Good day and welcome to the Norsk Hydro Q1 conference call. A Q&A session will take place at the end of the presentation. Questions can be submitted by the phone and the web. Today's conference is being recorded. At this time, I'd like to turn the conference over to Mr. Rickard Lindqvist. Please go ahead.
Welcome to the conference call of Hydro's first quarter 2012 results. I would first like to direct your attention to the cautionary note in relation to forward-looking statement, which is provided in the material. With us today to present is Svein Richard Brandtzæg, President and CEO, and Bent Gry Andersen, Head of Corporate Financial Reporting, Performance and Tax. I'll leave the word to you, Svein Richard.
Thank you, Rickard, and let us start with the headlines for the quarter. First of all, the quarter started with seasonally better demand than the last quarter of 2011, but weaker than the first quarter of last year. There are geographic differences in underlying demand reflecting a multi-speed global economy. The European demand is influenced by the situation in Southern Europe, where we see year-on-year weaker demand on several segments. I'm pleased to confirm that we have stabilized production in our strategically important assets in Brazil at higher levels, and Albras is running at full speed above nameplate capacity with the annual speed of 600,000 tons per year. The underlying EBIT of NOK 557 million is about 50% down since fourth quarter.
The results reflect lower prices both for alumina and for aluminum. The seasonally stronger quarter resulted in higher metal volumes. Alumina sales, however, were lower due to timing of shipments and also less third-party sourcing. Energy delivered a solid result with record high production. Let us take a closer look at the sales and demand in the quarter compared to the fourth quarter for the downstream business. All in all, the sales increased 7% in the quarter compared to the previous. If you take a look at Rolled Products, there are several market segments showing improvements. General engineering suffered from destocking in the previous quarter. That is now finished. In extrusion, we see a good demand development in Extrusions Americas and also precision tubing.
However, the Building Systems market is challenging, especially in Southern Europe, where the demand is very weak at the moment. In total, Rolled Products improved 6% compared to the previous quarter on volumes, and Extruded Products, 10%, compared to the previous quarter. If you then take a look at the quarter compared to the first quarter last year, so a year-on-year comparison shows 6% down this year compared to the first quarter of 2011. In Rolled Products, down in several important market segments, double-digit lower volumes can lead to better. In total for Rolled Products, 7% down compared to the first quarter last year. Extruded Products, good development in Americas, which reflects the market in the U.S. is definitely improving.
Weak development in building systems especially, where again, it is Southern Europe that is the main challenge. 2% down in total in Extruded Products this quarter compared to the quarter last year. There are two factors that we should keep in mind. First of all, that the first quarter last year was very strong due to rebound effects, and that the second half of last year was significantly weaker than normal seasonal variation. We expect that this year, the second half will be more normal with the better volumes that we saw last year. If you then move over to the price development on London Metal Exchange, the quarter started at around $2,000 per ton and ended up at $2,140.
The average market price in the quarter was $2,216. The realized price that we achieved, and then we have to take into account the three months forward pricing, was $2,155 per ton, compared to $2,439 per ton in the previous quarter. This price level is too low to give adequate profitability in the industry. In the current situation, we continue our improvement programs, and I will revert to that later in my presentation. With the world outside China and the supply-demand balance, we see an improved situation during the quarter, but there is still overproduction in the primary aluminum business. Seasonal increase in demand, but also lower production.
There have been announcements of about 1 million tons of primary aluminum capacity for curtailments that will come during this year, and partly some of it is already taken out. In our case, we have curtailed the first line in Kurri Kurri, and there are two lines still in operation, or 120,000 tons that we are evaluating for possible or if we are going to continue to run that. In general, there is no situation in the industry where there could be more curtailments going further on. If you take a look at the growth perspective for 2011, we have previously communicated 3%-5% growth outside China for 2012.
We are now seeing a development closer to 3% in the world outside China. We expect 0% growth in Europe, about 5% in North America, and about 4% in other countries outside Europe and North America and outside China. We expect China will have a growth of 9% in aluminum consumption this year. All in all, the 3% growth in the world outside China, the total global outlook for us seems to be 5% growth when all markets are included. Our estimates are of course very much dependent on particularly the European development throughout the year. We are basing our analysis on a more normal development during the year. As I said, more normal second half this year than it was in 2011.
