The global currency war that has driven the dollar up almost 20 percent against peers over the past year is changing the aluminum business, according to Norsk Hydro ASA, Europe’s third-largest producer.

At a time of plunging aluminum prices, the dollar’s strength is helping producers such as Hydro and others, including Canadian and Russian companies, whose costs aren’t tied to the U.S. currency, Eivind Kallevik, chief financial officer of the Oslo-based company, said in an interview at his office Friday.

“It has improved the competitiveness of many of the producers in these countries,” he said. “It’s more demanding for those with a dollar-based economy, who obviously are in the U.S. but also in the Middle East, where currencies are pegged to the dollar. And the Chinese that have experienced a bigger price squeeze than we have done.”

The shift in costs comes as the industry grapples with a production surplus of the metal used in everything from soda cans to, increasingly, car production. But with the Chinese economy slowing it could put pressure on local producers that are partly responsible for creating the surplus, while at the same time also cooling global demand.

Economic Laws

For Hydro, China doing well is key for global demand even as there is “talk” of production cuts there, according to Kallevik.

“In five to 10 years we will see a strong China both as a producer and consumer,” he said. “What’s important is that the laws of economics are valid all over the world. So that production that’s not economical will be removed over time and that viable producers from a cost perspective will produce over time. That’s valid in China and in the rest of the world.”

Hydro estimates that without China, the world has a 500,000 ton to 1 million metric ton aluminum deficit, compared with a same-size surplus when including the world’s second-biggest economy.

That surplus is now being strained by the pain felt by dollar-based producers. Century Aluminum Co., based in Chicago, said last week that it plans to reduce capacity at its Hawesville plant in Kentucky in October "unless the current pricing environment substantially changes."

Aluminum at the London Metal Exchange is trading at the lowest levels since 2009. The LME primary aluminum 3-month contract closed at $1,603 a ton on Friday, down from a high of $2,800 in 2011.

“The currency helps us significantly,” Kallevik said. “We have no plans to take out capacity as of today. But we of course will monitor the situation over time if the market deteriorates further.”

The currencies of commodity based economies, such as the Norwegian krone, have dropped sharply against the dollar since oil prices started to tumble last year. The krone has fallen 26 percent against the dollar in the past year. The greenback is up 20 percent against a correlation weighted index of nine other currencies.

“There will be some volatility as in the past six months and we expect that to continue,” he said. “With today’s low oil price there is reason to assume that the krone will remain weak.”

Hydro, which doesn’t hedge currencies, has “a much more robust portfolio than during the financial crisis,” according to Kallevik.

“There are factors we can’t affect -- currencies, LME price and premiums,” he said. “We focus on the things we can affect and that is to improve our operations”