Question

short answer pleaSe

Norsk Hydro Unlike smaller aluminium producers, the strategies of the world's four largest aluminium companies are skewed towards the long-term (the next 5-10 years). In line with such long-term planning are included costs saving programmes, usually performed over 3 and more years. A concrete example of that is signing long term electricity supply contracts (for up to 20 years), which enables the Big 4 to obtain electricity supplies at much lower rates than those obtained by smaller producers - think, KAP- Montenegro or Aluminij Mostar - that can only obtain electricity supplies for one year, at prices just slightly lower than the market price. A similar situation occurs with raw materials, where big producers obtain significant discounts by signing long-term agreements for alumina and carbon, for example. What's more, the Big 4 have several other

Answer 1

For the aluminium producers, a majority of the costs come from the raw materials and since the raw materials required are alumina, caustic soda, fuel oil, and carbon are dependent on the economic activity, they tend to be highly volatile. Hence, the aluminium producers tend to get into the contract with the vendors to ensure that the volatility is decreased and the earnings are smooth. However, the disadvantage is that when the contract price is higher than the current market prices the firms will be worse off.

Firms also tend to get involved in the hedging contracts to ensure that the adverse price movements of the commodities which they majorly dependent on.

In quarter 1, even though the firm has witnessed significant improvement in the revenue, they missed the estimates due to very high raw materials or entering goods costs.

Apart from this, operation inefficiencies also affected the EBIT level performance of the firm.