UPDATE 2-Finland's Outokumpu sees no improvement in stainless demand

Wed Jul 24, 2013 5:52am EDT

* Sees Q3 underlying operating loss bigger than in Q2

* Q2 underlying op. loss 80 mln euros vs f'cast 79 mln loss

* Company to seek more cost savings

* Shares fall around 8 pct, hit three-month low (Adds analyst comments, debt level, Acerinox, updates share reaction)

By Terhi Kinnunen

HELSINKI, July 24 (Reuters) - Finland's Outokumpu sees no improvement in stainless steel demand and warned its underlying loss would widen in the current quarter, dashing market expectations for an improvement.

Outokumpu shares slumped to a three-month low of 0.48 euros and were down 8.3 percent lower at 0.49 by 0946 GMT.

"It is drowning in a continuously weakening market," said analyst Markus Liimatainen at brokerage FIM.

Europe's economic slowdown has hit Outokumpu and other steelmakers in the region, while lower nickel prices have encouraged customers to hold off purchases in hopes of cheaper steel prices ahead.

Analysts had expected cost cuts to help the company look forward to an improvement in the second half of the year, but it said its underlying operating loss would likely widen in the third quarter compared with the prior three months.

Chief Executive Mika Seitovirta said the company would seek further economy measures to offset tough conditions.

"During the second half, we will continue to focus on achieving additional savings across all of our operations to mitigate the weak stainless steel market outlook," Seitovirta said in a statement.

Outokumpu's second-quarter underlying operating loss grew to 80 million euros ($105.8 million) from 72 million a year earlier, against average expectations of a loss of 79 million in a Reuters poll.

The results came a day after its Spanish rival Acerinox posted a 60 percent slide in first-half net profit and gave a similarly cautious view on the impact of falling nickel prices.

Nordea analyst Johannes Grasberger said the best chance of a turnaround in the second-half may come from North America, where stainless steel demand is stronger than in Europe. Outokumpu's Calvert smelter in the United States ran into ramp-up problems in the second quarter.

The weak market has raised fears that Outokumpu may have overpaid when it purchased ThyssenKrupp's stainless steel unit Inoxum, particularly since it agreed to sell Inoxum's Terni mill in Italy to appease regulators.

Outokumpu said it was in talks with a number of interested parties on the sale of the mill and aimed to sign a deal in the second half of the year.

Uncertainty over the deal has promped investors to take a wary look at Outokumpu's finances. At the end of the second-quarter, its debt-to-equity ratio was almost 121 percent compared with 103 percent at the end of March.

Liimatainen said the higher ratio raised the prospect that Outokumpu may have to ask for money from its shareholders in coming years.

($1 = 0.7565 euros) (Editing by Ritsuko Ando and David Holmes)

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