Welcome to presentation of Hydro's second quarter results. They will, as usual, be presented by CEO, Svein Richard Brandtzæg, and CFO Jørgen Rostrup. Afterwards, we will have time for questions as usual. Please, Svein Richard.
Thank you, Inger. The uncertainty in the development of the macro economy remains high. Countries need to rebalance to deleverage, and again, a lot of indicators show that the growth will go slow going forward, at least in Europe for a while, and we expect this growth to be below pre-crisis level. The recovery in the US seems also to be losing momentum, and the growth in emerging markets, as China, is slowing down. Tough markets require tough measures. That includes capacity adjustments and operational improvements, and we are continuing our effort with innovative strength. We are now realizing and finalizing a program for Hydro, across Hydro. As I see it now, the yield will be NOK 2-3 billion in improvements over the next 2-3 years.
This is important for Hydro's future, and will improve our competitive position in a demanding and challenging aluminum picture. This is, in many ways, our ticket to the future. The results underlying EBIT for the second quarter was very similar to the first quarter, NOK 1.3 billion below the second quarter last year. We had somewhat higher prices upstream. Volumes in downstream and also Bauxite & Alumina was slightly higher than in the first quarter, while the volumes in primary metal and Metal Markets was a bit lower than the previous quarter. We had a slightly lower operating cost during the quarter, and energy result was influenced on lower production and also lower prices.
In the quarter, we decided to curtail the two remaining pot lines in Australia, which induces a charge of NOK 1.2 billion impairment. That is part of the reported result, but of course not part of the underlying result. In total, we have then closed down 180,000 tons in Australia, which is, again, a result of the cost position of Kurri Kurri and also the oversupply situation in the market. If you take a look at the downstream business, first and the second quarter is normally the best quarters during the year, and the second quarter is better than the first quarter. This quarter, we saw only 1% improvement since the first quarter in total. In Rolled Products, volumes were similar as the first quarter.
We had stable volumes in foil, litho, packaging and building, automotive sheet, and also in general engineering. Heat exchanger's products was definitely down due to lower production of cars. Canned beverage can stock was improved 8% due to higher demand in Europe, Middle East and Asia, and supported by sports events. Extruded products, in total, 3% improvement since the previous quarter. 6% in Building Systems from a very weak level. 2% improvement in Extrusion Eurasia is very low compared to the seasonal variation we see in a normal year. Precision tubing, a bit lower in Europe and better in U.S., -1%.
In Americas, we saw, especially in the U.S., strong demand in automotive, transport, and also general engineering, while South America was stable at a good level. If you then take a comparison with last year, we had 5% lower sales this quarter compared to the second quarter last year. In the Rolled Products, -6%, but that includes also products that we decided to leave or to stop producing due to low margins. If we take that away, the effect was -3%. In extruded products, 4% lower than last year. The volume development in extrusion and building system very much reflect the weak market in Europe. Precision tubing, similar level as in last year.
Extrusion Americas, again, stands out as a good development. This shows a picture of the supply-demand balance in primary metal outside China. The green area shows that the supply has been improved seasonally in this quarter. At the same time, we see a reduction of production. The blue line is the production of aluminum in the world outside China. That is going down. There has been announced curtailments of 1.2 million tons during the last period during this year. We expect that 700,000 tons of the curtailments will be effective in 2012. In addition, there are some disruptions due to a strike in Canada and operational problems in South Africa. That adds 400,000 tons to this picture.
All in all, about 1 million tons of capacity will be taken out during 2012. Due to the uncertainty and also what we see as a development during the second half, we expect the total growth to be 2% this year outside China. We expect a balanced market all in all in 2012 in primary metal. The figure on the left side shows the development on the inventories, which is fairly stable. In fact, inventory days are going down due to higher consumption. On the right-hand side, you see the standard ingot premium, the premium of P1020 standard ingot, which again is going up. This is a dilemma because in the same situation as we have, high inventories, we also see that this metal is not available in the physical market.
