"It is too early to say how 2012 will turn out, but we see now that the uncertainty is influencing our end user markets," Chief Executive Svein Richard Brandtzaeg told Reuters on the sidelines of a conference on Thursday.  

Hydro, one of the world's top aluminum makers, said in December it saw demand for primary aluminum outside China rising by 3-5 percent in 2012, after total demand growth slowed to 7 percent in 2011 from a 19 percent rise a year earlier.

"Our customers are concerned, and we see that production volumes and the lead times are going down... we are ready to reduce production even further, utilizing the flexibility in our production system."   

Hydro announced in November it would not restart idled capacity at its Sunndal primary aluminum smelter in Norway until market conditions pick up.

Southern European demand remains weak and now France is turning softer as well, Brandtzaeg said, adding that the automotive sector in the United States is also weakening.

"It is the building and construction sector that is the main market that has been hit, and we see in packaging still positive and good demand, but automotive will be a question mark, how that will pan out in the coming months?" he said. 

Aluminum prices have declined below many producer's break-even level in recent months with the London Metal Exchange (LME) three-months aluminum price currently down to $2,043 a ton from its peak of $2,800 in May. 

Brandtzaeg said that though the price level was not very low on a historical perspective, volatile costs over the last few years had caused trouble for many producers. 

"We have quite a margin squeeze in this industry now," he said. 

"As more than 30 percent of the capacity is losing money, we see that if there a losses for a longer time, we will see curtailments.  

While many steel makers have announced cutbacks in response to the economic uncertainty, aluminum producers in general have been reluctant to cut production despite many of them losing money.

"Maybe there is some hope in the industry that the market will return, but it also costs a lot of money to restart capacity in aluminum, so there is a cost element that is very different from steel. It is still too early to say how this will develop," Brandtzaeg said. 

He added that the company's flagship 50/50 Qatalum joint venture plant in Qatar was running at full capacity.