Welcome everyone to a Presentation of Hydro's Fourth Q uarter Results 2011. Welcome also to those of you following us on webcast. The presentation will be given by the CEO, Svein Richard Brandtzæg, and CFO Jørgen Rostrup, and we will have some time afterwards for one-on-ones. Please, Svein Richard.
Thank you, Ingeborg. Before I present the results, I just want to share with you a tragic accident that happened in Alunorte in Brazil on the 22nd of December. The mechanic, Zacarias, 36-year-old, was seriously injured. We brought him to the best hospital in Brazil, but on Monday we got the message that he passed away due to heart attack. This is very tragic, and of course we will do all efforts we can to make sure that all employees working for the group go back to their families safely. Summary of first quarter results is first of all that the markets are weaker seasonally. Fourth quarter is the weakest quarter, but the market developed weaker than the normal seasonal variation in the fourth quarter of 2011.
This underlines the importance of continued efforts on repositioning on the cost curve for the smelters. Also we have increased our ambitions in Extrusion, especially in Building System, to speed up the turnaround processes in that business unit. In Paragominas, we had record production. Paragominas is now operating around 9 million tons bauxite production per year. In Qatalum, the fourth quarter of 2011 was the first full quarter of full production. Qatalum is now running at a speed of yearly production at a bit above 600,000 tons per year. We delivered NOK 1.1 billion as a result, EBIT result in the quarter, which is NOK 500 million below the third quarter and half a billion NOK above the fourth quarter in 2010.
Mainly due to lower prices, lower volumes, and of course the weaker market and the seasonal variation that we saw in the fourth quarter. Energy continued to deliver solid results. In fact, it was a record high EBIT result in the fourth quarter from Energy. In a meeting yesterday, the board of directors decided to propose to the annual general meeting a dividend of NOK 0.75 per share. If you look into the Downstream business and the demand for aluminum, we saw a reduction of 8% in total for the Downstream business in the fourth quarter. In the Rolled Products, 6% decline since third quarter. Serious drop both in foil and general engineering, and stable demand in can.
Extrusion Europe was heavily hit by downturn in the fourth quarter with 15% reduction in volume. Precision Tubing and Extrusion North America had lower volumes in the fourth quarter. Stable result in South America. Also a stable result in Building System, but at a very low level. Normally the fourth quarter in Building System is the best quarter, or at least among the best quarters during the year. In total, Extruded Products down 11% compared to the third quarter. If you then take a comparison of 2011 with 2010, there is a significant change in the product mix. First of all, in Rolled, we saw improvement in can and automotive and heat exchanger business, driven very much by the demand from the auto industry in Germany.
We saw a reduction in foil, packaging and building, and especially general engineering, where we saw a significant volume drop but also a pressure on margin during the year 2011. In Extrusion Europe, small growth in most segments, except for a significant drop in Building Systems. That is the main explanation for the deteriorating results in Extrusion in the fourth quarter, because Building Systems is a high margin business. We have lost large volumes in high margin business in building and construction through Hydro Building Systems, and we have gained volumes in low margin business. Our competitors that have been actively working in Building Systems are moving into other segments, so there is a pressure also now in other segments in Extrusion. In total, improvement in Extrusion of 1% since 2010.
This calls for continued efforts on restructuring, and we have already initiated several efforts in the Downstream business. We have a restructuring portfolio. We are on the way to close down the extrusion plant at Karmøy in Norway. We are mothballing extrusion capacity in Spain and Portugal. In Building System, we already announced the cost improvement program in the Capital Markets Day, where we had an ambition of EUR 30 million. We have increased the ambition now to EUR 40 million since the Capital Markets Day, which should be delivered by the end of 2012. In Building System, we are closing down six production facilities and nine distribution centers. We are reducing manning and, of course, fixed cost reduction.
Building System is struggling mainly in Spain, Portugal and Italy, but we all have also seen a weakening further north in Europe in Building System. In Extrusion, during the quarter, we saw declining volumes, which immediately we responded to and initiated the cost reduction effort also there, which had the speed out of the year of EUR 20 billion as a run rate out of 2011. Of course, also there, we are cutting costs, reducing shifts, reducing capacity, and taking out fixed costs. We also then investing in emerging markets. We have a facility both in Brazil and in China, and we are now more or less doubling the capacity in emerging markets through the next three years. Average growth rate about 20% during these years.
