Our industry
The global aluminium industry is going through far-reaching structural changes.
Most of our competitors are moving upstream and joining forces with widely diversified mining companies. Others are heading downstream and becoming integrated in companies that specialize in semi-manufacturing. Hydro is doing both and concentrating entirely and extensively on aluminium. We are an integrated aluminium company.
Four drivers define our business context (see right hand column). Growth in the demand for aluminum is increasing at 5% per year, in large part due to China, but the market for fabricated aluminium products is more fragmented and cyclical than the market for primary aluminium On the cost side, production cost is coming down partly due to technological advances, but mainly due to lower energy prices in new mega plants such as our own Qatalum plant. Long-term control over key input resources, such as bauxite, is critical to controlling costs.
Growth
Global growth of 5 percent per year.
The primary aluminium market is global and the growth in demand is mainly driven by China.
Cost
Cash cost per tonne decides competitive position.
Hydro is well positioned below the world average and we are working to improve our position further through increased efficiency and new investments.
Players
Integrated aluminium companies as well as metals and mining companies characterize the industry.
There has been increased consolidation in the industry. The metals and mining company Rio Tinto acquired the integrated aluminium company Alcan in 2007. The Russian aluminium companies Rusal and Sual merged to form UC Rusal in 2006, and most recently the metals and mining company BHP Billiton has attempted to acquire Rio Tinto.
To some extent the consolidation has been driven by the positive outlook for the aluminium price which has increased significantly. The five-year forward curve reached new record levels in 2007.
Aluminium price in USD/tonne
Drivers
Four industry drivers define the business context
Global demand
The aluminium price follows global growth factors such as energy prices and other commodity prices. During the last years the price has increased as a result of higher production costs. China has dramatically increased its consumption and production of aluminium and is expected to be the main contributor to increasing demand for aluminium going forward.
Customer needs
The market for fabricated aluminium products is more fragmented and cyclical than the market for primary aluminium. Knowledge about regional markets, efficient production and product development in close cooperation with customers are critical success factors.
Access to raw materials
Bauxite is the main raw material for aluminium. Bauxite is refined into alumina which is used as input in primary aluminium production. Long-term control over these input factors is critical, either through direct ownership, joint ventures or long-term contracts.
Access to low-cost energy
Energy constitutes nearly 30 percent of the cost in primary aluminium production. Predictable access to low-cost energy is critical and is the main reason new production capacity is built in energy-rich areas such as the Middle East.
