Norsk Hydro to cut costs to cope with dropping profits

Aluminium producer Norsk Hydro trimmed its market forecast for this year due to weak European demand and said it was working on a cost cutting plan as it reported a smaller-than-expected drop in second-quarter core earnings.

"We are now finalising programs across Hydro which in total will yield improvements in the range of 2-3 billion crowns over the next two-three years," Chief Executive Svein Richard Brandtzaeg said on Tuesday.

The company would not announce any new plant closures on Tuesday, spokesman Halvor Molland said.

Hydro said demand had been strong in North America and Japan so far in 2012 and that this trend was expected to continue, while demand in Europe had declined, and the continued economic uncertainty had led the firm to cut its market outlook somewhat.

The Norwegian company said it now saw global demand for aluminium outside China up about 2 percent in 2012, down from its previous forecast for 3 percent growth.

Hydro shut its unprofitable 180,000-tonnes-per-year Kurri Kurri aluminium smelter in Australia earlier this year due to low metals prices and a dismal economic outlook.

Benchmark three-month London Metal Exchange aluminium has dropped some 20 percent since March and stood at $1,885 a tonne on Tuesday, just above the $1,835 low of June 2010.

With the overhang of high inventories and lower metal prices, many aluminium producers are losing money and top miners are scaling back expansion plans.

While Hydro and other western aluminium producers have reduced capacity to try to hold up prices, Chinese smelters have continued to flood the market.

April-June underlying earnings before interest and taxes (EBIT) fell to 549 million Norwegian crowns ($90 million), from 1.91 billion crowns in the year-ago period, while the mean forecast in a Reuters poll had been for a 494 million crown profit.

Hydro's primary metals unit saw core earnings drop 69 percent from the year-ago quarter, although that beat market expectations for an 84 percent drop.

Hydro said the market for alumina - refined bauxite that is then smelted into aluminium - had increased slightly in the second quarter from the first although was still oversupplied. It added that refinery curtailments were expected to improve the market balance somewhat.

Its bauxite and alumina unit made an unexpectedly large loss in the quarter, hit by low prices and rising energy costs.

($1 = 6.0876 Norwegian crowns)