We are investing that in two presses in China, in Suzhou. One press for heat ventilation, air condition, and refrigerator market, in addition to automotive, where we already are well established. Another press for high grade extrusions in Suzhou for the Chinese high-end market. And also a big press in Brazil to serve the growing market in Brazil. Well, there is a World Cup, and we have also there a good market for automotive in addition to the general growth in Brazil. If you look at the prices, we saw a reduction during the quarter from $2,243 to a level below $2,000 per ton.
The realized price in the quarter was $2,439 per ton, which was the market price more or less in the third quarter. The decline that we saw in the fourth quarter will be reflected in the first quarter result that we'll present in three months' time. Regarding the price development, we have seen an improvement of about 10% during the first part of 2012. You can also see a quite steep contango in the market that has been developed during the last weeks and months. The market balance deteriorated somewhat due to the fact that it was quite stable production, and also then the reduced demand for aluminum widened the gap a bit during the quarter.
Now there has been announced curtailments of capacity of about 1 million tons that will be executed during the year. We maintain the growth perspective of 3%-5% through the year. That means we will see a tightening situation in the market during the year, better balance going forward. Inventories, we saw a small increase in LME inventories. In total, we expect that there are about 12 million tons aluminum in inventories. This is, of course, part of the financial deals that has been done. This is owned by financial investors, and that can make a margin due to the higher contango situation that is quite positive, and also the interest rate and the warehouse costs that gives them a fairly good margin.
We are expecting that financial deals will continue to look up, metal. If you take the consumption in the world today and look at the inventory, the inventory represent about three months consumption. We use ingot premium as a good indicator for the tightness in the market, and there are still a high level of ingot premiums. It has been stable at the high level. Some softening in the end of the quarter due to the market drop. We have also seen that this ingot premiums have been recovered in the beginning of 2012, which means that the market, the physical market, is still quite tight in aluminum. This slide we have updated since the Capital Markets Day, and we will continue to present this slide as a part of the quarterly presentations.
It definitely shows that China is a net importer of aluminum units, mainly due to the import of raw materials. Quite stable import of alumina, but the bauxite import has increased with about 35% since 2010. Primary is fairly in good balance. There are some increased export of semis, mainly to the Asian market. Alumina has been softening in price during the quarter from about 16%-17% of LME to 14%-15% of LME, going from about $360 per ton to about $300 per ton, but is now back to $320 per ton. This is of course an important development for us now, as we are exposed also in the alumina market.
Energy started the quarter with low prices due to heavy inflow and high level in the reservoirs. Situation was improved during the quarter. In the end of the quarter, the prices were under pressure due to low CO2 costs due to low coal cost and a mild winter. We have a magazine reservoir filling of about 80% in the end of the year, which is 11% above normal. The general snow reservoir level in Norway today is about 20% above normal level. In Southern Norway, it is about 50% above normal levels. It looks quite promising from that respect. We also see in the beginning of this year, quite steep increase in prices due to the cold winter at the moment.
In Brazil, we have used our best resources to implement the Hydro Production System and improve the production in the Paragominas bauxite mine, and also in the alumina refinery in Alunorte. We have improved volume significantly since the first half year. 9% improvement in Alunorte, and 23% improvement in Paragominas. This is a very important development. We will now try to stabilize the volume production at a higher level. We are now entering, or we have entered already, the rainy season in Brazil, and it's important for us now to keep the level going forward at the current production volumes.
Paragominas is now producing around and above 9 million tons per year, and Alunorte producing at 6 million tons per year. In Primary Metal, the cost reduction program continues. The $300 Program should be delivered within the end of 2013, and we have now delivered $200 per ton improvement. This is, of course, due to improved operational performance, but also reduction of fixed costs. It's about the productivity, it's about improved current efficiency, reduced anode consumption, and get more for less in Primary Metal.
At the same time, we have seen the cash cost increase $325 per ton since 2009 due to raw materials that have increased, especially in alumina, due to the LME link that we have seen. Also due to higher energy costs, also higher cost on petroleum coke for the anodes, weaker dollar, and we have also then included Albras from 1st of March last year. Qatalum is not a part of this program, so if you look at the cost curve, Qatalum will contribute even more positively when we add this to the picture when you are calculating Hydro's position on the total cost curve. Qatalum, as I mentioned, full production and the first quarter at full speed in Qatar.
