UPDATE 1-Eramet expects H2 loss despite demand from China

* Sees H2 loss on top of 223 million euro H1 operating loss

* Sees pickup in China but cautious on recovery elsewhere * Depreciates high-speed steel assets, eyes nickel cost cuts

* Expects French state fund to take on Areva stake in group (Adds comments on activity, Areva stake)

By Gus Trompiz

PARIS, July 30 (Reuters) - French nickel and manganese group Eramet (ERMT.PA) said on Thursday it expected an operating loss for the second half of 2009 despite improved demand in China, after reporting a heavy loss for the first half of the year.

"Outside China, there is a lot of uncertainty about any recovery," Chief Executive Patrick Buffet said at a presentation of the company's interim results.

The group, hit by a slump in metal prices and destocking by industrial customers amid the global downturn, reiterated plans to cut costs by 140 million euros ($197.3 million) this year, and also said it would pursue savings in its nickel mining operations to bring costs into line with competitors by 2012.

Buffet said cost and output cuts had helped maintain a strong financial position, with net cash of 926 million euros at the end of June, versus 1.11 billion at the end of 2008.

The world's sixth-largest nickel producer made an operating loss of 223 million euros in the first half, after it had warned of a "very significant" loss, and compared to the year-earlier operating profit of 769 million euros.

First-half sales fell 44 percent to 1.292 billion euros, although the decline eased in the second quarter due to some improvement in nickel prices and manganese volumes, it said.

In view of better sales and signs of improving global steel output, Eramet said it would raise manganese ore output at its mines in Gabon to 55 percent of capacity in the third quarter, compared with 35 percent in the first half.

Eramet shares were up 2.1 percent at 195 euros in early afternoon trade. The stock has risen around 40 percent so far this year, having fallen 61 percent last year.

ALLOYS ASSETS DEPRECIATED

Third-quarter nickel output is expected to stay at the low level of the second quarter, Eramet said, keeping it on track to produce 50,000 tonnes of nickel this year, down from 51,000 in 2008 and 58,000 in 2007.

Buffet said global nickel stocks remained high and represented about 16 weeks of consumption in the first half, compared with what he called "normal" levels of eight weeks.

Within nickel, demand for nickel matte used in high-tech applications was holding up much better than ferronickel dependent on stainless steel, which should bring matte's share of Eramet's nickel output to 28 percent this year, up from 20 percent usually, said division head Bertrand Madelin.

"Sandouville is perhaps the only one of the group's plants operating at full tilt," he said, referring to Eramet's nickel matte refinery in France.

The alloys division saw a continued deterioration in demand in the first half and Eramet said it had depreciated high-speed steel and cutting-tool assets by 48 million euros.

By the end of the year, the division will have cut 700 people from its workforce of some 5,000, including 150 jobs at its high-purity chrome production line in the United States that has been suspended since January, the company said.

Concerning the plans of its second-largest shareholder, state-owned nuclear power group Areva CEPFi.PA, to sell its 26 percent stake in Eramet, Buffet said he expected France's strategic investment fund to take on the holding, although he said he had not been approached by the fund.

He welcomed the fact the French government had stated the Areva's stake would remain in public ownership because of the "strategic nature" of the Eramet group. ($1=.7095 Euro)