the handout is correct. You will see that my comments are right. On the long-term outlook, Svein Richard , let's say with his expertise within the material, explained how this material is fabulous to solve some of the global challenges going forward. We see that what we see as growth expectation going forward is very much in line with also what others expect, some 4%-6% over the next decade. The main message that we want to leave you with is that there is a good or a reasonable balance in the Primary Metal market outside China for the coming year.
The demand side combined with the supply side development over the next year should give room for a build-down of some of the inventory. The strong long-term demand projections we confirm. The China story is incredibly interesting, and we believe that the shortage will increase on a longer-term perspective. As Erik explained, there is also some, let's say, the shortness of ingots has driven up the ingot premiums. We are pursuing a commercial strategy that should take out value on the value-added products going forward. Thank you.
Thank you, Arvid. We'll turn the page to the first business area presentation. I invite Hilde Merete Aasheim to the stage to present Primary Metal.
Good morning, everybody. In this session, I will talk about the smelters in Hydro and how we work in order to improve the robustness of the smelter portfolio. At the end of 2011, we were operating 12 smelters within the Primary Metal business area. In the beginning of 2012, we transferred the Rheinwerk smelter in Germany to the Rolled Products business area. During 2012, we have curtailed the Kurri Kurri smelter in Australia. We closed the last pots in September, and we casted the last metal in October. At the end of this year, we have 10 smelters within this portfolio. Four is fully owned. It's the Norwegian smelter exclusive Søral, and there is six joint ventures smelters. Now we see that we have more metal coming from the joint ventures than the fully-owned smelters.
These ten smelters represent approximately 2.2 million tons of electrolysis capacity when we consolidate 100% of Slovalco and Albras, and where we equity account for our share in Qatalum and Søral. Our main agenda in Primary Metal is about repositioning. Repositioning means to improve the cost position of each smelter and working to increase the robustness of the total portfolio. Obviously, to take out high-cost capacity is about repositioning, and the reason why we took out Kurri was simply because the cost was too high, and the outlook of increased power cost added to the challenge. To bring in low-cost capacity is also about repositioning, and I will come back to Qatalum now confirmed in the first quartile position.
It's to work on the existing assets with improvement programs, and I will come back to tell you more about the $ 300 program which relates to the four Norwegian smelters fully owned. I will also talk a little bit about the joint ventures and the improvement programs that is taking place there. When you are in the smelter business, power cost is extremely important. Power cost represents roughly 25%-30% of the cost of producing 1 ton of aluminum. That is why securing competitive power supply is also a very important part of the repositioning agenda when power contracts expires to make sure that we do have new competitive power contracts to sustain the smelter going forward. I will tell a little bit more about the power coverage that we have now for the production.
During 2012, we have been successful in entering a long-term contract for Alouette. A contract which goes up to 2040, which will sustain the Alouette for a long time. It will also allow for us to expand the capacity in the existing Alouette plant, but also an expansion in Alouette when time is right. Another milestone in the power area this year was that EU finally concluded on a compensation framework related to CO2 compensation while we're waiting for a global CO2 regime to come in place.
We in Hydro is also very excited that the Norwegian government has committed to a similar compensation scheme for Norway, and that has been a very important basis for us being successfully signing a contract, power contract for Søral, which we signed in October, November this year. An eight-year contract, making it now possible to sustain the operation in Søral. At the moment, we are only operating one line. We curtailed one line in 2009. We're still planning to operate one line next year. We have to wait for the market to come back in order to bring the next line back.
The Søral contract, which is competitive contract for Søral, also give positive sign for the Norwegian aluminum, for the other aluminum smelters in Norway, where we now see that it is possible to enter into a competitive power contract in Norway. The next power contract in line is Slovalco. Slovalco has a power contract that expires at the end of 2013, and we are now busy working together with our partner in Slovalco, to work on a new power contract for Slovalco, hopefully being able to sustain Slovalco going forward. Here, we work in close cooperation, as Svein Richard mentioned, with Hydro Energy to provide the necessary competence and capacity to do these negotiations in Slovakia. We are also working with a power framework in Albras, which I come back to in some few moments.