We are running Qatalum at somewhat higher current density, meaning that we get more volume out of it. So we increased the capacity from nameplate 585,000 tons per year to 600,000 tons per year. We are focusing on operational performance, and we are on the way to bring the cost down to the level where it should be, because Qatalum will be among the best smelters in the world, in all respects. We continue to focus on our portfolio and have active portfolio management. In Extrusion, I already mentioned what we are doing. In Building System also.
We have now completed the sale of the Alpart alumina refinery in Jamaica, which has been recognized in the accounts for the first quarter. We have now also curtailed the first line, one of three lines in Kurri Kurri, Australia, due to pressure on raw materials, pressure on cost, and also the challenging currency in Australia. We are still considering further measures in Kurri Kurri. The capacity has been taken down from 180,000 tons down to 120,000 tons as it is now. If you look at the total portfolio in Hydro has become more global during the last couple of years. Bauxite, alumina is priced globally.
We have now added Qatalum and Albras, which is also then metal production that is priced on LME, the global price. We have a quite stable production in the downstream with some increases in emerging markets. Today, about 75% of Hydro is based on the global market. If you look at the downstream, about 75% of the downstream is based on regional prices in Europe. 2011 is the first year where Hydro is a fully integrated aluminum company. We have delivered improved performance with improved volumes in Brazil, in Paragominas and in Alunorte. We have finally completed the ramp-up for Qatalum, which is running at full speed.
We are continuing to focus on the cost-cutting programs, both in the upstream part and in the downstream part. We maintain a strong financial position in a challenging market situation.
I leave the word to Jørgen.
Thank you, Svein Richard. It's my task to take you through some numbers, statistics, and a few comments on the outlook. If you first look at the underlying EBIT, as Richard said, NOK 1.333 billion compared to NOK 1.646 billion in third quarter, NOK 513 million lower, down 30%. I will get back to the business areas as normal. Just draw your attention toward the other and elimination segment, which has a positive number of NOK 92 million versus NOK -73 million. The common cost element of this, which we have guided for you over several quarters, is in the range of NOK 150-200 million on a normal basis, is on a level of NOK 160 million.
What is turning this number to a positive number is elimination of internal gains and losses on inventories. A little bit in general terms put, if we have a period with increased internal sales volumes or margins that hasn't been released in external sales, it needs to be the effect of it needs to be eliminated. If we have an increase, we normally have a negative elimination on this line. If we have a decrease in volume, internal volumes and margins, we will normally have an elimination gain on this line. And that is the situation this quarter. We have lower volumes, internal volumes and margins also reflecting the external picture and therefore a positive number here, but u nderlying cost basis is the same.
If we illustrate the results on a high level basis and only look to the very main elements, there is a NOK 0.5 billion change quarter-on-quarter from NOK 1.6 billion and down to NOK 1.1 billion. We have got some relief on raw materials in the primary metal area, and these are distributed on several factors, adding up to NOK 0.1 billion. We have lower volumes in primary metal and downstream area, adding up to NOK 0.3 billion. Actually, two-thirds of this number is related to the downstream business. Again, it pinpoints Svein Richard's point about some of the challenges we are seeing in the downstream area. Lower prices and currencies constitute NOK 0.2 billion on the quarter, a negative change.
There's a $150 reduced price on aluminum on achieved prices in the quarter, but due to a stronger dollar at the same time, the Norwegian krone effect is NOK 390 per ton. Bauxite & Alumina is delivering NOK 0.1 billion lower result, primarily due to alumina prices following our contracts based on the LME development. There are obviously several other factors, but they are this quarter netting each other out, so these are the main explanations. Key financials. We have a 9% decrease in revenues in the quarter. This is due to lower prices and volumes. While we have a 20% increase in revenues if you look at the yearly numbers.
