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Hydro sees weak Q3 after Q2 loss beats forecast

Thursday, Jul 23, 2009
* Q2 operating loss 618 mln crowns, vs forecast 1.14 bln * Cautious on H2 demand outlook, visibility low * Says aluminium prices to remain low, flattened out By Aasa Christine Stoltz OSLO, July 22 (Reuters) - Norwegian aluminium producer Norsk Hydro ASA reported a smaller-than-expected loss in the second quarter when demand remained low, and said on Wednesday it expected results to stay weak in the third quarter. The world's third largest integrated aluminium supplier and a major energy producer in Norway has seen demand fall sharply as the global economic crisis has weighed on the industry, leading to capacity and cost cuts. The company reported an underlying operating loss of 618 million crowns ($98 million) for the three months to June, after a 1.6 billion profit a year ago and beating a forecast for a 1.14 billion loss in a Reuters poll. Forecasts for the loss ranged from 566 million crowns to 1.57 billion. "Although we are going through the most difficult period the aluminium industry has ever experienced, we see very positive effects from our significant cost and capacity adjustments," chief executive Svein Richard Brandtzaeg said in a statement. "We remain cautious about the outlook for global aluminium demand ahead of the second half of the year," he said, adding it was normally weaker than the first half. Second-quarter revenues fell to 17.1 billion crowns from 24 billion a year ago, again beating the average forecast of 14.1 billion crowns. During the second quarter, Hydro completed previously announced capacity cuts and reduced output by about 460,000 tonnes per year, or around 26 percent of 2008 production. "The main reason (for better-than-expected results) was better sales figures from the metal market," Orion Securities analyst Aleksandr Solovjov said. Norsk Hydro said underlying demand for its metal products in Europe and North-America remained weak during the quarter, but underlying operating profit improved from the first-quarter loss when it was hit by negative currency effects. The company said it had sold more than 90 percent of its primary aluminium production for the third quarter at around $1,475 per metric tonne (mt). "Hydro expects a continued weak result in the third quarter of 2009," it said. ALUMINIUM PRICES TO REMAIN LOW Hydro said aluminium prices seemed to have flattened out at historically low levels, following a small pick-up after one of the sharpest drops on record in the first quarter. "Key end markets, most notably construction and transport, remain weak," the company said. "Aluminium prices are expected to remain low," it said, adding visibility was limited. The company said aluminium demand from China rose during the second quarter due to higher activity levels, while demand in the rest of the world was largely unchanged. It said global primary aluminium consumption, excluding China, could decline by 15-20 percent in 2009 from a consumption level of 25 million mt in 2008. Norsk Hydro said it would reduce staffing by 4,500 positions by the end of 2009 compared with mid-2008, which would result in cost savings of 700-800 million crowns from 2010. Norsk Hydro said its Qatalum smelter plant was 84 percent complete by the end of the quarter and on schedule for start up around the turn of the year. Once in operation, Qatalum will lower the average cost of Hydro's global smelter system. Hydro shares closed at 32.85 crowns on Tuesday, valuing the group at about $6.5 billion. (Additional reporting by Joachim Dagenborg and Wojciech Moskwa; Editing by Dan Lalor) ($1 = 6.308 Norwegian crowns)

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