Hydro Q1 loss smaller than feared, outlook glum

* Sees no short- or medium-term aluminium market upturn * Will adjust operations further, cut costs * Qatalum project on schedule, limits other capex * Postpones Brazil alumina plant for year By Aasa Christine Stoltz and Joachim Dagenborg OSLO, April 29 (Reuters) - Norwegian aluminium producer Norsk Hydro ASA reported a smaller-than-expected first-quarter loss, boosting its shares in spite of a gloomy outlook for its markets during the global economic downturn. Aluminium prices have dropped over past months as the global crisis has hit the automotive and construction industry, which are two of the main markets for the metal, but Norsk Hydro managed to tap into higher prices than expected by analysts. The company has cut or announced plans to cut production by half a million tonnes of primary aluminium, equal to almost 30 percent of 2008 output, to adjust to weak demand. Norsk Hydro reported an underlying operating loss of 493 million crowns ($73 million) for the three months to March on Wednesday, having made a 2.0 billion profit a year ago. The result was better the average forecast for a 549 million crowns loss in a Reuters poll of 12 analysts, whose forecasts for Norsk Hydro's loss ranged from 9 million to 821 million. "There are gains and higher aluminium prices in the numbers than people expected," said Hansdelsbanken analyst Anne Gjoeen, adding that she saw no upside in aluminium markets. "Their outlook is for no improvement in any market area. We feel there is considerable imbalance in the aluminium market, much more than in any other metal or commodity, which will lead to closures of a lot more capacity." Hydro forecast aluminium prices staying low for the rest of 2009, adding that visibility was limited and uncertainty high. "We do not see any short or medium-term upturn in the market, and we will continue to take necessary measures adjusting our operations and costs to the challenging market situation," Chief Executive Svein Richard Brandtzaeg said. Hydro said primary aluminium consumption, excluding China, could decline by between 15 percent and 20 percent from 2008. The group said the market for metal products in Europe and North America had continued to fall, affecting all end-use markets, including automotive, building and general engineering. It said the overall outlook for the European extrusion market continues to be weak, and is seen putting increased pressure on margins. The U.S. market would remain depressed, while South American demand was expected to weaken. Norsk Hydro expected a slight improvement in demand from the European automotive market, although it would still remain below levels seen in first-half 2008. It said demand in North America showed no signs of recovering, while demand in Asia and South America was expected to weaken from robust levels last year. Hydro shares were up 1.9 percent at 29.65 crowns, outpacing a 1.4 percent rise on Oslo's index. QATALUM FOCUS To cut costs Hydro said it was slowing investments to a "bare minimum", with the exception of its Qatalum smelter project in Qatar, due on line around the turn of the year -- which will boost Hydro's competitiveness compared to rivals. Norsk Hydro said the construction of the primary aluminium plant in Qatar was 73 percent complete by the end of the first quarter and "remains on schedule". Investment costs for the 50/50 joint venture between Qatar Petroleum and Hydro were seen at $5.6 billion. However, Hydro said it had agreed with Brazilian Vale to postpone construction of the planned alumina refinery in Brazil for a year due to the challenging market situation and an expectation of lower future construction costs. "Production at the plant is now expected to commence by the end of 2012," it said, adding there will be no significant capital expenditures relating to the project in 2009. ($1 = 6.754 Norwegian crowns)