15 percentage points of this 20% increase is due to the Vale inclusion, and the rest is due to price development. Underlying EBIT we have talked about. Items excluded, which I will revert to, is negative this quarter, NOK 1.5 billion, meaning we have a lower reported EBIT than underlying EBIT. If you look at the yearly effect, however, items excluded is positive, so we are taking out NOK 3.7 billion in the more technical effects to reach underlying EBIT, and therefore also a much higher reported EBIT for the year in total. Financial income and charges for the quarter is NOK 26 million. There are.
The currency effects are netting each other out, so this is basically reflecting the cash positions and the debt that we hold on in our books. That gives us a reported result before tax of NOK 388 million. Tax is NOK 361 million. Several of the excluded items are non-taxable items, so the tax rate is high. Net income of NOK -74.9 million, underlying NOK 876 million positive. If we look at tax and financial expenses, I will point to the table. I hope it is fairly detailed for your understanding after the presentation. We have concentrated on the yearly effects, which gives an effective tax rate of 21%.
This is obviously dominated by the free gains that we had due to the Vale acquisition on Alunorte. Also the sales of SKS. Then we have some impairment effects. We have also the deferred tax assets impaired a couple of weeks ago, which is disturbing the picture. Adjusted for that, we have 32% tax rate, which is much more the normal level you should expect going forward. Finances, as I said, very small movements for the quarter. Larger changes year-on-year, obviously due to currency. We had large gains last year on the appreciation of Norwegian krone to the euro and the internal loans.
This year, we have seen in third quarter that the dollar moved and therefore had losses on our dollar debt, compared to the Norwegian krone. When we look at item excluded, I would first draw your attention to the largest element on the item excluded this quarter. It is the Q4 impairments that we talked about a couple of weeks back. Of these, the most important one is the Kurri Kurri smelter. The impairment is NOK 970 million. One pot line, as Svein Richard said, 60 kilotons, approximately one-third of the capacity. There is a remaining book value of NOK 1.2 billion on this asset. We have a challenging situation. It is currency. It is general cost development. It is uncertainty going forward after 2017 about power contract.
I must also say it's also probably the third factor, an illustration of the differences in the $300 Program, which we deem very successful in Norway and key in order to strengthen the position for the Norwegian smelters. We have not been similarly successful in Australia. This shows the three elements that the smelter industry is facing in a very clear picture. Building Systems, NOK 235 million in impairment. Svein Richard Brandtzæg has talked about that story. There are similar levels remaining values on these assets, and we believe they are solid going forward. Then solar was an impairment, and we have insignificant book value left in the solar activity.
If you then look at the remaining items on items excluded, and start maybe on the bottom this time for a change, gains due to the Alpart refinery sales has been booked with NOK 465 million in the quarter. We have talked about the impairments, and rationalization charges, NOK 121 million in fourth quarter. NOK 84 million is Hydro Building Systems, and then there are also some charges at Kurri Kurri. We have the metal effect, in total, NOK 500 million. All of these elements are related to the commodity price development, and this quarter decreasing LME has given us charges of approximately NOK 500 million.
If we move over to the business areas and then start with Bauxite & Alumina, there is an underlying EBIT of NOK 159 million, which is down NOK 143 million compared to previous quarter. There are significantly lower alumina prices in this quarter, and that is the main effect. However, we had some positive effects from the LME hedge that had its last quarter in fourth quarter 2011. Obviously, the LME is the single most important determinant for how prices are achieved in this area due to our contract structure, with prices around 13.5%-14% in the present running contracts.
We have had an increase in production of 6% in Paragominas quarter-on-quarter, while a 4% lower production in Alunorte. As we said last quarter, fourth quarter was important to stabilize the situation, which we believe we have done. As Svein Richard said, we will move production gradually from this level. We have reached the targets on production side that we had in the beginning of the year. Going forward also, we should expect first quarter to give further deterioration in prices, based on the LME prices that we have experienced so far in the quarter and that we are seeing for the remaining part of the quarter.
There is a much shorter lead time in prices into our P&L in this business area than what we have in primary metal, as you know. I would also say that the Purchase Price Allocation for the Vale acquisition has been finalized in the quarter. There are very minor adjustments on net assets and goodwill compared to the numbers that we presented for you in the beginning of the year. Primary Metal is NOK 484 million. It's a decrease of NOK 169 million or one quarter compared to the third quarter 2011. The effect of lower volumes, lower prices and somewhat lower margins, although that is not a major factor, is approximately NOK 300 million negative quarter-over-quarter.
