UPDATE 2-Aluminium maker Hydro surprises with Q3 profit jump, shares up 7%

* Q3 operating profit NOK 1.4 bln vs forecast NOK 278 mln

* Aluminium markets recovering from H1 drubbing

* CEO aims to further boost earnings, margins

* Analyst sees ‘green shots’ for 2021 (Adds CEO quotes, shares, detail)

OSLO, Oct 23 (Reuters) - Norsk Hydro posted a surprise rise in third-quarter operating profit on Friday powered by a rebound in its extruded business, sending shares in the Norwegian aluminium maker up 7%.

Hydro’s shares hit a five-week high as analysts said the company’s outlook was improving after a fall in demand in the second quarter.

“Our priority now is to raise our earnings and margins by being well positioned as markets recover, while maintaining our cost focus so that we retain the gains we’ve made,” CEO Hilde Merete Aasheim told Reuters.

The company will expand its renewable power generation business and also ensure that more of its metals are made with such electricity, including from hydro, wind and solar power, Aasheim said.

Hydro’s extruded business, which turns slabs of metal into products for construction and other industries, saw a stronger-than-expected recovery, boosted by lower raw material costs and fixed costs, as well as currency effects, Hydro said.

“This is a strong result driven primarily by the downstream extruded business,” Credit Suisse said in a note.

“With the beat in that division on costs rather than volumes in Q3, this certainly offers green shoots for a recovery into 2021 as volumes continue to improve.”

Underlying earnings before interest and tax (EBIT) rose to 1.41 billion Norwegian crowns ($152 million) in the July to September period, from 1.37 billion crowns a year earlier.

That easily beat the 278 million crowns expected in a poll of analysts.

The result was helped by an insurance payment of 192 million crowns following a 2019 cyber attack as well as 64 million crowns in government grants.

Hydro said the global recovery from the impact of the coronavirus is reducing oversupply of aluminium, which is used in a range of products and applications such as construction, cars and soda cans.

While aluminium prices have recovered from the four-year lows hit in March, shares in Norsk Hydro are still down 14% this year, underperforming an 8% drop in Oslo’s benchmark stock market index.

$1 = 9.2730 Norwegian crowns Editing by Christian Schmollinger and Jason Neely