We have now 90% of our current production covered onto 2020 and beyond. It's also good to say 2/3 of this power is based on hydropower. Let me talk about the improvement programs. Let me start with the $300 program, which relates to the fully-owned smelters. When we started the program, Kurri was part of this. Now it's the four Norwegian smelters, Årdal, Sunndal, Karmøy, and Høyanger. We really felt the lack of robustness in 2009 when prices were down, really down to $1,500, and we recognized that is a situation which we don't want to see again.
We defined a program for the fully-owned Norwegian smelters, which would be based on the 2009, let's say, operational level and cost level we had. We said that we set ourselves this target of achieving $300 per ton improvement at the end of 2013. We started in 2010 and have been working on this these last three years. The program is about working in areas where we can influence. It's not about LME going up and down. It's not about raw material prices going up and down. That is sort of normalized when we report in this program, because we would like to isolate what we can influence in the daily operation.
It's about productivity improvements in terms of how we work in the electrolysis, in the cast houses. It's about fixed costs, and it's about how we are capable of improving our margins from the cast houses. At the end of 2011, we recognized an achievement of $200 per ton. We set ourselves a target of $235 for this year, and we are on track to delivering the $235 for this year. When we now have worked on the business plan for next year, we are planning to achieve the full program at the end of 2013. It's really encouraging to see how the organization has really bought into this program, because this is not a primitive cost-cutting program.
We have started on a journey of a way of working, which is based on systematic approach, on a structured approach, and engaging the whole organization, and having leaders which are visible driving these improvement efforts. It's also very encouraging to see that this way of working, we also see this effect in other areas. Our safety statistics showing that we are improving in terms of safety. Our environmental parameters are going in the right direction, and we also get positive feedback from the customers being more predictable, being more stable, because this is our way of working. It's not a primitive ad hoc program. While we are working with the improvements, we're also looking at new areas that could be explored.
One area that we are working on right now is, with the new organization where we have merged Primary Metal and Metal Markets, we look for even more opportunities to capitalize on our capabilities in the cast houses, in the R&D competence environment, going to the market with new products, and upgrading, high-grading our portfolio, going to the market, as Erik Fossum mentioned. We have also worked quite extensively into the carbon area, the black raw materials area, where we have seen that petcoke prices has increased. We are now using our competence and R&D center in Årdal to test new coke qualities, to blend in other coke qualities than we traditionally have used without jeopardizing the quality of the anode. Because a good quality anode is a prerequisite for good operation in the electrolysis. That's a fine balance.
We have to explore, we have to expand the universe of coke suppliers and also anode suppliers. Another interesting area is that we are working on the technology development of the next-generation cell. We are now heavily involved in testing out the world's most low energy effective cell. That is for the future, but we also are trying to take the knowledge that we are developing in the technology program to the existing assets. Right now, we're testing out larger anodes on existing assets, hopefully being able then to reduce our energy consumption even further. At this moment, we're also testing out new anode and new cathode designs at the different smelters, hopefully being able to increase amperage and increase productivity.
It's interesting to have that perspective because we are developing the top of the pot and we are developing the bottom of the pot. Actually we are in lines and buildings which are more than 40 years old. We are actually developing the cell continuously. Coming back to the content of the $300 program, I got a lot of questions on what is really your achievement. I made a drill down of this NOK 1.4 billion in real terms that Jørgen mentioned, which is the value of the $300 program once it is achieved at the end of 2013. The largest part of the $300 program is about fixed cost. It's about reducing fixed costs at the plants and above plant.
It's about working on the full-fledged agenda of fixed costs from labor costs, maintenance costs, administrative costs, working in terms of demand management and procurement in a different way than we used to in the past. It's about a structured approach where we look at our working processes and taking out waste in ineffective processes. That combined with strong cost discipline, we have been able to take out NOK 650 million in real terms in fixed costs over these years.
In terms of product, process improvement, we are heavily using our production system to put competence into standards, into way of working, using our highly skilled operators together with the best technologists, working on first reducing variability, bringing us to a stable position, because you are not able to improve anything if it's not stable. To go through that journey of reducing variations, making us stable, take us to the next level. Where we have been able to improve the productivity in terms of increasing amperage, increasing current efficiency, which is about more tons out of the existing assets. While at the same time working on cost effectiveness in terms of reducing the consumption factors like energy consumption and other consumption.
