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.

The group posted a 42 percent jump in net profit to 2.1 billion kroner (210.6 million euros, around $246 million) 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 1 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 Brandtzaeg 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.

phy/ik/rl

NORSK HYDRO

UNITED COMPANY RUSAL

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