OSLO, Feb 16 (Reuters) - Norwegian aluminum maker Norsk Hydro said its restructuring paid off with final-quarter core profit above forecasts, while lower prices and a weakening market did not dent its business as much as feared.
The troubled southern European economies continue to hamper the manufacturing industries' demand for aluminum, and Hydro said there was significant uncertainty on how its markets would develop this year.
"We have taken swift measures to improve operations, and we are prepared for further corrective measures," the firm said on Thursday.
The results were down sharply from the third quarter, reflecting weaker markets and a drop in demand for aluminum and aluminum products, especially in Europe, "where we clearly need to continue our restructuring efforts", Chief Executive Svein Richard Brandtzaeg said.
The firm took a 1.3 billion crown writedown of assets in Australia, where it is idling a 60,000 tonne-per-year production line at its money-bleeding Kurri Kurri aluminum plant.
The company said last month it may have to cut more output as the strong Australian dollar adds to weak industry fundamentals.
Brandtzaeg said the company was ready to take necessary measures but had not made any decisions.
"It is a challenging situation still for Kurri, which is why we are evaluating the situation further," he told Reuters in London. "It is something we will have to come back to at a later stage."
The company reported underlying fourth-quarter earnings before interest and taxes (EBIT) of 1.13 billion Norwegian crowns ($195.6 million), up from the 588 million made in the same period last year, compared with the average forecast of 941 million in a Reuters poll of analysts.
Meanwhile, sales increased 12 percent to 21.7 billion crowns, 1.4 billion below analysts' mean forecast.
"My first reaction is that this is a positive report from Hydro, not in the least because of the positive surprise in the upstream business," said Henrik Schultz, analyst at Sparebank1 Markets.
Shares in Norsk Hydro rose 1.3 percent at 0820 GMT, while the Oslo benchmark index was down 0.1 percent.
Hydro repeated it expected demand for aluminum to grow 3-5 percent in 2012 outside China "despite a weak macroeconomic situation and short-term challenges."
Aluminum prices ended last year near 18-month lows on concerns about economic weakness and oversupply, prompting some of the big aluminum producers, including Hydro, to cut capacity.
LME aluminum CMAL3 prices have since steadied around $2,200 per tonne after falling below $2,000 in December, but inventories have risen and stocks in LME-registered warehouses are at a record level above 5.1 million tonnes MAL-STOCKS.
"Recent announcements concerning smelter closures and limited new capacity coming on stream are expected to improve the supply-demand balance in 2012," Hydro said. "However, market sentiment continues to be influenced by significant economic uncertainty."
Top U.S. producer Alcoa said last month it would slash output at two Spanish smelters and shut its Portovesme smelter in Italy, part of a broader effort by the U.S. aluminum producer to cut its global output by 12 percent.
Russia's Rusal, the world's largest aluminum producer, has said it is also considering shutting down of up to 6 percent of current production within the next 18 months.
Hydro proposed a dividend of 0.75 crowns per share, unchanged from last year and in line with analysts' median forecast.