OSLO, April 24 (Reuters) - Norway's Hydro, one of the world's largest aluminium producers, said on Wednesday it believed markets would improve later this year after the group's core profits fell more than expected in the first quarter, hit by weak demand and margins.

Adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) fell 28% year-on-year to 5.41 billion crowns ($497.8 million), lagging average expectations for 5.54 billion crowns in a company-compiled poll.

Primary aluminium volumes outside China fell 2% year-on-year in the January to March quarter, hit by muted demand from residential and industrial construction, especially in Europe, which also saw a decline in electric car output, Hydro said.

"Despite weaker markets impacting results, the macroeconomic indicators as well as revenue drivers are showing signs of improvement towards year end," outgoing CEO Hilde Merete Aasheim said in a statement.

Lower inflation and a better outlook for global economic growth, as well as robust demand from China and sanctions on Russian aluminium, were expected to boost Hydro's prospects, the company said.

"Hydro is well positioned to capitalise on strengthening demand for aluminium products," Aasheim added.

She is leaving the company by the end of June and will be replaced by Eivind Kallevik, the head of the aluminium metal business and a former Hydro CFO.

Shares in Hydro are down 16% over the past year, lagging an Oslo benchmark index that has risen 9.8% over the same period.

Aluminium is trading at around $2,600 per metric ton, near a 15-month high, after the London Metal Exchange (LME) banned from its system Russian metal produced on or after April 13 to comply with U.S. and UK sanctions imposed over the war in Ukraine.

Hydro, which had lobbied for such a ban, said on Wednesday it was also urging the EU to sanction Russian aluminium.

Still, aluminium prices are down in recent years due to waning demand, after soaring in 2021 and early 2022 to around $3,500 per tonne as the global economy rebounded from the COVID-19 pandemic.

($1 = 10.8898 Norwegian crowns) (Reporting by Gwladys Fouche and Terje Solsvik; editing by Essi Lehto and Jan Harvey)