We have also looked at other areas on the cost curve or on the cost position. We have looked into an area of logistics. It's a huge amount of volumes going in and out of these plants. We have particularly looked at the inbound flow of materials, where we have worked together with the shipping departments, with also Bauxite & Alumina, where we have looked at how could we use our long-term contracts, managing in these contracts, using the flexibility also in these contracts, optimizing the flow and reducing the demurrage, which is where we have gained NOK 250 million. I was mentioning maintenance costs in the fixed cost area.
Here we have really turned and as Jørgen said, introduced a new culture where we are much more focused on preserving what we have, really focusing on the technical integrity of the critical equipment we have, being ahead of time, reducing corrective maintenance, more preventive, reduce call-offs substantially, and really preserving our equipment. That has also had the side effect that we have reduced sustaining CapEx. This is only sustaining CapEx related to maintenance, but we have also in general, which is not part of this program, reduced CapEx substantially. We have also in this program worked on casthouse margin. As we have heard, in a depressed market, it's hard to really go for to really achieve higher margin.
In particular also with the extreme high ingot prices that we have seen, where we here measure margins above ingot, the margins has really been squeezed. I hope with the new setup we have now with Primary Metal and Metal Markets merged, we would really have a new chance to look at how we could optimize the way we go to the market. This is at least some examples of the build-up in the $300 program. It's really areas in where we can influence using our whole organization, and this is the effect what we have achieved or will achieve at the end of 2013.
As I said, we have at the end of this year achieved 75%-80% of this program at the end of this year. Let me move to the joint ventures. I said that we have four fully-owned smelters now and six joint ventures, fairly large-sized smelters. Fairly large-sized smelters, but it's quite different working with fully-owned smelters and joint ventures. Somebody is competing with me. Pardon?
Somebody has tapped onto our PA system.
Okay.
Okay. Should I just continue? Yeah. Okay. I was starting to talk about the joint ventures, and it's quite different working with fully-owned smelters and joint ventures just for the reason that we have, we are in these plants with partners. We have to be more formal. We cannot just have a meeting and setting direction, and then we're all set. We have to work through the boardrooms. We have to align ourselves with the partners. It is a different way of working. On the other hand, we have some good plants. They are relatively well-positioned on the cost curve as of today, but it's important to make sure that this position doesn't deteriorate.
We, as you know, have been quite active in these boardrooms over the last months to make sure that we take the experience from the $ 300 program, this way of working as we have worked in the fully owned, and set the scene and set the agenda for also improvement programs in these smelters. Now all of these joint ventures have improvement programs, let's say, based on the same methodology as we have used in the $ 300 program. On average, these improvement programs is around $1 50 per ton for these smelters. It varies. Some are higher, some are a little bit lower. The focus is a little bit different from plant to plant, but it's in that range.
We will measure these improvements together with our partners through the joint ventures. I have to say, talk a little bit more about Qatalum in this portfolio of joint ventures. As you know, we were at full capacity in September last year. We have now been operating the plant for more than a year at full speed. We are projecting an electrolysis production a little bit higher than 600,000 tons for 2012. We have good operation. We have extremely good quality anodes, which is a prerequisite for good operation. The anode part of the plant is also working very well.
We have good products, well, very good feedback from the market, producing in the casthouse 90% value added products. As was mentioned, we passed the technology test. Qatalum passed the technology test in June this year, demonstrating the technology that has been installed by Hydro, and also relieving the owners for the guarantees. The technology test also demonstrated the capability of the technology, even more than the nameplate capacity. I'm also very happy to be able to report that we are now more or less in normal production, or we are in normal production in the power plant. We have all six generators. The four gas turbines and the two steam turbines are working at full speed.
Last year, I was in Qatar, and then we installed the last section of the seawater cooling tower, which unfortunately burned down in March this year. This has been rebuilt in record time in the hottest season in Qatar, in Ramadan. Six months has it taken to build up the full cooling water tower, and the last section was put in last week. We are now producing all the power we need from our own generators and not importing from the grid, as we have done in the rebuilding phase. Obviously, to have a secure power supply for a smelter is the utmost important, and we have been doing a lot of risk and robustness testing and assessments during the year.
