NEW YORK As an integrated aluminum producer, Norsk Hydro ASA is in a unique position to address customers concerns all along the supply chain.
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.
Hydros upstream 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 relationships.
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."