Inventories are still increasing due to the overcapacity, and we saw about 200,000 tons additional volumes in stocks. If you take a look at regional ingot premiums, there is still a tight physical market. We saw higher premiums both in Japan and the U.S. Midwest market, which is now approaching the level of the European market around $200 per ton as standard ingot premium. The slope of the forward curve in combination with interest rates and warehousing costs continues to be low for financing deals to be rolled forward. Let us take a look at the alumina price and the index. We saw a quite stable price level in the quarter in range of $315-$320 per ton.
The price stabilized at this level after a decrease in the previous quarter. The price as a percentage has mainly been in range of 14%-15%, with a recent increase due to the decrease in LME price. The alumina market has experienced a somewhat softer demand due to smelter curtailments. However, the demand was in the first quarter supported by increased export to China. So far there has been limited alumina closures announced or curtailments. However, more announcements may be triggered when the smelter closures come into full effect. If you then go to China and take a look at the import-export balance, China still continue to import large volumes of bauxite, and we saw also a significant increase in import of alumina to China this quarter.
It is too early to say that this is a break of a trend, and we will follow this carefully going forward, of course. Primary metal in China are quite balanced, and there are less export of fabricated and semi products, which is in line with previous first quarters and can probably be ascribed to the Chinese New Year in this quarter.
We have talked about the raw material cost challenge for quite some time, and if we could compare the first quarters of the last three years' development and then take a look at the LME development from the first quarter 2010 to the first quarter of 2011, it was a 15% improvement of LME, but we had 84% higher pet coke price in the first quarter of 2011 compared to the first quarter of 2010. We had 72% higher caustic price than in the first quarter of 2010. There has been a shift significantly on the raw material side. If you take a look at the first quarter of 2012 compared to the first quarter of 2010, there is a 67% higher price of pet coke and 127% higher caustic price.
This is of course an important reason why there is a squeeze in the aluminum industry, where we have low aluminum prices and at the same time, high raw material prices. The development in raw materials is not sustainable for the aluminum industry, and at today's LME prices, there is a lot of aluminum capacity that is losing money on each ton sold. One of the reasons for this losses is that LME price is lagging significantly to the price development of raw materials. In the Bauxite & Alumina, I mentioned already that we have stable production at higher levels. This continues, and we aim to keep stable production.
We are now attacking the cost levels, going further, but we at the same time see that there is lower alumina prices and also the sales this quarter was influenced by timing of shipments that came into the second quarter instead of the first quarter, and also the fact that there is reduced third-party trading sales. We have already communicated that we have postponed the CAP project due to uncertain short and medium-term market balance. Our long-term view, however, is unchanged, and we consider the CAP to be one of the most attractive projects in the industry.
However, in the shorter term, we do not think that the alumina market needs more alumina capacity. The $300 program in primary metal continues, and our target this year is to add another $35 per ton to the cost reduction program. We have so far delivered up to the first of January this year, $200 of the $300 program. This program will continue until the end of 2013. If you take a look at the cash cost, we had a reduction of $100 per ton from 2011 to first quarter of 2012. This can be ascribed to lower alumina cost mainly. The $300 program is progressing according to plan.
With the LME price we had in the quarter, the EBITDA margin was $250 per ton compared to $475 per ton in 2011. As I mentioned, in Qatalum we have stable production at the above nameplate capacity, so the plant is now running with 704 electrolysis cells at 600,000 tons capacity and production on annual basis. We are now focusing on bringing the cost down to the level where we are aiming for and optimizing production. Unfortunately, we experienced a fire in the seawater cooling tower on March 17. We had no injuries, but we had to stop the steam turbines that needs the cooling tower to be in operation.
The gas turbines are unaffected by the fire. This is in fact also the case for the steam turbines, but they cannot be operated without cooling water. There is no effect on metal production from the fire. However, we are purchasing some additional gas and power from the grid, and we thereby incurring some additional cost until the situation is solved, and that will take some months during 2012. In energy, the Nordic electricity spot prices have been volatile in the quarter, starting around 25 EUR per kWh, almost doubling in the cold weather period in February, and then coming down to around 20 EUR per kWh when the temperature increased again. The decline in prices was also influenced by high reservoir levels and high production in the period.
