Aluminum Cuts May Deepen as Quarter Fades, Hydro Says (Update2)

May 28 (Bloomberg) -- Norsk Hydro ASA, Europe’s third- largest aluminum producer, said the industry will probably deepen cutbacks as demand for some products hasn’t improved in what is typically the best quarter of the year. “It is clear that the industry has to do more to balance out their production to better match demand,” Chief Executive Officer Svein Richard Brandtzaeg said in an interview in Brussels. “It will take a long time before the market can eat through that material and bring it back to a normal level. This will have a long-term impact on the price.” Hydro has curtailed production at smelters in Norway, Germany and Slovakia as plunging demand from automakers and builders sent prices to a seven-year low. Global stockpiles almost quadrupled in the past year. Brandtzaeg said that advance demonstrates the industry’s overcapacity, which he estimates to be about 3.5 million metric tons. Demand for Hydro’s automotive unit’s products fell as much as half after a collapse in vehicle sales, he said yesterday. Hydro has also seen a 25 percent drop in orders for extrusion products, which are used in construction. Demand for some products hasn’t improved in the second quarter, Brandtzaeg said. “We are a bit concerned because this is normally the best quarter for downstream products,” he said, referring to items the company manufactures from the aluminum smelted at its plants. “We don’t see substantial signs today that we will see better developments in the second half.” Dividend Scrapped Hydro rose 1.4 percent to close at 33.5 kroner in Oslo trading. The stock has fallen 59 percent in the past 12 months on the Oslo Stock Exchange, valuing the company at 41.8 billion kroner ($6.5 billion). Hydro reported last month a 347 million- krone first-quarter loss on slumping prices and an inventory writedown, and scrapped its dividend to conserve cash. Rival aluminum companies Alcoa Inc., the largest U.S. producer, London-based Rio Tinto Group and Russia’s United Co. Rusal have also reduced output. Hydro permanently closed 120,000 tons of production from the oldest line at the Karmoy plant in Norway. It’s still evaluating whether to make permanent some temporary closures, including curtailment at the Neuss smelter in Germany, Brandtzaeg said. The company has halted output at its alumina joint venture with Rusal in Jamaica because of the drop in demand for the raw material used to make aluminum. Chinese Restarts China, the world’s largest aluminum user and producer, may have restarted as much as 1.4 million tons of capacity in April, Ru Xiaojie, an analyst at Aluminum Corp of China Ltd., said earlier this month. Hydro hasn’t seen any noticeable increase in the country’s demand, Brandtzaeg said. “The fourth quarter will be very challenging for us if the economy is still very low and we don’t have any changes in the demand for aluminum,” he said. Aluminum for delivery in three months on the London Metal Exchange gained 0.5 percent to $1,412 a ton at 5:38 p.m. local time today. It traded at $1,279 a ton on Feb. 24, the lowest since November 2001. Inventories stored in LME-monitored warehouses have almost quadrupled in the same period to 4.2 million tons. Worldwide consumption will drop 4.8 percent to 36.4 million tons, Barclays Capital estimated in a May 15 note.