That's why it is increasing, and, it is now, I would say, record levels in most of the markets. If you then take a look at, China and the import-export balance from China, we see that China has continued to import, bauxite and alumina in the last, months, except for June. We got the last numbers from June, yesterday. This curve shows the import of bauxite, alumina, the green and the blue, based on April and May. In fact, in June, the bauxite, import to China was going down dramatically, and I will come back to that. Primary production in China seems to be in balance, and also the import of scrap is similar as, previously, and also the export of semi-fabricated and fabricated products.
Again, the import of raw materials that China has focused on during the last quarters has been very much related to, as we see it, to the uncertainty in the bauxite market, especially Indonesia, which has been the main exporter of bauxite to China. This is changing because it, Indonesia are putting a ban on export of bauxite to China from 2014, and they have already introduced a tax on bauxite to China. This is going to change, and it remains to be seen how this is going to be developed further on. So far, it is also the fact that the price of alumina in China has been higher than the price of the alumina in the external market. That is also, again, supporting import of alumina to China.
We have a situation where the market is in balance. We see that inventories are stable and inventories days are going down. At the same time, we also see that standard ingot premiums are going up. I wouldn't be surprised in this situation that the aluminum price will go up, but we see that the aluminum price continues to go down. We saw a price in the quarter going down from about $2,140 to $1,850 per ton. The realized price in the quarter was $2,167 per ton. This is again a situation where we have extremely low aluminum price. It is aluminum price where it is impossible for the aluminum industry to deliver a decent return.
It is also a situation where a part of the industry is below water. With regard to alumina, the price is stable and has been stable for the last quarters. Since alumina price is stable and LME is going down, the alumina price in percentage of LME is going up. Again, this is a situation where we see import to China is supporting the situation in the Western world. In total, we expect that there is an oversupply situation of alumina in the world, but there is also announced curtailments that when and if these are affected, it will be a more balanced market also in alumina going forward.
Again, the import of alumina to China has been very much related to also and connected to uncertainty as we see it in the market. We see the change also already have happened in June, but that the situation can also be volatile going forward due to, again, the uncertainty with regard to bauxite imports from Indonesia that has been reduced during last month. The result from our Bauxite & Alumina business area is very low in the quarter. To explain that, this figure shows the indexed price of alumina and also the indexed operating cost and cash cost of alumina. The price of alumina has been reduced with 15% during the quarter, and the operating cost of alumina has increased with 8%.
If you go into the different elements, bauxite has in fact been reduced with 3% in spite of the fact that the MRN bauxite price has gone up. That means that the operational performance in Paragominas has improved. The fixed cost has gone down with 9%, meaning that the performance in Alunorte has improved. What is the main reason for the 8% increase in the operating cost or the cash cost of alumina production is related to caustic soda and energy that has increased with 21% in total. Again, we are not able to influence on LME, but we are able to work with what we can influence on.
That means that we have introduced the improvement program in Bauxite alumina that will improve the performance with NOK 1 billion over the next 2 to 3 years. In Alunorte, we are targeting the boilers and the maintenance, and of course also the volumes to maintain nameplate or achieve nameplate capacity of 6.3 million tons output from Alunorte. In Paragominas, it's also very much about yield, operational performance related to output and also maintenance cost and stabilize production at a high level. In the commercial area, we are targeting index pricing of alumina, and we also now increasing the flexibility with regard to logistics on the commercial side. In Primary Metal, we continue with the $300 program.
We delivered $200 until the end of 2011, and the target for this year is additional $35 per ton. This improvement is now under pressure due to pressure on cast house products. The cast house margins are under pressure in spite of the fact that the standard ingot premium has gone up. We have not seen the same uptick in cast house products as, for example, extrusion ingots and foundry alloys. The cash cost in total, if you take that during the quarter, has been reduced from $2,000 to $1,825 per ton. We have now introduced Qatalum in this picture, and the reduction is very much based on Qatalum is contributing, of course.
