OSLO, July 22, 2008 (AFP) - Norwegian aluminium producer Norsk Hydro said on Tuesday that profit margins crumbled in the second quarter amid rising costs and despite strong prices for its products.

For the April to June quarter, Norsk Hydro's net profit plunged 65 percent to 902 million kroner (112 million euros, 179 million dollars) from the 2.58 billion kroner it reported for the same period in 2007.

The group's underlying profit, which excludes exceptional items, also tumbled 38 percent to 1.34 billion kroner from 2.15 billion for the year-ago quarter.

In its earnings report, the company said the sharp decline was due to 'the weakening US dollar and an industry-wide rise in upstream input costs which more than offset the positive effect of higher aluminium prices.'

Going forward, Norsk Hydro, which issued a profit warning last week due to soaring costs, said it expected aluminium prices 'to remain high due to increasing energy and raw material prices and energy supply uncertainties.' 'However, there is also uncertainty in demand development,' it added.

The company blamed its disappointing results largely on increased costs for the aluminium and carbon it uses in its production process, as well as sky-rocketing oil and gas prices that affect its freight and travel costs.

After posting its earnings, the Norwegian company saw its stock price slip 1.90 percent to 61.90 kroner in midday trading on the Oslo stock exchange, which on average was down 0.48 percent.