OSLO: The global aluminum market is in its strongest shape since the financial crisis of 2008-2009 and the price of the lightweight metal could move higher this quarter, Norsk Hydro, a top global producer, said.

The company, one of Norway’s biggest industrial companies and also a big producer of hydro-electric power, has ridden a deep downturn in the global aluminum sector, but its shares have surged this year on the back of rising prices for the metal.

Posting second-quarter results that fell short of expectations after all units except for primary aluminum, its biggest division involved in smelting, performed weaker than expected, Hydro CEO Svein Richard Brandtzaeg said he expected global demand for aluminum to exceed production in 2014 after six years of oversupply.

Brandtzaeg said the market was being supported by moves by some key industries such as car manufacturing to use more aluminum instead of steel and copper.

“The market is becoming tighter and there is a deficit of aluminum in the market outside China,” said Brandtzaeg, who is due to leave Hydro in the next six months to become head of fertilizer maker Yara.

“We see the metal prices ... moving (higher), we have record-high standard ingot premiums and also record-high metal products premium,” said Brandtzaeg, who has led Hydro since 2009.

Global inventory levels fell around 5 percent during the quarter, the cash aluminum price is up 14 percent since the start of the year and producers remain disciplined in keeping down production, after shutting some plants and curtailing production from others during the worst of the sector’s crisis.

HIGHER PRICES

The price premium for buying the physical commodity should continue to rise in the third quarter after a $55 per ton increase for European aluminum in the second quarter, the company said, forecasting a similar increase in the current three-month period.

“So (we would expect) $50 or slightly north of that,” Chief Financial Officer Eivind Kallevik said.

Buyers of the commodity usually have to pay a premium to get the actual commodity and the extra cost will depend on their physical location. Premium levels hit record highs in the second quarter.

Producers have shut 4 to 5 million tons of annual primary production capacity over the past several years, or about a tenth of the global capacity, and Brandtzaeg said only about 1 million tons could be restarted relatively easily.

Despite the solid outlook, Hydro’s second-quarter figures disappointed the market and its shares fell as much as 3.8 percent, erasing some of its 35 percent rise since the start of the year.

“Any share price weakness on the back of the result is a buying opportunity in our view as the second half outlook looks much improved and aluminum prices continue to strengthen,” analysts at Societe Generale said.

Hydro’s second-quarter underlying operating profit rose to 544 million crowns ($87.8 million) from 520 million a year earlier, but missed an average forecast of 698 million in a Reuters poll of analysts.

Most of the miss was on lower power prices, as ample rain filled Norway’s hydro-electric power reservoirs, and on weak alumina margins as the group is locked into long-term contracts and was unable to take advantage of improved market conditions.

Analysts at Nordea saw scope for the shares to recover from any initial weakness, given the strong aluminum price trend and the fact that the earnings miss was largely due to energy prices which by their nature are volatile from quarter to quarter.