WRAPUP 3-Top steelmakers post losses, see slow recovery

* ArcelorMittal posts 3rd quarterly net loss

* Sees global steel demand down 10 percent in 2009

* No return to pre-crisis activity levels before 2011

* Nippon Steel sees wider loss in 6 months to Sept

* ArcelorMittal shares down 4.5 pct, Nippon down 3.5 pct

(Adds Acerinox, Tata Steel)

By Phil Blenkinsop and Yuko Inoue

BRUSSELS/TOKYO, July 29 (Reuters) - The world's top two steelmakers posted quarterly losses and warned the industry's return to growth from the economic slump would be gradual, with China leading the recovery ahead of the West.

Global leader ArcelorMittal (ISPA.AS) forecast on Wednesday no return to pre-crisis activity levels before 2011 as both it and second-ranked Nippon Steel Corp (5401.T) saw weak demand and inventory writedowns hit earnings. [ID:nLT648279] [ID:nLT367156]

Japan's Nippon Steel said its loss in the six months to September would be worse than expected, while its bigger rival forecast only a slow pick-up over the rest of 2009 with output in developed countries below two-thirds of capacity through the third quarter.

"We were at a very low level of economic performance...(so) to reach the pre-crisis level it will not be before 2011," ArcelorMittal CEO Lakshmi Mittal told a conference call.

The steel industry, recognised as a broad gauge of an economy's strength, has seen demand for the metal tumble along with activity in the key automotive and construction sectors.

Cash-strapped customers have run down stocks rather than buy new steel, though that process appears to be ending.

CHINA LEADS TURNAROUND

The turnaround is being led by China, where the government is spending around $585 billion on stimulus measures focused on infrastructure.

ArcelorMittal CEO Mittal said he expected demand for steel in China to rise 10 percent this year. Its mills in the country have already ramped back up to near full capacity.

In contrast, demand will dip 15-20 percent elsewhere, and by 20 percent or more in Europe and the United States, he said.

Prospects for production growth in China received a boost with news of progress in fraught negotiations over the pricing of iron ore, the raw material from which steel is made.

Leading miner BHP Billiton (BHP.AX) said it had agreed with more customers, including some in China, to match a benchmark 33 cut in ore prices. Many steelmakers in China have been holding out for bigger cuts. [ID:nSYD391613] [ID:nPEK281472]

ArcelorMittal is continuing to buy its ore at the benchmark contract price rather than on the spot market, Mittal said.

BOTTOM OF THE CYCLE?

ArcelorMittal's earnings before interest, tax, depreciation and amortisation (EBITDA) slid 85 percent in the second quarter to $1.22 billion, beating analyst forecasts, as it made a net loss of $792 million, its third straight quarterly loss.

"We are expecting the first half will be the bottom of the cycle," Chief Financial Officer Aditya Mittal said.

Rabo Securities analyst Frank Claassen called the firm's outlook "meagre", adding: "There's recovery, but it's not as fast and as great as expected."

Nippon Steel's loss for April-June was $600 million. It widened its forecast for its April-September loss by 10 billion yen and warned uncertainties in the market placed its full-year forecast of breakeven under threat.

Japanese peer JFE Holdings Inc (5411.T), with 40 percent of sales in a more buoyant export market, also swung to a quarterly loss, it said on Tuesday, but forecast it would post a profit this year as its core steel business recovered. [ID:nT284039]

India's Tata Steel (TISC.BO) missed forecasts with a 47 percent slide in quarterly net profit at its Indian operations. Tata, which also runs Corus in Europe, said on Wednesday it expected higher output from global operations in the second half. [ID:nBOM488574]

STAINLESS OPTIONS

ArcelorMittal said it was considering options for its operations in stainless steel -- a sector dogged by overcapacity and viewed by analysts as ripe for consolidation. Acquisitions or a joint venture were possible, Aditya Mittal.

Spain's Acerinox (ACX.MC), a leading stainless steel manufacturer, missed forecasts with a first-half loss of 255 million euros, but said it expected positive results in the third quarter. [ID:nLU967325]

At 1335 GMT, ArcelorMittal shares were down 4.5 percent at 24.21 euros and Acerinox off 2.0 percent at 13.73 euros, against a 1 percent lower DJ Stoxx European basic resources index .SXPP. Nippon Steel closed down 3.45 percent. Tata Steel ended 5.8 percent weaker.

(Additional reporting by Ben Harding; writing by John Stonestreet; Editing by Malcolm Davidson) ($1=.7004 Euro)