We have some, as I said, relief from raw materials both alumina and energy and also some other elements. There are also some one-time effects adding up the complete picture. Qatalum had a result of negative NOK 8 million in the quarter. They are indexing the LME curve much closer than the rest of the portfolio. It's a one-month timeline on the LME for Qatalum. Next quarter, we will disclose more information for Qatalum based on the fact that we now are into what we would deem a fairly stable operation and are working on reaching those top cost ambitions that we have or cost levels that we have targeted.
We will release EBIT, EBITDA in addition to what we have disclosed so far, and according to what we have said as soon as we come into a modus operandi that makes that justifiable. I hope you don't mind that we are releasing more numbers. About 85% of Primary Metal is sold at $2,150. That is approximately $300 lower prices realized in Q1 based on the LME development in Q4. We will see some relief in raw material prices in coke amongst other, but obviously not to the same extent. Clearly, first quarter will be challenging, also for Primary Metal.
Metal Markets has a negative result of NOK 39 million versus a positive result of NOK 93 million in Q3. We had virtually no or very leveling out currency and inventory effects, valuation effects in third quarter. They were largely neutral. This quarter, we have NOK 120 million negative currency and inventory valuation effects. If you look past that, the kind of the performance EBIT is much more stable, 80 this quarter, 90 last quarter. The change is somewhat lower contribution from sourcing and trading activity. Going forward, we believe due to seasonality, there will be somewhat increased volumes in first quarter, but still impacted by the changes that we continue to see in market.
We expect some improvement in volumes, and then obviously this result will always be influenced by volatility on currency and trading. Rolled Products, 6% decrease in volume, was two-thirds of the explanation of a lower result in the quarter compared to third quarter. We had an EBIT of NOK 86 million in the quarter. It's down close to NOK 40 million, and two-thirds is volume and one-third is margin. This is a combination then obviously about of seasonality. Fourth quarter is a lower quarter normally than the previous quarter. It is also weakness in the markets and some destocking effects. We remember we had talked about the tremendous uptick that we had in particular in engineered products.
here we see a counter effect on volume and partly on margin. We have had some relief in the cost basis, but not compensating for the loss. We believe sales are now higher next quarter, but underlying, it is not so that Rolled Products is protected from the development in mid and Southern Europe in particular. It is somewhat more protected than Extrusion because it has more regional product and pricing, and it has even global products and pricing. It is to some extent obviously affected by the things going on around us. We have from New Year transferred the Rheinfelden smelter from Primary Metal to Rolled Products.
This is in order to streamline the operation between Rheinwerk and the neighboring Grevenbroich hot mill operation, one of the world's largest hot mill operations. We are seeing Rheinwerk purely as a sourcing instrument for rolling slabs for Grevenbroich going forward. We haven't done anything about the production level yet. We will evaluate that. This gives us advantages both on having one German agenda, one common management, streamlining operations between the two plants and taking out all kinds of synergies that are present on site. For Extruded Products, I think it's fair to say that we had the continued hardship for Extruded. It's a very challenging situation in markets we are facing.
Result is down NOK 150 million to NOK -90 million, which is a substantially weak result and a disappointment. As Svein Richard said, volume down in the range of 11% is the main reason, but also volume and the margin pressure due to overcapacity in the southern part of Europe in particular. We see no relief in this situation. We have been able to reduce cost. We have extensive cost programs in place. We do not see reduced cost per ton to that volume decrease is much steeper than what we as of now are able to cut costs. We are definitely working on that comparison.
We do see improved results in South America, and we see results holding up in U.S. and Asia, but not enough to compensate for the big negative development in Southern Europe. Going forward, the situation is assumed to be more or less the same, although we shouldn't see the negative number to the extent that we see it in the fourth quarter of 2012. Energy on the other side is a bright spot. It's a fantastic year for energy. We have previously said that we believe that our energy system is the most competitive energy system in Norway production-wise. This year, we have also succeeded in to a larger extent on the commercial optimization of it.