Water reservoirs in Norway decreased during the quarter from 80 to between 50-60% for Southwest Norway, which is significantly higher than the same period in 2010, which was a year with high prices, low reservoirs, and low production. However, this represent 13% below normal levels. Hydro's combined water and snow reservoirs were at the end of the quarter in a similar situation as the average for Norway. Due to maintenance in Rjukan during this summer, we expect high production in next quarter, although lower than the very high production in the first quarter. We have mentioned a couple of investments and upgrades in our energy business, and we concluded one of the larger projects, the Horspool project, during the quarter.
Horspool is taking our normal power production from 9.4 to 9.5 terawatt-hours by adding 85 gigawatt-hours to the system. Production of Horspool was started first of April, and the project was thereby concluded on time and within budget. As I mentioned, the prices on LME is not adequate to give a sufficient return for the industry. No matter, we are continuing to do what we can to improve our position. For Bauxite and Alumina, the main priority is to stabilize and improve the production. This continue to be number one priority. However, we do see that the focus on improving the cost position, especially with the challenging raw material price development, as I mentioned earlier in the presentation, has to be continued.
We also support the promoted pricing of alumina on its own fundamentals, which we believe is the right way to go for the industry. Index price will be promoted by Hydro going forward. Primary metals' number one priority is to deliver on the $300 program, additional $35 per ton. Together with optimizing the production in Kapalin, these initiatives will be very important for the competitiveness of the primary metal in Hydro. In the Rolled Products, the Climb 10 program is continuing. This is going over several years with a broad range of improvement initiatives, all with the focus to improve the cost position and the profitability of Rolled Products. Extrusion products is experiencing a difficult market, especially in Southern Europe.
We have a EUR 40 million improvement program in Building Systems. This is progressing according to plan. However, volume in Building Systems continue to fall in this segment, so profitability is not improving as planned. Extrusion in USA has also initiated cost-cutting efforts based on the development in the markets, and we also see a strong need to adjust the cost base into the market. The market imbalances are creating some challenges for us. However, I feel confident that we are doing our best to improve the factors which we can influence on ourselves. Thank you.
Thank you, Svein Richard Brandtzæg. Let's turn to the first quarter financials, starting with the breakdown of quarterly underlying results. The underlying result before financial items and tax amounted to NOK 557 million in the first quarter. This is down NOK 576 million, or about 50%, from the fourth quarter of 2011. On the total level, the quarter is negatively affected by reduced alumina and aluminum prices, somewhat offset on the positive side by increased sales volumes. I will get back to more details on each business area later in the presentation. When it comes to the orders and elimination segment, you see that we have a charge of NOK 137 million in the first quarter, including largely neutral elimination effects.
This compares with a positive contribution of about NOK 90 million in the previous quarter, which then includes NOK 250 million in positive eliminations. Then adjusting for these elimination effects, which mainly relates to internal gains and losses on inventories. We see stable charges for common services and other businesses between the quarters, and within the range of NOK 150-NOK 200 million per quarter as we have guided on as a normal run rate. Let's move to the high level variance analysis. As we just saw, we have a total negative development of around 0.5 billion. Energy is up 0.1 billion on higher power production and spot sales volumes.
The power production is up about 0.5 terawatt-hours in the first quarter. We have a positive volume effect of NOK 0.2 billion. Behind this there is a positive effect related to higher aluminium sales, increasing by 5%-6% in the quarter. Alumina sales, on the other hand, is down about 9%. The net effect of this is positive by NOK 0.2 billion. We have some relief from reduced variable costs in primary metal. This is mainly related to lower alumina costs due to the declining LME. On the negative side, you see that we have NOK 0.9 billion in negative price effects.
This is mainly relating to lower realized LME in primary metal, which dropped in dollar terms by about 12%. We also have a significant negative impact on lower prices in bauxite and alumina, which I will get back to. There are also obviously a number of other smaller effects that are netting each other out. Key financials. Revenues are stable between the quarters at NOK 21.7 billion. Reduced aluminum prices are offset by increased sales volumes. Underlying EBIT is at NOK 557 million, as we just discussed. We have excluded positive effects of NOK 108 million from underlying EBIT, giving a reported EBIT of NOK 665 million. I will revert then to the items excluded shortly.
