Norsk Hydro Shares Slide After J.P. Morgan Downgrade on Brazil Gas Cost Concerns

Shares of Norsk Hydro ASA (OL:NHY) fell 3% on Friday after J.P. Morgan downgraded the aluminum producer to “neutral” from “overweight,” citing concerns that natural gas supply uncertainty at its key refinery in Brazil poses a significant risk to fourth-quarter earnings.

J.P. Morgan Flags Earnings Risk

The investment bank placed Norsk Hydro on a Negative Catalyst Watch ahead of its third-quarter results, scheduled for Oct. 23. Analysts at J.P. Morgan warned that a recent disruption could force the company to purchase natural gas at much higher spot market prices, impacting profitability.

As a result, the bank lowered its key earnings forecasts:

• It cut its price target for Norsk Hydro to 97 Norwegian crowns (NOK) from 116 NOK.
• Third- and fourth-quarter 2026 EBITDA forecasts were reduced by 13% and 24%, respectively. The new estimates now sit 12% and 14% below Bloomberg consensus.
• Full-year 2026 and 2027 adjusted earnings per share (EPS) forecasts were also cut significantly.

J.P. Morgan stated that any upward revision to cost guidance in the upcoming earnings report could be a “flashpoint for consensus earnings downgrades.”

Alunorte's Gas Supply Challenge

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The concerns stem from an August supply disruption at Norsk Hydro’s Alunorte alumina refinery in Brazil. The company announced on Aug. 11 that an issue with its supplier, CELBA, forced a temporary 50% reduction in capacity. While full capacity was restored by Aug. 13, the financial impact is expected to be substantial.

Norsk Hydro has already guided for a negative EBITDA impact of $75 million to $100 million for the third quarter alone, along with 100,000 to 120,000 tonnes of lost production. The core issue is the price disparity: the refinery's historic gas contract is tied to U.S. Henry Hub prices of around $3.2 per million British thermal units (MMBtu), while global LNG spot prices are approximately nine times higher at $28 per MMBtu.

Broader Market Context

Despite the downgrade, J.P. Morgan stopped short of an “underweight” rating, citing potential macro-level upside risks for aluminum prices. The bank's commodities research team noted that while prices have fallen recently, any geopolitical re-escalation or further constraints on metal shipments from the Gulf could support prices in the near term.

According to J.P. Morgan, Norsk Hydro trades at a 2026 spot EV/EBITDA multiple of 6.1 times, compared to its European base metal peers at 9 times. The firm's analysis also pointed to free cash flow yields of 5% and 7% for 2026 and 2027, respectively.