Norsk Hydro, the Norwegian aluminum giant, might be flying under the radar, but its recent actions hint at a bold strategy. While analysts fixate on short-term market woes, Hydro appears to be quietly assembling the pieces of a green aluminum empire, poised to dominate a market expected to explode in the coming years.

The company's Q1 2024 earnings call transcript reveals this ambition, hidden amidst discussions of weak aluminum markets and squeezed recycling margins. Hydro's CEO, Hilde Merete Aasheim, departing after steering the company through a period of strategic transformation, leaves behind a blueprint for success centered around “pioneering the green aluminum transition.”

The core of this strategy? Aggressive growth in recycling and extrusions, coupled with a laser focus on securing renewable energy. While others scramble to adapt to a world demanding low-carbon aluminum, Hydro is outpacing the pack, strategically positioned to capture an outsized share of a burgeoning market.

Aasheim's successor, Eivind Kallevik, inherits a recycling business already exceeding its 2025 targets. Hydro, having acquired Alumetal in 2023, now boasts the capacity to process an astonishing amount of post-consumer scrap, dwarfing many competitors. Further solidifying this dominance, Hydro has formed strategic partnerships with scrap suppliers like Sims Alumisource and PADNOS, ensuring a steady stream of raw materials.

This scrap advantage is a crucial piece of the puzzle. As the demand for low-carbon aluminum skyrockets, securing scrap becomes paramount. Hydro, with its advanced sorting technology, HySort, and multiple production outlets, can utilize diverse scrap fractions, digging deeper into the scrap pipeline than most.

The company's ambition extends beyond mere volume. Hydro is actively shaping the market, creating demand for its increasingly green product offerings. Strategic partnerships with automotive giants like Porsche, Mercedes Benz, and Volvo Group, all with ambitious Scope 3 emissions reduction targets, are driving market traction. Hydro isn't just supplying these companies with low-carbon aluminum; it's fostering a willingness to pay premium prices for these green materials.

"Consider this: Hydro REDUXA 3.0, a low-carbon aluminum product, is already being supplied to Mercedes. The company's vision for a greener product portfolio, transitioning from REDUXA 4.0 to 3.0 and eventually 2.0, coupled with an expansion of its Hydro CIRCAL (made from post-consumer scrap) offerings, hints at a future where Hydro commands premium pricing across a spectrum of low-carbon products."

The company's target of NOK 2 billion in greener premium earnings by 2030, while ambitious, appears increasingly achievable. This potential represents a significant chunk of the NOK 3.3 billion in total commercial improvements targeted by 2030, underscoring the strategic importance of green premiums in Hydro's vision.

This strategic emphasis on greener aluminum is further evidenced by Hydro's commitment to the First Mover Coalition. By pledging to source at least 10% of its primary aluminum from near-zero emission sources by 2030, Hydro is not only signaling its own commitment to decarbonization, but influencing the practices of its suppliers, driving a broader shift towards a greener aluminum industry.

Hydro's ambitions are powered by a parallel focus on renewable energy. The company, through its energy arm Hydro Energy and subsidiary Hydro Rein, is both sourcing renewable power and actively developing new projects. This two-pronged approach ensures a stable supply of affordable renewable power for Hydro's operations, while simultaneously creating a profitable growth engine within the energy sector.

Hydro's Projected B&A RoaCE Increase

Here's a striking data point: the fuel switch project at Alunorte, replacing heavy fuel oil with natural gas, will yield annual cost savings of USD 160 million to USD 190 million. This massive reduction in operating costs, coupled with greener premiums, is expected to lift B&A RoaCE well above the 10% target.

But there's a more profound implication. This control over its energy destiny, combined with its dominance in recycling and market-shaping partnerships, suggests that Hydro is on the path to building a vertically integrated green aluminum empire.

Imagine a future where Hydro, with its scrap advantage, access to renewable power, and customer partnerships, commands a significant portion of the low-carbon aluminum market. In a world increasingly driven by sustainability concerns, this could translate into a level of market power unseen in the aluminum industry.

While the full scope of this strategy remains to be seen, one thing is clear: Hydro is playing a long game. As the world races towards a greener future, Hydro, with its calculated moves and ambitious targets, is positioning itself to be a dominant force in the aluminum industry of tomorrow. The question remains: will this ambition translate into a sustainable green monopoly, or will the complexities of a rapidly evolving market disrupt Hydro’s well-laid plans?

"Fun Fact: Aluminum is infinitely recyclable, meaning it can be recycled over and over again without any loss of quality. This makes it a truly sustainable material for a circular economy."