NEW YORK As an
integrated aluminum producer, Norsk Hydro ASA is in a unique
position to address customers concerns all along the
But it must also
reconcile the different, and sometimes competing, objectives of
its individual business segments, Hydro Aluminum Metals USA LLC
president Matt Aboud said June 20 at AMMs
Aluminum Summit in New York.
bauxite and alumina business focuses on extracting the best raw
materials available, its midstreamwhat others might refer
to as primarydivision looks at pricing and improving
processes, and its downstream sector focuses more on customer
Midstream is the
"prototypical commodity business, so well go to war over
a couple dollars a ton because ... every dollar really counts,"
Aboud said. But on the downstream side, "its all about
the customers," their needs and providing solutions to them,
which creates "frictions" between the divisions, he said.
"Many times I get
asked the question by our downstream guys if we can give them a
better price on their billet or on the coils or whatever. And
of course we have a very strict policy of, No, we are not
going to subsidize you," Aboud said. Downstream staff
will "bang their heads against the wall" and argue that a small
discount from the upstream side of Hydro would give the company
more opportunities and bolster profits.
"But at the end of the
day, we believe that the further along the value chain you give
the profits to, the easier it is to give it away to the
customer, so we are trying to harvest as much of the profits as
we can in the upstreammaybe ultimately the bauxite and
alumina division will make all the money in the company," he
said. "Our units have to survive on their own."
One way to better
address downstream challenges is Hydros joint venture
with Orkla ASAs Sapa Group subsidiary to create a company
known simply as Sapa, the "No. 1 extrusion company in the
world," Aboud said.
Norsk Hydro and Orkla,
both based in Oslo, Norway, last month received European
Commission approval to form the 50-50 joint venture (
amm.com, May 13).
"A lot of people have
questioned whether this is Hydro exiting extrusion. The answer
to that is maybe. But the reality is at least for the next
several years ... Hydro is actually increasing our exposure to
the extruded products business," Aboud said.
Hydro started off
roughly a century ago as a fertilizer company, later expanding
into businesses as diverse as oil and gas, magnesium, fisheries
and chocolate, Aboud said. It has since profitably divested
many of those assets to focus on its core businesses of
aluminum and energy.
"Bankers and financial
analysts ... would argue there is more value to be had by
breaking apart. Im not saying thats necessarily
untrue," he said. But in the aluminum space, Hydro thinks there
are "a lot of advantages to being an integrated company."
Combining forces with
Orkla on Sapa will allow the company, in a "very structured and
efficient way," to both take out capacity and focus on
customers, Aboud said on the sidelines of the conference. "We
look at this being a convergence of strategic opportunities
with the market realities in order to form a stronger company
that can endure a weak market."