This is progressing now very well and that obviously focusing on robustness also going forward in this huge power system in Qatar is on the top of the agenda. As I said, now the plant has been operating for more than a year and cost has come down. Just for the fact that things starting to come into normal way of operating, ramp-up cost has come down, has been taken out. We are now at a level of a cash cost, business operating cash cost level at around $1,450-$1,500 per ton at current market conditions. Obviously, the organization is still busy in optimizing the plant. It's a huge plant. Some of you have been there. It's a huge plant.
You have to get to know the equipment. You have to get to know the plant. Maintenance intensity in this environment is extremely important. There's a lot of work still to be done, but we are confirming the first quarter position, and we're working to improve the plant even further. The technology test also gave us a good basis to work on creep potential by 2012. I would also like to mention Albras, because Albras came into our portfolio last year with the Vale transaction. It's a large size plant. It's a 460,000-ton smelter and 900 pots. When I was standing here last year, I was a little bit concerned about the business environment in Brazil, in particular the Brazilian reais, but also the power cost.
Now, we see positive development in both these areas. The Brazilian reais has developed favorably, and we also have got positive governmental announcements in terms of new power framework for this industry in Brazil. It's still early days, and the actual impact is still yet to be clarified and confirmed. It's good news in terms of the Albras smelter and the positioning of the Albras smelter on the cost curve. We have been happy to include Albras in our portfolio, and we, the Primary Metal organization, is busy to assist Albras now to implement the production system, and assist Albras in accelerating their improvement process going forward.
My last note would then be that we will continue the repositioning effort in terms of delivering on the $300 program. We will intensify the improvement works in the joint venture because the joint ventures means much more to us now than it did in the past. We will obviously work on the power sourcing, in particular for Slovalco and for Albras. I hope to be able to next year talk about the optimization between Primary Metal and Metal Markets in terms of going to the market with even more advanced products, really high-grading our portfolio to the market. This work is really important for Hydro. It's really shaping Hydro for the future.
It's obviously important short term because to improve the robustness of the smelter makes us more robust in a volatile market with low prices. Hopefully also, the robustness will also accelerate our value creation once the market come back. Thank you.
Thank you, Hilde, and thank you despite the technical issues. Apparently, somebody is preparing a wireless microphone for an interview later on. That is on the same frequency as the microphones we are using. But then I would like to invite also Arvid Moss and Erik Fossum to the stage for the Q&A session. Do we have any questions? No questions? We have one over here.
Thank you. It's Tom O'Hara from Citigroup. On the recent trip to Brazil, there was talk that the recent changes to the power tariffs at Albras were quite complex and that it would take some time to actually determine the savings. But on average, we could expect maybe 20% savings on power tariffs there. Are there any more developments on that front?
No, it is no further development. It has to be implemented into the contract, and we're not yet there. We are working on that.
Okay. Thank you.
Okay, any more questions? We have one in the back.
Hi. Petter Nystrøm at ABG Sundal Collier. Regarding the inventory level and the market balance, we now have some 60-50 days of supply. What do you see as a normal level to, let's say, support prices? Given your prediction of fairly limited supply hitting the market over the next years, and that you expect a growth of 2%-4%, when do you expect that to materialize? Thanks.
Can you take the beginning?
I can try to take the beginning. Of course, a normal level in terms of stock days, we would look at the level that we had prior to the financial crisis in 2008-2009, in terms of stock days. In terms of how long time it will take before we get there, I think that's a difficult question. If it'll be only build down by 500,000 tons per year, it will take quite some years. If you see any opportunities to do it further, of course it will be shorter. Arvid, I don't know if you will take the last part.
No, I think it is. What we are pointing at is a direction that we say there should be room to start to build down. But I think it's also, you can go back 19 years in time. Probably you were not working in your company at that time. When we start to build on stocks after the Russian flow of metal in the early 1990s, it took really short time to build it down because we also have some, let's say, pipeline effects. When it starts, things starts to move in the market, it tends to go a little bit faster than you expect. It's a combination. It will be a combination of the supply and demand balance, in the current product or in the production supply, and there will be pipeline effects.