It's operational improvements, it's currency, and $75 of this reduction is related to lower alumina costs. Due to the fact that we have now a pressure on margins on the cast house side and that we see there are operational potentials to improve this situation, we have now merged the Primary Metal business area together with Metal Markets business area. This is now under one management aiming to improve the cast house operations to better operation and to a higher level. Also we see possibilities to again allocate and optimize the product mix between the different cast houses in a different way. We have closed the Kurri Kurri, as mentioned, which is also a part of this.
We are still targeting the $35 per ton this year. I've already mentioned that this is under pressure due to the fact that cast house margins are now under pressure, and we see weak development in this area. In Qatalum, we continue production at above nameplate capacity. It's running now at about 600,000 tons per year. In the quarter, we had a technical performance test where we delivered better current efficiency, lower energy consumption, and better anode consumption that was guaranteed from Hydro as a part of the technology package to Qatalum. We also finalized the unsettled insurance case connected to the power outage in August 2010, and I'm happy to confirm that we had a robust coverage on that insurance.
We also have a firm progress on reconstruction of the seawater cooling tower that burned down the seventeenth of March this year. We are expecting to start up the first steam turbine that is connected to the gas turbines in the third quarter, and the second steam turbine will be restarted before the year end. In Extrusion, we have raised the ambition level with regard to improvements due to the challenging market situation, and we have now a program that will deliver EUR 80 million improvement within 2013 versus 2011. We have already delivered more than half of this program so far this year. We are closing down distribution centers, sales offices.
We are idling and closing down presses and of course also reducing the manning to adapt to the market situation. We continue with operational improvements, operational initiatives. We are looking at and developing a better improved logistics, reducing fixed costs through de-manning, and we are turning around underperforming units. In addition, we are now also growing in emerging markets with the new investments in Brazil and China, investments that was decided previously, and we are prepared to deliver that into the growing markets in these countries. We continue also then to high-grade the product portfolio. I leave the word to Jørgen that will go through the numbers. Thank you.
Thank you, Svein Richard Brandtzæg. We will start as we normally do with an overview of the different business areas and the group total on an underlying EBIT level. 549, as Svein Richard Brandtzæg said, same level as Q1 this year. Somewhat higher aluminum prices, cost improvements and limited seasonal uptick, as Svein Richard Brandtzæg said, on the demand side for downstream, offset by lower volumes and lower prices in energy. I come back to this. Underlying EBIT for other and eliminations is NOK 166 million negative, versus negative 137 in first quarter. It's a difference of 29 million. This is entirely due to an elimination of internal gains or losses on inventories.
Outside that, our charges for common services and other businesses are stable at around just below NOK 150 million. Where we have guided it to be between NOK 150 million and NOK 200 million. If we look at the high level analysis, stable quarter-on-quarter results, there are limited changes as we see it on this aggregate level to the earnings elements in the group. The dynamics or the variation is not on the various elements, it's the low earnings level itself that is the main observation as we see it. There is a NOK 0.1 billion positive effect from alumina and aluminum prices. Aluminum prices in Norwegian krone due to the strengthening of the dollar is up by 2%.
There is also a small positive benefit of NOK 0.1 billion from costs, primarily within primary metal and rolled products. Primary metal related to the cost program, of course. The negative effects on energy due to approximately 25% lower production and prices versus first quarter is NOK 0.2 billion for the quarter. If we then look at key financials, revenues are stable at NOK 21.56 billion. Small reduction in revenues from energy and a similar increase limited on aluminum prices, excuse me, and volumes from bauxite, alumina.