Net financial items are positive, with NOK 430 million, mainly reflecting currency gains on US dollar debt positions and translation of intercompany balances. Income before tax is at NOK 1.1 billion, and we have an income tax expense amounting to NOK 530 million in the first quarter. This gives a high tax rate of around 45% for the quarter, reflecting that we have a high share of earnings from power production in Norway, which are subject to surtaxes on top of normal income taxes. This gives a net income of NOK 585 million and underlying net income of NOK 256 million. There are more specific information on financial items and tax available for you in the handout.
I will then move on to explain the items excluded. As I just referred to, we have excluded positive effects this quarter, NOK 108 million. This compares with one point five billion in negative effects excluded in the previous quarter, of which the impairment of the Kurri Kurri smelter in Australia was the biggest item of about NOK 1 billion. The first three line items in the table are mostly driven by changes in commodity prices and currency rates. In total, these items amounts to around NOK 250 million positive, then reflecting shifts in the LME price and exchange rate developments.
Rationalization charges include NOK 112 million of costs related to the curtailment of Potline One at the Kurri Kurri smelter, and about NOK 20 million in restructuring costs in Extruded Products. The impairment charge of NOK 30 million represents Hydro's share of the write-down of fixed assets relating to Paragominas that Svein Richard Brandtzæg just referred to. We have a NOK 40 million gain on divestments that relates to the sale of Hydro's 20% share of the solar company, Ascent Solar. Turning to the business areas, starting with Bauxite and Alumina. As Svein Richard Brandtzæg pointed to, we are reporting a weak result for Bauxite and Alumina in the first quarter, with an underlying EBIT loss of NOK 144 million. This is down around NOK 300 million from the previous quarter.
If we add back depreciation charge of NOK 475 million, EBITDA is positive with NOK 330 million. Production performance in both Alunorte and Albras was relatively stable between the quarters, with annualized production of 6 million tons of alumina and 9 million tons of bauxite. Alumina sales, on the other hand, were down with some 180,000 tons or 9%, and this decline reflects partly that we have sourced less third-party volumes due to expiry of some contracts end of last year, but also that we have shipped less volumes from Alunorte due to timing of shipments. The average realized alumina price dropped by $13 per ton, primarily due to lower LME and lower alumina index prices for those volumes that were sold with a linkage to the Platts index.
In addition to the decline in alumina price, we should also remember that the strategic hedge program entered into in connection with the Vale transaction expired end of last year, and these hedges had a positive impact of around NOK 100 million in the previous quarter, which are now absent in this quarter. The decline in realized alumina prices together with the expiry of the hedges represents the main factors explaining the decline in result between quarters. If we then look forward, we are as Svein Richard Brandtzæg can point to strongly focusing on stabilizing and improving production further. We see fairly stable raw material cost picture into the next quarter.
Of course, we will be highly sensitive to the LME and the currency rate developments. Primary Metal, we report our underlying results of NOK 30 million for the first quarter based on a realized LME price of $2,155 per ton and NOK 12,400 per ton. Primary metal production was down somewhat in the first quarter, whereas sales volumes increased due to higher utilization rates of the cast houses. If we look at the variance from the fourth quarter, lower realized prices and somewhat lower product premiums had a negative impact of around NOK 700 million.
This negative price effect was then partly offset by some relief on the raw material cost side, and somewhat higher sales volumes of metal products from the cast houses. On the outlook, at the end of the quarter, we have sold forward around 80% of our primary production for the second quarter at a price of around $2,200 per ton. We also see some further relief on the petroleum coke costs in the second quarter. Pet coke prices were slightly down in the first quarter, but we expect to see somewhat larger effects in the second quarter based on contracted volumes.
As we mentioned, the fire in the seawater cooling tower at the steam turbines in Qatalum, as the steam turbines are taken out of operations due to this incident, we do expect some increased costs in the coming quarters for additional gas and power from the electricity grid, so we must be expected to see some increases there. When it comes to the incident, we have insurance covering both the property damage and business interruption. As you all know, there will always be some additional costs for such incident, and we expect to see that this will have some impact in the next quarters.
