Brazil environmental claims hit Norsk Hydro earnings

Norwegian aluminium maker Norsk Hydro on Tuesday posted results below expectations as the group has been forced to halve its production in Brazil following environmental damage allegations.

Brazil environmental claims hit Norsk Hydro earnings
Norsk Hydro director general Svein Richard Brandtzæg. File photo: Terje Bendiksby / NTB scanpix

The group posted a 42 percent jump in net profit to 2.1 billion kroner (210.6 million euros) in the second quarter.

However, the underlying operating profit, which is closely scrutinised by markets, dropped by seven percent year-on-year to 2.7 billion kroner, compared to nearly 2.9 billion expected by analysts.

The causes are production cuts at its Alunorte alumina plant in Brazil, the largest in the world, and a rise in raw material costs.

Brazilian authorities have accused the company of having contaminated the water in Para River after heavy rainfall in February.

Norsk Hydro, which denies the claims, has been forced to cut its production at Alunorte in half since March 1st and has subsequently curtailed bauxite mining at the Paragominas mine.

Extracted from bauxite, aluminium oxide is the main ingredient of aluminium.

As a result of these difficulties, Norsk Hydro's “bauxite and alumina” division saw its operating profit drop by 45 percent year-on-year to 364 million kroner, despite a rise in the price of aluminium oxide.

That is less than half of what analysts expected.

And there seems to be no light at the end of the tunnel despite on-going talks with the Brazilian authorities.

“The process to resolve the situation in Brazil is challenging and has taken longer than expected,” the Norwegian group's director general Svein Richard Brandtzæg said in a statement.

“We have implemented measures that enable Alunorte to operate safely also going forward, but the timing for resuming full production remains uncertain,” he added.

Norsk Hydro, which is 34 percent owned by the Norwegian state, has barely been affected by the Trump administration's decision to impose a 10 percent tariff on aluminium imports as the bulk of its production is exported to Europe.

The group says the US tariffs, difficulties in Brazil, and sanctions against its Russian counterpart Rusal would lead to a “higher deficit” in global production of aluminium in 2018, while the demand is expected to jump by four to five percent.

Norsk Hydro's share price was up 2.7 percent in midday trading on the Oslo Stock Exchange, outperforming a market up by 0.4 percent. Shares in the firm have fallen over 7 percent over the month, and shares of metal firms globally rose strongly on Tuesday following China's announcement of stimulus measures to counter the effects of US sanctions.



Norsk Hydro seals deal with Brazil over environmental dispute

Norwegian metals group Norsk Hydro said on Thursday it has reached agreement with the Brazilian authorities following a dispute over the discharge of untreated water from its aluminium factory Alunorte, the largest in the world.

Norsk Hydro seals deal with Brazil over environmental dispute
Norsk Hydro's headquarter in Oslo. Photo: Vidar Ruud/NTB Scanpix

Brazilian authorities had accused Norsk Hydro of having contaminated the Baracena municipality's waters with bauxite residues which they claimed had overflowed from a deposit basin at the Alunorte plant after heavy rainfall on 
February 16 and 17.

They slapped Norsk Hydro with two fines of 10 million reais (€2.5 million, around $3 million) each and ordered the aluminium supplier to halve its production at the site and suspend the use of the basin. 

“On September 5, Alunorte signed two agreements representing a milestone to resume normal operations at the alumina refinery in Para, Brazil,” Norsk Hydro said in a statement.

Under the terms of the two agreements signed Wednesday in Brazil, Norsk Hydro has committed to paying a total of 160 million reais in fines, investments and food coupons for local communities.

The group also pledges to pour another 150 million reais into local development projects that will benefit communities living near Alunorte.

Norsk Hydro said no timeline has yet been set for the resumption of full operations.

“Neither of the agreements signed include provisions or establishes a timeline to resume normal operations at the refinery. However, Hydro consider the agreements as an important step towards resuming operations,” theNorwegian company said.

'Completely unacceptable'

According to an institute reporting to Brazil's ministry of public health, the discharge into the local river posed risks to fishermen and other local communities living near the Amazon as the water they drink and bathe in has high levels of aluminium and heavy metals. 

Norsk Hydro denies any toxic spill, but admits there was an unauthorised discharge of untreated rainwater.

“Internal and external reviews confirm that there was no overflow from the bauxite residue deposits or harmful spills from the February rain event,” the company said.

Norsk Hydro had in March apologised for the discharge, adding that it was “completely unacceptable and in breach with what Hydro stands for”.

The company will likely benefit from a return to full production capacity, after seeing its second quarter profits hit by the Brazil dispute.

Investors welcomed news of the agreement, bringing Norsk Hydro's share price up 4.5 percent in Thursday mid-morning trading.