Know why there’s a demotion in investment outlook for Norsk Hydro ASA

RBC Capital Markets, a global investment bank providing banking, finance, and capital markets services, has reduced its ratings for the Norwegian aluminium and renewable energy company Norsk Hydro ASA from "outperform" to "sector perform". The revision in investment outlook follows Norsk Hydro's share decline by 3.2 per cent on Tuesday, November 21, indicating a probability of the company's bearish performance amid shifting market conditions.

Image Source: Norsk Hydro

The anticipated aluminium price fall in the near future due to increased production, backed by alumina supply ease and new capacities commissioning in India and Indonesia, is likely to weigh on Hydro's revenue. According to RBC's projection, aluminium prices, which have risen by over 5 per cent year-to-date, will decline by 7 per cent from current spot levels.

Analysts at RBC Capital Markets have also cautioned that Hydro's high correlation with aluminium prices is vulnerable, even though the company's financial performance benefits from the price rally and robust cost structure.