UPDATE:Norsk Hydro CEO: Mkts Flattening But No Restarts Eyed

OSLO -(Dow Jones)- Aluminum demand is showing signs of flattening out after a long downturn, but there's no plan yet to restart curtailed production capacity, the chief executive of Norsk Hydro ASA (NHY.OS) said Friday. "There was a continuous drop in volumes from the second half of 2008 into 2009 but now they're flattening out, (albeit) at low levels," Hydro's Chief Executive Svein Richard Brandtzaeg told Dow Jones Newswires. Norway-based Hydro is the world's second biggest integrated aluminum company after Alcoa (AA). "There's no sudden, terrific market, but whereas previously orders didn't come in from one day to the next, now more and more customers are filling up and our order backlog has a small increase. There are small positive signs," he said. The company's profits have been hit by a halving of aluminum prices from their July 2008 peak of $3,380 a metric ton on the London Metal Exchange, to $1,279 a ton in February as the economic downturn eroded demand from its core customers, the automotive and aerospace sectors. Oversupply in the industry exacerbated the price declines leading to steep capacity cuts globally. Since February, prices have regained some 65% to trade at $2,115 a ton this month, but market watchers say the rises aren't supported by a material return in underlying demand. Hydro has cut 30% of its smelting capacity since the end of 2008 and has no plans to restart it yet. "Bringing it back depends on the metal price. It has to be higher than it is today and markets have to be in better balance," Brandtzaeg said. Before that happens, there's a risk of prices falling again as China responds to recent price rises and brings back some of its own curtailed capacity, removing its previous temporary reliance on imports, he said. "Production of primary aluminum in the West is still higher than the demand ... while there are signs of a small upturn, we don't expect growth rates to be very high yet," he added. "It all depends what happens on the demand side as there's still a supply excess." London Metals Exchange inventories currently stand at around 4.6 million tons and as much as one million tons are thought to be lying unregistered in warehouses and ports. Brandtzaeg said Hydro's Neuss smelter in Germany is currently producing at 4, 000 tons a month after the German government stepped in to support energy intensive industry and prevent permanent shutdowns amid the downturn. But the future of the plant remains unclear as the government's support in subsidizing workers' temporary leave has yet to be approved by E.U. regulators and is only guaranteed until the end of 2009. The plant has been closely scrutinized as a potential shutdown target because of its relatively high costs. "It's not a long term solution," Brandtzaeg said. Meanwhile, Hydro's mergers and acquisition radar is "actively on," he said. " We definitely see more opportunities today than a year ago. The financial and economic situation has induced several changes in the industry and consolidation is happening already." "There are several opportunities along the chain. Hydro is a company that's going to grow. Our financial position has been stronger than our competitors," Brandtzaeg said. Upstream the company would look for low cost primary production capacity, and downstream targets would typically be extrusion building activities. "We could also expand our power production in Norway ... by up to 10%," he added. Company Web site: www.hydro.com -By Elizabeth Adams, Dow Jones Newswires; +44 (0) 7789 070 028; elizabeth.adams@dowjones.com (Andrea Hotter in London contributed to this story.)