The insurance case will have effect when the settlement for that is agreed. As we have promised, we are now starting to give more detailed information on the Paragominas from the first quarter of 2012. The table here shows Hydro's results from Paragominas based on our 50% share in million Norwegian kroner. If you look at the underlying EBITDA for the quarter, that was positive with NOK 226 million, while a relatively high depreciation of NOK 240 million gives a negative underlying EBIT of NOK 14 million. To qualify a bit more on the depreciation charge, you can start with the total CapEx of $5.8 billion as the total CapEx.
This gives around NOK 34 million on 100% basis. The depreciation rate is around 17-18 years, which then gives you a yearly depreciation charge of just below NOK 1 billion on Hydro's hand. Underlying net income was down NOK 56 million from the last quarter, and the decline in result is mainly due to lower realized prices in the quarter. Result in Qatalum is affected by the LME spot price with a two-month lag. We have previously mentioned M-1 as our pricing, but if you then take into account also inventory effects, we say now that about two months is probably a more reasonable estimate.
Sales volume and production were stable from Q4 to Q1, and we expect also that to be stable going forward. Metal markets first quarter underlying EBIT amounted to NOK 87 million, including negative currency effects of around NOK 30 million. Through the currency effects, you can see that there is an improvement of about NOK 35 million from the fourth quarter, and this improvement is mainly driven by increased volumes in our remelters, which were up by more than 15% from 131,000 tons to 152,000 tons. Much of the volume increase is due to seasonal effects, but we saw improvements both in Europe and in the US. Going forward, we expect fairly stable remelter production for the second quarter. However, we see some pressure on product premiums and margins.
As normal, we remind you that results from metal markets can be volatile, in particular due to currency developments. Rolled Products had an underlying EBIT of NOK 151 million in the first quarter. The improvement of NOK 65 million is mainly explained by increased sales volumes. The volume increase was about 6% following a decline of 6% from the third quarter to the fourth quarter last year. There is some recovery there and some seasonal effects. As we pointed to earlier, volumes in the general engineering segment improved in the quarter, giving some signs that the significant destocking that we experienced in the previous period is coming to an end.
If we compare the first quarter result with the same period last year, we should then remember that the first half of 2011 was influenced by very tight market situation and very good volumes in most product segments. Outlook, our order books now indicate somewhat higher sales mainly in the second quarter, mainly due to seasonal effects. We need to keep in mind that margins are under pressure given the current market situation and that the market is very volatile. Extruded Products underlying EBIT at NOK 14 million in the quarter. This is obviously still a very weak level, but there is an improvement from the NOK 90 million loss in the fourth quarter of 2011.
Sales volumes were up 10% in a seasonally stronger quarter after dropping 11% in the fourth quarter. Volume is then the main reason for the increase in the result. Construction markets in Europe are still considered very weak, and in particular in Southern Europe, impacting both our Building Systems operations and also our general extrusion business in Europe. Operating costs per ton fell somewhat in the first quarter due to increased volumes and productivity improvements in the general extrusion segment. We also recorded very solid results for our Precision Tubing business in the first quarter. On the outlook side, demand situation in Southern Europe is still considered to be a very significant challenge. However, outside of Europe, we see some positive signs in the Americas.
Also into the next quarters, as Svein Richard Brandtzæg pointed to, rationalization and restructuring efforts continue with full strength in the coming quarters, and we expect to see some more effects of that going forward. Energy, underlying EBIT of NOK 556 million. This is up NOK 150 million from the previous quarter. So this is obviously a very strong result reflecting the record level production in the quarter, up 0.5 terawatt-hours from the previous quarter. Prices have been very volatile in the period due to variable weather conditions, but spot prices were on average at about the same level as we had in the fourth quarter of 2011.
We expect somewhat lower production in the second quarter, but still much higher than the normal for the season. Prices we expect to decline somewhat when the snow melting starts and the weather becomes milder. The hydrological situation is also strong for Hydro with surplus on the reservoir side compared with normal and about the same level as for other power producers in Norway. That was the business areas. Let's turn to the development in net cash. You can see here that the net cash position was largely unchanged end of the first quarter compared with the end of 2011. Underlying EBITDA amounted to about NOK 1.9 billion in the quarter.
