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Norsk Hydro ASA (NHY), Europe’s third- largest aluminum producer, fell the most in more than a month in Oslo trading as Nomura International Plc said the company may be over-reliant in its bet on a recovery of metal prices.
Hydro, which competes in Europe with United Co. Rusal and Rio Tinto Alcan Inc., fell as much as 3.3 percent, the most since Oct. 23, and was down 3 percent at 26.87 kroner as of 1:11 p.m., making it the biggest decliner in the Bloomberg Europe Metals & Mining Index.
“We would prefer companies where earnings growth is under their control rather than being reliant on higher commodity prices,” Neil Sampat, an analyst at Nomura wrote in a note. Sampat, who downgraded the stock to reduce from neutral, sees about 30 percent downside to 2013 earnings before interest, taxes, depreciation and amortization, assuming an 2012 average price of $2,000 a metric ton.
Aluminum producers are reducing expenses and cutting capacity to buoy earnings as falling demand and weakening prices weigh on sales. Hydro will cut costs by $235 a ton by the end of this year under a plan to produce $300 a ton in savings by the end of 2013 for its fully-owned smelters, compared with 2009.
Hydro reported a net loss of 277 million kroner ($49 million) last quarter as prices fell. Aluminum has declined 12 percent on the London Metal Exchange since reaching a 2012 high of $2,353 a metric ton on March 1, dragged down by lower use of the lightweight metal by makers of cars, planes and drinks cans.
“With bauxite and alumina production approaching capacity and Qatalum ramped up to above nameplate capacity, we believe the potential earnings growth from here is overwhelmingly driven by an uncertain aluminum price recovery,” Sampat said.
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