Hydro earnings plunge as aluminium glut weighs

Norway-based aluminium producer Norsk Hydro reined in its expectations for market growth this year due to weak demand from Europe, as it posted a bigger-than-expected drop in quarterly profit due to a glut in supply that is hitting prices.

The company said on Friday it expected global demand for aluminium outside China to grow about 3 percent in 2012, compared with its forecast three months ago of 3-5 percent growth. It announced no new plant closures or production cuts.

While Hydro and other western aluminium producers have reduced capacity to try to hold up prices, Chinese smelters have continued to flood the market. Hydro said first-quarter underlying net profit fell by more than half from the prior year period to 256 million crowns ($44.7 million), well short of analysts' mean forecast 417 million crowns in a Reuters poll.

"Continued weak demand and low aluminium prices weighed down (our) first-quarter results," Chief Executive Svein Richard Brandtzaeg said. "We will continue our restructuring efforts, reduce costs and take firm actions required to keep a steady course."

Hydro realised $2,155 per tonne on its primary aluminium output, down from $2,439 in the fourth quarter of 2011. It said it has sold forward about 80 percent of its expected second-quarter primary metal production for about $2,200 per tonne, excluding output from its plant in Qatar.

A major factor in Hydro's profit miss was an underlying loss before interest and tax (EBIT) of 144 million crowns on sales of bauxite and alumina, which are aluminium precursors. Analysts had been expecting positive earnings of 25 million crowns.

"The upstream operations in particular came in a little lower than expected, first and foremost bauxite and alumina," said Henrik Schultz, an analyst at Sparebank 1 Markets.

"Global demand for alumina outside China was slightly lower in the first quarter compared to the fourth quarter mainly due to curtailments of primary metal production," Hydro said.

The company said it expected a higher demand for its rolled aluminium products in the second quarter and a "seasonally stronger" second quarter for extruded aluminium products.