We have a situation with an all-time high result of NOK 1,883 million year-wise, and 441, somewhat down from Q3 in Q4, but still a very good result. This is in a situation where we also have then, as Svein Richard said, good reservoir positions going forward. There is, as I said, lower spot sale in fourth quarter simply due to how different type of contracts in and out of the system has been drawn on. But as you see, fairly high production, and we assume that will continue going forward. Prices has been not as strong as they could in a winter season. This is obviously due to the availability of water.
We have, however, seen prices a little bit up in first quarter so far, but very volatile. This is simply going to be decided by temperature more than anything else going forward. There you have as much insight as we do. Debt development, we have a positive net cash position of NOK 1.7 billion, up from a negative 0.1 or zero basically at the beginning of the quarter. Generated NOK 3.5 billion cash from operations. We have invested net NOK 1.3 billion in the quarter, taking then into consideration proceeds from divestments. There is a currency translation effect of our US dollar debt that add a little bit on the side.
A net cash position of NOK 1.7 at the end of the quarter. If you look at the full year, we have a net cash flow from operations of NOK 7.6 million, and then we have net investments of NOK 3 billion, lower than we estimated when we started the year, but at the level we communicated at Capital Markets Day. Then we have some of the same effects, giving us a cash balance before we adjust for the Vale transaction in the beginning of the year of NOK 13.2. That is a NOK 2.2 billion increase within the ongoing activity of the company. If you then look at the Vale transaction effect on net debt, there are two elements.
Half of the 11.5 billion NOK drawdown is the cash element paid to Vale for the assets in Brazil. The other half is the consolidated effect of the debt we took over with those assets. We said in the transaction there was approximately NOK 700 million debt to take over on our side, and the number is slightly higher when you look at the 9% that we are not owning in Alunorte and 49% in Albras. In total, NOK 11.5 billion for that deal. There is an increase in pension liability, but it is on spot or slightly better than what we communicated in Capital Markets Day. This is due to a reduced discount rate, as we talked about, in the Norwegian pension liability portfolio.
The increase of the tax, which we then include in our net adjusted debt, is NOK 1.3 billion effect out of this. There will also be a somewhat increased charge in the 2012 pension cost in the range of NOK 100 million. That leads us naturally to adjusted net debt. We still believe we have a robust financial position. The NOK 1.7 billion in our balance sheet you recognize. Then we have a translation effect, again, a dollar appreciation effect of the debt that we, our share of the debt in non-consolidated companies. We had the NOK 1.3 billion increase in net pension liabilities. Then we have an increase in other adjustments.
This is primarily due to two ships that we will have handed over during 2012 on a long-term lease transporting bauxite to Alunorte. We have in this yearly adjustment of the other element taken that into the table, so to say. We believe this is going to be a capital lease when we take it over during the year, and hence it's most likely that we will move this over to the balance sheet when we take over these two ships and move them into operation. It's a 25-year lease. As Svein Richard said, 75 øre, or 0.75 krone per share, in proposed dividend from the board of directors. It should give us a five-year payout ratio in approximately 70%.
Remember the extraordinary dividend that was paid the first of these five years that adds up to this high percentage number. It's still, if you look at it either from reported net income or underlying net income, it is confirming our dividend policy of over the cycle 30% of the earnings. It represent NOK 1.5 billion to be paid out in May if the annual general assembly approves that proposal from the board of directors. Svein Richard.
Thank you, Jørgen. The priorities for this year will be to continue the cost reduction efforts in our primary business. $300 programs continue at full speed. Streamlining Qatalum, and also to focus on operational performance in our bauxite and alumina businesses in Brazil. We will respond to the market with regard to volume changes, with mothballing capacity adjustments in downstream, but also upstream. As Jørgen showed, we have a fairly strong financial situation, but w ith the market situation, the pressure on raw materials and prices, we will still focus on capital discipline and have a strong focus on cash preservation. That goes also for the planned projects going forward, so we are evaluating all projects, including the CAP alumina refinery in Brazil with regard to timing of these projects.
Thank you very much for your attention.
Okay. Then we open for any questions you might have for Svein Richard or Jørgen. I have a question here. Please introduce yourselves.
Hi, Carl Bachke, RS Platou Markets. Could you give us more flavor on the Qatalum earnings? You're reporting -8. Obviously, that is lower aluminum prices than the rest of the business due to the time effect, but w hat is there to, let's say, gain now on cost reductions, full speed, capacity, and so forth going forward? Could you give us some flavor on.
