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Hydro eyes Qatar to cut aluminium energy bills

LONDON - Norsk Hydro NHY.OL, the world’s third largest integrated aluminium producer, is looking to expand into the Middle East to pare its power costs, Chief Executive Eivind Reiten said on Friday.

“All our energies are focusing on expansion in the Middle East,” Reiten told Reuters.

Norsk Hydro is concentrating on primary aluminium, with plans for a $4.5 billion investment in a 585,000-tonne smelter in Qatar.

It made moves to divest its oil business late last year via a proposed merger with energy group Statoil STL.OL, which is currently awaiting approval.

“We plan to expand this smelter further and double production in Qatar...to 1.2 million by 2012,” Reiten said, adding the expansion plan for phase two had still to be agreed with its Qatari partner.

Hydro has a 50 percent share in the Qatalum smelter, expected to start producing in 2009/10, and the rest is held by state run Qatar Petroleum, which will supply the smelter with natural gas.

“The availability of cheap energy will determine future aluminium capacity over the next 20 to 30 years,” Reiten said.

Energy accounts for some 40 percent of aluminium’s total production cost.

The firm was also looking at Australia and a hydro-powered smelter in Angola with an annual capacity of 600,000 tonnes.

High energy costs increased the value of recycled metal, Reiten said, adding that the firm’s remelting capacity was expected to grow.

Aluminium made from scrap uses 95 percent less energy than metal produced from bauxite ore.

Growth by acquisition?

A recent Citigroup report suggested Europe’s only listed pure aluminium player could be a potential take-over target, but Reiten told Reuters the firm was not for sale.

“Instead we ourselves are looking at future targets,” he said, without giving any details.

Reiten said growth in Norsk Hydro’s products division was driven by strong demand, particularly from Europe, for rolled and extruded aluminium, with expected production in 2007 of 1 million tonnes and 600,000 tonnes respectively.

Hydro aims to produce 1.1-1.2 million tonnes of aluminium from scrap in 2007 and 1.7 million tonnes of primary aluminium, which would rise to 2.0 million in 2010.

Alumina output was set at 2.1 million this year.

Growth in demand for aluminium was seen sluggish in the United States, but Chinese consumption was seen rising at around 7-8 percent annually.

Reiten said world aluminium demand would grow by around 4-5 percent this year and expected aluminium futures prices MAL3 to hold around $2,200-2,800 a tonne over the next six to 12 months. By 1039 GMT London Metal Exchange aluminium was at $2,813/2,818.