UPDATE 4-Nippon Steel forecasts deeper H1 loss, shares fall

* Q1 loss 56.67 bln yen vs 144.09 bln yen profit year ago

* Widens H1 loss forecast by 10 pct, to pay no dividend

* Says full-year forecast may change given uncertain outlook

* Shares close down 3.5 pct vs Nikkei's 0.3 pct gain (Changes lead, adds analyst comment)

By Yuko Inoue

TOKYO, July 29 (Reuters) - Nippon Steel's (5401.T) bigger loss forecast for the first half signalled a turnaround was still further away, lagging behind smaller rival JFE Holdings Inc (5411.T), which is expecting to turn an annual profit.

Nippon Steel's relatively smaller reliance on the rapidly recovering Asia's export market but a larger exposure to the domestic construction business -- where there is no pick up in demand yet -- are the biggest disadvantages compared with JFE.

"These are two very different sets of forecasts for the rest of the year," said Jeremie Capron, analyst at CLSA Asia Pacific Markets.

"JFE has better business mix in the current environment. It will continue to benefit from strong price in Asia and recovery in volume, while Nippon is more difficult to expect prices to improve going forward."

Nippon Steel, the world's No. 2 steel maker, booked a second-consecutive quarterly loss on Wednesday amid weak demand and inventory write-offs and widened its first-half loss forecast, pushing its shares down as much as 4 percent.

JFE, which ranks fifth globally, forecast on Tuesday that it would post a profit this year as its core steel business recovers, triggering a sharp rally in its stock. [ID:nT284039]

Nippon Steel also warned that it might need to revise its full-year forecast for zero profit given weak demand at home and uncertainties in Asia's export market, citing new production capacities coming in South Korea and China early next year.

"Ahead of the announcement, shares of Nippon Steel had risen following JFE's better-than-expected results, and investors were inevitably disappointed with the first-half downward revision," said Mitsuo Shimizu, deputy general manager of the equity department at Cosmo Securities.

Meanwhile, ArcelorMittal (ISPA.AS), the world's largest steelmaker, forecast only a gradual second-half pick-up after weak demand and prices, inventory writedowns and job cut costs produced a third successive quarterly loss. [ID:nLT648279] Steelmakers globally have taken a beating so far this year as the global economic downturn triggered a slump in demand.

Japanese blast furnace makers appear to have put the worst behind them as orders and production are rising, helped by a recovery in demand for exports and cars, where the order contraction had been most severe.

JFE is aggressively shifting its focus to the export market to tap recent spikes in export prices and the potential for stronger demand in China. It plans to generate nearly half of its revenues from export markets in Asia in the July-September quarter, compared to 40 percent at Nippon Steel.

Still, companies and some market watchers worry inventories may start ballooning again in the second half as steel mills and manufacturers are stepping up output while real demand growth is uncertain.

CAUTIOUS OUTLOOK

Nippon Steel plans to restart its biggest blast furnace in southern Japan next month, though it has taken a cautious tone on demand in the second-half. [ID:nT59738]

"We saw domestic steel demand plunge 30 percent in the first quarter, year-to-year, with both manufacturing and construction sectors staying in the doldrums," Shinichi Taniguchi, executive vice president of Nippon Steel, said at a news conference.

He said the company's full-year forecast figures could prove temporary given the unclear environment in the second half.

Nippon Steel aims for crude steel output of about 7 million tonnes in October-December, slightly above the 6.6 million tonnes output it plans in July-September.

The company, which also competes with China's Baosteel (600019.SS) and South Korea's POSCO (005490.KS), said its recurring loss, which is before pretax and special items, for April-June came to 56.67 billion yen ($600 million) compared to a profit of 144.09 billion yen a year earlier.

It widened its loss forecast for the April-September first half by 10 billion yen to 110 billion yen, but kept its full-year outlook at nil, against a consensus estimate of a 3.4 billion yen loss from 17 analysts polled by Thomson Reuters.

Shares of Nippon Steel finished down 3.5 percent at 364 yen. The benchmark Nikkei average .N225 was up 0.3 percent.

JFE, forecast on Tuesday a 40 billion yen profit for the year to March 2010. Its stock closed up 4.2 percent, adding to Tuesday's 7 percent surge.

JFE aims for crude steel output of 13 million tonnes in the second-half, against 11.6 million tonnes planned for the first half.

Both Nippon Steel and JFE will skip interim dividends. ($1=94.38 Yen) (Additional reporting by Taiga Uranaka; Editing by Jean Yoon)