* Cuts 2012/13 annual recurring profit forecast to Y45 bln
* Posts Q2 loss of Y5.8bln vs profit of Y25.2 bln yr ago
* JFE shares down over 20 percent since start of year (Updates with decision to forgo dividend, lower H2 steel output projection and statement on economic climate)
By Yuko Inoue
TOKYO, Oct 24 (Reuters) - JFE Holdings Inc, Japan's No.2 steelmaker, halved its full-year profit forecast on Wednesday due to worries about a delay in the recovery of Asia's steel market and slower demand from carmakers.
A cooling of China's economy and oversupply of steel across Asia has hit many of the region's steelmakers.
Japan's steel producers are also likely to suffer from a decline in demand from carmakers after the government ended incentives in September for environmentally friendly cars.
Compounding the sector's troubles, political tensions between Japan and China - which erupted last month after a row over disputed islands led to violent anti-Japanese protests across China - have hurt sales of Japanese cars in China.
"We don't see an optimistic scenario of a swift market recovery," Shinichi Okada, executive vice president at JFE Holdings, said at a briefing, where the company said second-half crude steel output would likely fall to 13.7 million tonnes, down 4 percent from the first half.
"In the steel business, the outlook remains unclear due to slow growth in Asian economies," the company said in a statement. "In Japan, the domestic economy cannot expect to be driven by foreign demand and there is still some concern regarding the declining competitiveness of domestic manufacturers in light of the persistently strong yen."
JFE, the world's ninth-biggest crude steel producer by volume, swung to a recurring loss of 5.8 billion yen, which is pretax and before one-off items, in the July-September quarter from a profit of 25.2 billion yen a year ago.
It expects 45 billion yen ($564.05 million) in recurring profit for the year to March 2013, sharply below the 90 billion yen it forecast three months ago.
The new figure is below a consensus estimate of 59.99 billion yen in a poll of 17 analysts in Thomson Reuters I/B/E/S, and compares with year-ago profit of 52.98 billion yen.
JFE decided to forgo an interim dividend due to current income and profit levels.
Buffeted by weak overseas markets and a write-down of inventories resulting from declines in raw materials markets, the company said it planned extensive cost cuts.
Shares in JFE have lost more than 20 percent this year, underperforming the Nikkei average's more than 5 percent g a in. As of 0550 GMT on Wednesday, JFE shares were up 0.28 percent in a broader market that was down 0.65 percent.
On Tuesday, world No.4 steelmaker POSCO posted a 25 percent drop in quarterly profit, cut its annual sales and investment outlooks and said the global steel market was unlikely to recover sharply next year.
ArcelorMittal, the world's largest steelmaker, will report on Oct. 31, while top Japan rival Nippon Steel and Sumitomo Metal Corp, which merged this month, will report results on Nov. 9. ($1 = 79.7800 Japanese yen) (Reporting by Yuko Inoue; Editing by Daniel Magnowski and Ken Wills)