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Investing.com - A possible metals alliance between the U.S. and European Union could be "positive" for Norsk Hydro, according to analysts at RBC Capital Markets.
On Monday, European Trade Commissioner Maros Sefcovic said the agreement will see Brussels and Washington work to mitigate the impact of subsidized Chinese products on global markets.
Sefcovic’s statement came after the U.S. and EU unveiled a broad-based trade pact over the weekend. As part of the deal, EU steel and aluminum manufacturers will be granted a quota system with minimal or zero tariffs, replacing U.S. President Donald Trump’s steep 50% import levies. However, the details of the system have yet to be finalized.
Speaking at a news conference, Sefcovic added that it became clear during talks with the U.S. that when "it comes to steel and metals we are not each other’s problem." Instead, "overcapacity" of Chinese output is "clearly the issue," Sefcovic argued, noting that the EU believes this is linked to "illegal subsidies" from Beijing.
In a note to clients, the RBC analysts said that the potential alliance could provide a boost to Norsk Hydro (OL:NHY) (OTC:NHYDY), even though it produces most of its aluminum in Norway -- which is not part of the EU. Norway is a member of the wider European Economic Area (EEA).
"We estimate 60% of the primary aluminium production comes from Norway which is not part of the EU but could benefit if the agreement is extended to the EEA," the RBC analysts said.
Much of the debate revolves around scrap metal, which is considered to be a key part of the EU’s drive to reduce carbon emissions from the metals industry. Scrap shipments from Europe to the U.S. have recently surged after Trump’s 50% levies on steel and aluminum bolstered demand and inflated prices for aluminum scrap, which faces lower levies. The trend has led to a shortage of aluminum scrap in the EU, the analysts flagged.
"Closing this loophole would be key in improving the profitability of Norsk Hydro’s recycling division," which accounts for roughly 11% of the company’s core earnings, they said.
Oslo-listed shares of Norsk Hydro were slightly higher in mid-morning trading on Tuesday.