OSLO, Feb 1 (Reuters) - Aluminum-maker Norsk Hydro will write down asset values by $222 million in its fourth-quarter results this month, due to financial challenges facing a plant in Australia and weakening markets in southern Europe.
The Norwegian company, due to report quarterly earnings on Feb. 16, said on Wednesday it expects to write down some 1.3 billion Norwegian crowns in total.
"The impairments are a result of a weakening in certain markets and low prices, in combination with raw material and currency pressures," it said.
Hydro still expects 3-5 percent growth in aluminum demand outside China this year, the firm's chief financial officer Joergen Arentz Rostrup told Reuters.
"What we are indicating is that we see no improvement in southern Europe. It is a confirmation that it is weak and continues to be a very weak market," he said in an interview.
Aluminum, which has a wide range of industrial applications in sectors such as aeronautics and automobile production, is a key indicator of global manufacturing demand.
Hydro said last month it was to idle a 60,000 tonnes-per-year production line at Kurri Kurri in Australia and that it may have to cut more.
The curtailment is likely to be completed in a few weeks, sooner than previously foreseen, Rostrup told Reuters.
Other big producers have recently announced they would cut output, or consider doing so, in response to weakening markets.
Russia's UC RUSAL < 0486.HK >, the world's top aluminum producer, said last week it could cut output by 6 percent in the next 18 months, following announced cuts from U.S. rival Alcoa and Hydro in the first weeks of 2012.
Although LME aluminum prices have steadied at levels above $2,200 per tonne after falling below $2,000 in December, inventories remain at elevated levels, with stocks in LME-registered warehouses near the record level of 5 million tonnes .
"It is never good news with asset writedowns, but I still think this is a small part of their asset base," said Joakim Ahlberg, an analyst at Cheuvreux, adding Hydro would be helped going forward by firming aluminum prices.
Shares in Norsk Hydro were down 0.8 percent to 30.74 crowns at 1000 GMT, underperforming a 1.6 percent rise in the European Basic resources index.
HYDRO DOWN, BUT NOT OUT
Hydro said the 1.0 billion-crown impairment at Kurri Kurri - almost half of the plant's book value - "confirms a challenging financial situation at Kurri Kurri, and the situation is continuously being monitored."
Rostrup said the plant had to cope with a strong Australian dollar, cost pressures and would need a new power contract in place in a few years' time, something which "has shown to be difficult".
"We had based the current valuation on there being two production lines. If we conclude that is not viable, then we will have to curtail more and take more out of the book value," he said.
While Hydro may take out more capacity at Kurri Kurri, the recent rise in market prices meant the company is now in a "wait-and-see situation," Rostrup said, adding the plant had gained some terrain on the cost side from closing down one production line.
Idling or closing capacity may have little effect on the overall aluminum supply, however, since many of the large players plan to start up or increase capacity at modern, cost-efficient plants located in areas with cheap electricity.
Hydro's 50-50 joint venture Qatalum in Qatar is running at its 585,000-tonnes-per-year capacity, and the company has said it plans to at some point to double capacity at that operation.
"The fundamentals in aluminum are strong over time and we believe in a fairly robust growth over the cycle," Rostrup said, but added Hydro had no focus on expanding capacity at the moment. "There are no urgent plans to expand in Qatar, and we are really tight on capital expenditure right now."
Rostrup repeated Hydro's expectations for capital expenditure to remain at 3.5 billion crowns in 2012, of which 1 billion crowns would be spent on assets acquired from Brazil's Vale.
In addition to the Kurri Kurri write-down, Hydro will write down assets within its Building Systems division in Spain, Portugal and Italy by some 230 million crowns, about half of the carrying value.