INTERVIEW-Norsk Hydro says aluminium use stabilising

LONDON, July 22 (Reuters) - Norwegian aluminium producer Norsk Hydro said on Wednesday users of aluminium products are no longer shying away from the market but it remained cautious on prospects for the second half of 2009. The world's third largest supplier of aluminium and aluminium products reported a smaller-than-expected loss in the second quarter and forecast markets would remain weak in the third quarter. "The downturn is not continuing as we saw in Q1 and the beginning of Q2 but we should be careful not to extrapolate," Norsk Hydro Chief Executive Svein Richard Brandtzaeg told Reuters in an interview in London. "Normally the first half is better than the second half in downstream. So the small increase in demand in the second quarter is based on seasonal variations but it also signals that the market is flattening out," he added. Brandtzaeg said the company is seeing improved demand for aluminium products in the U.S., albeit it from very low levels, while in Europe the market was still propped up by stimulus packages. In China Brandtzaeg expected an improvement in underlying demand for aluminium in the second half, but did not estimate how big that would be. "It is clear China will play an important role in the global aluminium industry," he said, noting it consumes 12 million tonnes of aluminium anually compared to 20 million tonnes consumption in the rest of world. China has become a net importer of aluminium and has, as a result, restarted 1 to 2 million tonnes of capacity in a bid to reduce its dependence on imports, said Brandtzaeg. Norsk posted an increase in total downstream product sales of 1 percent in the second quarter versus the first, with auto components posting the biggest rise -- 29 percent -- followed by precision tubing, which climbed 19 percent. Brandtzaeg said Norsk had seen improved demand for auto products because of government stimulus packages, while strong demand for precision tubing in China boosted sales. He expected this demand from China to continue. By contrast, sales of rolled products fell 2 percent in the second quarter from the first as demand from the engineering sector remained depressed, but Brandtzaeg said he sees an improvement in second half orders. Overall, Norsk Hydro has seen demand for its products fall sharply as the global economic crisis weighed on aluminium producers and its clients in the automotive and construction industry. But the company expected confidence to return in the second half of next year, and plans to ride out the interim storm by cutting 4,500 positions by end-2009, which would save 700-800 million crowns from 2010. "I'm not optimistic about a short-term upturn in the market, I'm more optimistic in about the second half of 2010 because that's when confidence will be back," Brandtzaeg said.