We had a working capital buildup of NOK 0.7 billion, reflecting somewhat higher volumes downstream and also some increase in bauxite and alumina. Other adjustments of NOK 0.6 billion include tax payments and adjustments for other accruals and provisions. If we then sum the three first items here, you can see that we have a positive cash flow from operations of NOK 0.6 billion. We have invested NOK 0.9 billion in the quarter. About two-thirds of those investments are in the upstream part. We have then some smaller items of NOK 0.1 billion positive, mainly related to translation effects, giving them a net cash position of NOK 1.5 billion end of the first quarter.
With our very strong financial position intact, we see a reduction in adjusted net debt of NOK 0.7 billion to NOK 90.2 billion end of the first quarter. There are small changes to the items that we adjust for. I should only mention the reduction in our share of debt in equity accounted industries, which is mainly Qatalum, and this reflects the depreciation of the dollar and a lower value of our share of debt in Qatalum.
Thank you very much. Let us then just go through the priorities for 2020. We will focus on the 300 dollar programs that we have communicated previously. Streamline the Qatalum metal and of course also then improve the cost position and focus on stabilizing the production in Bauxite & Alumina in Brazil. Please go ahead.
Yeah. Good afternoon, gentlemen. You mentioned that you're evaluating a further two potlines at Kurri Kurri. I'm just wondering if you've got any sort of timing in terms of when you'll make that decision. Also, any indication in terms of the impairments that you might be taking on that facility. Just secondly, you talked a little bit that you've seen some abatement in terms of what you're seeing on coke prices at the moment. I'm just wondering about, you know, other raw material prices, particularly caustic soda. Have you seen sort of any alleviation of those input prices? Thanks.
Yeah. Thank you. It's with regard to Kurri Kurri, we are currently evaluating the further actions on Kurri Kurri. We have, as you said, one pot line out of operation. The remaining two pot lines is now in question if we're going to continue with that. This evaluation is not finished yet. It will take still some times, but in the coming months we will make a decision on the Kurri Kurri. I cannot give you a specific timing on that. With regard to the development of the raw material, of course, we are following carefully the development. The coke price has been softening a bit.
Still, in the first quarter, it didn't contribute very much due to the fact that we have inventories with coke that was priced on the higher levels. This will improve a bit in this quarter. Still we feel that there is a significant raw material pressure. In Bauxite & Alumina, and especially with respect to caustic soda, we will probably see an effect if there will be curtailments in alumina production going forward as a result of the fact that there will be taken out almost 1 million tons aluminum primary capacity in the coming months. That will influence the market in the end, but it's too early to say the real effect of that today.
Thank you.
We will take our next question today from Luc Pez from Exane BNP Paribas. Please go ahead.
Hi, gentlemen. I have a question on the cost side, actually. Perhaps if you could elaborate how you would expect trend moving on going forward, as far as raw material costs are concerned, of course. Associated question would be where you would see room to improve your cost position on the alumina side, in particular. Thank you.
Thank you. Thank you, Luc. With regard to, again, as I mentioned, we are expecting some softening in the raw material going forward. We have seen some development in the pet coke for the anodes in primary metal production, but this is still under development, and we follow that carefully, of course. With regard to the cost reduction programs in Bauxite & Alumina, we will revert to that in details.
For example, we will reduce the use of contractors in Alunorte to a significant extent, and there are several elements of the cost reduction program that we will revert to, but that will have an impact on the cash cost of alumina production, which is necessary also to adapt to the fact that we are not creating value from this part of the value chain. This is a program that has been started, it's ongoing, and we will revert to more details later.
Can we have the next question, please?
We will take our next question today from Ross Carrigan from Carrey Capital. Please go ahead.
Oh, yeah, good afternoon, and thanks for taking my question. Look, as a shareholder, the one thing that gives me some concern in the longer term is really the capacity build out in China, and I guess local subsidies provided to the industry. I just wanted to get a view from you guys on, you know, in the long term, if you see this continuing and putting sort of a floor or, sorry, or the ceiling on the price. And then, I guess, second question, just on the stake that Vale have. Can you remind me when that rolls off, and any thoughts on what they might do with that stake? Thank you.
With regard to China, we have seen that there is an increase in import of alumina. China is a heavy importer of bauxite, and we know that some of the sources they are dealing with has a limited lifetime. China will definitely have to go further and take a broader look for raw materials for the aluminum production. We know that their aluminum smelters is not in the best quartiles on the cost curve. In fact, most of them are in the third and fourth quartile on the global cost curve.
