UPDATE 2-ArcelorMittal Q1 disappoints, sees Q2 pick-up

* Q1 EBITDA $883 mln vs consensus forecast $1.0 bln

* Sees Q2 EBITDA of $1.2-1.5 bln

* Potential for price increases in Q2, Q3

* Net debt creeps up

* Shares down 4 pct, underperforming sector index

(Adds details, background, analyst comment)

By Philip Blenkinsop

BRUSSELS, April 29 (Reuters) - ArcelorMittal (ISPA.AS), the world's largest steelmaker, slumped more than expected in the first quarter as demand collapsed, and the prospect of a second quarter uptick was not enough to halt a slide in its shares.

The much-watched EBITDA (earnings before interest, tax, depreciation and amortisation) dropped 82 percent to $883 million in the January-March period, compared with the average $1.0 billion in a Reuters poll of 11 analysts.

The company's shares yo-yoed in early trading but by 0715 GMT were down 4.1 percent at 17.90 euros, extending a 6 percent drop on Tuesday, against a 1.5 percent gain in the DJ Stoxx European basic resources index .SXPP.

ArcelorMittal had forecast a figure of about $1 billion, with a 15 percent variation, due to final quarter price cuts of up to 40 percent and nearly halved output as key auto and construction markets fell into crisis.

It forecast production would remain at around 50 percent of capacity in the second quarter.

The World Steel Association forecast on Monday that steel demand would tumble 15 percent in 2009, its steepest fall since World War Two, and one exacerbated by consumer destocking. [ID:nLR431360]

U.S. auto sales slid 37 percent in March [ID:nL267671] and home sales a month-on-month 0.6 percent.

ArcelorMittal's slump mirrors that of rivals. China's top steelmaker Baosteel 60019.SS reported a 98 percent drop in first-quarter net profit on Tuesday. [ID:nSHA72648]

Economists believe the first quarter may have been as bad, or even worse, than the wretched fourth quarter of 2008.

Q2 PICK-UP, DEBT CREEPS HIGHER

ArcelorMittal forecast core profit in the second quarter would recover to some $1.2 billion to $1.5 billion. It had previously seen the first quarter as the low point in terms of profitability.

It made a net loss in the first quarter of $1.1 billion due in part to $1.2 billion of pretax exceptional charges, mainly for writing down inventories. In the fourth quarter, it booked exceptionals of $4.4 billion.

It also said it saw potential for price increases during the second and third quarters across major markets and products, although in a presentation it said that it expected a lower average steel price.

"Although market conditions remain challenging, a technical recovery is inevitable and ArcelorMittal will benefit from this," Chairman and Chief Executive Lakshmi Mittal said.

The market had been braced for a weak first quarter, but some analysts commented that the EBITDA figure was really far worse than forecast given it included a $503 million gain from unwinding a currency hedge.

The second-quarter guidance, at least of an improvement, was generally deemed positive.

"It's a fair jump upwards... Another positive is the decline in the size of writedowns for inventory," said Dirk Nettling, analyst at Commerzbank.

The steelmaker repeated a series of downturn-inspired goals, including bringing net debt down by $10 billion by the end of the year and securing temporary fixed-cost reductions of $7.5 billion in the second quarter, after $6 billion in the first.

Net debt crept up to $26.7 billion from $26.5 billion at the end of 2008. However, ArcelorMittal did extend $6.3 billion of debt to a maturity of 2012.

The company, formed from Mittal Steel's takeover of then world number two Arcelor, went on a spending spree during the commodities boom, ratcheting up debt. (Editing by Simon Jessop)