Underlying EBIT we have touched on, and then we have a reported EBIT of -NOK 720 million, which means that we are excluding negative elements of approximately a little bit less than NOK 1.3 billion in the quarter, obviously mainly related to the announced and carried out, partly carried out curtailment, final curtailment of Kurri Kurri. I will revert to this. If we look then at financial expenses, they are at NOK 968 million charge for the quarter. This is mainly related to net currency loss of NOK 883 million influenced by the appreciation of the dollar versus both Norwegian krone and Brazilian reais. As you are aware of, we normally borrow and keep our debt in dollar. This also goes for the debt that we took over related to the acquisition in Brazil.
We have had a strong development of the dollar in the quarter that is benefiting us obviously on the sales side, given the fact that we are selling our products in dollar, but we get, as usual, a hit on the financial items for this. If you exclude the NOK 883 million, you are left with less than NOK 100 million on financial expenses, which is more in line with what you could expect. There is a detailed explanation on the different elements, and you will see there are no other items that are not of the more normal kind on that line. We have an income tax expense of NOK 24 million. It's a tax expense even though we have a negative result before tax.
This is for two reasons. First, it is that the impairment charges and the rationalization effects do not carry a tax benefit. The second reason is that even the result is negative after the or excluding the impairment charges, you still have the positive surtax on energy production in Norway. It's a small income tax expense of NOK 24 million. This gives income net income loss of NOK 1.7 billion and an underlying net income gain of NOK 268 million, the latter much in line with first quarter. There is also a detailed breakdown on the taxes for your benefit. If we look at item excluded, the same elements and the same lines as you have seen before.
This quarter, as I said, we excluded negative items of close to NOK 1.3 billion versus a positive effect last quarter of NOK 108 million. The three top elements are, as usual, all driven by commodity prices. This quarter, we have had a decrease both in LME and also in coke, and then somewhat offset by a strengthening US dollar, but still there is a gain in the range of NOK 300 million on unrealized power and raw material contracts, other derivative effects related to LME contracts and the metal effects. The 408 million in rationalization charges is three-quarters of that is related to the closure of Kurri Kurri.
It's a little bit more than what we announced, NOK 100 million more, related to write-downs of raw materials and some spare parts. The latter or the last part, the one quarter is related to extruded products. On impairment charges of NOK 1.175 billion, all of that except from NOK 20 million, so all of that is related to the closure of Kurri Kurri. We have now closed one of the two last lines, and by the end of the quarter, the electrolysis production in Australia should be closed into its full extent. At least it's a very swift handling of the closure, and it's all according to plan.
If we move into the business areas, underlying result for Bauxite & Alumina is a charge of -NOK 188 million, decrease of NOK 44 million from the previous quarter. Production was up in Alunorte by 2% to an annualized level of approximately 6 million tons. Production in Paragominas was down due to a planned maintenance. Also, sale of alumina was up by 100 kilotons, while the third-party sourcing, inbound sourcing was stable in the quarter, similar to first quarter. You will experience a variation in sales quarter-on-quarter, obviously on the alumina due to shipping schedules and other timing effects. With this picture fairly stable key elements also on realized alumina prices, this is.
The price picture is obviously driven not so much by the development in the alumina market, spot market itself that Svein was referring to. It is driven by the contract structures that we still have a couple of more years and are reflecting the development in the LME metal price, as you know. Still stable prices on the alumina side. The cash costs in the quarter was more or less unchanged compared to first quarter. You could expect due to an increasing US dollar or a depreciating Brazilian reais that you would benefit on the cash cost in the quarter. We see that positive effect in our numbers, but there is, however, offset by increase in the cost of fuel oil.
This increase in the cost of fuel oil is related to a change in policy in the state of Pará related to ICMS taxation of fuel oil. ICMS is a VAT comparable taxation of consumed products. Now the refineries will be taking in this tax on behalf of the government instead of the distributors that has previously been charging this ICMS tax. Hydro is actually exempted. We have a tax exemption from the ICMS tax. However, we are because of this change paying approximately NOK 50 million a month in ICMS taxes related to fuel oil because this is now an additional cost on the distributor side. This is a dilemma for us.
