Stronger China leads Norsk Hydro to up aluminium demand forecast

<p>Strengthening Chinese demand led Norsk Hydro, one of the world's largest aluminium producers, to raise its forecast for global aluminium demand growth this year to 4-5 percent as it reported forecast-beating earnings on Thursday. The company's global aluminium demand forecast, revised up from 3-4 percent, is now closer to peer Alcoa's forecast of 5 percent.<br /><br />Norsk Hydro said it saw stronger Chinese economic activity than previously anticipated and now expected aluminium demand in the country to grow 5-7 percent in 2016, up from a previous forecast of 3-5 percent.<br /><br />"(In China) we see aluminium moving into infrastructure, but also very much into building and construction," Chief Executive Svein Richard Brandtzaeg said while presenting second-quarter results.<br /><br />Norsk Hydro repeated it expected a largely balanced aluminium market for 2016 with a margin of plus or minus half a million tonne of spare aluminium.<br /><br />Norsk Hydro has faced a challenging market for years as the price of aluminium - used in the aerospace, construction and automotive sectors - has been low due to concerns about oversupply and a Chinese economic slowdown. But prices have recovered somewhat recently: LME benchmark three-month aluminium was up to a two-month high of $1,617 on Thursday.<br /><br /><strong>Q2 Beats Forecasts</strong><br /><br />Shares in Norsk Hydro were the best performers on the European STOXX 600 index, reaching a five-month high of 5.2 percent at 0854 GMT against an index down 0.38 percent after posting forecast-beating second-quarter earnings.<br /><br />The company reported underlying operating profit of 1.62 billion Norwegian crowns ($190.73 million), down from 2.67 billion in the year-ago period, beating forecasts for 1.42 billion crowns in a Reuters poll of analysts. Core earnings for the firm's key primary metal division were 702 million crowns, more than double what analysts had expected in the poll, though down from 1.45 million year-on-year.<br /><br />The division's good result was partly boosted by two one-off items - an insurance refund of 50 million crowns and a tax reversal of 75 million crowns - but it was also due to lower fixed costs and carbon costs.<br /><br />In recent years Norsk Hydro has been working on cutting costs to counter the effect of low aluminium prices. Though they have recovered somewhat recently, they are still down 40 percent over the past five years.<br /><br />"Hydro's Q2-16 beat consensus 12 percent on underlying EBIT, demonstrating the "Better" improvement plan can deliver incremental shareholder value, in our view," UBS said in a note to clients. UBS has a neutral rating on the stock.<br /><br />Credit Suisse raised its rating of Norsk Hydro by two notches to "outperform" from "underperform" immediately after the results.</p>