UPDATE 3-Norsk Hydro's Q1 beats forecast, but rising costs hit shares

* Global economic growth drives rise in metal demand

* Jan-March EBITDA NOK 5.18 bln vs forecast NOK 4.81 bln

* Signs of cost inflation, weak cash flow

* Hydro’s shares down 3.7% (Recasts with CEO, analysts, share price, detail)

OSLO, April 27 (Reuters) - Norwegian aluminium maker Norsk Hydro posted its strongest quarterly earnings in more than three years on Tuesday amid a rise in demand for metals, but the global economic recovery also brought signs of emerging cost inflation.

Hydro’s share price, which had risen 40% year-to-date on the back of a boom in commodities, traded 3.7% lower for the day at 1245 GMT as analysts pointed to a weak cash flow and increased costs of raw materials.

Adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) for January-March rose 37% year-on-year to 5.18 billion Norwegian crowns ($624.2 million), beating the 4.81 billion crowns average expectation in a poll of analysts.

The result was the strongest of any quarter since the final three months of 2017, driven by rising aluminium prices, better performance in Hydro’s energy business and improved margins and volumes for aluminium and aluminium products.

After years of oversupply, the lightweight metal used in food packaging, cars and other products is anticipated to see a better balance of supply and demand in 2021, Hydro said, an improvement on expectations released just two months ago.

“There is solid demand, a tight market resulting in good volumes and margins,” Chief Executive Hilde Merete Aasheim told Reuters.

The price of aluminium has risen some 60% from the four-year lows hit 12 months ago and now trades at around $2,400 a tonne, aided by the global upturn as well as a clampdown on pollution from factories in top producer China.

But the positive elements in Hydro’s earnings were partly offset by negative currency effects and maintenance costs at its Brazilian operation.

“When (aluminium) prices rise we also see an increase in the input costs from raw materials,” Aasheim said.

In addition, the cash flow was negatively impacted by one-offs such as a seasonal increase in working capital, the company added.

Citigroup, which holds a neutral rating on the stock, said Hydro’s cost of producing a tonne of aluminium, now at $1,825, had exceeded its expectation of $1,776 per tonne.

This all-in cash cost per tonne, a rise of 11% from the fourth quarter, was “a key negative” in an otherwise largely positive report, Citi said.

Credit Suisse said it too had expected a smaller increase in costs per tonne. ($1 = 0.8282 euros) ($1 = 8.2981 Norwegian crowns) (Editing by Kim Coghill and Philippa Fletcher)