Okay, more questions? Yes, one over here.
I have one question related to the LME inventories, because today's regulations is like, you can take out like 3,000 tons a day, anywhere, as long as it's regulated by LME. That leads to long queues. You have to stand in a queue for six to 12 months, still paying rent in that period. Do you expect now that it will be some change, a significant change? Because I know it's some changes going on in these regulations, but some more significant changes so that you could probably change that system.
It's a difficult question to answer because it's basically decided by the LME. But as we know, there is a process now where the Hong Kong Exchange have taken over the LME. In that context, there will be a debate on what is the best way of LME to go forward. I think the LME is supposed to be a market of last resort, and that applies both for producers but also for consumers. Of course, this limitation now of 1,500 tons for small warehouses and 3,000 for larger houses clearly limits the market as last resort for consumers.
Having said that, the rules and regulations for the LME was known many years ago, and the consumers have been aware that if the metal went into the LME, it will probably stay there for some time. So it was the consumer's decision not to sort of compete in a bidding war with the warehouses. Hydro, of course, is of the opinion that the market should be free and fair for everybody. We think that in the long term this issue will resolve itself. To see clearly what the outcome will be now in terms of potential changes or regulations, we don't know. We know that potentially maybe the EU will also look into this.
To sort of exactly say what the outcome will be and how the rules will potentially be changed sometime in the future, we cannot say.
Okay, more questions. One over here, yeah, in front.
Hans-Erik Jacobsen, Swedbank. There are a couple of Chinese companies that had shown intentions to construct alumina plants in Indonesia in order to export alumina. Do you have any idea how far this has come or the timeframe?
No. What we have also seen that there are at least one or two MOUs signed on that. I also saw that the first one should be in operation in 2014. Which I think should be at approximately 1 million tons of aluminum every year. You know, that's a pretty short notice. We just have to watch this. Of course, some of these companies established these projects to be able to export, to continue to export bauxite for a while. Then they have this as a carrot that one day we will build. I think Indonesia is really an area that we need to follow very closely.
We have done a job on the resource side. That's why we said that we believe that whatever happens.
This is not a long-term big solution for China. It's of course important for Indonesia, how they treat their raw materials. As a long-term, decades-long solution, big solution for China, it will not be as we see it. Okay. A final question maybe? No. Okay, then we'll go for a 10-minute break. Refreshments are outside again.
Okay, welcome back. We're down to the last session today, and I will invite to the stage Johnny Undeli, who is Head of Bauxite.
Welcome to Bauxite & Alumina, and let me add a very exciting place to be. The priority now is to deliver on our very ambitious at high attractive production levels, and not least as you have already heard, successfully deliver on the commercial change process, how to go to market, fundamental pricing. As a basis for all this, based on the Hydro values, the Hydro way, with excellent performance in health, safety environment, and what is a prerequisite for future success in Brazil, very ambitious improvement program. Let me start by giving you some insights on where we are. The alumina portfolio, we have a two-to-one weight. Bauxite & Alumina compared to our internal needs in Primary. A very interesting, strong. We have ambitions how to be active in the interface with market and customers.
We are indicating here the attractive potential exposure to index and fundamentals on the price. Becoming stronger and stronger, more and more attractive as an overall long position, more and more priced on our own fundamentals. Bauxite & Alumina. My additional comment to this graph, which is very encouraging, let me say that customers on the market are more and more accepting that the index pricing is the arena where short, medium-term contracts for alumina sales is taking place. That is the fundamental change. The fundamental content is it's being accepted by customers in the market. The liquidity of the volume is increasing, and my observation is that the production smoother and faster than most expected not long ago. They have big shipments in alumina and bauxite.
Of course, when we are active on external sourcing and also swapping with others throughout the commercial agenda, securing added value bottom line. The commercial strategy overall is, first of all, pursue to its utmost the future success of index pricing based on our own fundamentals in Bauxite & Alumina. As I say, a good start is always very valuable, and we have it. It's being accepted by customers on the market. This is the arena to settle short, medium-term alumina contracts. The CIF approach that we have with customers is an added service. It's an added opportunity also for us as a supplier to add some extra value and bottom line for ourselves. We can optimize logistics, we can make arrangements, and we reach globally. In addition, you have also seen that we have an attractive long position in bauxite.
