Norwegian aluminum and renewable energy company Norsk Hydro beat expectations with its third-quarter earnings results on Tuesday, as the company attributed healthy demand growth in China as a leading factor.
Norsk Hydro affirmed their global aluminum demand growth by 4-5 percent in 2016 with the CEO indicating that actually it is more likely to be in the higher end of this range.
"Demand growth for aluminum remains healthy. We are sticking to our forecast for global aluminum demand growth of 4-5 percent for 2016 and expect to land in the higher range of this estimate for the full year," said President and CEO Svein Richard Brandtzæg in a press release.
"This comes on the back of higher-than-expected demand in China and slower restarts of curtailed capacity."
More balanced market
Underlying earnings before interest and taxes (EBIT) came in at 1.48 billion Norwegian crowns ($179 million), versus expectations in a Reuters poll for 1.4 billion crowns. Revenues for the period also beat market estimates.
Norsk Hydro CFO, Eivind Kallevik, told CNBC on Tuesday that the company had so far enjoyed a much more balanced market this year.
He went on to explain, "The production supply is more or less balanced so we don't see this inventory build-up that we had seen in many years since the financial crisis in 2008 which is quite a strong change for our industry."
Shares in Norsk Hydro rallied up 2.35 percent on Tuesday's mid-morning European trade, shortly after the Norwegian aluminum producer posted a third-quarter EBIT that beat expectations.
Kallevik emphasized that China's demand for aluminum remains "very strong" as a result of government stimulus.
Weak truck and trailer demand
The Norsk Hydro CFO also noted that higher demand from their consumers had been driven by strong growth in the automotive market whereby investors have witnessed continued strong substitution between steel and aluminum. Kallevik stated that this factor was "very important" for the market going forwards.
Interestingly, Kallevik also predicted that aluminum consumption in cars would grow at an annual rate of 13 percent from now through until 2020. Such a significant pick-up in growth is likely to have a somewhat dramatic impact on the industry as a whole.
Having produced better than expected earnings results, Kallevik did cite the transportation sector in the US as a weakness that has proved to be a headwind to further growth.
He said, "The truck and trailer demand in the US has been quite significantly down in the second and third quarter this year. We believe, and many analysts believe, that that is very much based on the activity level in the shale, oil and gas sectors in the US."