I can comment on the operations, because as I said, the fourth quarter was the first quarter on full operation. We are still dismantling the ramp-up organization during the quarter, and there are still a need to streamline the organization and of course also that influence on the cost level in Qatalum. Maybe Jørgen can comment on the more details on the results.
Yeah, I can do that. First of all, as you are saying, Carl Christian, prices are as we have seen them more or less in fourth quarter. That is one element. The other element is obviously that this is not an EBIT result. This is an after financial results. The third element is that we are, as Svein Richard is saying, still having cost factors in from the project in the asset. In addition, as we said, the 212 task will be to streamline the operation and to get out cost elements that are still on site, not due to a project, but due to the fact that we haven't been able to optimize the site yet.
We are still confirming the cost position of this smelter and still confirming that we believe, with the price ranges between $2,000 and $2,400-$2,500 in aluminum, this is a $1,400-$1,500 business operating cost asset. As I said, we will disclose more information in order to have a better discussion on this going forward.
More questions, yes.
Haakon Furre, DNB Markets. Two questions, if I may. Firstly, on the customer inventory cycle. A few of your competitors has stated that they saw a significant destocking among their customers in Q4. Going into Q1, this has ended, and to some extent actually turned. Is this in line with what you're seeing? Finally, a maintenance question. In terms of the petrol prices, obviously it's hard to track the specific grade that you're using in your production. But if you look at the lower grade petroleum coke, the prices are down 40%-45% since June. Is this in line with what you're seeing? Thanks.
Okay. With regard to destocking, I can confirm what has been said by our competition, that our customers has been destocking. Had destocking activities through the fourth quarter, especially in the end of the fourth quarter. They have targets on inventories for the end of the year that they want to achieve. Then when the business picks up again in the beginning of the year, then it's quite normal, as we have also seen this year, that the inventories is also increasing among our customers. This is, I would say, quite normal, and is what we have seen also in previous years. With regard to petroleum coke, there are several grades of petroleum coke.
I would say that Hydro is using more or less an average grade. There are some grades that we are looking at, like the shot coke grade, which is normally not used very much in aluminum, which is priced at lower rate. In general, we have also seen that the petroleum coke price has been softening lately.
Maybe we should add that, you know, there are soft interfaces between destocking, weaker market, and seasonality. Everybody seem to have better insight into that than insight on the forward-looking basis. You know, exactly how much is destocking, and how much is seasonality, and how deteriorating markets is hard to say very clearly? We have a combination of that. What is what? We do have weaker markets, we do have seasonality, and we do probably, in some segments, have a destocking. I think we would be more on the cautious side to say it's destocking, and hence you will have an uptick going forward. It is weaker markets, it's seasonality, and there are destocking elements into this.
I haven't met anyone yet being able to quantify those elements, differently or separately.
Okay. One more.
Anne Gjøen, Handelsbanken Capital Markets. Could you also give some comments on the cost development of your major raw material costs within Bauxite & Alumina?
Well, first of all, if you take petroleum coke in Primary Metal, Svein Richard commented on that, we see a decrease. You know, then we'll see how that hits us and on the grades that we need. We also see a decrease in caustic soda. Not with large effects in the near term. We have to wait and see a little bit and see how much that is going to change. Caustic markets seem to be more tight than the petroleum coke market at the time. The direction is a softening compared to the various tight levels that we had in the fall.
Carine.
Oddbjørn Dybvad, ODIN Forvaltning. Could you give us some more insight into your priorities between dividends and possible share buybacks?
The board of directors have, as you saw, proposed to maintain the dividend level from last year. Thereby, first of all, recognizing that level. And second, I guess finding a balance between the financial position that we have, at least the improved operational performance that we're seeing. At the same time, a cautious outlook on the markets going forward. That is, I believe, the basis for the board of directors' recommendation. And this is confirming a long history of focusing on paying these kind of dividends levels.
The board of directors has not, in their recommendation to the general assembly so far, said that they will ask for a share repurchase program. A third element that, obviously the board of directors always will have, is to propose extraordinary dividends when that is natural.
Okay. Any more questions? No. I would like to say thank you everyone for coming, and have a good day.