With reference to China, Indonesia and other, let's say, interesting potentials, we have seen increased appetite for bauxite recently. It's clear going to be a fight for resources of top quality going forward, and we are already taking some advantage of utilizing an attractive market to secure some bauxite bottom line support going forward. In summary, the commercial agenda, first of all, to optimize on a CIF basis the additional service to customers and bring bottom-line effect to ourselves. The increased attractiveness of top quality of gibbsite bauxite in the market, where we have already secured some cargoes to China at new pricing levels. On a general basis, a very proactive commercial agenda, I believe it's going to succeed. Now, let me focus on what is our top priority right now to deliver on our ambitious improvement program.
A short round of applause and a vote of confidence to the local organization. Very well done. Some of you have been in Paragominas recently. We can discuss what time do we need for plant maintenance, for inspection of the pipeline and certain things, but in principle, we are operating at nameplate capacity. For Alunorte, we are working to build robustness on several topics, and I will share with you some examples. We have a top-quality alumina coming out of Alunorte. We have a benchmark energy consumption in Alunorte to lift up to nameplate capacity. This year, we will reach a new level close to 6 million tons in 2012. The improvement program will help me and my organization to secure a very strong relative position also going forward.
In addition, there is a big challenge for the industry as such, and that is why I started with a commercial change process. It has to succeed, and the start is so good that we believe continuation in that respect will give some potential. That is a very good decision, and it will also give potential to help the situation going forward. If you then put the Chinese and other elements on top of it, there should be some interesting considerations. If I then move into the content of the program. The scope is, with reference to 2011, to deliver a contribution by 2015 of NOK 1 billion bottom line. 50% of it by the end of next year. Those attractive levels. It's about working smarter, more efficient, taking out cost. Of course, it's all about what we can influence underlying performance.
Working smarter, working more efficient means normally. Mainly focusing on contractors and support part of the organizations, but involves the whole organization, the full value chain, and 20% is a significant. Let me share with you a little bit starting with Paragominas. What you see in blue here we call materials, for example, energy input factors, directly ourselves, the green part. Our commitment is to take out 20% of the influenceable cost in Paragominas, and that is the content and the framework for the improvement program. It's a small example, but a very significant one. It doubles the productivity out in the mine. Compared to traditional grab and fill with tractors, this surface miner working in an automatic fashion doubles the mining productivity out there. In addition, it's more accurate when you explore the ore with a surface.
To start with a surface miner basically. You start with a gross volume out there with a surface miner out in the mine. We crush, and we wash, and we discharge the tailings in Paragominas. That is what we call mass recovery. Then you can imagine how significant an improvement in mass recovery. We have the positive impact from the mining operations. What our local people have now done is in Paragominas, we have two parallel process lines, beneficiation lines. By installing a simple crossover, $20,000, that's Mickey Mouse money, we have been able to operate more flexible and to take the best of the two lines at any time during the day. The mass recovery in Paragominas further. That's a couple of small examples, but supporting the main development and the direction in the mine. Extremely important.
Let's move 122 km from Paragominas in the direction of Alunorte, and we get to the middle of the pipeline. By mid next year, we will start up another number two pumping station for the pipelines. Less tear and wear inside the pipeline. To optimize the overall operation of the pipeline, we are starting up a second pumping station middle of next year. What is the ultimate gain? It's to secure a long life of the pipeline. Materials like caustic, coal, and fuel. That is the overall composition for Bauxite & Alumina. If we then move. Vision on the improvement program in Alunorte is to take out 20% of the influenceable costs. We will strive desperately to take out 20% of the cost that we can influence. Let me share with you a couple of examples how to do it.
Lines one, two, three in Alunorte, they were the first lines to start up by mid-1990s. We could notice when we came in an attitude starting to develop that these are the old lines. We'd like to revitalize those lines to come back to design capacity. There is nothing like old lines. It's about how you operate, how you maintain and plan the activities, and then bring them up to where they should be. Just by attitude, we already have some improvement in these so-called old lines. Now we are working more professional with Hydro discipline, Hydro structure, Hydro benchmark, and we will bring them back to where they should be. These are the so-called old three lines from mid-1990s. Next year, we expect to have them where we want them.