We paid one month in the first quarter. We hope we will be out of it again in this quarter. We have now paid it for three consecutive months. We are in the dialogue with the state of Pará on this issue, and we will get back to you as soon as possible on the outcome of those discussions. We have a tax exemption for this tax. Going forward, obviously, continue to focus on production. We are actually quite happy with the pure operational performance and development of the assets. We can confirm that we believe that the nameplate capacities are reachable, and that is where we are continue to focus. We expect stable raw material costs.
When realized prices in this business area are mainly following LME with one month lag. The current pricing regimes on LME represent approximately a 10% decrease compared to the LME level reflected in the alumina prices in the Q2 result. This should have a negative effect on an already weak result in Bauxite and Alumina in third quarter compared to second quarter. Primary metal underlying EBIT of NOK 240 million versus NOK 30 million last quarter. It's NOK 210 million improvement. Somewhat higher aluminum prices, as we have said, in particular in Norwegian krone, up 2% gives NOK 90 million in effect. Premiums for us largely unchanged. Sales volumes and primary production were down in the range of 2%.
This is obviously due to the curtailment in Kurri Kurri. These negative effects have been more than offset by a reduction in fixed costs, both in Kurri Kurri, but also in other parts of our business. Petcoke prices are gradually continuing to come down. This adds in the range of NOK 40 million benefit quarter-on-quarter. We also believe that they will continue to move downwards in the third quarter at approximately the same speed. Improvement in result much due to one-time effects we will look at on the next slide.
At the end of second quarter, we have sold 80% of our primary production, if you keep Qatalum out of the picture, 80% of the primary production at $2,050. That is $110-$115 lower than in second quarter. The remaining 20% will on a decreasing aluminum curve be sold at prices below 2,050 as it looks today. The two lines, as we said on Kurri Kurri, will be fully out by the quarter. If we look at Qatalum first, as Svein Richard said, production is high and stable. There are good volumes, good quality coming out of the plant. We are producing consistently above nameplate capacity.
We are very pleased with that. Underlying net income NOK 80 million, up from first quarter. Underlying EBITDA up NOK 120 million due to higher prices and increased sales. While the underlying EBIT is up only NOK 80 million, the deviation between EBITDA and EBIT is an adjustment in depreciation levels for some minor items in the asset. There is a catch-up effect in the quarter. Depreciation going forward would be lower than this level, every other thing equal, but slightly higher than the level you saw in the first quarter.
If we then look at two special effects for the quarter, Svein Richard mentioned it, we had in the quarter and we have accounted for the final settlement on the insurance for the power outage incident in 2010. The effect in the quarter on a 50% basis is NOK 140 million. In total, we have recognized NOK 600 million on a 50% basis from the incident or from the insurance proceeds, whereof NOK 500 million has been charged to underlying income as this is business loss compensation.
Going the other way is incurred extra cost related to the fire in the cooling tower of NOK 70 million in the quarter, an increase from first quarter of NOK 60 million, and this is related to primarily additional purchase of power. We expect this cost of NOK 70 million to decrease by approximately 20% in the third quarter and to be very minimal in the fourth quarter. In the third quarter, during the third quarter, we plan and hope to have brought back one steam turbine into operation, and therefore you should expect a rapid decline in cost level. The fire in the cooling tower is an insurance case.
We believe we have robust coverage of the cost related to power or purchase of extra power, as well as reconstruction of the cooling tower. We have not included any proceeds from insurance in our numbers so far. Metal Markets, as Svein Richard Brandtzæg says, we are combining Primary Metal and Metal Markets under one management to be able to extract more value out of the interfaces, whether it's logistics or production planning or it is sales. We see that there are interface synergies that we want to extract more rapidly. However, we will continue in the financial reporting to report Metal Markets separately going forward. We had an underlying EBIT of NOK 44 million versus NOK 87 million in Q1.