We also know that there are several other factors that is really raising a question about the policy in developing the primary aluminum business in China to the extent that they have done so far. We know that there are voices in China also that are questioning the fact that the aluminum industry is using today approximately 7% of the total energy consumption in China in a situation where China will need that energy for many other purposes. We know that there are a lot of logistic costs involved when we are moving capacity from Southeast to Northwest. Of course, on the fact that China is importing bauxite, which is a quite expensive exercise in itself instead of importing alumina.
It's also a factor that you can question. Is that really sustainable long run? At least it is not very competitive. All in all, I think there are several factors that are pointing to the fact that China will, in the end, start to import more primary metal. That is a statement that has been said by the industry for quite a while, and so far, they have been able to balance their supply and demand balance. I wouldn't in a way count on short-term effect on this, but longer term, we are more optimistic about the situation. In general, I would say that on behalf of the aluminum industry, I'm optimistic with regard to the demand going forward.
There are significant demand in connection with the urbanization and the fast-growing economies, and also the drive from automotive especially and transport, where there is a drive to reduce energy consumption and CO2 emissions. With regard to the balance and the growth going forward, I think short term, we are in the squeeze. China is not supporting very much the industry with the imports of primary aluminum. China will see increasingly problems to keep up the industry and with the aluminum prices that we see today. They are not really competitive, and with the moves they are doing in China today, the competitiveness of the Chinese metals is absolutely not improving.
With regard to the question about the B&A and timing, the date is 28th February 2030.
Right. Okay. Just going back, if I can just follow up just on the first question. I mean, what sort of timeframe are you looking at before maybe, you know, those, the, I guess the stranded power in the northwest provinces, they're able to, you know, I guess, get that plugged into the grid elsewhere and then really redistribute the use of power from the production of aluminum to other sources, I mean, other uses. Do you see that as being a very, like, the very long-term view or what's your view on the time for that?
I cannot be very specific on that, but we have seen in our other provinces they built up infrastructure which is developed rapidly. With what we see in this part of and these regions in China today, we will expect that there will be an alternative value for the coal resources in northwest of China. We still believe that there will be some time before this is now I would say in competition with other markets. There is some stranded energy that they are taking benefit of, but we feel that this is not a long-term situation.
Right. Okay. That's okay. Thank you.
As a reminder, ladies and gentlemen, to ask a question at this time, please press star one on your telephone keypad. We will take a follow-up question from Heath Jansen from Citi. Please go ahead.
Yeah, good afternoon. Just a follow-up question, just on the whole situation with bauxite imports into China. There was a, you know, proposed ban on Indonesian exports of bauxite. I think they sort of export about 35-36 million tons a year to China. Have you got any insights on that and how you think that's gonna play out? I think secondly, I mean, if you're taking a longer term structural view, how does that fit with the CAP development in Brazil, whether that influenced your decision or not? Thanks.
With regard to the situation in Indonesia, we have had a delegation that has taken a closer look at it. We see that the authorities is quite clear on their statements. They will introduce the ban. We also think that there could be some problems to control the export. There are several players, small mines, but we also see that the quality of these mines are deteriorating, and there are also limited resources. This is not a long-term situation for China, and that's why China is also now looking broader. They're looking further where they can find raw materials for their aluminum smelting industry.
We know that there are some limits with regard to transport costs as it is today. We believe that Brazil would also be an alternative for China in the longer run. We believe that we are in very good position with our assets in Brazil, both with regard to bauxite and alumina. With regard to the decision on postponing the CAP project, that is very much due to the supply-demand balance. We feel that the aluminum industry has been in the forefront of developing assets and building capacity even faster than the development of the demand. That is something that we will not contribute to going forward.
That is why we're also now postponing the CAP project, which we are convinced is one of the most attractive alumina projects globally. It is very well located. It will have a very efficient logistical solution with regard to bauxite supply from Paragominas. Still, we believe that it's better for Hydro to postpone that project.
Okay. Thank you.
Once again, ladies and gentlemen, as a final reminder to ask a question at this time, please press star one on your telephone keypad. There are currently no further questions over the telephone.
Okay. Thank you. That concludes the phone conference. Thank you all for joining the conference.
That will conclude today's conference.