Let's do a quick exercise. It's called "fill in the blank." I'll give you some key information about aluminum producer Norsk Hydro's
Hydro moved less product, at lower prices, and at lower margins. Hydro's quarter was _____.
Sorry, I'm not allowed to print that. But I agree with you -- these are pretty ugly results. After adjusting for unrealized inventory gains and other one-time weirdness, this was the worst operating quarter for the "new" Hydro going back to at least 2005. The performance makes Alcoa's
Well, the price issue is fairly straightforward -- producers like Aluminum Corp of China
Hydro is also feeling the drag of the U.S. housing decline all the way over in Oslo. Consumption of extruded products in the U.S. -- the kind of aluminum used in building and construction -- has fallen 13% in a year. Hydro describes the outlook as "poor."
I would argue that the outlook for Hydro is much better. In a commodity business, there are a lot of factors over which the firm has absolutely no control. When it comes to things it can control, Hydro is taking the right steps. Declining U.S. dollar exposure, which does a doozy on reported income, is mostly hedged. The U.S. extrusion workforce is being whittled. A very large supply of alumina has been secured from Rio Tinto
Hydro is no hack, and I hope I haven't raised any hackles here. I expect fireworks in the future, but for now, fortitude will be necessary in the face of further market feebleness.