Another example, we need to build further robustness around Alunorte in case something happens to us from the outside. It has happened before, and the reason in the refinery is that when you have an unstable energy supply, you get cumulative challenges for the next few weeks to come if it happens. We have already done a lot on emergency generation capacity to prepare ourselves, but we are not fully there yet. We are working even stronger internally to protect ourselves. Of course, we are working in dialogue with external stakeholders how to make the supply systems even stronger. Another example, how we can build robustness around Alunorte, so we can stabilize at higher levels. In my opinion, this is the way we will secure that Alunorte will be in the best quartile cost position going forward. One example in the port.
We have now been dredging the port in Alunorte, and we are about to introduce new ships transporting our bauxite from MRN to Alunorte. All these things making operations more efficient, reducing logistical costs. As indicated here, these were some examples shared with you where we already see some gains, and we have clear plans how to continue. If we look at 2013, the ambition is to take out approximately 50% of the total effect of NOK 1 billion contribution on the bottom line. Of course, we are faced with some topic to keep that in mind. Let me again touch upon what is the prerequisite for success in this program as well. Safety, the Hydro way. We know, and we see that again and again.
Those units that are able to operate with excellence in safety are normally also those units that have the most attractive bottom line as such. There's a clear correlation. For me, safety the Hydro way, a clear prerequisite. We are on our way to get there. It's about transparency. It's about cultural development. Of course, Brazilians also want to become winners in this context. Not at least the corporate social responsibility. I think some of you had the pleasure of visiting a couple of our social projects. This is, of course, about stakeholder engagement. It's about transparent, open dialogue. It's clear that it's a prerequisite also for business success going forward. A couple of topics that are of particular interest. There is a green municipality program in Pará in northern Brazil that are now very well known and benchmark in Brazil.
It's becoming known on even broader political stages. It's references examples that we can be proud of. We are part of it. We are supporting it. Of course, we are not managing it, but we are supportive and part of it. I think that is the clue. We've had a good start on the CSR agenda overall in Bauxite & Alumina. We've got good engagement dialogue with all stakeholders, and we feel as a company very welcome and on good terms with those that we meet. To sum up, this very important and very ambitious improvement program that we call From B to A. From B to A means our part of the full value chain. It means stepping up to a new level performance-wise and stabilize at those highly attractive levels. It means a global reach, including a successful commercial change process.
That's the content of the improvement program. NOK 1 billion, 50% of it by next year. My final remark is this program is owned by the Bauxite & Alumina organization, and we are committed to deliver. Thank you very much.
Thank you, Johnny . You can actually stay on the stage, because we will soon open up for questions. First, Svein Richard , for a couple of concluding remarks.
Thank you very much. We have now been through quite a lot of presentations with contributions from many of my team members. Even the TV 2 wanted to contribute for a couple of minutes here. The Norwegian television channel, they came in to the speakers. I hope you have got a good value for the time you have spent here. The summary and the messages that we want to bring forward to you is very much related to the market situation, the growth that we expect, 3%-6% or 4%-6%, in the years to come, 2%-4% outside China.
Still a challenging situation in aluminum industry with the volatile and low prices, which means that we continue the improvement programs, as you have seen along the whole value chain. Also develop our commercial opportunities where we see good benefits, especially with regard to the new position in Bauxite & Alumina. Also make sure that we have the financial strength, maintain the financial flexibility, which is important in this market situation, as Jørgen also will touch on. I would like to say that if one or some of you are going to invest further in aluminum, our task is to make sure that Hydro is the best alternative. Thank you very much. We are ready for more questions.
Yes. Okay. Do we have any questions from the audience? Yes, we have one over there.
Yes, Peter Larsen, Carnegie. The NOK 1 billion improvement program, how much is related to Paragominas and how much is related to Alunorte?
First of all, close to halfway it is, commercially driven, and then we split the rest between Paragominas and Alunorte. Fairly equally shared.
Okay. Any more questions? I don't see any hands. Okay. I think that concludes our Capital Markets Day. Thank you all for coming. We'll be serving lunch outside. Thank you.