UPDATE 1-India's Hindalco Q3 profit drops, input costs worry

* Q3 net profit 4.51 bln rupees vs forecast 4.63 bln

* Says rising energy costs, volatile metal prices a challenge

* Hindalco shares down 2.4 pct

MUMBAI, Feb 9 (Reuters) - Indian non-ferrous metals producer Hindalco Industries missed estimates with a 2 percent drop in quarterly net profit as rising costs in its aluminium business and sluggish market conditions crimped its margins .

The company, part of the diversified Aditya Birla Group, said spiralling energy costs and volatility in metal prices remained challenges in the short term but it was optimistic on aluminium and copper demand in the longer term.

It reported standalone net profit of 4.51 billion rupees ($91 million) for the fiscal third-quarter ended Dec. 31, compared with net profit of 4.6 billion rupees a year earlier.

A Reuters poll of analysts had estimated standalone net profit of 4.63 billion rupees.

Net sales rose 11.4 percent to 65.90 billion rupees.

The profit would have been lower but for a 51 percent jump in profitability of its copper business, on the back of gains from higher processing charges, by-product credits and improved efficiency.

Sales volumes were also higher in the copper business, which contributes 60 percent of Hindalco's revenue.

Profitability in its aluminium division slumped despite higher metal production, mainly due to a jump in input costs by about 2.5 billion rupees, the company said.

Non-ferrous metal prices have rallied globally over the past few weeks on expectation of improving demand from developed economies such as the United States as well as from China, the world's top copper consumer.

Copper futures on the London Metal exchange were trading around $8,565 per tonne, having risen nearly 13 percent so far in 2012. Aluminium futures are also up nearly 13 percent this year, at $2,285 a tonne.

Hindalco, India's largest aluminium maker by capacity, said it expects recent production cuts by some global producers to support prices, with demand to be led by emerging economies like China and India, and the United States.

The company, which is trebling aluminium production capacity in India to 1.9 million tonnes by 2013 at a cost of about $5 billion, said all the projects were developing well.

Hindalco's U.S.-based aluminum products subsidiary, Novelis , separately reported on Wednesday a quarterly net loss of $12 million, and cut its fiscal-year earnings estimate for the second time, because of soft demand in Europe and weakness in its electronics business in Asia.

Shares in Hindalco, valued by the market at $6 billion, were down 2.4 percent after the results, in a Mumbai market that was up 0.9 percent. The stock has risen 35 percent so far in 2012, compared with a nearly 15 percent rise in the main index .