Negative currency effects was this quarter NOK 70 million. Last quarter it was NOK 30 million. If you exclude the currency effects, we are at the same, should I say, performance result level this quarter, NOK 117 million, excluding the currency effects. Remelters in Europe results were down from the quarter due to 6-7% lower volumes. We expect those volumes to be stable in the third quarter. This reduction in result in second quarter on remelters were offset by increased results from our trading and sourcing business in general. Rolled Products, EBIT of NOK 204 million, up from NOK 151 million last quarter. It's a 30% increase quarter on quarter.
This is basically on the same volumes as first quarter. The improvement in result comes from a lower cost in Rolled Products this quarter. Obviously we have our cost programs in Rolled Products as in other parts of the business. I'm still hesitating to say that this is a signal of the cost program coming through. I think it is also one of those quarters where cost elements are all coming the right way and adds up to a significant number. The cost elements has been positive direction on this quarter and therefore gives a quite significant contribution to the quarter-on-quarter change. There are some pressure on margins as we guided on last quarter, mainly in general engineering segment.
We see that in euro terms and in the European market. However, this negative effect was fully offset by positive margin effects on overseas sales. What we have sold in dollars primarily to the US market, but also the Asian market, has been positively affected due to the strengthening dollar in the quarter. We don't see it in our final numbers. Stable volumes going forward. This business is doing better than the other downstream business Extrusion. We probably also here benefit from having a more globally oriented business in times where Europe is struggling. We could see some pressure on margins, but fairly stable business. Still weak results in a very weak European market.
I must say that we are experiencing maybe even a tougher European, Southern European market and a consistently tough market, maybe even more than what the biggest pessimists of us anticipated. Whatever measures we can do, we are doing in extruded products. Programs are starting to give effect, and that is positive. Underlying results of NOK 53 million, up from NOK 14 million in first quarter. Volumes up, as Svein Richard has said, 3% in a seasonal stronger quarter, but not necessarily a very strong seasonal change. It's probably once again also hinting towards the weak fundamentals. That uptick is the main reason for the increase in the results. Stable margins within each segment group.
We don't see a deterioration, further deterioration in segment groups' margins. Because we are moving more volumes to lower segment groups because the high segment groups, such as Building Systems, are taking less volume, we see obviously a product mix effect on our total margins. We see a deterioration in group or in business area margin as such. Lower seasonal sales should be expected in third quarter. We don't see any contribution from the markets and improvement in the markets. We will see a continued impact of our cost programs. Energy. It seems like we're into a period with high production due to high reservoirs and a lot of rain and snow and then expected, as expected, low prices.
As you know, normally, this is within the year, a fairly stable business. Within a quarter, it's very, very volatile business, and it's also varying from year to year, whether it is the price that is the positive driver or the volume with a negative correlation that we normally see. If you look at the picture to the left, prices are 50%, give and take, from second quarter last year, and some 20% lower than first quarter this year. That is a significant change. If you look at the graph to the right, you have an opposite indication of production, the reservoir levels, significantly higher reservoir levels.
I believe snow and water is in Norway two percentage points, or should we say 3%-4% higher, than the 10-year average. We also see that the second quarter on water was 5%-6% higher than normal. If you see also on the graph to the right, snow melting seemed to be coming late this year. If you see the change of the curve last year, that happened in around week 13, then the snow melting came into effect. If you see on this year's curve, snow melting is a month or a little bit more later.
An implication of this. It could be that on high reservoirs you still have some snow melting left to do. Every other thing equal, obviously the rain through the summer and fall will decide this, but every other thing equal, snow melting is late on high reservoir this year, so we should expect low prices in the energy in the power market in the Nordic countries, at least due to this effect. Then obviously, I need to put a disclaimer on that there are also other effects deciding on the electricity prices in the Nordic market. Energy results, as I said, 22% lower production than compared to first quarter, significantly higher than the second quarter last year, while prices were significantly lower than the first quarter.
