UPDATE 1-India's SAIL Q2 net drops, outlook positive

* Sept qtr profit 16.63 bln rupees vs 20.10 bln yr ago

* Pressure on prices, to cut flat product prices in Nov

* India steel demand seen up 12 pct in 2009/10 (Adds details, quotes, shares, byline)

By C. J. Kuncheria

NEW DELHI, Oct 30 (Reuters) - Steel Authority of India Ltd (SAIL.BO), the largest producer of the metal in the country, posted a smaller-than-expected 17 percent fall in quarterly net profit as high volumes helped offset the impact of lower prices.

The state-run firm was optimistic that government-backed infrastructure spending would spur double-digit demand growth.

"There are encouraging signs from autos, appliances, capital goods sector is also coming up. But for large-scale growth, infrastructure sector is key," SAIL Chairman S.K. Roongta told reporters at a news conference on Friday.

Global steel production has tumbled this year as demand from key industries such as construction and automotive shrank. But as macroeconomic data improves and inventories deplete, demand is gradually coming back.

Earlier this month, the World Steel Association forecast steel demand would fall 8.6 percent this year, a much smaller fall than the 15 percent it predicted in April. [ID:nPEK171738]

"We agree with the forecast made by the World Steel Association as regards to India," Roongta added. The association had forecast Indian demand would rise 12 percent rise in 2009/10.

Earlier this week, rival Tata Steel (TISC.BO) reported a drop in profit for its India business but gave an upbeat forecast for the second half of the 2009/10 fiscal year saying it expected demand to pick up in Asia's No. 3 economy [ID:nBOM516772].

SAIL, with annual output of 12 million tonnes, is the largest producer in India but lags Tata Steel at the global level. In the September quarter, it sold 3 million tonnes domestically, a rise of 12.1 percent.

BEATS FORECAST

The company's net profit for its fiscal second quarter fell 17 percent from a year ago to 16.63 billion rupees. Net sales fell to 100.39 billion rupees from 120.66 billion a year ago.

A Reuters poll of nine brokerages had estimated quarterly profit at 15.35 billion rupees on net sales of 104.92 billion.

"The biggest impact has been on account of price realisations ... there has been a substantial reduction in prices," Roongta said, estimating the impact at 30 billion rupees.

In a statement, the company said higher volumes and cost reductions resulted in savings of about 10 billion rupees. Sales volume rose 14 percent in the quarter, and the 15 percent increase in output of value-added steel boosted profits.

Roongta said there was pressure on product prices, and the company may cut prices for flat products by as much as 500 rupees a tonne in November. He did not specify the extent of change in long product prices.

Shares in the company, valued at $14.7 billion, fell 2.1 percent to 164.50 rupees in a Mumbai market .BSESN that shed 1 percent. The stock gained 13 percent in the September quarter, compared to a 18.2 percent rise for the main index. (Writing by Prashant Mehra; Editing by John Mair)