Norsk Hydro CEO Sees Aluminum Production Cuts In West, Not China

LONDON Feb 16, 2012 (Dow Jones) -- Look to the west, not China, to make further aluminum production cuts to help reduce the market oversupply, the chief executive of Europe's largest producer of the metal said Thursday.

Speaking in an interview with Dow Jones Newswires, Norsk Hydro ASA's (NHY.OS) Svein Richard Brandtzaeg said that history shows China keeps its domestic market as close to balance as possible by adjusting its imports, exports and production.

"We haven't calculated on short-term support from China," he said. "Companies in the west are realistic about what they can achieve [with production cuts]."

The aluminum industry has been in a surplus "for quite a long time," he said, aided by a flurry of new smelters and expansions.

"There has been a big appetite for investment in capacities during several years, and we are now in a surplus that is holding down the price," he said. "If you look at other metals, they have benefited from a price level that is far above the cost of production, while the aluminum price has been determined by the marginal cost of production in the industry."

Norsk Hydro estimates that 1 million metric tons of the metal, used in construction and transportation, have already been slated to be curtailed in the west. But with demand growth forecast at 3%-5% this year, the surplus will lessen during 2012, Brandtzaeg said.

Three-month, benchmark aluminum prices have fallen about 28% since May, trading Wednesday around $2,165/ton on the London Metal Exchange. The decline is forcing companies to make tough decisions about whether they can afford to operate plants.