It's still a fairly decent result of NOK 362 million, similar to second quarter last year, and NOK 194 million down from the very high earning quarter, first quarter. We have produced lots also because we are having an upgrading of our Rjukan production system this summer. Rjukan is out from June to end of August, according to a planned upgrading. We have produced a lot in second quarter before June in order to empty the reservoirs in the Rjukan. If you then look at cash development, cash flow from operation was NOK 0.8 billion in the quarter. This includes EBITDA effects of one point.
EBITDA level of NOK 1.8 billion. It includes positive effects from the reduced operating capital of NOK 0.7 billion. Then we have what we call other adjustments. It's payment of tax. It is accruals and provisions which have a different cash effect than P&L effect, and it's also the same within operational derivatives with a different cash timing than the P&L effect or the EBITDA effect, NOK 1.7 billion negative.
We have invested NOK 0.8 billion, so in a very low price situation, we are still able to be cash neutral after sustaining CapEx levels, which is at least good and is an effect of the reduced CapEx level that we have been running the last few years. Dividends is NOK 1.7 billion, obviously more than NOK 1.5 billion to the owners of Hydro. There is a minority adjustment because we have a joint venture that we are consolidating that has paid dividend to its owners, and the minority position is the difference between NOK 1.5 billion and NOK 1.7 billion. This end up in a net debt position of NOK 0.4 billion.
Included in the 0.4 billion figure is a cash position of NOK 7.2 billion, indicating a comfortable cash position and a robust financial position. We announced in June that we were to re-enter the bond market, and we issued a bond of NOK 1.5 billion. It's a 7-year maturity. It has an annual coupon rate of 5.4%. We experienced very high interest for that bond. It was closed in an hour or so that was a good exercise for us. As we have said before, the reason for doing this is to get the diversification of financing, get some longer maturity.
We wanted to get a feel for the bond market again to kind of reestablish ourself after many years outside the bond market. We see the bond market obviously as a natural part of our future financing. To the extent we would like to do larger bond issuance, we believe that the U.S. market and U.S. dollar market would be the market for us going forward. We have the revolving credit facility of NOK 1.7 billion. We haven't drawn on that yet. With all this in mind, we believe that we have a robust financial position in Hydro. Svein Richard.
Thank you. Thank you, Jørgen. Over the last months, we have seen that the uncertainty in the market has increased. There are several reasons for that, but not least the sovereign debt crisis in Europe. Since last summer, we have seen the stock market going down and also several indicators like the consumer confidence index is also pointing in the wrong direction. Emerging markets like China, slower growth, all of this leads to a weaker aluminum market. Hydro has a strong financial position, and we are prepared to do appropriate and implement appropriate measures timely.
We have system of improvements where we are also introducing now in all parts of the value chain a program that should lead to, as we see it now, NOK 2-3 billion in improvements over the next 2-3 years. That includes, of course, the remaining $300 program, the program in Bauxite & Alumina, and also the restructure and improvement program in Extrusion Eurasia and Building Systems, in addition to what we are doing in Rolled Products. We have a flexible system, a VML system, that we still can use in the market to adapt. We have already decided to close down the capacity in Australia, and we keep a strong focus on financial discipline. We would focus on net operating capital, keep the CapEx down, and also counterparty risk.
With the LME price we see today and the uncertainty in the macroeconomy going forward, we expect that the third quarter will be very weak. Thank you very much for your attention.
Okay. We open for any questions that you might have at this point, and we also ask that you use the microphone, so that the people on webcast can hear us. Please introduce yourselves also.
Thank you. My name is Vegard. I'm from Reuters. Will you consider closing any more plants in the future?
We have no plans to close down further capacity in Aluminium Metal. In Extrusion, if you're talking about extrusion plants, we cannot overrule that. There could be one or two additional extrusion ops that is under evaluation. So far we have no additional plans to close down big capacities in smelting.
How much of today's announced savings programs is really new savings, and how much of it is part of old programs, such as the $300 per ton?
