* Q2 underlying EBIT NOK 518 mln vs 401 mln seen by analysts
* Inventories expected to remain stable in 2013
* Sold forward 50 pct of Q3 volume at $1,850/tonne
* Repeats demand outlook of 2-4 pct growth outside China
(Adds CEO, analyst, share)
By Victoria Klesty
OSLO, July 18 Norsk Hydro, one of the
world's biggest aluminium producers, said it expects solid
growth in demand this year to help to reduce oversupply that has
put prices under pressure and hit profits.
Aluminium prices have dropped to levels not seen in four
years, with London Metal Exchange (LME) prices down some
13 percent this year to just above $1,800 per tonne. But rising
premiums on physical delivery keep producers' afloat despite
estimates about a third of the players run production at a loss.
"We have considerable inventories, but now on a stable
level, and indications are that there is a tight physical market
since we have record high ingot premiums," Norsk Hydro Chief
Executive Svein Richard Brandtzaeg told Reuters on Thursday as
the company presented its second-quarter earnings.
"I don't want to speculate where the development is going,
but it looks set to be an improvement in this situation as we
now have a better balance between demand and supply."
The Norwegian firm's underlying operating profit fell to 518
million crowns ($86.30 million) from 531 million crowns in the
year-ago period, beating expectations for 401 million crowns
seen by analysts. The profit drop was mainly caused by the fall
in aluminium prices. Shares were down 0.3 percent at 0758 GMT.
Ingot premiums - the price customers pay above the LME price
- are currently at around $250-$300 per tonne which together
with cost cuts have protected Hydro's primary metals business
from going into the red.
The unit outperformed expectations in the quarter,
compensating for increasing losses in the Bauxite and Alumina
division. As well as low contract prices, profits were also hit
by a power outage at its Brazilian Alunorte refinery.
Norsk Hydro declared force majeure after the Alunorte
alumina refinery, the world's largest, experienced the outages
last month, leading to lower production. Output is expected to
be hit in the third quarter as well.
Hydro repeated on Thursday that it sees global primary
aluminium demand, excluding China, up by 2-4 percent this year,
after hitting a low in 2012. Brandtzaeg told a news conference
the company sees demand growth in China of 8-10 percent.
It said overall demand in Europe was expected to be stable,
while there were signs of growing demand from the building and
construction market in the United States.
Commenting on the Hydro's earnings, Hans-Erik Jacobsen, an
analyst at Swedbank, said: "The numbers have come down, but what
is positive is that Hydro delivers on the primary metals
business in spite of lower prices, and that shows that the cost
cuts are starting to take effect."
"Many of the world's producers are racking up losses, but we
still haven't seen enough of curtailments," he said.
Hydro said it had sold forward around 50 percent of its
expected primary aluminium production for the third quarter of
2013 at a price level of around $1,850 per tonne, excluding
volumes from its Qatalum plant in Qatar.
($1 = 6.0026 Norwegian crowns)
(Reporting by Victoria Klesty; Editing by Balazs Koranyi and