With regard to the $300 program in Aluminium Metal, we have already delivered $200 per ton. The target this year is $35 per ton, and the remaining 65 is for next year. With regard to the Bauxite & Alumina program, that is a new program that is established, and we are talking about NOK 1 billion next 2-3 years in that area. Of course, we have raised ambitions in Extrusion and Building Systems up to EUR 80 million over the next couple of years. As I showed you in the slide, we have taken more than half of that improvement. The part of the improvement that should be done this year, which is EUR 40 million, more than half of that is already delivered on.
Jacobsen.
Hans Erik Jacobsen first. There are significant additional cost cuts within Bauxite & Alumina. Is it possible to be a little more specific on the measures that you are undertaking? How is it possible to cut as much as NOK 1 billion within 2-3 years compared to all the work you had already done?
No, we have, in fact, observed over time that there are potential in, for example, in Alunorte, in the old production system, the older lines, which is running below the capacity we can take out of it. It's very much about systematic maintenance, preventive maintenance. To take also the volumes to nameplate capacity is a very important part. In fact, we have also seen over quite a long period of time, for several years, Alunorte has been struggling with the boilers. That we are attacking now, which is also taking down the cost of that part of the area. In Paragominas, it's very much about improving the yield. It's about the manning.
There are operational improvement potentials in the two parallel lines in the beneficiation plant, where we see from benchmarking that one line is better than the other, and we are to take out the second to the same level. There are significant improvements. Again, it consists of many different elements. There are hundreds of actions both in Paragominas and Alunorte. On top of that, of course, also the commercial part is an important part of it.
Should we maybe also add that we are now in the process of detailing out the schedules and the concrete plans and doing the work that we have to do internally. Our plan is, you will have the details, but we prefer to do it the way we normally do it, so we will take that at Capital Markets Day this year.
Hmm.
You will have the insight.
Thanks.
Over there, Anne-Mette.
I also have a question related to the cost saving, because it's a bit unclear to me when you're talking about yield improvement of NOK 2 billion-NOK 3 billion. Is that from the cost level of today, or is that kind of from where you started the cost saving, as a lot of the cost saving is in Primary? The second question is related to Qatalum. Can you say what kind of the underlying, excluding also insurance settlement, production costs or cash costs is per ton there?
Hmm.
Should I start with the latter?
Hmm.
In the same way as we did it last quarter, we are giving you enough information, we believe, for you to extract the cash cost level, the way we are reporting Qatalum now. We have said that it is approximately a two-month delayed LME price, so you have that one. With the numbers we are providing on EBITDA level, production number, and then also extracting out the two very one-time elements that you should look beyond, as you're pointing to, we believe that you are able to get to that number.
What I can say is that we believe it is a minor, but still a positive step from where we were last quarter, even though we said that we shouldn't expect to measure this quarter-on-quarter. Nevertheless, we believe the development has been positive. We believe we are in that area where we still believe that we will reach the target of between NOK 1,400 and NOK 1,500 in cash cost.
Okay. With regard to the improvement programs, as Jørgen said, we will come back to the details. Significant part of the Bauxite & Alumina program is new, and they have just started on it. You know the $300 program we have discussed previously. As I mentioned, the costs and margins are under pressure, so that will be a challenge to reach this year. In the area of extrusion and building systems, I already showed the effects so far, and also the remaining part, and also the timeline for that. We have a significant remaining part this year. We should deliver EUR 40 million in the extrusion and building systems business this year, and then other EUR 40 million in 2013.
Maybe I can add that we're not starting from day one. This is based on 2011 level.
Mm.
Because that is the last full year data that you and we have. It is the next 2, 3 years of effort and measures.
Yeah.
As I said, partly because numbers are calling for it, and partly because when you start to communicate and work on this internally and start effort, we feel a need to kind of discuss it with you. We would like to wait until Capital Markets Day to go in detail, because then we have time to spend on it.
Okay. Any other questions? Okay. Thank you very much for coming, and have a good day.